Legislature(2003 - 2004)

03/09/2004 08:01 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HJR 31-CONST AM: PERMANENT FUND                                                                                               
[Contains brief mention of HB 514.]                                                                                             
Number 2354                                                                                                                     
CHAIR WEYHRAUCH  announced that  the next  order of  business was                                                               
HOUSE  JOINT  RESOLUTION  NO. 31,  Proposing  amendments  to  the                                                               
Constitution  of  the State  of  Alaska  relating to  the  Alaska                                                               
permanent fund  and to payments  to certain state  residents from                                                               
the Alaska  permanent fund; and  providing for an  effective date                                                               
for the amendments.                                                                                                             
Number 2292                                                                                                                     
JOHN  MALLONEE, Acting  Director, Central  Office, Child  Support                                                               
Enforcement Division  (CSED), Department of Revenue,  in response                                                               
to a question from Chair  Weyhrauch asking why the department has                                                               
an interest in [HJR 31], offered the following:                                                                                 
     With the distribution of $20,000  in this payout, child                                                                    
     support  would  collect  ...  -  if  everyone  who  was                                                                    
     eligible filed for their dividend  - about $240 million                                                                    
     in child  support.   Of that  $240 million,  about $180                                                                    
     million  of  it  would  go  to  custodial  parents  and                                                                    
     children  in the  state  of Alaska,  and  then a  sixty                                                                    
     additional  million  would  be reimbursement  for  past                                                                    
     welfare  payments:     $30  million,  which   would  be                                                                    
     retained  by  the  State  of   Alaska,  and  about  $30                                                                    
     million, which would go to the federal government.                                                                         
CHAIR  WEYHRAUCH asked  if  the  money would  go  to the  federal                                                               
government anyway, or if it would  go simply because of the large                                                               
amount of the payout.                                                                                                           
MR.  MALLONEE answered  it  would go  to  the federal  government                                                               
regardless  of how  [the division]  collected it.   He  explained                                                               
that since  the government pays  a portion of  public assistance,                                                               
when  money is  collected  to reimburse  public assistance,  that                                                               
money is split between the state and the federal government.                                                                    
CHAIR WEYHRAUCH asked  if the large amount of  money Mr. Mallonee                                                               
previously  referred to  is a  result of  there being  "that much                                                               
arrearage  in child  support  payments by  ...  residents of  the                                                               
MR.  MALLONEE answered  that's  correct.   He  stated that  there                                                               
currently is approximately $583 million  in child support owed in                                                               
the state  of Alaska.  In  response to a follow-up  question from                                                               
Chair  Weyhrauch,  he  confirmed  that that  amount  is  owed  by                                                               
noncustodial parents in Alaska.                                                                                                 
CHAIR  WEYHRAUCH asked  what the  long-term implication  would be                                                               
from  no permanent  fund  dividend  (PFD) being  paid  out on  an                                                               
annual basis.                                                                                                                   
MR. MALLONEE replied that the  smaller amount of the checks would                                                               
be  approximately $1.7  million  that the  state  would lose,  or                                                               
about  $3.4 million  that  it would  lose  from collections  that                                                               
would  reimburse public  assistance.    Approximately another  $6                                                               
million would be lost to the  custodial parents of the state.  He                                                               
noted that  CSED has collected  "right at  a little more  than $9                                                               
million in permanent fund since October."                                                                                       
Number 2156                                                                                                                     
REPRESENTATIVE GRUENBERG turned to  the committee substitute (CS)                                                               
for HJR  31, Version 23-LS1282\W.   He offered  his understanding                                                               
that the  payments would  end after  fiscal year  (FY) 2010.   He                                                               
asked if  that would make  the collection of child  support after                                                               
that date more problematic in some cases.                                                                                       
MR.  MALLONEE  responded  that  it  [would]  make  child  support                                                               
"somewhat more problematic  to collect" if there  is no permanent                                                               
fund.  He said, "We do, in fact,  receive quite a bit of money on                                                               
cases  that  we would  not  otherwise  receive during  the  year.                                                               
[For] many of the cases [for]  which there's a minimum $50 order,                                                               
the  entire order  gets  paid  for the  entire  year  out of  the                                                               
permanent fund."                                                                                                                
REPRESENTATIVE GRUENBERG stated his  recollection that there is a                                                               
provision  in HB  514 that  would allow  CSED to  access people's                                                               
PFDs, "even  if they are  reluctant or  refuse to apply  for them                                                               
MR. MALLONEE confirmed that is true.                                                                                            
REPRESENTATIVE GRUENBERG said  that, in some cases,  [the PFD] is                                                               
the  only source  of child  support payments.   He  remarked that                                                               
sometimes  people  are  reluctant   to  apply  because  they  are                                                               
embittered,  for  example,  and   don't  want  to  support  their                                                               
children.  He  asked, "So, this may, in fact,  after 2010 make it                                                               
impossible to get child support from these people, right?"                                                                      
MR. MALLONEE answered that's correct.   He stated that there is a                                                               
possibility that if there were  no annual permanent fund payouts,                                                               
"there would be some cases of which we would not get payments."                                                                 
Number 2069                                                                                                                     
REPRESENTATIVE HOLM,  on that point,  asked how many  people that                                                               
would affect.                                                                                                                   
MR. MALLONEE  responded, "We usually get  approximately 10,000 to                                                               
12,000  PFDs in  a year."   He  estimated that,  of that  number,                                                               
perhaps as  much as 30  percent of those  are "cases of  which we                                                               
get no other payment during the year."                                                                                          
REPRESENTATIVE  HOLM responded  that  he would  "take issue  with                                                               
that," unless Mr. Mallonee can  give the committee some empirical                                                               
data.  He suggested the percentage could vary greatly.                                                                          
MR.  MALLONEE  told  Representative  Holm  that  he  is  correct.                                                               
Furthermore, he  said he  doesn't have  empirical data  with him;                                                               
however, in response to Chair  Weyhrauch, he said he would supply                                                               
that data as soon as possible.                                                                                                  
Number 2020                                                                                                                     
REPRESENTATIVE  SEATON   asked  when   the  one-time   payout  to                                                               
individuals occurs.  In response  to a question by Representative                                                               
Holm,  he clarified  that he  was referring  to page  2, line  23                                                               
through page 3, line 6, which read as follows:                                                                                  
          (c) Section 15 of Article IX as it read on June                                                                       
     30,  2004, applies  to appropriations  for fiscal  year                                                                    
     2005.   Notwithstanding  Section 15(b)  of Article  IX,                                                                    
     appropriations from  the permanent fund may  not exceed                                                                    
     the following amounts for the following fiscal years:                                                                      
               (1) fiscal year 2006 - five percent of the                                                                       
     market value of the fund on June 30, 2005;                                                                                 
               (2) fiscal year 2007 - five percent of the                                                                       
     average of  the market values  of the fund on  June 30,                                                                    
     2005, and June 30, 2006;                                                                                                   
               (3) fiscal year 2008 - five percent of the                                                                       
     average of  the market values  of the fund on  June 30,                                                                    
     2004, June 30, 2006, and June 30, 2007;                                                                                    
               (4) fiscal year 2009 - five percent of the                                                                       
     average of  the market values  of the fund on  June 30,                                                                    
     2005, June 30, 2006, June 30, 2007, and June 30, 2008.                                                                     
               (5) fiscal year 2010 - five percent of the                                                                       
     average of  the market values  of the fund on  June 30,                                                                    
     2005, June 30, 2006, June  30, 2007, June 30, 2008, and                                                                    
     June 30, 2009.                                                                                                             
REPRESENTATIVE  HOLM explained,  "Those are  in reference  to the                                                               
percent of market  value [POMV] (indisc. - coughing)  of the fund                                                               
after  it's been  split."   In response  to a  follow-up question                                                               
from Representative  Seaton, he clarified  that there would  be a                                                               
one-time payout and,  in addition to that, there also  would be a                                                               
payout for the year 2004.                                                                                                       
Number 1962                                                                                                                     
REPRESENTATIVE  LYNN reminded  the committee  that at  a previous                                                               
meeting he had  asked for information on how  "this" would affect                                                               
eligibility for public assistance  programs, in terms of welfare,                                                               
Medicaid,  and low  income housing,  for  example.   He asked  if                                                               
there had been a response to that request.                                                                                      
REPRESENTATIVE  WEYHRAUCH asked  if  Mr.  Mallonee could  address                                                               
that question.                                                                                                                  
MR.  MALLONEE  said  no,  but suggested  the  question  could  be                                                               
deferred to someone from the Division of Public Assistance.                                                                     
REPRESENTATIVE   LYNN  clarified   that   he  wants   information                                                               
regarding  any  program  where a  person's  yearly  income  might                                                               
effect  the  benefit he/she  might  get.    He explained  that  a                                                               
person's getting "all  this money at one time"  would change that                                                               
person's yearly income, obviously.                                                                                              
Number 1914                                                                                                                     
REPRESENTATIVE HOLM noted  that if "the PFD folks  go away," that                                                               
would save  $5.2 million  a year  in dissolving  that department.                                                               
The cost of  managing what would then be a  slightly smaller fund                                                               
would be  reduced by $8.2  million a  year.  Child  support would                                                               
get  approximately  $240  million in  additional  revenue,  while                                                               
student loan  arrears would  be paid  "to the  tune of  about $50                                                               
million," he  stated.  He  said there would be  positive outcomes                                                               
to the state's budget.                                                                                                          
REPRESENTATIVE LYNN stated  that he thinks the  [resolution] is a                                                               
good concept that needs consideration.   He said he is anxious to                                                               
see [HJR 31] move forward.                                                                                                      
Number 1791                                                                                                                     
REPRESENTATIVE  GRUENBERG recalled  that there  is case  law from                                                               
the supreme  court that  allows judges  in certain  child support                                                               
cases to require  that part of a fund [from  a large payout, such                                                               
as an inheritance]  be sequestered and set aside in  a trust fund                                                               
to ensure that the child would be supported.                                                                                    
MR.  MALLONEE noted  that on  several occasions  where there  has                                                               
been a history  of poor payments and an individual  has come into                                                               
a large  sum of money,  the court  has taken that  money "through                                                               
the majority  of the child"  and placed it  in trust.   He added,                                                               
"In a  couple of  those cases, we've  actually handled  the trust                                                               
account for it."                                                                                                                
Number 1812                                                                                                                     
REPRESENTATIVE  GRUENBERG  said   that,  if  this  constitutional                                                               
amendment  is  put  before the  voters  and  ratified,  virtually                                                               
everyone in  the state will  be receiving  a large sum  of money,                                                               
including  people  who  have  poor  histories  of  child  support                                                               
payments.    He  asked  if  the CSED  would  plan  to  vigorously                                                               
implement  a  program to  sequester  those  funds in  appropriate                                                               
cases before the large payouts are received.                                                                                    
MR. MALLONEE  responded that "we"  have discussed the  issue with                                                               
the attorney  general's office,  and he  indicated that  [if] the                                                               
payout takes place, "we" would attempt  to see if the court would                                                               
allow [CSED] to  sequester the money through the  majority of the                                                               
REPRESENTATIVE  GRUENBERG  asked  if  [CSED]  has  the  necessary                                                               
statutes  in  place "to  do  that  now on  a  large  scale."   He                                                               
clarified that  he is concerned that  if the issue is  put before                                                               
the voters  later this year,  "these people" could get  the money                                                               
before [CSED] could get the program in place.                                                                                   
MR. MALLONEE replied that he  is not certain that there currently                                                               
is a statute  in place that would cover a  program "that would do                                                               
this."   He  said he  thinks  it would  have  to be  "made as  an                                                               
individual case by case, based on that poor payment."                                                                           
REPRESENTATIVE  GRUENBERG  asked  Mr. Mallonee  to  consider  the                                                               
issue, in  order to avoid  an opportunity being lost  to children                                                               
Number 1703                                                                                                                     
CHAIR  WEYHRAUCH  asked  if  [CSED]  has  the  ability  to  adopt                                                               
regulations on an  emergency basis to handle an  outflow of funds                                                               
"like this."                                                                                                                    
MR.  MALLONEE said  he  would  have to  check  with the  attorney                                                               
general's  office on  that.   He clarified,  "We can,  obviously,                                                               
make  emergency  regulations, as  can  any  agency under  certain                                                               
circumstances; I'm  just not sure  under what statute  that would                                                               
fall ...."                                                                                                                      
Number 1665                                                                                                                     
REPRESENTATIVE SEATON  asked Mr. Mallonee  if he is aware  of any                                                               
other programs,  other than  the state  student loan  program and                                                               
child  support enforcement,  that  would be  recouping money  "if                                                               
someone's  circumstance changed  because they  came into  a large                                                               
amount of money."                                                                                                               
MR. MALLONEE said he doesn't have that information.                                                                             
REPRESENTATIVE GRUENBERG  noted that a certain  percentage of the                                                               
funding for the Violent Crimes  Compensation board comes from the                                                               
PFDs  of  felons.    He  indicated that  there  might  be  state,                                                               
federal,  and private  creditors  that would  "really have  first                                                               
goal on this money."                                                                                                            
REPRESENTATIVE  SEATON  said he  thinks  the  committee needs  to                                                               
consider this issue further.                                                                                                    
Number 1575                                                                                                                     
MR.  MALLONEE,  in response  to  a  question from  Representative                                                               
Gruenberg,  confirmed  that  [the  CSED] is  allowed  to  collect                                                               
spousal  support, but  only in  connection with  a child  support                                                               
REPRESENTATIVE GRUENBERG added to  his previous request and asked                                                               
Mr. Mallonee to also include  [instances where spousal support is                                                               
Number 1515                                                                                                                     
CHAIR WEYHRAUCH opined  that the current discussion  "goes to the                                                               
impact of this resolution."                                                                                                     
Number 1499                                                                                                                     
REPRESENTATIVE LYNN indicated  that this is a policy  matter.  He                                                               
said  he  knows  many  people who  really  suffer  because  child                                                               
support has  not been paid.   He also stated that  he thinks [the                                                               
$20,000 payout] would  be a good thing for seniors  who would not                                                               
otherwise live long enough to accrue the whole amount.                                                                          
Number 1458                                                                                                                     
REPRESENTATIVE   GRUENBERG  opined   that  there   needs  to   be                                                               
consideration of legislation  to ensure that "this  can't be used                                                               
on a massive scale to defraud a lot of creditors."                                                                              
Number 1422                                                                                                                     
DONALD  ANDERSON  told the  committee  that  although he  is  the                                                               
manager  of  the Software  North  Company,  he is  testifying  on                                                               
behalf of  himself to address  the federal income tax  effects of                                                               
the PFD  and the proposed $20,000  distribution.  He said  he has                                                               
been a computer programmer for 39  years and his specialty is the                                                               
development of  computer models to simulate  "real world events."                                                               
He stated  his intent today  is to comment  on the effect  of the                                                               
federal  income   tax  on  the   PFD,  and  its  effect   on  the                                                               
extraordinary distribution,  such as the $20,000  proposed in HJR
31.  The  simulations, he explained, involve  a [Microsoft] Excel                                                               
spreadsheet  and  a  program  such  as TurboTax.    He  said  the                                                               
Internal  Revenue   Service  (IRS)   only  releases   tax  income                                                               
statistics as  an overall state  average and in 12  categories of                                                               
income; however, he explained that  this uncertainty is not large                                                               
enough  to change  the general  effect  of what  he is  currently                                                               
reporting to the committee.                                                                                                     
MR.  ANDERSON  stated  that he  believes  everyone  who  prepares                                                               
federal tax returns for a PFD  recipient is familiar with line 21                                                               
of  form 1040,  which is  the "other  income" line.   He  said it                                                               
feeds, without  modification, into each taxpayers  adjusted gross                                                               
income.    Thus,  for  anyone  above  the  standard  or  itemized                                                               
deduction, it directly affects the  tax paid.  Mr. Anderson noted                                                               
that the  most recent tax year  for which the IRS  summary sheets                                                               
are  available  for  Alaska  taxpayers  is  2001.    He  said  he                                                               
calculated the effects  of the $1,850 PFD paid in  that year, for                                                               
that year's recipient,  and he simulated the effect  of a $20,000                                                               
MR.  ANDERSON stated  that,  in 2001,  Alaskans  paid about  $186                                                               
million in federal  taxes on their PFDs, which was  17 percent of                                                               
the  total amount  distributed.   Had  a $20,000  payout been  in                                                               
effect that  year, Alaskans  would have  paid about  $2.9 billion                                                               
extra in federal  taxes - approximately 23 percent  of the amount                                                               
paid out.                                                                                                                       
MR. ANDERSON  explained that this  is important  when considering                                                               
enacting a state sales tax or  income tax to provide a portion of                                                               
the  funding for  state government.    He continued  to read  his                                                               
testimony [included in the committee packet] as follows:                                                                        
     If the state,  on one hand, distributes  money on which                                                                    
     our citizens pay  a hefty federal income  tax, and then                                                                    
     charges  those citizens  an equivalent  tax to  support                                                                    
     state  government,  the  big   winner  is  the  federal                                                                    
     The  state and  its  citizens are  impoverished to  the                                                                    
     tune of as much as $186  million a year for the PFD and                                                                    
     would  have to  endure  the departure  of $2.9  billion                                                                    
     more if this extraordinary payment were to occur.                                                                          
     I've rerun this simulation with  the lower tax rates in                                                                    
     effect  for  the 2003  tax  year  and have  found  that                                                                    
     Alaskans would lose about 15  percent of any "tax back"                                                                    
     - up  to $115 million  - if  the entire $1,108  PFD was                                                                    
     pulled back to the state by taxation.                                                                                      
     If  the  $20,000 payout  had  been  attempted in  2003,                                                                    
     about 23  percent would depart  in federal taxes.   Any                                                                    
     part  of this  that  was  taxed back  to  the state  in                                                                    
     future years  would unnecessarily  suffer from  this 23                                                                    
     percent shrinkage.                                                                                                         
     The  foregoing   comments  apply  directly   to  former                                                                    
     Governor Hammond's  new PFD and  tax plan -  but that's                                                                    
     another topic.   Attempting to bribe  our citizens into                                                                    
     relinquishing  the  PFD   by  subsidizing  the  federal                                                                    
     treasury is  a poor  strategy.   Using the  minimum PFD                                                                    
     earnings  necessary to  fund  state  government is  the                                                                    
     only  viable,  long-term   strategy  producing  minimum                                                                    
     damage to the state.                                                                                                       
MR. ANDERSON  - with  apologies to  Representative Holm,  whom he                                                               
said  has  benefited  the  state   greatly  by  focusing  serious                                                               
attention "on this  area" - stated his belief that  HJR 31 should                                                               
be  retitled  the  "IRS  enrichment  resolution  of  2004."    He                                                               
encouraged  the committee  to  give the  [resolution]  a "do  not                                                               
pass" recommendation.                                                                                                           
MR. ANDERSON supplied  the committee with his  e-mail address and                                                               
offered to send his Excel  spreadsheet [included in the committee                                                               
packet].    In  response  to a  request  made  by  Representative                                                               
Gruenberg, he agreed  to send his updated testimony,  not only to                                                               
the  House State  Affairs  Standing Committee,  but  also to  the                                                               
House  Special  Committee on  Ways  and  Means [included  in  the                                                               
committee packet].                                                                                                              
Number 1095                                                                                                                     
CHAIR WEYHRAUCH announced that HJR 31 was heard and held.                                                                       

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