SENATE JUDICIARY COMMITTEE February 23, 1994 1:40 p.m. MEMBERS PRESENT Senator Robin Taylor, Chairman Senator George Jacko Senator Dave Donley Senator Suzanne Little MEMBERS ABSENT Senator Rick Halford, Vice-Chairman OTHERS PRESENT Senator Randy Phillips Representative Jerry Mackie COMMITTEE CALENDAR SENATE BILL NO. 164 "An Act relating to municipal incorporation, reclassification, and dissolution." HOUSE BILL NO. 4 "An Act adding as an aggravating factor at sentencing that a victim was elderly or disabled; and relating to failure to report harm or assaults of the elderly or disabled." SENATE BILL NO. 225 "An Act relating to credits against certain insurance taxes for contributions to certain educational institutions; and providing for an effective date." SENATE BILL NO. 190 "An Act relating to income withholding and other methods of enforcement for orders of support; and providing for an effective date." PREVIOUS SENATE COMMITTEE ACTION SB 164 - See Community & Regional Affairs minutes dated 3/30/93, 4/13/93, 4/20/93, 4/22/93 and 4/24/93. HB 4 - See HESS minutes dated 4/21/93. SB 225 - See Health, Education & Social Service minutes dated 2/2/94 and 2/4/94. SB 190 - NO PREVIOUS ACTION. WITNESS REGISTER Darroll Hargraves, Chairman Local Boundary Commission 333 W. 4th Avenue, Suite 220 Anchorage, Alaska 99501-2341 POSITION STATEMENT: Supports SB 164. Dan Bockhorst, Staff Local Boundary Commission 333 W. 4th Avenue, Suite 220 Anchorage, Alaska 99501-2341 POSITION STATEMENT: Supports SB 164. Nancy Weller, Aide Representative Jerry Mackie State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Testified on HB 4. Carol Carroll, Aide Senator Jay Kerttula State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Testified on SB 225. Sherie Steele Sheldon Jackson College 801 Lincoln Sitka, Alaska 99835 POSITION STATEMENT: Supports SB 225. Wendy Redman, Vice-President for University Relations University of Alaska 910 Yukon Drive Fairbanks, Alaska 99775-2388 POSITION STATEMENT: Supports SB 225. Laraine Derr, Deputy Commissioner Department of Revenue P.O. Box 110400 Juneau, Alaska 99811-0400 POSITION STATEMENT: Testified on SB 190. Mary Gay, Director Child Support Enforcement Division 550 W. 7th, 4th Floor Anchorage, Alaska 99501-3556 POSITION STATEMENT: Supports SB 190 Terri Lauterbach, Attorney Legislative Legal Counsel Legislative Affairs Agency 130 Seward Street Juneau, Alaska 99801 POSITION STATEMENT: Drafted CSSB 190. ACTION NARRATIVE TAPE 94-12, SIDE A Number 001 CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to order at 1:40. SENATOR TAYLOR introduced SB 164 (MUNICIPAL INCORPORATION- RECLASSIFICATION-DISSOLUTION), sponsored by the Senate Community & Regional Affairs Committee chaired by SENATOR RANDY PHILLIPS, and invited him to testify. SENATOR PHILLIPS deferred to DARROLL HARGRAVES, Chairman of the Local Boundary Commission. SENATOR TAYLOR announced there was a work draft for a committee substitute for SB 164, and he called on MR. HARGRAVES, who introduced two members and a staff person present from the Local Boundary Commission: TONI SALMEIER from Anchorage, FRANCES HALLGREN from Sitka, and Commission Staff, DAN BOCKHORST. MR. HARGRAVES began by urging the legislature to pass the bill this year, and he praised the hard work by sponsors and staff. He explained the bill makes some technical amendments to the law that are needed by the boundary commission and are detailed on pages 38 and 39 of this year's report from the commission. Number 058 MR. HARGRAVES reviewed the main provisions in the bill beginning with (1) Establishes mechanism for first class and home rule cities to reclassify as second class cities. (2) Provides State oversight concerning all municipal reclassification. He gave some examples of the need for this provision. (3) Permits direct incorporation of home rule cities and unified municipalities, and confirms that home rule cities and home rule boroughs may be created through merger and consolidation. (4) Confirms the discretion of the Local Boundary Commission in approving, denying or amending petitions. (5) Confirms that the Local Boundary Commission has legislative authority to adopt regulations for incorporation and dissolution. MR. HARGRAVES explained it was vital to have the legislation because of events that will be coming forth in the next few months. He called attention to the work draft, Section 22 on page 8, to suggest a change to Sec. 29.06.520 by deleting TO ASSETS AND LIABILITIES. and leave the title as SUCCESSION. He explained the e section dealt with quite a few "rights, powers, and duties." SENATOR TAYLOR asked for a motion to adopt for discussion purposes the proposed committee substitute prepared by the Judiciary Committee. Number 104 SENATOR DONLEY asked for an assessment of the differences in the work draft with the original SB 164. MR. HARGRAVES asked that MR. BOCKHORST from the boundary commission staff reference the changes. MR. BOCKHORST explained the difference between the Judiciary work draft and the CS FOR SENATE BILL NO. 164(CRA) is the addition of Section 22 on page 8. He further explained Section 22 restores some language that was in the statute in 1988, prior to a change in the law that was to make it easier for certain dissolutions to occur. MR. BOCKHORST continued to explain the powers, duties, rights had d been eliminated from the section, which, he thought created some unintended circumstances, where the state or successor municipality could be burdened with the responsibility of paying off debts, but may not have the power, the right, or the duty to collect revenues to pay those debts. SENATOR DONLEY questioned the difference between the powers and duties when a municipality down grades from a first class to a second class. He asked if the municipality down grades, do they keep the same powers, duties, and rights, and why would they down grade? MR. BOCKHORST explained Section 22 deals only with dissolution and has nothing to do with reclassification from first to second class status. SENATOR DONLEY suggested a municipality could dissolve and be recreated as a second class entity. He thought the municipality would be recreated with all of the rights, powers, and duties as when they were a first class. Number 156 MR. BOCKHORST continued to explain Section 22 only applies to a dissolution, and he reiterated the state of Alaska or another municipal government is going to be burdened with the assets and liabilities. MR. BOCKHORST claimed the language suggests, that if the State or another municipal government is going to be burdened with the liabilities of a dissolved government, then the successor needs to have the powers, duties, and rights owned by the former municipal government in order to collect revenues and pay off the debts. MR. BOCKHORST said reclassification was a separate issue, and under current law, if a first class city wanted to reclassify to second class status, there is no direct way to do so. He used the cities of Dillingham and Galena as an example of first class cities in an unorganized borough, both operate school districts. He said there was an interest, because of the financial burden faced by the communities to provide schools, or to dissolve or reclassify into second class status. If they dissolved under the present system the responsibility for education would be transferred to the State of Alaska to be operated as a school district under the regional education attendance area system. SENATOR LITTLE said the city of Seldovia has been used as an example in the backup material, and she posed the hypothetical that Seldovia has petitioned to dissolve. If the Kenai Peninsula Borough refused to establish a service area to take care of the services previously accepted by the city of Seldovia, she asked how the bill would influence that situation. Number 202 MR. BOCKHORST explained if, under Section 22, the Kenai Peninsula Borough refused to act as a successor to a dissolved city of Seldovia, the law as it currently exists says all those assets and liabilities will be transferred from Seldovia to the State of Alaska. Without the language in Section 22, he further explained the state gets saddled with debt without the assets to collect taxes to pay for Seldovia's obligation bonds. SENATOR LITTLE clarified that Section 22 would allow the state to assume the rights, powers, and duties for Seldovia. MR. BOCKHORST said she was correct, and he further explained what happened when these powers were eliminated in the 1988 law. He said Section 22 was restorative language in the statute that existed previously. In a discussion with MR. BOCKHORST, SENATOR LITTLE received some historical information on the proposed changes and on the expressed statutory authority for the state to continue to levy taxes previously levied by Seldovia. SENATOR TAYLOR picked up on the hypothetical of Seldovia where the borough succeeded to Seldovia's assets, and added the factors of the borough having limited powers and Seldovia being a home rule city with general powers. He quoted SENATOR DONLEY'S question if the borough would inherit through Section 22 those powers which it doesn't otherwise have, or would it only be to the extent that it impacts rights, powers, and duties needed regarding liabilities. He gave the example of a police department in Seldovia and no police authority in the Kenai Peninsula Borough. There was a short discussion among the committee members with MR. BOCKHORST on what Section 22 really says. MR. BOCKHORST explained in the dissolution process there would have to be a transition plan prepared, and the borough would be required to establish a service area to assume the powers and duties of Seldovia. Number 255 SENATOR LITTLE said she was hopeful Seldovia would not dissolve itself. SENATOR DONLEY asked SENATOR PHILLIPS whether he thought Section 22 was a good amendment, and SENATOR PHILLIPS said it was done in a draft after leaving his committee. SENATOR DONLEY also asked why the provisions in Section 22 were taken out in 1988. MR. BOCKHORST thought it was because the Local boundary Commission denied the petition for the dissolution of the city of Akiachak using the law as written prior to the 1988 amendments. He said, at that time, REPRESENTATIVE LYMAN HOFFMAN prepared a series of amendments to eliminate what was perceived as road blocks causing the commission to deny the petition for the dissolution of Akiachak. MR. BOCKHORST explained that Section 5 of the bill adopted by the legislature in 1988 was intended to eliminate any question that a successor to a dissolved municipal government would allow the State of Alaska to contract with an Indian Reorganization Act village or traditional council, but doing so would not grant any recognition of governmental powers in the course of entering into a contract between the State of Alaska and a village council. He indicated a copy of the text of the 1988 amendment was in the bill packet. SENATOR DONLEY asked how the amendment addressed that concern, which he considered a legitimate one. MR. BOCKHORST thought the intention was to insure, for a native village council, it would not be recognized as a governmental entity with governmental powers. He explained Section 22 clearly says the powers, right, and duties of a former municipal government would only succeed to another municipality or to the State. He thought the intent by REPRESENTATIVE HOFFMAN was retained. SENATOR DONLEY now felt the legislation was acceptable, but asked MR. BOCKHORST if he had talked to REPRESENTATIVE HOFFMAN. He suggested, out of curtesy, it should have been done, since MR. BOCKHORST was attempting to amend a bill written by a current legislator. Number 305 MR. HARGRAVES said he would pay close attention to SENATOR DONLEY'S advice and would be visiting REPRESENTATIVE HOFFMAN'S office. SENATOR TAYLOR restated the amendment to delete on page 8, line 22 the words TO ASSETS AND LIABILITIES. Without objections, so ordered. SENATOR JACKO moved to pass CS FOR SENATE BILL NO. 164(JUD) as amended (MUNICIPAL INCORPORATION/RECLASSIFICATION/DISSOLUTION) from committee with individual recommendations. Without objections, so ordered. SENATOR TAYLOR introduced HB 4 (PROTECT ELDERLY AND DISABLED ADULTS) sponsored by REPRESENTATIVE JERRY MACKIE. He noted the addition of a committee substitute, and there was some discussion as to whether it had been heard before. SENATOR TAYLOR clarified there was a companion bill, HB 3, dealing with those who care for the elderly, whereas HB 4 relates to failure to report harm or assaults on the elderly or disabled. Number 350 REPRESENTATIVE MACKIE reviewed his sponsor statement explaining that HB 4 would provide a consistent penalty of a class B misdemeanor for conviction for failure to report the harm of an elderly or disabled person under these statutes. It would also require the court to report convictions to the appropriate licensing/regulatory entity. Conviction of a professionally licensed person for failure to report a crime against an elderly or disabled person could lead to disciplinary actions or sanctions. SENATOR TAYLOR opened the meeting for questions and SENATOR LITTLE asked REPRESENTATIVE MACKIE to explain the changes in the committee substitute. He deferred to his aide, NANCY WELLER. MS. WELLER explained the original bill was more comprehensive and carried aggravating factors for the protection of the elderly, but the Department of Law felt those protection were already covered under aggravating factors presently in place. There being no further testimony, SENATOR TAYLOR asked for the pleasure of the committee. SENATOR JACKO moved to pass CS FOR HOUSE BILL NO. 4(JUD)(PROTECT ELDERLY AND DISABLED ADULTS) from committee with individual recommendations. Without objections, so ordered. SENATOR TAYLOR introduced SB 225 (INSURANCE TAX CREDIT:GIFTS TO COLLEGES) sponsored by SENATOR JAY KERTTULA and noted there was a HESS committee substitute. He called on CAROL CARROLL to testify on behalf of SENATOR KERTTULA. MS. CARROLL explained the bill, SB 225, would allow authorized insurance and title insurance companies to credit their state tax liability with an amount equal to donations they make to qualified higher educational institutions now available to other corporations within the State of Alaska. She offered to answer questions. SENATOR JACKO referenced page 2 and asked if she was speaking about two or four year institutions. MS. CARROLL read lines 1 through 3 to answer his question which gave acceptance to two-year or four- year colleges or universities. SENATOR DONLEY clarified the credit was 50% up to $100 thousand and then 100% for the next $100 thousand. MS. CARROLL said he was correct, and SENATOR DONLEY disagreed with the 100% credit language because it would allow private citizens to allocate money instead of the legislature. Number 409 SENATOR LITTLE gave an example of a credit union owing $100 thousand in taxes, and instead, giving the $100 thousand to the University of Alaska as a donation. She asked for an explanation. MS. CARROLL explained if a company has a tax liability to the state and wanted to donate the whole $100 thousand, the company would only be able to take a tax credit of 50% of the amount. SENATOR DONLEY also explained the company could give $150 thousand and receive a credit for the $100 thousand. MS. CARROLL noted in Section 2 stating "or 50% of the tax payers liability, whichever is less," which, she said, would not allow a 100% in the case described by SENATOR DONLEY. SENATOR TAYLOR explained the most such a company could receive would be 50% of their total tax liability. MS. CARROLL added, "as long as it is not over $150 thousand." SENATOR JACKO asked if was open to use by the scholarships managed by the Postsecondary Education Commission, but MS. CARROLL said the provisions only apply to the three universities. SENATOR JACKO questioned the retroactive effective date. MS. CARROLL explained it would give insurance companies the opportunity to donate this year. SENATOR LITTLE asked why the bill was limited to certain insurance taxes, and were there provisions for individuals to contribute to the university under the legislation. MS. CARROLL explained in statute this credit is already available to anyone who pays a corporate income tax, oil production tax, fishing taxes or mining taxes. SENATOR TAYLOR opened the teleconference network and invited SHERIE STEELE from Sitka to testify. Number 450 MS. STEELE identified herself as the Director of Development for Sheldon Jackson College, and acknowledged MS. CARROLL had testified to most of their points. She reviewed a letter from KENNETH CAMERON D.M.D. acting president of Sheldon Jackson College in support of SB 225, in which he wrote, "The Alaska Income Tax Education Credit is an extremely useful tool for Alaskans because it encourages mutually beneficial partnerships between industry and higher education. This tool allows colleges in the state to enhance and improve academic programs by having access to the funding necessary to implement quality education for Alaskans. An omission in the original legislation, namely the omission of including the insurance industry as a taxpayer group eligible to participate in this most essential partnering incentive, can be rectified by SB 225." SENATOR TAYLOR next called on WENDY REDMAN, Vice-President for University Relations for the University of Alaska to testify. MS REDMAN explained the tax credit legislation passed several years ago has proved very helpful to the University of Alaska, APU and Sheldon Jackson in seeking private funds as one more tool to broaden the base of support, especially for the University of Alaska. She said their campus raised close to $12 million over the past two years, with the majority of the funds placed in endowments that will provide benefits to students far into the future. MS. REDMAN said the tax credit legislation was responsible for about $1 million of the donations, but she claimed this was not lost revenue to the state. She urged the passage of the legislation and offered to answer questions. SENATOR DONLEY asked if the fundamental law being amended has ever been challenged? MS. REDMAN said it has not. SENATOR TAYLOR asked if challenge had been anticipated, and MS. REDMAN said there was some anticipation when it was first past. SENATOR JACKO asked for details, and SENATOR DONLEY explained Article 7, Section 1 of the State Constitution says, "... no money shall be paid from public funds for direct benefit to any religious or any other private educational institution." He claimed the original bill denies the State income to the benefit of a private educational institution and is unconstitutional. Number 505 MS. REDMAN told SENATOR TAYLOR it has never been challenged, and she reviewed the discussion when the bill was first passed. She said REPRESENTATIVE GRUENBERG had a ruling based on information from another state that "... when you're capturing revenue before it hits the general fund, as apposed to after, therefore, it is not general funds." She said there were rulings on both sides of the issues. SENATOR TAYLOR acknowledged a letter from Dr. F. Thomas Trotter, President of Alaska Pacific University in support of SB 225. SENATOR JACKO moved to pass CS FOR SENATE BILL NO. 225(HES) (INSURANCE TAX CREDIT:GIFTS TO COLLEGES) from committee with individual recommendations. Without objections, so ordered. SENATOR TAYLOR introduced SB 190 (ENFORCEMENT OF SUPPORT ORDERS) sponsored by the Senate Judiciary Committee by request and invited LARAINE DERR, Deputy Commissioner for the Department of Revenue, to testify. MS. DERR explained she had recently taken on the responsibility for the Child Support Enforcement Division, but preferred to defer to MARY GAY, Division Director, for a review of the bill. MS. DERR said the bill would bring the State statute into line with federal requirements, and she introduced MS. GAY, who would be speaking on the teleconference network from Anchorage. MS. GAY explained SB 190 would amend Alaska State Statute 25.27.062 and bring the State into compliance with federal regulations. She also explained the Family Support Act of 1988 which requires the State to enact laws and implement procedures for wage withholding. Section 101 of the Family Support Act also requires that, effective January 1, 1994, States implement immediate withholding in all support orders initially issued in the State which are not being enforced under Title IV-D. MS. GAY concluded by stressing that federal funding was contingent upon this legislation. SENATOR TAYLOR announced a new committee substitute prepared by TERRI LAUTERBACH, 8LS1001\K, 2/23/94, which incorporates the changes, the first one being the bond security requirement, and the second, on page 2, line 3, where the Child Support Enforcement Agency's (CSEA) responsibility is clarified. SENATOR TAYLOR asked his aide, KEVIN SULLIVAN, to clarify the sunset provision. Number 554 SENATOR TAYLOR asked MS. GAY if she had reviewed the committee substitute before the committee, and she replied she had not. MR. SULLIVAN said a copy had been faxed to her office today. SENATOR TAYLOR reviewed the changes made by MS. LAUTERBACH, and reminded the committee this was federally mandated legislation that could affect the existence of the child enforcement agency, since presently the cost of the agency from federal funding. SENATOR LITTLE clarified that if the bill is not passed, the State would lose significant funds in promoting the collection of child support payments, which directly affects the number of people on welfare with the accompanying costs. She thought it was important the bill be put forward, and she questioned the removal of conflicting language within the bill. SENATOR TAYLOR asked MR. SULLIVAN to explain what has happened to the bill. MR. SULLIVAN explained to MS. GAY when he had received the bill as well as the memo from MS. LAUTERBACH, and that it had been faxed to her. He suggested she send someone to find it, so all participants would be looking at the same information. MR. SULLIVAN told SENATOR LITTLE the question put before Legal Services was whether it complied with federal requirements, and he explained the research that went into the committee substitute. By sending the memo to the Child Support Enforcement Agency, he said the committee was made aware of other federal requirements that actually did speak to the bill with the exception of the sunset provision. He explained all of this contributed to the committee substitute, which was then delivered back to MS. GAY, and he also explained the reinsertion of the bonding requirements. MS. GAY spoke to the urgency of passing the legislation, not only to fund the Child Support Funding Agency, but to protect the Aid to Families with Dependent Children funding, which would amount to half of $62 million provided by the federal government. Number 588 SENATOR LITTLE asked to have MS. LAUTERBACH explain the changes being considered in the committee substitute. MS. LAUTERBACH and SENATOR LITTLE discussed which version of the committee substitute should be considered. MS. LAUTERBACH explained the very latest version contained the bonding and security provisions, which were returned to the legislation, and to take out the extension of the employer information program as passed in 1991. MS. LAUTERBACH had discussed the legislation with MS. GAY, who pointed out some regulations not previously seen by MS. LAUTERBACH. TAPE 94-12, SIDE B Number 001 MS. LAUTERBACH explained the bonding and security provisions were from even older regulations, and she had returned them to the legislation. She further explained the changes in the repealer relating to the employer information program were requested by Judiciary staff. SENATOR LITTLE asked MS. LAUTERBACH and MS. GAY why the employer recording provision were not returned to the bill, since the bill deals exclusively with implementing the federal withholding requirements. They all agreed the employer recording provision worked well for the Alaska Child Support Enforcement Division by returning money to AFDC. SENATOR LITTLE suggested it would be in the State's best interest to retain the program, but MS. GAY thought it might hold up passage of the bill, which she considered critical. SENATOR LITTLE asked whether the provision was controversial, and both SENATOR TAYLOR and MS. GAY said it was. MS. GAY explained the federal government would probably require the continuation of the program as far as reporting of all new hires, and their W-4 forms to be matched with child support records. SENATOR LITTLE said her preference was to leave the program in effect, since she thought it was important to increase whenever possible the collection of child support backlogs. MS. GAY said REPRESENTATIVE MARK HANLEY has a bill to reinstate the provision, and SENATOR TAYLOR explained he had been told that SB 190 was solely to bring the State into compliance with federal law. He said he was only trying to present a pure bill, which would be easier to defend on the floor of the Senate. Number 043 After some discussion, SENATOR TAYLOR moved to adopt CS FOR SENATE BILL NO. 190(JUD), previously identified as LAUTERBACH, 2/12/94. Without objections, so ordered. SENATOR LITTLE moved to pass CS FOR SENATE BILL NO. 190(JUD) (ENFORCEMENT OF SUPPORT ORDERS) from committee with individual recommendations. Without objections, so ordered. There being no further business to come before the committee, the meeting was adjourned at 2:35 p.m. by SENATOR TAYLOR.