HOUSE FINANCE COMMITTEE JANUARY 28, 1997 1:35 P.M. TAPE HFC 97 - 14, Side 1, #000 - end. TAPE HFC 97 - 14, Side 2, #000 - #352. CALL TO ORDER Co-Chair Gene Therriault called the House Finance Committee meeting to order at 1:35 P.M. PRESENT Co-Chair Hanley Representative Kelly Co-Chair Therriault Representative Kohring Representative J. Davies Representative Martin Representative G. Davis Representative Moses Representative Foster Representative Mulder Representative Grussendorf ALSO PRESENT Nicole Poirrier, Representative Pete Kott; George Dozier, Chief of Staff, Representative Pete Kott; Nanci A. Jones, Director, Permanent Fund Dividend Division, Department of Revenue; Sue Badilla, Self, Juneau; Tim Sullivan, Staff, Representative Eldon Mulder; James Chase, (Testified via teleconference), Director, Governmental Affairs, Department of Military and Veterans Affairs, Anchorage; Frank Dillon, (Testified via teleconference), Anchorage; Jay Dulany, (Testified via teleconference), Director, Division of Motor Vehicles, Department of Public Safety, Anchorage; Tim Rogers, (Testified via teleconference), Legislative Program Coordinator, Municipality of Anchorage, Anchorage; Ellen Braden, (Testified via teleconference), Treasurer, Municipality of Anchorage, Anchorage. SUMMARY HB 2 An Act allowing, for the purposes of permanent fund dividend eligibility, an individual to accompany, as the spouse or minor or disabled dependent, another eligible resident who is absent for any of the following reasons: vocational, professional, or other specific education for which a comparable program is not reasonably available in the state; secondary or postsecondary education; military service; medical treatment; service in the Congress or in the peace corps; to care for the individual's terminally ill parent, 1 spouse, sibling, child, or stepchild; for up to 220 days to settle the estate of the individual's deceased parent, spouse, sibling, child, or stepchild; to care for a parent, spouse, sibling, child, or stepchild with a critical life-threatening illness whose treatment plan, as recommended by the attending physician, requires travel outside of the state for treatment at a medical specialty complex; or other reasons that the commissioner of revenue may establish by regulation; requiring, for the purposes of permanent fund dividend eligibility, a state resident to have the intent to remain indefinitely; relating to the eligibility for 1992, 1993, 1994, 1995, 1996, and 1997 permanent fund dividends of certain spouses and dependents of eligible applicants; and providing for an effective date. HB 2 was HELD in Committee for further consideration. HB 43 An Act relating to registration of rental motor vehicles, to municipal taxation of rental motor vehicles, and to emission control inspection fees for rental motor vehicles; and providing for an effective date. CS HB 43 (FIN) was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Public Safety. HOUSE BILL 2 "An Act allowing, for the purposes of permanent fund dividend eligibility, an individual to accompany, as the spouse or minor or disabled dependent, another eligible resident who is absent for any of the following reasons: vocational, professional, or other specific education for which a comparable program is not reasonably available in the state; secondary or postsecondary education; military service; medical treatment; service in the Congress or in the peace corps; to care for the individual's terminally ill parent, spouse, sibling, child, or stepchild; for up to 220 days to settle the estate of the individual's deceased parent, spouse, sibling, child, or stepchild; to care for a parent, spouse, sibling, child, or stepchild with a critical life-threatening illness whose treatment plan, as recommended by the attending physician, requires travel outside of the state for treatment at a medical specialty complex; or other 2 reasons that the commissioner of revenue may establish by regulation; requiring, for the purposes of permanent fund dividend eligibility, a state resident to have the intent to remain indefinitely; relating to the eligibility for 1992, 1993, 1994, 1995, 1996, and 1997 permanent fund dividends of certain spouses and dependents of eligible applicants; and providing for an effective date." NICOLE POIRRIER, STAFF, REPRESENTATIVE PETE KOTT, provided an overview of HB 2 which would resolve the damage incurred by a specific court ruling. The effect of that ruling excluded spouses from receiving permanent fund dividends in the event that an individual left the State under an "allowable absence" and their spouse accompanied them. Historically, the spouse was allowed to "piggy-back" on the individual leaving the State under an allowable absence. A court ruling changed that status, stating that marriage can not be the reason used to determine a person's residence eligibility. The effect of the ruling disrupted the allowable absences traditionally accepted including a spouse accompanying an individual for purposes of military service, medical treatment and educational pursuits. Students who leave Alaska on an allowable absence remain eligible for the dividend while their spouses who accompany them are ineligible. She suggested that the ruling through monetary incentives, has encouraged families to break apart for lengthy periods of time. That situation would be remedied through passage of HB 2. Ms. Poirrier added that Representative Kott was not in agreement with the costs associated in the accompanying fiscal note. A fiscal analysis indicates that 14,000 applicants would be affected, whereas, Representative Kott believes that number would be closer to 9,000 applicants. NANCI A. JONES, DIRECTOR, PERMANENT FUND DIVIDEND DIVISION, DEPARTMENT OF REVENUE, elaborated that the legislation would add an additional allowable absence for applicants who accompany another eligible resident out of State as the spouse, minor dependent, or disable dependent of the eligible resident. In addition to adding the allowable absence for spouses, the legislation would retroactively reopen the filing period from 1997 back to 1992 for applicants who were previously denied while accompanying their spouse. She continued, the bill would also make clerical language changes by replacing the word "permanently" with 3 "indefinitely" in reference to remaining within the State. In addition, it would separate the list of allowable absences from the definition of a State resident. The applications would fall into three basic categories: 1. Applicants eligible in all other respects; 2. Applicants who must supply additional information before their eligibility can be determined; 3. Applicants who have other items that need verification and review in order to determine eligibility. Ms. Jones suggested that the addition in Section #4, which incorporates the retroactivity clause and the provision to reopen a filing period, would not be good public policy. Initiating that action, the public would receive the impression that each time an allowable absence was added, it would carry a retroactive provision. She emphasized that throughout the program's history, allowable absences have never included a retroactive provision. Ms. Jones continued that the Department of Revenue supports HB 2 in that the legislation would separate the allowable absence section from the definition of State residents. She requested that the Committee provide an amendment which would delete Section #4, retroactively reopening the filing period. That action would add an allowable absence for prospective spouses forward from 1997. In response to Co-Chair Therriault query, Ms. Jones explained that a qualifying year for the dividend was the year before the dividend application. Representative Grussendorf voiced concern with the wording "as of" in the retroactive clause. Co-Chair Therriault replied that on Page 4, Line 29, the bill's language stipulates that in order to apply for the prior year dividends, one must be: (2) Eligible for the 1998 dividend. Ms. Jones stated that each time this legislation comes forward, and is defeated, the files of those persons in abeyance, become inactive. Currently, the 1992 files are inactive. The Department of Revenue estimates that between the years of 1992 and 1996, there were approximately 5,860 eligible people, which would cost the State a total of $5.936 million dollars. These amounts have not been accrued as a prior year's obligation. 4 Representative Martin noted that within the original ruling, it was not the Legislature's intent to split the family. He thought that it was the responsibility of the Department of Revenue to encourage those families to continue the appeal process. Ms. Jones emphasized that the ruling applied not only to service-people and elected officials but also to private industry. These people are not allowed in the allowable absences, nor are those in the teacher exchange program or Peace Corps. She believed that the entire issue regarding "allowable absences" was inequitable to all Alaskans especially when recognizing only a specific class. Last year, the Legislature was encouraged to investigate the sum of inequities of the program, ending with the addition of a sunset provision. She stated that to provide everyone an opportunity to appeal would not be a prudent way for the government to operate. Ms. Jones recommended that changes be made prospectively. In response to Co-Chair Hanley's question, Ms. Jones explained the language change to Section #3, deleting "permanently" and inserting "indefinitely". In the original legislation, the Department requested that the statute be changed to match the existing statute referenced. Confusion would result in administratively trying to clarify that concern. Representative Mulder addressed the point of a diminished dividend. He countered that although the fund would be diminished this year, dividends in the past had been larger as a result from those persons previously cut out of the pool. He believed that the concern was an issue of "equity". Representative Gary Davis asked if the Department, knowing that these funds would eventually be required to be paid, had been pooling them. Ms. Jones responded that the retroactive costs had been kept on a year to year basis and would cover costs associated with those persons in review and on appeal. A person has sixty days to appeal. She noted that the Division has never accrued any monies from the fund in anticipation of the costs of the legislation passing. Co-Chair Therriault advised that the Division does not have a mechanism to pull funds out in anticipation of repayment. If HB 2 were to pass, the amount held from each resident would be approximately $10 per check. Representative John Davies agreed that it would be equitable to cut the current year dividend check amount, reiterating that in prior years, eligible participants received an 5 increased amount as a result from those who had not received a check. He explained that over the years, the Division had encouraged people to apply in anticipation that this would be remedied. Representative Davies noted his intent to propose an amendment addressing the language change to Section #3. In response to Representative Grussendorf, Ms. Jones acknowledged that in order to qualify for the refund, those eligible would need to file and be eligible for the 1998 dividend. The Department would then pay a check for each individual year, not a lump sum payment. In order to qualify for an allowable absence, the person must have lived in Alaska for six months prior to leaving. All those persons who accompanyied their spouse's have been encouraged to file with the Division. SUZANNE BADILLA, SELF, JUNEAU, testified in support of HB 2. She and her husband lived out of state for two years while her husband was in school; consequently, because she was not in school, she was disqualified from receiving the dividend. She suggested that the current statute penalizes the family that makes the choice not to be separated. This can place an unnecessary financial burden on those families who are dependant on the dividend to make ends meet. Co-Chair Therriault asked Ms. Badilla if the Department had encouraged her to apply each year. Ms. Badilla noted that the Department had indicated the reason for denial and explained they understood the ruling would be changed and that there existed reason to continue to file. JAMES CHASE, (TESTIFIED VIA TELECONFERENCE), DIRECTOR, GOVERNMENTAL AFFAIRS, DEPARTMENT OF MILITARY AND VETERANS AFFAIRS, ANCHORAGE, spoke in support of HB 2, noting his particular reference to military families. He emphasized that the balance between family and military relationships must be supported and encouraged. In response to Co-Chair Hanley's comment, Ms. Poirrier explained that it was not the sponsors intent to have the State pay back interest on the unreceived dividends. Co- Chair Hanley recommended that issue should be addressed to prevent future lawsuits. He voiced concern that the Department currently recommends only those persons eligible for dividends in 1998 be allowed to receive the back checks; whereas, there are those who were eligible in the past, who left the State, who legally should also be considered. Co-Chair Therriault noted that he had prepared an amendment which would allow those persons to receive their past dividends for only the years in which they had applied. Co- Chair Hanley pointed out Section #4 which states that: 6 "An individual is eligible for a prior year dividend under this subsection regardless of whether the individual previously applied for the prior year dividend but only if the individual (1) would have been otherwise eligible for the prior year dividend." He thought this reference could open up the application process to anyone who lived in the State during that specified time period. Representative Martin agreed that was a legitimate concern, and recommended that additional language be added to clarify that information. Representative Mulder suggested adding a "time line" in which a person could make application for past dividends. Co-Chair Therriault advised that Section #4, Line 30, specifies a one year window for application. (Tape Change, HFC 97-14, Side 2). Ms. Jones explained that those eligible would need to apply in 1998; the Department of Revenue does not intend to provide a mailing notification. If those persons had not been filing, a current address would not be available. Representative Martin suggested that the Department make a "one time, honest effort" to send a letter to all those people who had applied over the years in question. HB 2 was HELD in Committee and rescheduled on January 30th for further discussion. HOUSE BILL 43 "An Act relating to registration of rental motor vehicles, to municipal taxation of rental motor vehicles, and to emission control inspection fees for rental motor vehicles; and providing for an effective date." TIM SULLIVAN, STAFF, REPRESENTATIVE ELDON MULDER, explained that HB 43 was a clean-up bill to solve an inadvertent problem which resulted from legislation passed last year. Last year, SB 226 changed vehicle registration from one to two years. Amendments to SB 226 exempted rental vehicles, since they were usually in the State for less than one year. In doing so, the collection of municipal vehicle tax for rental vehicles on an annual basis was not allowed. HB 43 would allow for the collection of municipal fees on annual registrations of rental vehicles. It would permit the collection of municipal fees for any vehicle registered between January 1, 1997, and the effective date of the 7 legislation. Mr. Sullivan spoke to the committee substitute (CS) which would provide for the annual exemption extended to commercial vehicles. That request was submitted by members of the trucking industry. Currently, commercial fleets shoulder incredible burdens in registration. The committee substitute also removed retroactivity back to January 1, 1997. Co-Chair Therriault added that a new Section #4 had been added which included a fee schedule as referenced in the bill. Representative Mulder MOVED that CS HB 43 (FIN) be the version of the bill before the Committee. There being NO OBJECTION, it was adopted. Representative Mulder spoke to Amendment 1. [Copy on file]. The amendment would provide the municipality the option to decide if they wanted to collect past due taxes for air quality. FRANK DILLON, (TESTIFIED VIA TELECONFERENCE), ANCHORAGE, spoke in support of CS HB 43 (FIN). He stated that it would provide the needed flexibility to the commercial vehicle operators. JAY DULANY, (TESTIFIED VIA TELECONFERENCE), DIRECTOR, DIVISION OF MOTOR VEHICLES, DEPARTMENT OF PUBLIC SAFETY, ANCHORAGE, noted that the Division had no objections to the changes proposed in the legislation. TIM ROGERS, (TESTIFIED VIA TELECONFERENCE), LEGISLATIVE PROGRAM COORDINATOR, MUNICIPALITY OF ANCHORAGE, stressed that the municipality supports this legislation and urged the Committee's approval. He added, without this legislation, the Municipality of Anchorage could loose $150 million dollars annual revenue. Co-Chair Therriault asked if the Municipality of Anchorage intended to retroactively collect taxes. ELLEN BRADEN, (TESTIFIED VIA TELECONFERENCE), TREASURER, MUNICIPALITY OF ANCHORAGE, advised that action would depend on the cooperation with records kept by the Division of Motor Vehicles (DMV). Co-Chair Therriault clarified that in the original bill, HB 43, Section #3, made the act retroactive to January 1, 1997, which would leave DMV the agency responsible for collecting the taxes. That action could cause a problem for the 8 Department. Amendment #1 would provide each municipality the authority to initiate that action if they wished. Co- Chair Hanley inquired how many municipalities had lost tax revenues. Mr. Sullivan commented that only Anchorage experienced the loss. Mr. Dulany elaborated that there are thirteen (13) taxable locations within the State. Co-Chair Therriault pointed out that most rental fleets "turn" the cars over on an annual basis. A "loop hole" could encourage those agencies to bring the fleets in early. Representative Mulder MOVED to adopt Amendment #1. There being NO OBJECTION, Amendment #1 was adopted. Representative Martin MOVED to report CS HB 43 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CS HB 43 (FIN) was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Public Safety. ADJOURNMENT The meeting adjourned at 2:40 P.M. 9