HOUSE HEALTH, EDUCATION AND SOCIAL SERVICES STANDING COMMITTEE March 25, 1994 3:00 p.m. MEMBERS PRESENT Rep. Cynthia Toohey, Co-Chair Rep. Con Bunde, Co-Chair Rep. Gary Davis, Vice Chair Rep. Al Vezey Rep. Pete Kott Rep. Harley Olberg Rep. Bettye Davis Rep. Irene Nicholia Rep. Tom Brice MEMBERS ABSENT None COMMITTEE CALENDAR HB 362: "An Act establishing the crime of aiding the nonpayment of child support." PASSED OUT OF COMMITTEE WITNESS REGISTER NANCY MANLEY Legislative Aide Rep. Terry Martin Alaska State Legislature State Capitol Juneau, Alaska 99801 Phone: (907) 465-3783 Position Statement: Testified in support of HB 362 MARY GAY, Director Child Support Enforcement Division Department of Revenue 550 W. 7th, Ste. 312 Anchorage, Alaska 99501-3556 Phone: (907) 269-6800 Position Statement: Testified in support of HB 362 (spoke via offnet) PHILLIP PETRIE Acting Operations Manager Child Support Enforcement Division Department of Revenue 550 W. 7th Ave., Ste. 312 Anchorage, Alaska 99501-3566 Phone: (907) 269-6800 Position Statement: Testified in support of HB 362 (spoke via offnet) PREVIOUS ACTION BILL: HB 362 SHORT TITLE: AIDING NONPAYMENT OF CHILD SUPPORT SPONSOR(S): REPRESENTATIVE(S) MARTIN,B.Davis JRN-DATE JRN-PG ACTION 01/11/94 2033 (H) READ THE FIRST TIME/REFERRAL(S) 01/11/94 2033 (H) HES, JUDICIARY 01/13/94 2056 (H) COSPONSOR(S): B. DAVIS 02/22/94 (H) HES AT 03:00 PM CAPITOL 106 02/22/94 (H) MINUTE(HES) 03/25/94 (H) HES AT 03:00 PM CAPITOL 106 ACTION NARRATIVE TAPE 94-61, SIDE A Number 000 CHAIR BUNDE called the meeting to order at 3:07 p.m., noted members present and announced the calendar. He brought HB 362 to the table. HB 362 - AIDING NONPAYMENT OF CHILD SUPPORT CHAIR BUNDE explained that the bill had been heard previously and had been referred to a subcommittee which at the present time had not come forth with recommendations. (Chair Bunde indicated that Rep. B. Davis arrived at 3:07 p.m.) REP. TOOHEY asked if NANCY MANLEY would come forward to answer questions. Number 010 NANCY MANLEY, Legislative Aide to Rep. Terry Martin, Prime Sponsor of HB 362, stated that the legislation was designed to make it illegal to aid in the nonpayment of child support. She indicated that the Child Support Enforcement Division would target those people who intentionally are aiding obligors who are avoiding child support payments. She also indicated there is a committee substitute (CS) that she would defer to MARY GAY to explain. Number 110 (Chair Bunde indicated that Reps. Olberg and Nicholia arrived at 3:11 p.m.) CHAIR BUNDE asked Ms. Gay to address the CS. Number 111 MARY GAY, Director, Child Support Enforcement Division, Department of Revenue, testified via offnet in support of HB 362. She stated that currently the statute of limitations on child support arrears is ten years. She said there is $7.1 million in unpaid child support that "is currently 69 years old." She indicated that as arrears reach the ten year limit the division must have the Department of Law reset the arrears judgement, which is quite expensive. She said if the statute of limitations could be extended just for child support, "we would save the state money in AG time." She also indicated that a considerable portion of that money is owed to the state of Alaska because AFDC was provided to the families who did not receive child support. Number 199 CHAIR BUNDE clarified and said the division would be attempting to collect arrearage up until the child is 21 years of age, but not asking for child support up until the age of 21. MS. GAY answered yes. Number 217 CHAIR BUNDE observed that Representatives G. Davis and Vezey had concerns regarding the original bill and indicated that the CS was before the committee. REP. TOOHEY made a motion to adopt the CS for HB 362. She further indicated that the work draft was version J (8-LS1459\J). CHAIR BUNDE asked if there were any objections. Hearing none, he stated that the CS for HB 362 was so moved. REP. TOOHEY asked Ms. Gay if there would be a "plus fiscal note" for the bill. MS. GAY said yes. Number 254 REP. G. DAVIS related that his initial concern with the bill was that the law requires employers to assist the Child Support Enforcement Division in collecting back child support. He asserted that the division has numerous powers that affect the opportunity to collect the payments. He questioned how many cases the division is following or how much money they are spending trying to prove that people are intentionally being deceptive in regards to their employees and their support payments. He felt there is not much value in the legislation. Rep. Davis indicated that the division has subpoena powers now and doubted that the proposal would help to increase their receivables. He further indicated that he did not have a problem with the CS regarding the collections of arrearage up to the age of 21. He felt more testimony should be heard. Number 338 MS. GAY asserted that the aiding portion of the proposal is not directed at employers. She said the division is concerned with cases where the obligor transfers their assets over to relatives, friends, or new spouses. She explained a case where a girlfriend of an obligor owned a couple of businesses and the obligor worked in the businesses, but the businesses maintained that the obligor was not involved. She said the girlfriend takes the assets and the profits of the company while the two cohabitate and reap the benefits while the children of the obligor are unable to collect. She asserted that the legislation will deter people from setting up those types of arrangements because there will be punitive consequences. She said under the most serious situations, the division will want to prosecute the people, but hopefully once the violators are made aware of the impending prosecution, the money will be forthcoming and the charges would not be pursued. Number 406 REP. G. DAVIS asked if there is more than one case. MS. GAY responded that there are many cases that would benefit from the legislation. REP. G. DAVIS said it sounded as though the division was focusing the proposal on one case. MS. GAY stated that she was describing one situation as to enlighten the committee to the seriousness of the situation. She related another case where an obligor "put his airplanes in his brother's name." She said it is common practice that they list their assets under other people's names to avoid support. Number 429 CHAIR BUNDE asked how the division would go about proving that the situation was not the actual sale of the assets. MS. GAY replied that an investigator follows the case and that often there is a large transfer of assets "just before a (indiscernible word) court order." She said the division looks to prove that there was no transfer of money. MS. GAY further indicated that a fiscal note is not attached to the bill because the cases must be worked on regardless of whether or not the bill is passed. She said the legislation would assist the division by enabling them to address those people who are aiding the obligor in nonpayment. CHAIR BUNDE asked if there are any other ways the bill would assist in collecting child support payments besides proving the transfer of assets. MS. GAY said, "...if assets, or tax, or property, so there's not any other vehicle other than the different cases where it's just obvious that they're not paying, but they're doing something under the table to get out of paying." Number 487 REP. TOOHEY asked if it would be her obligation to notify the division if she hires an employee that she knows has children and suspects that the person is in arrears for child support. MS. GAY said only if the division has requested an employer to notify them of rehires and new hires. She explained that with businesses that have less than 20 individuals, the business would not be required to notify the division. Number 500 REP. TOOHEY asked if direct contact would be made with the obligor. MS. GAY explained that if the division finds out that someone is employed or suspects that someone is employed, an order to withhold income and property is sent to the business. The business would respond by informing the division whether or not the obligor is being paid or is not working for them. MS. GAY related another case where a person was being investigated because he was seeking disability insurance while employed as a construction worker. She indicated that there was no money changing hands in the form of paychecks and surmised that it was cash. She said the bill would deter people from entering into such arrangements. Number 561 CHAIR BUNDE referred to the original bill and related a scenario where a business was notified that an employee was not paying child support. He further speculated that the employee left the business for several years, comes back, and is rehired. He asked if the business would be in violation of the law if they do not notify the division of the employee's return. He asked if there was a time limitation once a business has been notified. MS. GAY indicated that the legislation's focus is on the aiding of nonpayment of child support. Number 595 REP. VEZEY interjected and said that Chair Bunde was referring to Title 25, Chapter 27. He said he was concerned that the bill would focus on employers especially under the similar scenario that Chair Bunde had just offered. He felt that the legislation needs to clarify that the focus is on aiding in nonpayment and not on the employer who fails to keep a running diary of every employee they've had with child support obligations. CHAIR BUNDE asked Rep. Vezey if he saw a way that the bill could be strengthened to provide that direction and intent. He asked if perhaps an amendment was necessary. REP. VEZEY felt that there are a number of amendments necessary, but his greatest concern regarding the bill is that he had not heard any testimony that indicates that the division has attempted to use courts to prosecute fraud. He also stated that if a person accepts property for less than fair market value, that person has received taxable income in the eyes of the Internal Revenue Service (IRS). He questioned as to whether the IRS has been brought in to collect their due. He indicated that there is a 10% percent finder's fee for turning those people in. He further stated that there are ample statutes on the books to allow for the prosecution of fraud and said the proposal is superfluous. Number 656 CHAIR BUNDE asked Ms. Gay if the division is currently prosecuting for fraud. MS. GAY said no and asserted that it is a much more difficult statute to prove. She reiterated that the division is concerned with conspiracy to assist another person in fraud. Number 675 REP. TOOHEY asked Ms. Gay approximately how many cases the division is working on and how many they suspect are out there. MS. GAY indicated that the division is currently working on 30 cases and said there are more out there. She said at the present time the division has only one investigator, but there will be two by the end of the month. There are $320 million in arrears that have not been collected. She speculated that 10% of that figure constitutes people who are hiding their assets in one form or another. Number 701 CHAIR BUNDE asked Ms. Gay approximately how much of the $320 million would go back to the general fund to replace AFDC payments. MS. GAY guessed that 30 to 40% would be conservative. CHAIR BUNDE observed that the division is currently having problems investigating cases and asked, if the bill passed, would there be enough personnel to handle the case load or would there be a need to hire more staff? MS. GAY explained that the division does not need more personnel and indicated that they already have one investigator and will be getting two more that will work on current cases. She said it was her hope to prosecute some of the cases, bring it to the public's attention to deter these types of situations. She said the division is more focused on deterring the situations than they are on prosecuting them. Number 750 REP. VEZEY asked Ms. Gay if the division at any time has turned information over to the IRS for prosecution of individuals who appear to be avoiding income tax. MS. GAY said yes. REP. VEZEY asked if the IRS responded. MS. GAY indicated that the IRS is very pleased when the division reports information to them. She said, "They like to hear from us. And they do use our information." REP. VEZEY asked if it has been helpful to the division. MS. GAY said yes. Number 768 REP. G. DAVIS thanked Ms. Gay for her clarification. He said he was reading Section 3 strictly as it relates to employers. He said her testimony has made it clear that the legislation targets those individuals who are aiding obligors in nonpayment. He said the testimony addressed the majority of concerns he had. He observed that the legislation should separate a current employer's legal responsibility in the matter. MS. GAY asserted that there is already a statute that provides for employers who refuse to respond to a request from the division. Number 807 CHAIR BUNDE referred to the list of the 100 worst offenders that Rep. Martin had supplied to the committee at a previous meeting. He asked Ms. Gay, if HB 362 passed, would it address any of the 100 worst offenders? MS. GAY said most certainly it would. She said not all the violators would be addressed as some of the arrearage amounts may be incorrect or some violators may have no assets at all. CHAIR BUNDE observed that not all the people on the list would be guilty of hiding assets, but certainly some percentage would be. Number 837 REP. VEZEY observed that little or no effort has been made to use the courts to prosecute for fraud, which is a serious felony. He asked Ms. Gay to address the issue. MS. GAY deferred to PHILLIP PETRIE to answer the question. Number 840 PHILLIP PETRIE, Acting Operations Manager, Child Support Enforcement Division, Department of Revenue, testified via offnet in support of HB 362. He stated that the last case that was prosecuted was in the Juneau area. Also, earlier in the week, he submitted a case to the attorney general (AG) in Anchorage that pertains to defrauding a creditor and fraud. He said AG's are reluctant to try cases that are not directly related to child support because they are viewed as domestic cases, and the division works primarily with the Human Services Division of the Department of Law. He said, "We're currently preparing 20 cases that would fall under this category for a referral to the Department of Law for legal action. And, because of a federal statute change, they may eventually go on to the federal court. Federal law says that we must examine all legal remedies. The problem you have is gathering specific evidence. And in our state, not being a community property state, if someone places the assets in a current spouse's name or a girlfriend's name, it's difficult to prove that they did that solely for the basis of fraud or defrauding the state." MR. PETRIE related a scenario where two current spouses formed a company to do substantial long haul trucking. He said both the current and ex-husband drive the trucks for no salary and the corporation is all in the wife's name. He indicated that withholding orders have been sent to the company and have been returned asserting that the husbands are not employed, "they just help out." He said it's obvious the obligor has no visible means of support and still applies for loans and buys a house -- all in the girlfriend's or wife's name. MR. PETRIE stated that fraud is a possibility in that case if it can be proven. He urged that the proposal would assist in proving fraud. CHAIR BUNDE asked Mr. Petrie to identify himself for the record. MR. PHILLIP PETRIE said he is the Acting Operations Manager for the Child Support Enforcement Division in Anchorage. Number 927 REP. VEZEY asked if the arrearage figures on the top 100 list are accurate. He asked how much of the total debt from the list is represented by underlying assets. MR. PETRIE said no concerted effort has been made to identify which figures are represented by assets. However, he said the division is making efforts in that direction. He indicated that there will be two new investigators and an accountant will be moved to the Non-Wage Earners Section within the division. He also said that data base information will be exchanged with the municipality of Anchorage regarding the personal property records section. He also pointed out that the division's efforts have been hampered because there has only been one criminal investigator. MR. PETRIE stated that within a year the division should have a better understanding of exactly which figures represent actual assets. He indicated that the division is only receiving collections from 46% of their case load, and a majority of those cases have sizable assets. He then referred to Ms. Gay's statement that the top 100 list figures may not be accurate and asserted that the figures are accurate on their computers today, but many of the figures represent default orders where a person failed to provide income information or they have multiple cases. He explained that a person can provide adequate income information to the division to have their arrearage amount adjusted. MR. PETRIE then estimated that approximately 25% of collections could be increased if the division can target the non-wage earners. He indicated that Washington state has been able to collect several million dollars annually by targeting vehicles that belong to non-wage earners. Number 011 CHAIR BUNDE asked if the division is capable of seizing limited entry fishing permits and then sell it. MR. PETRIE said yes; and a supreme court decision supports the process. He also indicated that the IRS has attempted to seize limited entry permits of obligors who owe child support, and under IRS regulation the division receives payment before the IRS. Number 039 MS. GAY interjected that the division also places liens on limited entry permits, which in most cases prevents their transfer. MR. PETRIE offered that there are over 460 fisherman who owe over $10 million in arrearages based on 1993 data, and the 1994 figures would be available April 1. He said the division is also trying to gain permission to place liens on limited entry international permits. Number 067 CHAIR BUNDE asked if the division would send copies of the April 1 report to the legislature. MR. PETRIE said yes and explained that copies are sent to at least 580 processors and brokers throughout the state. CHAIR BUNDE encouraged Mr. Petrie to send a copy to the entire House of Representatives. REP. TOOHEY stated for the record, "I am awed and inspired that there is somebody greater than the IRS. And, it's an absolute privilege to be talking to you." MS. GAY explained that the IRS experiences the same problems in collection that the division does regarding those persons who are not traditional wage earners. REP. TOOHEY asked that Ms. Gay accept her gratitude. (Chair Bunde indicated that Rep. Kott arrived at 3:34 p.m.) REP. G. DAVIS said, "I would hope that you people are aware of Sen. Jacko's bill. You might be collecting a lot of your money from Sea Fab here in the near future, if a certain bill goes through." MS. GAY pointed out that the child support provision in that bill was removed. REP. G. DAVIS agreed. REP. VEZEY clarified that Ms. Gay never said the division was more powerful than the IRS and pointed out that she said the division is first in line. He then expressed further concern regarding the effect of the legislation on law abiding employers. He asserted that currently under Title 25, Chapter 27, there are civil penalties for employers "which quite frankly I believe are onerous." He felt it would be possible to clarify in the legislation that the intent is not focused on traditional wage paying employers who have merely, in oversight, failed to report to the division. TAPE 94-61, SIDE B Number 000 REP. VEZEY felt the legislation could be construed to threaten an employer with a felony crime for failing to honor a withholding order that could conceivably be 21 years old. MS. GAY explained that the division does not rely on an employer to notify them of the rehire of a former employer who is an obligor. She said the division sends a reminder notification to the business. There is no way of tracking until the withholding orders are sent and the obligors are found to be not complying. She assured the committee that the division does not bring charges against any employers or obligors that have not been fully investigated. She asserted that the division will not waste the Department of Law's time with cases that they are not absolutely sure are fraudulent. Number 055 REP. VEZEY related to Ms. Gay that he was aware of at least one employer that has been assessed an administrative penalty equal to the amount of child support that was not withheld from an employee. He explained that the employee had been rehired after several years and was terminated before the new withholding order reached the employer. He felt the situation to be a grave miscarriage of justice. MR. PETRIE asked Rep. Vezey or his constituent to contact him at a later time so he could further review the case. He then indicated that the last employer noncompliance judgement the division obtained was in 1989. He said he was unaware of any cases since that time. He said for noncompliance to be proven the division must prove that the employer received the "certified mail green card" and did not act. REP. VEZEY said the case was not processed through the courts or the Department of Law. He said it was done at an administrative level. He said rather than fight the case, the employer opted to pay the penalty because it was cheaper than attorney's fees. MR. PETRIE asked if the cited case pertains to a contractor in Fairbanks. REP. VEZEY said no, the case pertains to Western Mechanical. MR. PETRIE responded that he would be happy to review the case. He also said the division will try to settle out of court first. MS. GAY further explained that if the money is recovered it goes to the state, not to the children. MR. PETRIE said the division would not object to an amendment that would clarify the issue. He explained that in most of the cases he works on, the individuals are not listed as employees, are not reporting wages to the IRS or the Department of Labor, and they usually are paid cash for their services. He reiterated that the bill is targeted at people who deliberately are evading child support by placing their assets in someone else's name or creating companies in someone else's name. Number 181 REP. VEZEY said there are some employers that are criminals, but expressed the feeling that most are law abiding citizens. MR. PETRIE stated that his focus is on those who are aiding nonpayment. CHAIR BUNDE said, "I'd like to interject here that certainly for the record, it's not the Chairman's interpretation of this bill that an employer who in good faith reemploys an employee after a period of time should be held liable without further notification from the Division of Child Support Enforcement." He said he would take into consideration any amendment that would better clarify the issue. Number 234 REP. KOTT referred to page 2, lines 25-31, regarding penalties. He stated that criminal nonsupport is a Class A misdemeanor and the bill indicates that aiding nonpayment of child support would be a Class C felony. He said the charge is "one step further" than criminal nonsupport and asked if that was the intent of the division. MS. MANLEY asserted that the sponsor attempted to put more "teeth" into the bill by making it a Class C felony. REP. KOTT said, "My question, I guess, is we're making aiding the nonpayment of child support more serious than the person who is in violation of criminal nonsupport." MS. MANLEY felt that both crimes should be Class C felonies. REP. KOTT agreed and expressed that continuity should be ensured in the penalties. MS. MANLEY agreed. CHAIR BUNDE said, "Do I anticipate a bill changing penalties for lack of child support?" Number 298 REP. VEZEY maintained that he has attempted to pen an amendment that would address his concerns regarding employers, but has yet to come up with the appropriate language. He suggested Mr. Petrie offer appropriate language for the amendment that would clarify that the target of the bill is for fraudulent activity and not for mere oversight by an employer. He felt the proposal could be improved if the term aiding nonpayment of child support is better defined and also if the bill could be expanded to include the obligor as well as the person who aids and abets. CHAIR BUNDE asked Mr. Petrie to respond. MR. PETRIE said he would work on language for an amendment that would address Rep. Vezey's concerns. MS. GAY said, "One thought I had was that this law not be used unless other laws that Child Support Agency has available are first addressed." REP. VEZEY expressed that what Ms. Gay had proposed would address his concerns. But, he felt it would not be too difficult to include the violation of the obligor in the statute. CHAIR BUNDE observed that perhaps there is a need for drafting language for the amendment. He asked Mr. Petrie if he was clear as to the direction of the committee. MR. PETRIE said yes. CHAIR BUNDE asked if Rep. Vezey and Mr. Petrie could make a collaborative effort to draft an appropriate amendment. MR. PETRIE said he would. Number 389 REP. OLBERG referred to Rep. Kott's earlier point regarding penalties. He said it is theoretically possible that a person could be unable to pay child support because he/she has no money. But, he said if a person conspires to aid nonpayment of child support, they are well aware that they are participating in fraudulent activities. He expressed that he could justify a more serious penalty for aiding than "being the victim of financial circumstances and being guilty of nonpayment." CHAIR BUNDE said it was his understanding that individuals would be held responsible for accrued payments, but would not be in violation if they have kept in contact with the division and have kept them abreast of their dire financial situation. MR. PETRIE concurred. He said there must be an ability to pay. He also said the division must prove beyond a doubt that the obligor has resources or assets to pay the support. MS. GAY also explained that obligors can come in for modifications if their wages have decreased in a new job. Number 440 MS. MANLEY asserted that the bill is directed at people who are intentionally aiding nonpayment of child support. She also indicated that the term "intentional" is defined in statute. CHAIR BUNDE asked if the potential amendment is addressed in the definitions in statute. MS. MANLEY explained that she spoke with Legal Services specifically regarding the issue. She related that Legal Services said those concerns are addressed in statute. REP. VEZEY indicated that in reading the statute he overlooked the word "intentionally." He felt the statute addresses his concerns and asked if Mr. Petrie would concur. MR. PETRIE concurred and said the burden of proof would exclude those who unintentionally "try to help someone." Number 510 CHAIR BUNDE withdrew his request that Rep. Vezey and Mr. Petrie craft an amendment. REP. BRICE offered to move the bill out of committee. REP. VEZEY referred to Rep. Kott's statement regarding penalties. He said if the obligor could be included in the legislation it would be an improvement in the legislation. CHAIR BUNDE asked if the penalty of the obligor could be addressed under the title of the bill. REP. BRICE said he felt the title "is sort of tight." MS. MANLEY suggested that it perhaps be included in another statute. Number 542 REP. KOTT maintained that the issue needs to be addressed as to afford continuity to the penalties. He said he knew of no other crime where aiding and abetting is a higher sentence than the actual crime committed. He then related a scenario where a man is guilty of not paying child support and has remarried. He said if the new wife is aware that he is not paying support, she is guilty of aiding nonpayment. REP. B. DAVIS disagreed and said the wife would be guilty only if she intentionally helped him avoid payments. MS. MANLEY explained that the wife would only be guilty if she continued to help him evade his responsibilities. She said she agreed with Rep. Kott that the obligor should receive the same penalty. REP. KOTT said a wife would be guilty if the division asked her where her husband is employed and she refuses to answer. He further indicated that currently the courts do not require a spouse to testify against her husband. Number 591 CHAIR BUNDE suggested that the penalty be increased for the obligor. REP. BRICE made a motion to pass the CS for HB 362 with individual recommendations out of committee. CHAIR BUNDE, hearing no objections, declared that HB 362 was so moved. He then read the calendar for the next meeting. Seeing no further business before the committee, CHAIR BUNDE adjourned the meeting at 4:07 p.m.