Sen. Gail Griffin introduced controversial bill SB1129 this year, that provides cover to the board of directors of rural electric nonprofit cooperatives who have been ignoring state law and their fiduciary responsibility to their members and to the State of Arizona, since at least 2001.
SB1129 exempts “capital credits and fees distributed by an electric nonprofit cooperative from Arizona’s unclaimed property requirements.” It also gives 16-years of blanket immunity to the boards and allows them to change their bylaws so that they can spend the unclaimed members money any way that they want.
For over 16-years, the majority of the co-op boards of directors have spent unclaimed rebates owed to their members rather than turn the money over to the custody of Arizona Department of Revenue to be held in perpetuity, where the owners or relatives can claim their money in the future.
While the boards have said that they spent the money on scholarships and other worthy causes, it is unclear if any of the money was spent in other non-charitable ways. They had absolutely no legal right to spend other people’s money.
On Thursday during floor session, Rep. Rusty Bowers passionately defended the illegal activity. He claimed that rural residents, who belong to cooperatives “think differently” than urban dwellers.
Rep. Anthony Kern argued that earlier this week the Legislature had given cities a pass for misspending excise taxes and they should do the same for cooperatives.
Rep. Bob Thorpe urged his fellow representatives to consider the people who will be denied monies owed to them by cooperatives. He stated that many cooperatives do not make information readily available to their members, who might have monies owed to them.
Thorpe was joined in opposition by Rep. Engel, who stated that the Legislature, through this bill, would be condoning activity in contravention to the law.
According to the Joint Legislative Budget Committee:
● A.R.S. § 44-302 requires holders of abandoned property to report and distribute this property to DOR after a designated period of time. Any dividend, profit, distribution or interest is considered abandoned 3 years after the prescribed date of payment. If DOR cannot identify and locate the
owner of the property, the funds are deposited in the Unclaimed Property Fund to be distributed to various state funds, including the General Fund, DOR Administrative Fund, Housing Trust Fund, and the Seriously Mentally Ill Housing Trust Fund.
● Pursuant to A.R.S. § 10-2057, nonprofit corporations can be created to engage in the generation, purchase, or sale of electric energy. As a nonprofit organization, the cooperatives distribute profit margins back to members of the cooperative as capital credits.
● When these credits or other fees owed to members by the cooperative are not claimed by an individual member, they become subject to state statutes governing unclaimed property.
● In 1985, DOR issued a letter ruling exempting cooperative credits and fees from the unclaimed property statutes.
● According to DOR, electric cooperatives have been subject to unclaimed property statutes as of January 1, 2001.
● There still remained, however, some confusion about the applicability of Chapter 184 to electric cooperatives.
● In 2016, DOR issued another letter ruling clarifying that the unclaimed property statutes do apply to the cooperatives.
Before he left his seat as Rules Chairman, Rep Phil Lovas blocked Griffin’s bill. Once he was gone, the cooperatives’ lobbyist went to work and managed to get it
heard on the floor.
Last week, due to concerns about the bill, it was retained on the House calendar. That move gave it a second chance it did not deserve.
SB1129 Fact Sheet:
Provisions
1. Exempts unclaimed capital credits and fees from the Arizona Revised Unclaimed Property Act. (Sec. 1)
2. Declares any patronage capital credit or fee payment from a cooperative to its member or former member as unclaimed if it has not been claimed for: a. a time period delineated in the cooperative’s bylaws; or b. if the bylaws do not delignate a time period, two years after the payment was made available. (Sec. 1)
3. Permits a cooperative to use an unclaimed capital credit or fee for any of the following: a. financial assistance to students; b. financial assistance to schools, nonprofit organizations or community organizations; c. utility bill assistance to low-income cooperative members; or d. other charitable purposes approved by the cooperative board of directors. (Sec. 1)
4. Contains a retroactive effective date of January 1, 2001. (Sec. 2)
5. Defines patronage capital. (Sec. 1)
Current Law
Cooperatives may be organized for any of the following purposes:
1) supplying, purchasing, marketing, selling, transmitting or distributing electric energy;
2) providing billing, metering, communications and other services related or incidental to supplying, providing or transmitting electric energy;
3) engaging in activities designed to promote economic development in rural areas; and
4) engaging in activities for any lawful purpose (A.R.S. § 10-2052).
A cooperative must be operated on a nonprofit basis for the mutual benefit of its members and patrons (A.R.S. § 10-2067).
Revised Arizona Unclaimed Property Act
Unclaimed property includes intangible personal property such as traveler’s checks, money orders, stocks or other equity interest, principal on debt, demand or savings deposits, customer credits, insurance settlements, property received or held by a court, wages, retirement accounts and other types of property that are presumed abandoned according to the schedule set out in statute (A.R.S. § 44-302). Property is presumed abandoned and therefore unclaimed after it is held for an extended period of time with no owner contact and a “good faith” effort has been made to locate the owner. Abandoned property is transferred to ADOR from holders such as banks, credit unions, corporations, utilities, insurance companies, governmental entities and retailers.
ADOR acts as custodian of the property and administers a program to locate the owners. Once reported to ADOR, unclaimed property is available for refund to the owners or their heirs indefinitely. Businesses and other organizations are required to review their records each year to determine whether they hold any funds, securities or other property that are unclaimed for the statutory abandonment period. Holders file an annual report and transfer the property to the state. The holding period before property is considered unclaimed varies by type of property. If the properties received by ADOR remain unclaimed within a specified time period, the properties are sold by ADOR and the proceeds are distributed to various of state funds (JLBC 2016 Tax Handbook).