SENATE HEALTH, EDUCATION AND SOCIAL SERVICES COMMITTEE April 28, 1997 9:09 A.M. MEMBERS PRESENT Senator Gary Wilken, Chairman Senator Loren Leman, Vice-Chairman Senator Lyda Green Senator Jerry Ward Senator Johnny Ellis MEMBERS ABSENT All members present COMMITTEE CALENDAR SENATE BILL NO. 187 "An Act relating to disclosure of public records identifying a participant in the advance college tuition payment program; relating to the composition and assets of the Alaska advance college tuition payment fund; relating to administration of the advance college tuition payment program; relating to advance college tuition payment contracts; and providing for an effective date." - MOVED SB 187 OUT OF COMMITTEE SENATE BILL NO. 154 "An Act relating to paternity determination and child support; relating to reporting of and access to financial or other information for child support purposes; making changes to laws relating to occupational, recreational, or other licenses, permits, certificates, or other authorizations issued by the state to facilitate administration of child support laws; relating to the interest rate on judgments or decrees for child support; relating to immunity from civil liability for good faith compliance with reporting or other requirements for child support purposes; relating to voiding fraudulent transfers and to penalties for noncompliance with orders for child support purposes; amending Rules 4, 5, 35, 52, 58, 60(b), 78, 90.1, and 90.3, Alaska Rules of Civil Procedure; amending Rule 901, Alaska Rules of Evidence; amending Rules 3 and 5, Alaska Bar Association Rules; repealing the effective date of sec. 45, ch. 107, SLA 1996; and providing for an effective date." - HEARD AND HELD PREVIOUS SENATE COMMITTEE ACTION SB 187 - See Senate Health, Education & Social Services minutes dated 4/28/97. SB 154 - See Senate Health, Education & Social Services minutes dated 4/23/97 and 4/28/97. WITNESS REGISTER Wendy Redman, Vice President University of Alaska Po Box 755000 Fairbanks, Alaska 99775 POSITION STATEMENT: Discussed SB 187. Jim Lynch University of Alaska PO Box 755000 Fairbanks, Alaska 99775 POSITION STATEMENT: Discussed SB 187. Glenda Straube, Director Child Support Enforcement Division Department of Revenue 550 W 7th Ave., Suite 310 Anchorage AK 99501 POSITION STATEMENT: Commented on SB 154. Marilyn May, Assistant Attorney General Collections and Support Department of Law 1031 W 4th Ave., Suite 200 Anchorage AK 99501-1994 POSITION STATEMENT: Available to answer questions on SB 154. Kenneth Kirk, Attorney 733 W. 4th Ave., #304 Anchorage AK 99501 POSITION STATEMENT: Opposed SB 154. Dan Branch, Assistant Attorney General Human Services Section Department of Law P.O. Box 110300 Juneau AK 9981-0300 POSITION STATEMENT: Commented on SB 154. Gary Roth Alaska Bankers Association 119 N. Cushman St. Fairbanks AK 99701 POSITION STATEMENT: Commented on SB 154. ACTION NARRATIVE TAPE 97-45, SIDE A Number 001 SB 187 UNIVERSITY TUITION PAYMENT PROGRAM  CHAIRMAN WILKEN called the Senate Health, Education and Social Services (HESS) Committee to order at 9:09 a.m. and announced SB 187 to be up for consideration. Chairman Wilken, as prime sponsor, he turned the gavel over to Vice-Chairman Leman and gave a brief sponsor statement. CHAIRMAN WILKEN said that in August 1996 Congress passed legislation that exempts qualified state prepaid tuition programs from income taxes similar to exemptions provided other non-profit activities. Senate Bill 187 makes the necessary statutory changes to conform the Advance College Tuition (ACT) payment plan with the new federal law. The ACT plan offers an incentive for Alaskan residents to save for college. Under this plan one-half of a participating individual's annual permanent fund dividend can be used to prepay college tuition credits at the current cost per credit. The University of Alaska guarantees that ACT credits can be used for tuition regardless of the amount paid for the ACT credit or the cost of tuition at the time they are used. Failure to comply with the new tax law in a timely manner could result in retroactive taxation of the program back to 1991 and destroy the financial viability of this very worthwhile program. Senator Wilken recommended passage of SB 187. WENDY REDMAN, University of Alaska, explained that SB 187 will bring the ACT program into compliance with federal regulations as well as to provide some privacy protection for people who have been in the program. The program is tax exempt for the University of Alaska and tax deferred for the people who participate in it. JIM LYNCH, University of Alaska financial, agreed that was correct. WENDY REDMAN asked if the money was totally tax deferred until it is taken out as a tuition credit. JIM LYNCH replied no; the individual pays the tax just as though the individual had received the dividend. SENATOR L EMAN asked if there was any way to design the program so the person does not have a tax liability until that credit is used. JIM LYNCH said that cannot be done within the program itself. Congress is now trying to make contributions to this program exempt. SENATOR LEMAN asked if there was anything in this legislation that would delay or hinder that. JIM LYNCH replied no, as long as the definition of a qualified state prepaid tuition program is met. SENATOR LEMAN recommended that the committee or the Legislature encourage that change in law at the federal level. CHAIRMAN WILKEN asked Mr. Lynch to send the committee wording to that effect. JIM LYNCH agreed to do that. CHAIRMAN WILKEN asked if the tax is deferred on the increase in tuition value. JIM LYNCH said that was correct. Originally, the IRS said that the plan was taxable and the earnings of the prepaid tuition fund would be taxed as a corporation. The increase in value would also be taxed as a participant at the time the credits were used. The University now has an exemption for the program, but the increase in value is still taxable to the individual at the time the credits are used. SENATOR LEMAN moved to pass SB 187 out of committee with individual recommendations and a zero fiscal note. There were no objections and it was so ordered. SB 154 CHILD SUPPORT & PATERNITY  CHAIRMAN WILKEN announced SB 154 to be up for consideration. GLENDA STRAUBE , Director of Child Support Enforcement, said there were several proposed amendments which resulted from a meeting with the Alaska Banker's Association. They agreed to further define financial institutions on page 30, line 23 adding "brokerage houses, insurance companies, and any other companies providing individual investment transactions or deposit accounts." Number 222 MARILYN MAY, Assistant Attorney General, said she was available to answer questions. KENNETH KIRK , Anchorage Attorney, said that he has some serious problems with SB 154. Mr. Kirk stated that sometimes CSED does not want to answer a question about why the division wants a law in a particular way. At times there is a law that does not specify that the division has to take action in a certain way, and at other times there is a provision for waiver that the division does not want to try. He suspected that a lot of things in this bill fall into those categories. Mr. Kirk identified a major problem as the hardship created for employers because, even if an employer only has one employee, the employer must report all hires and rehires. A lot of employers are not going to realize their responsibility. Under this legislation, there are major penalties for non-compliance with administrative subpoenas. Often CSED asks for years of business and bank records which means a small business owner has to either shut down and let CSED come in and look at them or ship the information to CSED. Usually it is too much information to effectively copy. Mr. Kirk expressed concern with the license revocation provision which takes out the allowance for temporary recreational licenses while the matter is being disputed. If an individual with a hunting license is determined by CSED to owe child support that individual can not hunt while the matter is being disputed. The same scenario can occur with recreational fishing. Such a situation is a denial of due process and should be eliminated. Allowing crew license revocation typically results in that crew member not being able to work, to make money. to pay the child support. CSED has said that it does not want the licenses, but wants to set up a payment schedule; however, if you can not meet that formula, you are out of luck. Furthermore, it is very hard to meet that formula unless you are very close to being current anyway. Mr. Kirk said that allowing service of original documents by first class mail is problematic because the address CSED has is often years old. CSED should make an effort to ensure that the right person is found and not just use certified first class mail. The default provisions are of concern because if CSED serves a document on the wrong address, the person does not receive the document, but will find out a few years later when CSED garnishes the obligor's pay. Number 295 SENATOR LEMAN asked if it would be an improvement if CSED were to cross check the address with the most recent address the Permanent Fund Division has on file for those who are Alaskan residents. KENNETH KIRK replied yes. In most cases, CSED has not done much t look for the most recent address. CHAIRMAN WILKEN asked if he dealt professionally with CSED issues. KENNETH KIRK replied yes and informed the committee that he spends approximately 30% of his time dealing with such cases, most of which on behalf of obligors. Number 376 GLENDA STRAUBE responded that he was correct in a sense about the bill being tough. The federal government is asking the employer to do more than in the past. Regarding the administrative subpoenas and how long it would take an employer to respond, Ms. Straube pointed out that most subpoenas go to banks. CSED occasionally serves subpoenas on other people, but usually after the investigation is further along. With regard to license revocations, Ms. Straube believed that the first license revocation was done several days ago. When someone comes into CSED now, CSED determines if there is a default order not based on the obligor's actual income and that is fixed. If it is owed to the state, CSED has the right to vacate and fix it. If it is owed to the custodial parent, CSED can ask the parent if he/she is willing to make a deal and CSED can send the file to a modification team to determine if the income has changed. License revocation is extremely important because this ability indicates that CSED is serious about children. Ms. Straube said that CSED has had a very good response to this law and many people have worked out payment plans. CSED is receiving money from people who have never made regular payments. Ms. Straube informed the committee that all case workers have desk top computers which have access to the Permanent Fund Division and is used frequently for addresses. When something is returned to CSED undelivered or not accepted, which is just as likely, CSED sends it to another locate section which searches a much larger group of locate data bases. CHAIRMAN WILKEN said there were some concerns with the employer hire/rehire section, although he did not think it was enough to hold up the bill. KENNETH KIRK was not sure how small employers would find out about this; while the larger employers have personnel departments to keep track of such. Mr. Kirk thought employers may avoid hiring someone with child support obligations. GLENDA STRAUBE informed everyone that the IRS has already sent out a letter to employers, but it is the same as the new hire reporting law that has been in effect for a number of years. The difference was the limit of 20 or more employees. This is not a new law; CSED worked very close with employers at that time with notices and groups as will be the case now. CHAIRMAN WILKEN was amazed that people would suggest tracking every hire and rehire in the United States. Chairman Wilken inquired as to the history of the subpoena requirements. GLENDA STRAUBE mentioned that administrative subpoenas are usually served on financial institutions. There are other subpoenas that are not as cumbersome that are used to obtain one piece of information. The cumbersome subpoenas occur during the investigation of criminal non-support. CHAIRMAN WILKEN asked about the temporary license revocation without due process. GLENDA STRAUBE reiterated that the federal government requires including recreational licenses which CSED is not excited about. CSED has narrowed the hunting license revocation down to non-personal use and fishing license revocation to non-subsistence. Number 421 DAN BRANCH , Assistant Attorney General, pointed out that persons who use subsistence and fishing licenses will not be affected. Current law 25.27.244 (A) for occupational licenses ensures that CSED will not be able to place a child support obligor on the obligor list until notice is sent with 60 days to respond. Therefore, concerns about due process are not well placed. Recreational licenses are unique in that there is no temporary license in place. KENNETH KIRK noted that every other category of licenses which can be revoked here has a certain appellate mechanism. After CSED makes its initial determination, a review can be requested by the Superior Court and a temporary license can be obtained while the court reviews that. The grounds for that review are very limited; one must demonstrate that he/she was in compliance, it was not he/she, or there was not a valid order. In other words, CSED may have made a serious mistake and taken a recreational licenses out of the category in which the court could enter a temporary license while the case is being reviewed. Mr. Kirk informed the committee of a case in which CSED demanded so many records from a small business that the owner closed the business and became a clerk at Safeway. Number 469 CHAIRMAN WILKEN asked if a waiver was available for some of SB 154. GLENDA STRAUBE acknowledged that a waiver can be requested, but th federal government has not been very good about waivers for child support. In order to receive a waiver the division would have to prove that it would be ineffective to implement the law or that the cost would be so prohibitive it would not be economical to do it. Licensing does not fall under either of those. SENATOR GREEN asked if a sport fishing license implies that it is not for personal use. DAN BRANCH understood that there are specific personal use fisheries, for example the dip net fishery. The difference is the gear; sports fishing is basically rod and reel fishery only and personal use fishing is with nets. It is possible to distinguish in the field whether a person is participating in the personal use fishery easily. SENATOR GREEN said that created a conflict with a hunting license, because those are all considered to be personal use. DAN BRANCH commented that legislation in place now does not define personal use hunting. So SB 154 would exempt hunting which would otherwise be considered sport hunting if it was being carried out for personal use. Subsistence, by statute, is exempt. SENATOR GREEN said this was a major stumbling block and wanted to figure something out. Could a rod and reel fishermen ever be granted a personal use license? DAN BRANCH was not sure what the answer was, but it is set out in statute already. SENATOR GREEN asked if there was any way to have a review process or was the timing the problem with recreational licenses. GLENDA STRAUBE said that it is the timing issue. If licensing were centralized in one agency, then temporary and non temporary licenses could be issued. Now store owners throughout the state would have to track who is on the list from month to month. It also takes a while for the information to go from CSED to the Department of Fish and Game. CHAIRMAN WILKEN asked Mr. Kirk to send the committee any information he had that would improve the bill. SENATOR GREEN related a story of a contractor who had employed an obligor over three years ago, but had not seen him since. The contractor repeatedly informed CSED that the obligor no longer worked for him. The contractor continued to receive correspondence from CSED threatening that he was in contempt of court. What could be done to correct this? Senator Green was concerned about privacy with so much information being requested. GLENDA STRAUBE was not familiar with this case. DAN BRANCH was no either. Perhaps he got an order of withhold and deliver which is now required. GLENDA STRAUBE reiterated that nationally employers are being aske by the federal government to do more on this issue. TAPE 97-45, SIDE B This is a new law and Ms. Straube did not know how much the federal government would be willing to waive. SENATOR LEMAN expressed concern with interest rate reduction; whatever CSED does should encourage collections. SENATOR GREEN informed the committee that she asked Legislative Legal Services to make sure everything contained in the language is specifically required. CHAIRMAN WILKEN referred the committee to Mr. Nordlund's letter which emphasizes the need to do this now. Number 547 SENATOR LEMAN moved Amendment 1 as requested by Mr. Roth. Senator Leman stated objection to the wording of Amendment 1. Senator Leman suggested the following language, "financial institutions including banks, brokerage houses, insurance companies, and other companies providing individual investment transaction or deposit accounts." He offered that language as an amendment to Amendment 1 and withdrew his objection. GARY ROTH understood the amendment and agreed with Senator Leman's language. Number 502 SENATOR GREEN stressed the need to ensure that access is confined to only necessary information. GLENDA STRAUBE explained that CSED wants to determine if the obligor has an account and the balance of that account. The federal government requires the name, the record address, social security number or other tax payer i.d. number, and other identifying information for each non-custodial parent who maintains an account at such an institution and whose child support is past due. Language in the bill references the information in the federal law. Ms. Straube explained that she provides financial institutions with a list of people who are in arrears and those names are matched with a list of the institution's accounts. SENATOR GREEN asked if Ms. Straube had to have a reason to suspect someone has an account at an institution. GLENDA STRAUBE replied no; that is why CSED is requesting a quarterly automatic match. Now they have the authority to do "bank sweeps" which are more cumbersome than doing the data match on a regular basis. SENATOR WARD indicated that there may be a problem with the sport fishing licenses because he sport fishes and puts his catch in the freezer for personal use. Senator Ward did not know that dip netting was considered personal use. CHAIRMAN WILKEN announced an at ease from 10:08 - 10:11 a.m. Number 450 CHAIRMAN WILKEN asked if the committee had any further discussion or objections. Hearing none, Amendment 1 was adopted. SENATOR GREEN moved to adopt Amendment 2 which would add a new subsection (e). GARY ROTH, President of the Denali State Bank, informed the committee that he represented the Alaska Bankers Association which supported Amendment 1. He was also pleased that Ms. Straube mentioned the Massachusetts Plan which has been in effect since 1994 and has worked very well between the Child Enforcement Divisions and the bankers in Massachusetts. The federal law basically requires that a match system be put in place by the states and the agencies may pay a reasonable fee to a financial institution for conducting a data match. The fee is not to exceed the actual cost incurred by such financial institutions. With regard to liability, the federal law states that a financial institution shall not be liable under any federal or state law to any person. Mr. Roth believed that the liability issue is mute based on the federal statute. Mr. Roth recommended that the reasonable fee amendment be included to make it coincide with federal legislation. GLENDA STRAUBE agreed that Massachusetts is the only state with a similar law prior to the passage of the federal law. Ms. Straube was uncomfortable with this because who is to define "a reasonable fee" and determine the actual cost. Would this preclude CSED from establishing a regulation for further clarification? CHAIRMAN WILKEN was also concerned about what constituted a reasonable fee as well as the bureaucracy involved. He asked if there was objection to Amendment 2. Chairman Wilken objected. Upon a vote Senator Wilken voted "Nay" and Senators Green and Ward voted "Yea" therefore Amendment 2 failed. Number 379 SENATOR GREEN moved to adopt Amendment 3. CHAIRMAN WILKEN noted that on page 60, line 10 a new section is inserted. GLENDA STRAUBE pointed out that this relates to state personnel records. CSED thought it had the statutory authority to access those records, but were recently informed by the Department of Administration that CSED would need specific legislation to do so. DAN BRANCH said he supported Amendment 3. CHAIRMAN WILKEN asked if there were any objections to Amendment 3. Hearing none, Amendment 3 was adopted. SENATOR GREEN indicated that federal law only requires that a procedure to take away licenses be established; what is the time- line for that process? GLENDA STRAUBE answered 150 days. MARILYN MAY clarified that Mr. Kirk's concern that these issues are not in federal law is incorrect. CSED drafted SB 154 as the federal law required. The federal law requires that CSED has the ability to issue subpoenas. The exact procedures and the penalty CSED chooses are not specifically required by the federal law. CHAIRMAN WILKEN asked Mr. Branch and Ms. Straube to develop some of the committee's concerns to be forwarded to the Finance Committee. Number 327 SENATOR GREEN moved to pass CSSB 154(HES) from committee. SENATOR WARD objected, and inquired as to the next committee of referral. CHAIRMAN WILKEN said the next committee of referral is Finance. SENATOR WARD requested that Mr. Nordlund be available personally to testify on the validity of some of his assumptions. Senator Ward removed his objection. Without further objection, CSSB 154(HES) passed from committee with individual recommendations and the accompanying fiscal note. CHAIRMAN WILKEN adjourned the meeting at 10:25 a.m.