SENATE STATE AFFAIRS COMMITTEE February 24, 1998 3:40 p.m. MEMBERS PRESENT Senator Lyda Green, Chairman Senator Jerry Ward, Vice-Chairman Senator Mike Miller Senator Jim Duncan MEMBERS ABSENT Senator Jerry Mackie COMMITTEE CALENDAR SENATE BILL NO. 76 "An Act relating to long-term plans of certain state agencies and recommendations regarding elimination of duplication in state agency functions." - MOVED CSSB 76(STA) OUT OF COMMITTEE SENATE BILL NO. 322 "An Act relating to the Alaska children's dividend fund; and providing for an effective date." - MOVED SB 322 OUT OF COMMITTEE SENATE BILL NO. 326 "An Act relating to the requirements for the registration of sex offenders; and providing for an effective date." - BILL POSTPONED CS FOR HOUSE BILL NO. 334(FIN) am "An Act relating to waiver of tuition and fees for certain family members of a peace officer or a fire fighter killed in the line of duty; and providing for an effective date." - HEARD AND HELD PREVIOUS SENATE COMMITTEE ACTION SB 76 - See State Affairs minutes dated 2/19/98. SB 322 - No previous action to report. HB 334 - See State Affairs minutes dated 2/19/98 WITNESS REGISTER Representative Pete Kelly State Capitol Juneau, Ak 99801-1182 POSITION STATEMENT: Presented HB 334 Ms. R.J. Nelson Nenana Fire Chief Nenana, Ak 99760 POSITION STATEMENT: Commented on HB 334 Mr. Melvin Vostry PO Box 70 Palmer, Ak 99645 POSITION STATEMENT: Commented on HB 334 Mr. Craig Lewis Fairbanks Region EMS 3522 Industrial Avenue Fairbanks, Ak 99701 POSITION STATEMENT: Commented on HB 334 Mr. Steve O'Connor 231 S. Binkley Soldotna, Ak 99669 POSITION STATEMENT: Commented on HB 334 Captain Ted Bachman Department of Public Safety 5700 Tudor Road Anchorage, Ak 99507 POSITION STATEMENT: Commented on HB 334 Mr. Scott Calder PO Box 75011 Fairbanks, Ak 99707 POSITION STATEMENT: Commented on HB 334 and SB 322 Mr. Jack Fargonli Office of Management and Budget PO Box 110020 Juneau, Ak 99811-0020 POSITION STATEMENT: Commented on SB 76 Mr. Jim Baldwin Department of Law PO Box 110300 Juneau, Ak 99811-0300 POSITION STATEMENT: Commented on SB 76 Ms. Cheryl Frasca 2415 LaHonda Drive Anchorage, Ak 99517 POSITION STATEMENT: Supported SB 76 Mr. Brian Andrews 2327 Meadow Lane Juneau, Ak 99801 POSITION STATEMENT: Supported SB 322 Mr. Steve Brantner 1 Sealaska Plaza suite 301 Juneau, Ak 99801 POSITION STATEMENT: Commented on SB 322 Ms. Deborah Vogt Department of Revenue PO Box 110405 Juneau, Ak 99811-0405 POSITION STATEMENT: Commented on SB 322 ACTION NARRATIVE TAPE 98-8, SIDE A Number 001 CHAIRMAN GREEN called the Senate State Affairs Committee to order at 3:40 and called HB 334 as the first order of business. HB 334 - TUITION WAIVER FOR POLICE WIDOW/CHILD REPRESENTATIVE KELLY came forward, saying he had already presented his bill and would defer to the teleconference testimony. CHAIRMAN GREEN asked the sponsor if he originally chose a broad definition of police officer or if the definition had been broadened in the process. REPRESENTATIVE KELLY replied it had been broadened either in the finance committee or on the floor. CHAIRMAN GREEN said she was pondering the inclusion of a U.S. Marshall. REPRESENTATIVE KELLY responded that his intent was to include them. SENATOR MILLER asked then why only one type of federal agent would be covered and REPRESENTATIVE KELLY said it was his understanding that the amendment adopted did cover FBI agents and border patrol agents as well. CHAIRMAN GREEN asked if the sponsor had an estimate of the number of people the bill would currently cover and REPRESENTATIVE KELLY estimated that number to be 800 police and 4,000 firefighters. MS. R.J. Nelson, Fire Chief of the Nenana Volunteer EMS Department testified via teleconference from Nenana. She mentioned she had a personal interest in the bill as she has family and friends who are police officers and her husband is a firefighter. She urged the inclusion of Emergency Medical Technicians (EMTs), which she called the third factor in public safety. EMT's play a major role in public safety and respond with police and firefighters to all different types of emergency situations. She said generally the triad of police, fire and EMS responders are at the scene of vehicle accidents and proposed that this bill would cover only two of these three responders in the case that they were all killed in the course of responding to an accident. MS. Nelson mentioned that on occasion only EMT's respond to certain situations. She concluded that she supported the bill, but urged its amendment to include EMS providers or the introduction of another bill offering them the same benefits. MR. MELVIN VOSTRY, with the Mat-Su EMS section of the Department of Public Safety, agreed with the previous speaker. He said often the perception is that police and firefighters are the ones in danger, but having been both a firefighter and an EMS responder, he attested to the fact that it is equally, if not more, hazardous to your health. He believes EMS providers should be included in this or another bill. He said paramedics fall into the same category, only with a different licencing provision, and should also be covered. CHAIRMAN GREEN responded that there is a problem with the bill title and the committee was pondering how this might be resolved. MR. CRAIG LEWIS, the Fairbanks Director of the Interior Region Emergency Medical Service, expressed his support of the bill and encouraged its passage. At the same time, he urged the committee in the strongest terms to give the same recognition and benefits to EMS providers, either through an amendment or in another bill. He also stated that EMS providers are in the same danger as their police and fire department counterparts. MR. LEWIS reported that EMT's get shot, stabbed, assaulted and beat up. He emphasized the danger and risk associated with their job of responding to any incident with injuries as well as any threat of biological and chemical agent releases. He said more than 60 million Americans use EMS services in a given year and in Fairbanks, EMS providers responded to twice as many calls as firefighters in 1997. He stressed the fact that EMS providers are killed in the line of duty and deserve the same treatment as other emergency service workers. CHAIRMAN GREEN observed that EMS providers would not fit in this bill due to the title, she proposed the idea of a new committee bill to deal with them. Number 273 SENATOR WARD Noted that anyone with written testimony might send this as well as written requests for such a bill to the State Affairs Committee. MR. STEVE O'CONNOR, Assistant Chief of Central Emergency Services for the central peninsula, and an EMS provider with 26 years experience, agreed with the comments of MR. LEWIS. He clarified that EMS comprises EMT's and paramedics, both of whom should be covered in a companion bill. CAPTAIN TED BACHMAN of the Alaska State Troopers mentioned to the committee that the bill's definition of resident would inadvertently exclude some people who have not been residents of the state for one year prior to the incident. He said police, fire and EMS departments hire people from out of state and, in the case of an accident, he would hate to see someone excluded due to the wording of this definition. He suggested that the wording be changed so, on line 25 after the words armed services, it would read: "or who was a full time employee of . . . " REPRESENTATIVE KELLY said it seems a simple amendment and CHAIRMAN GREEN said it would be addressed in committee. MR. SCOTT CALDER testified via teleconference from Fairbanks and echoed the remarks of the previous speakers, saying it is appropriate for the committee to submit new legislation to include EMS personnel. He said he did have a concern regarding the inclusion of civil authorities in the category of military personnel. He believed it might be important to make a distinction between the two categories. REPRESENTATIVE KELLY commented on the death of an EMS person who is also a firefighter but acting in the capacity of an EMS provider, some testimony had suggested this person would not be covered under the bill and REPRESENTATIVE KELLY did not believe this to be true. SENATOR DUNCAN suggested that the definition of resident is used elsewhere in statute and has been carefully crafted and argued in court. He remarked they might want to be careful in changing it, so as not to cause problems for the bill. He advised consulting the legal department before changing it. SENATOR DUNCAN said he was not sure, but that it may open up a can of worms. CHAIRMAN GREEN asked if the change could be made to "who was employed" rather than "resident." REPRESENTATIVE KELLY replied that this is a policy call and as with many benefits, a period of time is required in order to qualify. He said he does not know that this is a gross inequity and he wants to make sure not to cause further problems. CHAIRMAN GREEN asked if he would like to bring the bill back on Thursday and REPRESENTATIVE KELLY agreed. SB 76 - STATE LONG-TERM PLANNING SENATOR PARNELL presented SB 76, which, he said, fosters government that gets results and encourages communication between the Legislature and the Administration. He said this legislation amends the Executive Budget Act to foster results-based government. He explained the bill empowers the Legislature to establish mission statements and desired results for the Administration. SENATOR PARNELL stated that the guts of the bill mandates the legislature allocate the state's resources for effective and efficient public service by clearly identifying desired results, setting priorities, assigning accountability and using methods for measuring, recording and reporting results. SENATOR PARNELL commented that for too long the system has been mushy and that because of this, discussions of policy never even occur. He hopes this bill will set forth a state policy where the focus on is getting results. MR. JACK FARGNOLI, representing the Office of Management and Budget (OMB) stated that his testimony is essentially unchanged from his comments previously. He said he could not agree more with the concept of the bill but is concerned with some legal issues and fears it may be difficult to meld Legislative and Executive efforts into an orderly budget. MR. FARGNOLI also said the bill's timing is premature and he expressed concern with the vague usage of the term "mission statement." He does not know exactly how the process of issuance of these mission statements would occur or what the intent behind this provision is. JACK FARGNOLI said his understanding is the Legislature fulfills its plenary powers in the enactment of legislation and the Governor fulfills his plenary powers in the process of providing guidance for these laws. He said something in between these might be desirable, but he's unable to tell from the bill. MR. FARGNOLI expressed uncertainty of what would be left in statute and worry over the resulting confusion he envisions. He proposed this area of the bill needs to be firmed up and said he would leave discussion of the legal issues to MR. JIM BALDWIN from the Department of Law. CHAIRMAN GREEN asked for clarification of his primary concern and he explained it was the phrase "issue a mission statement." He said he did not know if this was meant to be a statutory process and how it would be handled. His concern is the possible problem resulting from a mission statement conveyed from the Legislature that is contradictory to a department's existing mission statement in statute. MR. JIM BALDWIN, from the Department of Law, began by saying he likes the concept of results-based budgeting and has seen it gain widespread national support. He explained that the problem with the bill is constitutional. Article 2, section 13, of the Alaska Constitution limits what can be done in an appropriation bill. He said it is unclear whether the intent of the bill is to have this mission statement included in the appropriation's bill, and said this would cause a problem as an appropriation bill must be confined to appropriations. He said this confinement provision is fairly unique to Alaska and makes it difficult to relate other states' experience to ours. He concluded that this is such a good concept, he would not want to see it bogged down in a debate over the meaning and effect of intent statements in the budget. MR. BALDWIN said his reading of the word issue in the bill, with the knowledge that the job of the Legislature is to enact legislation, says the issuance of a mission statement would affect an agency's mission by affecting what law it operates under. MR. BALDWIN said a mission statement might be enacted into law, which is within the power of the Legislature, or that it might be done by regulation with a collaboration of both Legislative and Administration input. He offered the committee a copy of the Florida bill as an example of how another state has approached this collaborative method. MR. BALDWIN discussed other issues within the bill. He mentioned the truth in budgeting provision and said this would be a problem if it were enacted into law. He remarked that the Administration has no trouble with being truthful in budgeting, but said it is a matter of definition as to when a deficit is a deficit. He observed that the Governor's power to submit a budget derives from the Constitution and he questions the validity of a statute that tells the Governor how to characterize his own budget. He believes this is a matter of separation of powers, and this appears to be an attempt to define a purely Executive power by statute. MR. BALDWIN said the repeal in section 10 of the bill is appropriate and consistent with a court ruling which determined that statute invalid. CHAIRMAN GREEN noted that enacting a mission statement into law might be problematic, as she assumes mission statements are somewhat fluid over time. MR. BALDWIN said the establishment of a mission statement is a blend of Executive and Legislative powers and one of the concerns is that the bill does not specify whether the process could be characterized as top down or meeting in the middle. He would anticipate problems with a top down process in such a complex issue. He stated that some aspects of a mission statement may not be amenable to being put into statute. He also noted the possible dilemma that would result from a mission statement that conflicts with statute. SENATOR WARD asked if the Florida bill is currently law. MR. BALDWIN did not know, but said he was interested by it because of the collaborative process it employs in creating mission statements. He found it on the Internet. SENATOR WARD said the process does not work unless there is cooperation. MS. CHERYL FRASCA, a former budgeteer, came forward to speak to the value of the Legislature expressing its expectations regarding the information on performance and results that is being requested in SB 76. TAPE 98-8, SIDE B Number 001 MS. FRASCA emphasized the importance of having the Legislature work with the Governor for a framework and a process to use information to make better budget decisions. She wanted to lend support for legislation that will lay out this framework. SENATOR PARNELL appreciated this discussion. He indicated that the Legislature is the policy making body of the state and is a coequal power, not a top down body. With respect to the Executive branch, he said this is not an attempt to step on their veto power and rule-making power, only to say that the Legislature is going to establish policy. SENATOR PARNELL answered the question raised about the issuance of a mission statement, saying he purposefully left the bill flexible in an attempt to establish a collaborative process and foster discussion with the agencies. SENATOR PARNELL believed MR. BALDWIN thought a mission statement would be included in an appropriation bill due to the word "legislation" appearing on page 2, line 12. SENATOR PARNELL suggested this word should be changed to "Legislature." He said his bill is flexible enough to put missions and desired results in statute or be enacted as intent language. CHAIRMAN GREEN asked what would happen if there was a conflict between a department's statutory responsibilities and a given mission statement. SENATOR PARNELL replied that departments' missions are somewhat defined in statute and mission statements must be in compliance with that law or the law could be changed. He said there could be no conflict. SENATOR PARNELL did say the activities used to achieve the mission are up to the Executive Branch. CHAIRMAN GREEN asked about the issue regarding truth in budgeting and SENATOR PARNELL responded that he had no answer for MR. BALDWIN's question regarding the constitutionality of these sections. He said he found it rather interesting and the intent was only to ensure that what the Legislature hears in December mirrors the bill they see in January. SENATOR PARNELL noted in the past those two paths have diverged, but said he is not wed to these sections. CHAIRMAN GREEN commented that she sees the intent of the bill and likes it. SENATOR WARD asked SENATOR PARNELL if he had looked at the Florida bill. SENATOR PARNELL had not but said MR. BALDWIN's description of the process of the bill whereby the Governor sets the mission statement and the Legislature follows along, seems the reverse of the Alaska Constitution and the Legislature's role of setting policy. He said to him that appears to be a top down approach. SENATOR PARNELL observed that it seemed as if the Administration was offering the Florida bill as a solution. He said when he was working on the bill initially he had asked for cooperation from a top official in the Governor's office, he had incorporated every requested change from them into a work draft that was subsequently rejected. In light of that, he plans to work within the committee process on this bill. SENATOR PARNELL said he had two small changes. SENATOR WARD moved the change from legislation to Legislature on page 2, line 12 as amendment #1. Without objection, it was so ordered. SENATOR PARNELL said page 6, lines 22-24 the words "goals and objectives" should be deleted and replaced with "missions and desired results." He said "missions and desired results" would also replace the words "goals and objectives" at the end of line 23. SENATOR WARD moved the above change as amendment #2 and without objection, it was so ordered. SENATOR WARD then made a motion to move CSSB 76(STA) from committee with individual recommendations and accompanying fiscal notes. Without objection, it was so ordered. SB 322 - CHILDREN'S DIVIDEND FUND SENATOR DUNCAN presented his bill which establishes an Alaska Children's Dividend Trust. This Children's Trust permits children between the ages of 0 - 18 to deposit their Permanent Fund Dividends (PFD) in a tax-deferred trust account for college or vocational education expenses. Children under the age of 18, or their parents on their behalf, could participate in the program through a check off on the dividend application form and would receive quarterly balance statements. SENATOR DUNCAN said, later, withdrawals would be allowed for post-secondary or vocational education purposes. These withdrawals could be taken twice yearly at which time taxes would become due. Expecting that the student would be taxed at the 15 per cent rate, SENATOR DUNCAN demonstrated that they might receive an overall benefit of approximately $14,700 in 18 years based on certain assumptions of fund growth. SENATOR DUNCAN commented that this demonstrated the advantage of having this tax deferred status. CHAIRMAN GREEN asked why the age 18 was chosen when some children, like her, graduate from high school at an earlier age. SENATOR DUNCAN replied that age 18 is not necessarily the magic number and agreed with CHAIRMAN GREEN that it might be changed to reflect whenever a child graduated from high school. SENATOR DUNCAN said at college age the child has an option to take payments as a lump sum, or in different ways over the course of 1 - 7 years. Tax rates would vary according to how the distribution was made, but overall there would be a benefit, according to SENATOR DUNCAN. To qualify for this tax deferred status the fund would be structured as a "Rabbi trust," like the state's deferred compensation plan. SENATOR DUNCAN said there are no assurances that this fund would in fact be given tax-deferred status by the Internal Revenue Service (IRS). He said the fund would have to be already in place and structured carefully before the IRS could make that determination. SENATOR DUNCAN said it is his understanding that at some point a tax attorney would need to be hired to advise whether the fund is likely to be approved by the IRS. SENATOR DUNCAN mentioned the bill also contains a provision for withdrawal of the funds for non-educational purposes when a person reaches the age of majority. He said funds could also be withdrawn for other reasons, such as serious medical problems, before the age of majority. SENATOR WARD asked about the fiscal note, and if any consideration had been given to the idea that the fund itself could pay the start up costs. SENATOR DUNCAN replied that he would allow the Department of Revenue to address that question. He did mention that the first year there would be no participants in the program. SENATOR DUNCAN does not agree with the cost in the fiscal note for the first year but did point out that in subsequent years the fund pays for itself. He said they could talk about the first year cost. He mentioned that other tax attorney opinions had been much less expensive, however, he did not know if they were equal in complexity to this issue. SENATOR WARD asked again about a mechanism to recoup whatever cost is incurred and SENATOR DUNCAN said he believed it could be done if it is a major concern. CHAIRMAN GREEN recalled a ballot consideration she had proposed and said the immediate reaction from the Division of the Permanent Fund was fear of the IRS deciding that the structure of the Permanent Fund itself was questionable. She said there was discussion that if the fund was changed it may be in jeopardy and she had, at that time, asked for further inquiries and never received any response. CHAIRMAN GREEN said it appears to be a subject no one wants to get into. SENATOR DUNCAN replied that this is a different matter, her proposed constitutional amendment would have changed the purpose of the dividend, and he does not see this bill having any impact at all in that way, as it only provides a dispersement option to a person receiving a dividend and does not change the Permanent Fund Dividend program itself at all. CHAIRMAN GREEN mentioned that the question will arise if it is government's role to be the keeper of a trust on behalf of anyone. SENATOR DUNCAN replied that the state already holds money in trust in retirement funds and he believes it to be a legitimate government role if they were to pass a law allowing it. SENATOR DUNCAN said a trust could be managed by the Department of Revenue or even a private firm, this trust is only set up as a government trust in order to obtain tax-deferred status. CHAIRMAN GREEN asked if a person deposited their dividend directly into a limited private trust account if tax deferred status could be achieved. SENATOR DUNCAN responded that he was not qualified to answer that question but likely someone in the audience could. CHAIRMAN GREEN noted that this bill has a fairly limited title and wondered if SENATOR DUNCAN anticipated other groups rushing in attempting to be covered. SENATOR DUNCAN replied that he hoped not, if the bill is to achieve its goal of a tax deferred trust for education of the children of the state, it must be kept narrow. He said if other groups are added, it might endanger the ability to get a favorable IRS ruling. MR. BRIAN ANDREWS, along with MR. STEVE BRANTNER, came forward and urged support for SB 322. MR. ANDREWS restated what the bill would do and offered his opinion that if the fund was carefully structured in the form of a Rabbi trust it would receive a positive revenue ruling from the IRS. He explained that the tax deferred status of such a trust is based upon positive IRS rulings dealing with the doctrines of constructive receipt, economic benefits and forfeitability. MR. ANDREWS said it should be noted that the IRS has recently loosened up the provisions of the Rabbi trust by now allowing for up-front funding and various forms of disbursement. It should also be noted that the Taxpayer Relief Act of 1997 also established an educational IRA account a person can deposit after-tax dollars in but, when distributed, yields tax-free proceeds for the purpose of higher education. MR. ANDREWS stated that this fund would be self-funding and would not affect general fund expenditures. He believes the popularity of the fund would provide economies of scale that would make it cost effective when compared to private individual accounts. His opinion was that the relevant general fund expenditures would include modifying the PFD application and the costs associated with developing a legal opinion, which he is not sure could be generated by the attorney general or legislative counsel. He mentioned costs ranging from 10,000 - 100,000 dollars for this outside counsel, and assumed a figure of 40,000 to 50,000 would be reasonable. MR. ANDREWS calculated some possible pay-out scenarios of the trust, saying overall, the benefits of the program far outweigh the costs of a legal opinion, in his estimation. He also noted the intangible benefit to Alaskans in which parents are able to establish a savings program for higher education costs without first having to handle the money. MR. ANDREWS concluded that the committee should pass the bill. CHAIRMAN GREEN asked what the reason was for retaining legal counsel. MR. ANDREWS clarified that participants would not have to pay tax or the deposits to the fund or its earnings. SENATOR DUNCAN restated this and added that taxes would only be paid on any withdrawal at the time of withdrawal, and the purpose of the opinion is to ascertain that the trust meets the requirements of a Rabbi trust and could be tax deferred. He remarked that it takes the IRS to make that determination. CHAIRMAN GREEN asked if this could not be accomplished by sending a letter to the IRS and SENATOR DUNCAN replied that he had sent them many letters. SENATOR DUNCAN asked for Mr. ANDREWS to respond to CHAIRMAN GREEN's question about why the fund couldn't be managed by a private firm. MR. ADAMS said it is due to the concept of economic benefit and the fact that a participant in this type of trust cannot receive an economic benefit. The trust money would have to remain an asset of the state, within the Department of Revenue, in order that the argument could be made that participants do not have an economic benefit. SENATOR DUNCAN mentioned that Deferred Compensation is another example of where the state holds money in trust for people and MR. ANDREWS noted that those monies are also, technically, assets of the state. CHAIRMAN GREEN asked if all of those instances are based on an employee/employer relationship and SENATOR DUNCAN replied they are. MR. ANDREWS added that Rabbi trusts can be structured to accommodate independent contractors as well. MR. STEVE BRANTNER commented that deferred compensation plans, sometimes called "golden handcuffs" are structured along the same lines, where money will be kept as an asset of the corporation until some triggering event allows dispersement. He believes this same structure should apply here, and noted recent rulings have said this structure is possible without the employer/employee relationship. MR. BRANTNER restated the fact that the money would have to remain an asset of the state. He said he also believes that all ongoing administrative costs could be absorbed by the program itself and this would be reasonable and appropriate. SENATOR WARD asked how this would impact eligibility for public assistance or medical assistance if dividends continue to be held harmless. MR. BRANTNER replied that throughout the course of the period in which those assets are held in trust the treatment would be the same. The build up of the value of the trust would not have any effect on the gain or loss of any benefits. SENATOR WARD asked if he had a copy of the Rabbi trust and MR. BRANTNER said it consists of several sections of the IRS code and it is not just one particular document. SENATOR WARD asked if they had a copy of the code and MR. BRANTNER replied that there is no particular section of the code that establishes a Rabbi trust, but rather it comes from a court interpretation of the code. SENATOR WARD said he knew this and was showing how some people had already spent a lot of money to do this privately. MR. ANDREWS commented that if an individual wanted to do this, they would run into the obstacle of whom the holder of the trust would be. He restated that the State is the only candidate able to hold the trust without constructive receipt. He said that is why the bill is written narrowly, giving it a higher probability of a favorable ruling from the IRS. Ms. DEBORAH VOGT, representing the Department of Revenue, said this bill will affect both the Permanent Fund and Treasury Divisions of the department and would require some training and the preparation of forms for program enrollment. She said they would also solicit and print an information page in the dividend application packet and post information on the division's web site. She reported the ongoing cost to the division would be $16,000 to add a page to the dividend packet, but said it would not take long before all this could be paid from the participants. MS. VOGT said the treasury division would set up and manage the fund, performing administrative and record keeping functions that would cost about 10,000 dollars initially and 10,000 each year thereafter. MS. VOGT also quoted a 1.5 basis point fee for external management, based on the assumption that 35 per cent of the fund would be invested in equity. She said also some personal services costs for the treasury division would be allocated to the trust fund, although no new personnel would need to be hired. MS. VOGT projected the cost of the legal opinion to be 100,000 dollars and proposed it would happen in two phases: the initial determination that competent attorneys believe the trust would meet tax deferral status, which she estimated at a cost of 60,000 dollars, and then the process itself with the IRS, to which she assigned an estimated cost of 40,000 dollars. MS. VOGT said the cost could be debated but they would want the best opinion available and she believes it will cost a fair amount of money to get that. She said the Legislature might find it appropriate for the trust to pay those costs, but the costs are reflected as general fund dollars in the fiscal note submitted. MS. VOGT explained that, regardless of the source of the money, the appropriation ought to be a continuing appropriation as it often takes a fair number of years to get a ruling from the IRS. She would assume the program would go forward if the initial ruling from counsel was favorable, and she imagined this could be obtained in this legislative session. She said the department would then go forward with the plan in the next dividend year with the caveat that the fund had not been ruled on by the IRS and, in the case of a negative ruling, the dividends would have to be refunded. TAPE 98-9, SIDE A Number 001 MS. VOGT said, assuming only 5,000 participants in fiscal year 2000, the cost to participants for funding some of the set up costs and all of the ongoing cost would cost the participants the equivalent of 57 basis points as compared to a general mutual fund charge of 100 basis points for fund management. She said this cost would diminish quite quickly as more participants joined the program. SENATOR MILLER said he is generally supportive of this program but wondered what might happen if a participant died or moved from the state. DEBORAH VOGT hadn't thought about this last question but assumed any money deposited in the fund would be left there until the individual turned 18 and then would have dispersement choices. In the case of death, she assumes there would be a beneficiary form like is used for deferred compensation and this form would be filed with the other records. SENATOR WARD asked if there was anything in the bill that allowed an educational institution to preencumber any of these funds. MS. VOGT replied no, her understanding of the legal requirements of a fund of this nature mandated it be an asset of the state which could not be encumbered by another party. SENATOR WARD asked if anything in the legislation would preclude a child from attending a private school and MS. VOGT said at the time of dispersement the money could be used for any educational purpose. She also noted that any money left in the trust would have to be dispersed at the age of 25. SENATOR WARD said he was thinking in terms of the fact that his granddaughter would be incurring costs for 18 years of private school and was wondering if this would help with that. CHAIRMAN GREEN remarked it would only be available to reimburse. SENATOR MILLER asked what would happen if an individual dropped out of school. MS. VOGT said if an individual was not in school the proceeds would be dispersed to them. SENATOR DUNCAN interjected that the bill does not force anyone to go to school. CHAIRMAN GREEN mentioned that she was looking over the list of agencies that can attach a permanent fund dividend and asked if this list included the Department of Corrections garnishing juveniles who are liable due to destroyed property. MS. VOGT said the Legislature has made incarcerated people and felons ineligible for the dividend. The equivalent amount that would be paid to those ineligible in the form of dividends then goes to the Departments of Corrections, and Public Safety, and victims' assistance. CHAIRMAN GREEN questioned if this was the bill she was referring to. She wanted to be sure there was a trigger mechanism for this payment. CHAIRMAN GREEN asked if MS. VOGT had an opinion on the bill and she responded she did not. She thinks the big question will be whether or not the trust qualifies for tax deferred status. She has expressed her reservations about this to SENATOR DUNCAN and said, in her experience, she has never seen anything written about Rabbi trusts outside the employer/employee relationship. She proposed that is why the tax counsel might be so costly. She noted the concept breaks new ground and the IRS is not likely to decide on it quickly. JIM BALDWIN said it is difficult to estimate the cost of the tax opinion and said if he has erred, he erred on the high side so as to not leave the program short. SENATOR DUNCAN added this issue is specific and might be compared to other cases and wondered why the opinion would be so expensive. MS. VOGT said the only similar issue she is aware of is the Advanced College Tuition (ACT) program which has piggybacked on the experience of several other states, resulting in less expense for Alaska. SENATOR DUNCAN concluded he did not want to short change the program but said her reservations are likely lessened after hearing of other Rabbi trusts occurring outside of the employer/employee relationship. MS. VOGT agreed. MR. SCOTT CALDER from Fairbanks said he saw no compelling reason to address this issue. He observed that, currently, parents can invest money for their children for education. He mentioned their is no guarantee of achieving tax deferred status and it is possible it might cost hundreds of thousands of dollars to find this out. He said this draws attention away form the desirability of parents saving or investing on behalf of their children and seems like it discourages private financial planning. MR. CALDER said it makes no sense that it would be a state asset in the short tem but not in the long term. He expressed his overall skepticism with the bill, and suspicion of the IRS, asking if the committee might find the time to protect the people from that organization rather than spend money seeking their opinion. CHAIRMAN GREEN asked again about teenagers getting in trouble and being held liable for property damage. SENATOR DUNCAN said he assumes any future dividend could be withheld from the trust and CHAIRMAN GREEN wanted to make sure that mechanism was in place. DEBORAH VOGT said she imagined there would be a court order binding on the individual, requiring action by them and not the division. CHAIRMAN GREEN remarked she did not want this to be overlooked. SENATOR DUNCAN moved SB 322 out of committee with individual recommendations and accompanying fiscal notes.