by Todd Traub
Posted 3/14/2019 09:57 am
Updated 1 week ago
A bill passed by the Legislature this week addresses the management of unclaimed assets taken by the state, but supporters say the proposal does not amount to the kind of revenue grab described by critics.
HB1427, unanimously passed in the Senate on Tuesday and now headed for the governor’s office, does away with the three-year waiting period for liquidating unclaimed mutual funds taken by the state auditor as dormant accounts under what are known as escheat laws.
Until now, the auditor’s office has contracted with The Bank of New York Mellon to manage unclaimed mutual funds, costing the state $150,000 annually in fees and related expenses.
Doing away with the three-year period and immediately liquidating the funds would eliminate the expense and get the state auditor’s office out of the mutual fund management game, said HB1427 sponsor, Les Eaves.
"Overall the advantage is we’re not going to put ourselves in the position of being an investment firm for three years," said Eaves, a Republican representing District 46, which includes part of White County that encompasses Searcy.
Critics say the cost to the state of managing the unclaimed mutual funds are negligible and that immediate liquidation makes it possible for Arkansas to use the money for its own purposes, as has been happening in other states.
"I can tell you this has become a huge source of revenue," said Tami Salmon, associate general counsel for the Investment Company Institute, trade group for the mutual fund industry.
The Investment Company Institute took issue with Section 2 of HB1427, which states “that liquidating the securities upon receipt would save the state money and enable the state to invest the proceeds for a greater financial return to the state.”
The institute said only about 30 percent of assets are ever claimed by owners, so Arkansas would only need to keep roughly 30 percent of the cash and could use the rest as revenue.
"That sounds like the national average that I hear often," Arkansas Deputy Auditor Skot Covert said of the 30 percent figure. "In other states I am certain that’s the case. I wish they would have just taken a closer look at Arkansas and said there is no cash grab here. [The money] never goes anywhere."
Eaves said that progress on HB1427 was held up so lawmakers could reassure entities like Walmart Inc. of Bentonville and the Arkansas State Chamber of Commerce.
"That was the question we got a couple times," Eaves said. "They thought we were going to keep the money."
Salmon said rightful owners who show up to claim their mutual funds at some future date could miss out on accrued interest or dividends and get only the cash value of a fund at the time it was liquidated.
"If that account were liquidated without your knowledge today and you show up in three, five, seven years to claim that property do you want the value of that account to be in 2019?" Salmon said.
Eaves and Covert agreed with the criticism but said rightful owners would also avoid a financial hit if a fund underperforms, and the state wouldn’t be liable for lawsuits from owners claiming mismanagement.
Covert said Wednesday that Arkansas has about $300 million worth of unclaimed property on its books and returned $66 million to Arkansans in the first term of State Auditor Andrea Lea, elected in 2014.
"That money, unlike many other states who do fund their general revenue off of unclaimed property, that never happens here," Covert said. "This is forever, eternity. Arkansans or their heirs will always be able to come back and claim that cash."
Covert said the auditor’s office does not plan to immediately liquidate the funds regardless and will continue trying to find the rightful owners. Covert said the office uses a number of means — including digital platforms and national databases — to locate owners or their heirs.
"First of all, while in a purely technical basis, you could now, now that it’s passed, you could immediately liquidate," he said. "By no means is that the plan. We are going to continue to use our superior resources, something we’re very good at, finding owners. We’re going to continue to try to find who is out there."
Arkansas law says mutual funds and other assets, which can range from forgotten bank accounts to abandoned safe deposit boxes, must show no activity for seven years — the longest such period in the nation — before being declared dormant and assumed by the auditor’s office.
Covert said that even if every trail goes cold and every method is exhausted the state still would have no interest in pocketing the money as revenue.
"The money will remain on the books in perpetuity until claimed by the owner or heir," Covert said in an email on Friday.
J.R. Davis, the governor's spokesman, says Hutchinson will use "the five-day period provided by statute to review the legislation more closely" before deciding whether to sign the bill.