Sponsor Statement for CS for SB 254 (FIN)

An Act Relating to the Exemption from Levy, Execution, Garnishment, Attachment, or Other Remedy for the Collection of Debt as Applied to a Permanent Fund Fividend

Senate Bill 254 amends Title 43, Chapter 23 regarding the use of permanent fund dividends to satisfy debts. Existing law at AS 43.23.065 provides that 45 percent of a person’s permanent fund dividend is exempt from garnishment, attachment, or any other remedy to collect on financial obligations when the debtor is in a state of default. Therefore, debtors in Alaska can under most circumstances shield 45 percent of their dividend check from persons or businesses seeking to collect.

There currently are some exceptions to this general rule: the 45 percent exemption does not apply to child support obligations, court ordered fines, claims on defaulted Alaska student loans, or any debt owed to an agency of the state. Under these and a few other narrowly defined circumstances, the state requires that 100 percent of the dividend be made available to meet the debtor’s obligation.

The existing PFD garnishment provisions are inequitable and contradictory. The state can seize the entire amount of a dividend to satisfy its claims, but private parties such as small businesses, credit unions, landlords, or car dealers are limited in the amount they can garnish. The message sent, whether intentional or not, is that when contractual obligations are violated, agencies of the state have a greater right than private parties to settle their outstanding claims.

As originally introduced, Senate Bill 254 completely eliminated the dividend exemption, allowing state agencies and private parties alike to collect 100 percent. However, an amendment approved by the Labor & Commerce Committee restored the exemption but lowered it from 45 percent to 30 percent. The Senate Finance Committee further amended the bill by lowering the exemption from 30 to 20 percent. Thus, the amended bill allows private parties to collect 80 percent of a dividend check, while state agencies will continue to collect 100 percent.

SB 254 narrows the gap between what state agencies and businesses are able to collect. When businesses are unable to recover monies lawfully owed them by persons in default, the losses are recovered by passing the costs on to honest, law-abiding consumers. The current 45 percent exemption for dividends is essentially a "hidden tax" on the majority of financially responsible consumers. Defaulters get to keep their dividend checks, while the majority of Alaskans end up providing an involuntary subsidy for their financial irresponsibility.

Prepared by Mike Pauley, Staff Aide to Senator Loren Leman (465-3841). Last updated: March 12, 1998