Andrea Lea. State of Arkansas. 230 State Capitol Little Rock, AR Auditor of State. August 17, 2015

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Andrea Lea Auditor of State 230 State Capitol Little Rock, AR 72201 State of Arkansas August 17, 2015 Department of the Treasury Bureau of the Fiscal Service Attn: Theodore C.

Simms, I am pleased to submit these comments on behalf of the State of Arkansas in response to the Treasury's announced plan to alter the federal regulations applicable to unclaimed United States ("U.

1 Andrea Lea Auditor of State 230 State Capitol Little Rock, AR State of Arkansas August 17, 2015 Department of the Treasury Bureau of the Fiscal Service Attn: Theodore C. Simms II, Senior Attorney th Street, S.W. Washington, D.C RE: Docket Number: FISCAL , RIN 1530-AA11 Regulations Governing United States Savings Bonds Dear Mr. Simms, I am pleased to submit these comments on behalf of the State of Arkansas in response to the Treasury's announced plan to alter the federal regulations applicable to unclaimed United States ("U.S.") Savings Bonds. As the Arkansas Auditor of State, I am statutorily charged with administering the Arkansas unclaimed property program. Our program has successfully restored unclaimed property to the citizens of Arkansas for decades. This property includes, among other things, uncashed payroll and dividend checks, inactive bank accounts, matured corporate bonds and securities, and the contents of abandoned safe deposit boxes. Based on my experience, I believe that placing unclaimed U.S. Savings Bonds in the possession of the State will make it much more likely that they are reunited with their owners than leaving them in the possession of Treasury and reuniting these Bonds with their proper owners should be the overriding goal of any regulation in this area. In response to Treasury's established regulatory policy of not honoring state escheatment actions that confer only legal possession of unclaimed property on state authorities, and to assuage the concerns that Treasury has expressed that it might be subject to duplicative claims if Arkansas and her sister States are vested only with possessory rights to unclaimed U.S. Savings Bonds, Arkansas recently enacted a statute providing that legal title to these unclaimed savings bonds is to become vested in the State seven years after they have matured. This legislation was enacted specifically to address Treasury's concerns, so that Arkansas citizens will be able to recover their unclaimed U.S. Savings Bonds with the same degree of ease as they are able to regain their other unclaimed property. (501) info@auditor.ar.gov

It was with considerable disappointment, therefore, that Arkansas learned of Treasury's plans, apparently taken in response to pending litigation in the Court of Federal Claims, to promulgate a

2 It was with considerable disappointment, therefore, that Arkansas learned of Treasury's plans, apparently taken in response to pending litigation in the Court of Federal Claims, to promulgate a regulation that would, in response to a non-existent problem, intrude upon this area of State property law and make it considerably more likely that Arkansas citizens will never recover their unclaimed property. For the reasons set forth below, Arkansas urges the Treasury to reconsider the rule it has proposed on the grounds that the proposed rule relies on arbitrary and irrational assumptions about economic behavior, retroactively alters the federal law applicable to public debt, and displaces the state law property regimes under which Arkansas citizens purchased and held U.S. Savings Bonds. 1. The regulation arbitrarily displaces State unclaimed property programs and unnecessarily inconveniences Americans seeking to recover their lost property. All fifty States have laws that aim to restore unclaimed property to its rightful owners. By consulting state authorities or visiting one of the unclaimed property websites, the citizens of Arkansas and other States can learn if they are due compensation for unclaimed property. This one-stop approach to recovering unclaimed property serves the citizens of Arkansas and other States. It permits Americans to recover for their unclaimed property, and it permits estate executors and heirs, who administer estates under state law, to determine if there is unclaimed property for which the testator's estate may rightly recover. This system works for corporate bonds past their maturity, inactive bank accounts, dividend checks that have never been cashed, and for a wide variety of other property, and it could work equally well for U.S. Savings Bonds. Inexplicably, Treasury's proposed regulation would keep U.S. Savings Bonds alone out of the system by which Americans recover for their lost property. By creating a shadow system applicable solely to U.S. Savings Bonds, Treasury would effectively and unnecessarily double the work that must be done by every American seeking to identify and recover for their lost property. Americans must consult not only state authorities, in the case of all other forms of property, but also the U.S. Treasury, solely in the case of Savings Bonds, in order to be certain that they have recovered the unclaimed property to which they are entitled. As a practical matter, the inevitable result will be that this one type of lost property will remain forever unclaimed, and that the government will have effectively cheated those very Americans who chose to invest in their country out of their rightful property. Arkansas accordingly requests that the Treasury reconsider this arbitrary decision to exempt one class of property from the system designed to return lost property to its rightful owners and abandon its proposed amendment to its regulations. 2. The Proposed Rule would harm past purchasers of U.S. Savings Bonds and would create a strong disincentive to future purchasers U.S. Savings Bonds. Should America ever find itself in need of raising revenue through the issuance of savings bonds to ordinary Americans, the proposed rule will have created a strong disincentive to those Americans who would otherwise consider purchasing the securities. The purchaser of a savings bond is seeking a security that will provide a stable and safe return. Both the term and the manner in which interest accrues on a savings bond makes it an ideal vehicle for parents and 2

The proposed rule signals to parents and grandparents that Treasury is willing to go to considerable lengths to ensure that these children are never reunited with their money.

3 grandparents giving gifts to their children and grandchildren to help pay for their education. If anyone is likely to misplace, lose, or otherwise lose track of an investment that only matures after many years, it is a child under the age of seventeen. The proposed rule signals to parents and grandparents that Treasury is willing to go to considerable lengths to ensure that these children are never reunited with their money. By so doing, it not only works a substantial unfairness on the Americans who purchased savings bonds in the past, but creates a strong disincentive to future purchasers of these securities. It is unfair that Treasury is imposing this rule on bonds that already have been sold and remain outstanding, because those who purchased these securities had no reason to suspect that Treasury would work to prevent their redemption. The rule is imprudent because it will signal to Americans that Treasury is no different from a predatory lender who seeks to circumvent state laws designed to ensure that the American people receive what is their due. Accordingly, Treasury should either (1) reconsider its decision to change its legislative rules and allow its regulations to stand in their current form; or (2) consider alternatives that would not create disincentives to purchase Treasury securities. One such alternative proposed by Arkansas would be a rule providing that Treasury will make diligent efforts in cooperation with the States to ensure that the rightful owners of these bonds are able to redeem them. 3. The Proposed Rule disproportionately harms less affluent Americans. U.S. Savings Bonds have traditionally played little role in the financial planning of the wealthy and affluent members of society; it is in the portfolios of America's working poor and middle class that these bonds most often play a key part. Their smaller denominations and longer terms make savings bonds an ideal instrument for American families setting money aside for college educations or creating small nest eggs for retirement. Treasury's proposed unclaimed property regime increases the likelihood that these Americans will be forever and irremediably separated from their savings. Treasury's proposed rule is not only ill-advised and unjust, for the reasons discussed above, but also likely to have a disparate impact on those most vulnerable Americans whom the federal government should actively seek to assist. Treasury should adopt a rule that protects the interests of these less affluent Americans. 4. Having Treasury administer the unclaimed property program for its own matured securities creates an inevitable conflict of interest. State laws require that, after the passage of a set period of years, unclaimed property that is being held by those to whom the property was entrusted must be handed over to the State. This avoids the conflict of interest that arises whenever the party who would be liable to the rightful owner is entrusted with custody of the unclaimed property. For example, a company that has issued a dividend check has an interest in seeing that it remains uncashed. A bank holding an unclaimed bank account likewise wants the funds in that account to remain uncollected by their rightful owner. By requiring that this unclaimed property be transferred to the State, the State seeks to address the incentive that holders of unclaimed property have to discourage the reunion of that property with its rightful owner. 3

Treasury's unclaimed savings bond scheme places the responsibility for ensuring that those bonds are redeemed by their rightful owners on the one institution that has a vested interest in seeing that

The Proposed Rule would further exacerbate a system that violates our basic constitutional and administrative law principles of due process and fundamental fairness.

4 Treasury's unclaimed savings bond scheme places the responsibility for ensuring that those bonds are redeemed by their rightful owners on the one institution that has a vested interest in seeing that they remain unclaimed and unredeemed: The United States Treasury. The Proposed Rule would further exacerbate a system that violates our basic constitutional and administrative law principles of due process and fundamental fairness. A debtor should not be the party charged with protecting the interests of its creditors. At the very least, Treasury should not make an already bad system worse by enacting a rule that will make it more difficult for U.S. Savings Bonds to be redeemed by their rightful owners. In the alternative, Treasury should adopt a rule requiring that these bonds be paid out to an escrow account administered by a third party so that Treasury does not benefit by maintaining the unredeemed bonds. This alternative would avoid any appearance of self-dealing on the part of Treasury which would be exacerbated by the Proposed Rule. 5. The Proposed Rule rests on the arbitrary and irrational assumption that rational investors would continue to hold matured savings bonds indefinitely. The Notice of Proposed Rulemaking ("NPRM") assumes that Americans will continue to hold matured Treasury securities long after those securities have matured and stopped paying or accruing interest. See, e.g., NPRM, 80 Fed. Reg. 37,559 (proposed July 1, 2015) ("The rights of registered owners and others under Treasury regulations persist even for bonds that matured years ago, because Treasury does not require owners to redeem their paper savings bonds by a certain date."). The suggestion that citizens of Arkansas and other States are freely choosing not to redeem these matured debt securities and that Treasury is respecting their choice by "not requir[ing] owners to redeem their paper savings bonds by a certain date" flies in the face of common sense to such a degree as to offend the citizens of our States. The purchasing power of a $1,000 savings bond that matured in 1945 has, because of inflation, been reduced to $76. That bond continues to lose purchasing power with each day. The rational conclusion is not that these bonds are not being redeemed because the citizens of Arkansas are making a decision to hold them indefinitely, but rather that they are lost property. This is the assumption that would govern them under state law. It is the assumption that any entity seeking to ensure that lost properry be restored to its rightful owner would adopt. Treasury should craft a rule that reflects the reality that these bonds are unclaimed property that has been lost or forgotten by its rightful owner. 6. The legislative authority being claimed by Treasury would be an unconstitutional delegation of legislative authority. Both the power to pay the debts of the United States, see U.S. CotvsT. art. I, 8, cl. l, and to borrow money on the credit of the United States, id., art. I, 8, cl. 2, are vested in the Congress. While the Congress may delegate legislative authority to an executive branch agency, any statutory delegation must contain some intelligible principle by which the agency's discretion is cabined. The substance and scope of the Treasury's Proposed Rule suggest that the agency is now purporting to legislate under a grant authority that, for all intents and purposes, permits it to enact whatever regulations Treasury deems necessary and proper for its administration of the U.S. Savings Bond program. Those regulations may preempt state property law regimes. There is, it would appear, no intelligible principle limiting Treasury's discretion. 0

Arkansas submits that, even if the proposed rule were deemed not to exceed Treasury's statutory authority in violation of the Administrative Procedure Act, Congress has unconstitutionally delegated

The Proposed Rule is not only an arbitrary and capricious action and an exercise of authority that the Treasury could not legitimately possess under the Constitution, but also infringes on the

5 Arkansas submits that, even if the proposed rule were deemed not to exceed Treasury's statutory authority in violation of the Administrative Procedure Act, Congress has unconstitutionally delegated its lawmaking authority to an executive branch agency. 7. The Proposed Rule runs counter to the Tenth Amendment to the Constitution. The Proposed Rule is not only an arbitrary and capricious action and an exercise of authority that the Treasury could not legitimately possess under the Constitution, but also infringes on the legitimate interests of the States in maintaining the coherence of their own common law property regimes, in general, and their statutory systems for restoring unclaimed property, in particular. Indeed, the Supreme Court has recognized that unclaimed property regimes such as Arkansas's have "ancient origins," and it has held that each State has the right to take possession of the unclaimed intangible property of its own citizens, as reflected by the records of the holders of that property. See State of Tex. v. State of N.J., 379 U.S. 674, 675, (1965). Arkansas submits that this interference with state law is unwarranted and runs contrary to the spirit and the letter of the Tenth Amendment to the United States Constitution. 8. Treasury should consider alternative solutions that are more likely to result in the rightful owners of U.S. Savings Bonds receiving the compensation they are due. As Arkansas has worked to restore lost property to its rightful owners, the greatest obstacle it has faced has been identifying the Arkansas citizens who are registered owners of unclaimed U.S. Savings Bonds. Treasury's current practice is not to cooperate with the state authorities who are working to restore unclaimed property to rightful owners around the country. If Treasury is committed to seeing this property restored to the rightful owners, it should seek to cooperate with the States in their efforts to reunite owners with their property. Treasury's current practice does not aid those seeking to recover their property, but places obstacles in their path. At the very least, Treasury should improve its own efforts to contact these owners. State officials both in Arkansas and in her sister States are not aware of any efforts that Treasury is currently making to contact the rightful owners of these securities apart from maintaining a website that requires potential owners and their heirs to enter their social security numbers. Treasury's maintenance of this parallel website separate from state efforts is in and of itself an obstacle to an efficient national system of unclaimed property. Given that some of these bonds are fifty, sixty, even seventy years past maturity and that it is now the children, grandchildren, and even great-grandchildren of the original owners who are entitled to redeem these securities Treasury's program is simply unworkable. It is highly unlikely that grandchildren and great-grandchildren will know their ancestors' social security numbers. 9. The NPRM proposes a major rule that should be subjected to the requirements of the Congressional Review Act. The NPRM asserts that the proposed rule is not a major rule for purposes of the Congressional Review Act, 5 U.S.C. 801 et seq., because "[i]t is not expected to lead to any of the results listed in 5 U.S.C. 804(2)." That is not so. Arkansas submits, therefore, that the rule 5

costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; or (C) significant adverse effects on competition, employment, investment,

6 may not take immediate effect after Treasury has submitted a copy of it to Congress and to the Comptroller General. The Congressional Review Act defines a"major rule" as any rule that has resulted in or is likely to result in: "(A) an annual effect on the economy of $100,000,000 or more; (B) a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; or (C) significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets." 5 U.S.C. 804(2). The Proposed Rule would result in a substantially decreased likelihood of American citizens being able to recover the over $16,000,000,000 in United States Savings Bonds that Treasury now holds and refuses to hand over to state programs designed to ensure that those funds are restored to their rightful owners. The Proposed Rule would, therefore, result in substantially more than $100,000,000 in assets being frozen in the limbo of the Treasury's unclaimed property program. 5 U.S.C. 804(2)(A). The Rule will also result in "a major increase in costs... for... State... government agencies" seeking to restore unclaimed property to their citizens. 5 U.S.C. 804(2)(B). Treasury's conclusion that the Proposed Rule need not be subjected to the strictures of the Congressional Review Act is patently in error. Treasury should promulgate this rule only after fully complying with the requirements of the Congressional Review Act. Sincerely, Andrea Lea Arkansas Auditor of State n.

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