Some U.S. savings bonds that helped finance World War II and the building of the country in post-war years are at the heart of a lengthy legal fight between state treasurers and the U.S. Department of Treasury.

Now the issue has moved to Congress.

Kansas is at the forefront of a legal effort launched in 2013 to get access from the U.S. Treasury to bond information. At the time, the estimated value nationwide of the matured bonds at stake was $16 billion. More recent estimates put the value at $26 billion. They are considered lost, stolen, unclaimed or abandoned bonds, and have ceased earning interest.

State treasurers want access to add them to their unclaimed property database and help reunite them to owners or heirs.

Two former state treasurers now serving in Congress — Sen. John Kennedy, R-Louisiana, and Rep. Ron Estes, R-Kansas — are lead sponsors of bills introduced in latter 2019 to accomplish what the states have not achieved through the court.

 

Buying bonds

Members of the generation that went to war during World War II also had memories of earlier bank failures.

Even after the war, they continued to buy U.S. savings bonds because they considered it the patriotic and safe thing to do, said former Kansas State Treasurer Dennis McKinney.

McKinney was appointed to fill a vacancy and served two years as state treasurer, 2009 to 2011. He remembers efforts through the National Association of State Treasurers to get Congress to act on the issue so the treasurers could obtain information on the bonds.

It had not yet progressed to a lawsuit, McKinney said, but his office had reached out to attorney J. Brett Milbourn and the firm where he practices, Horn Aylward & Bandy LLC, of Kansas City, Mo.

In January 2011, Estes was sworn in as state treasurer. After reviewing the issue, he gave the green light to the legal team to sue for access to the bonds. Estes went to Congress in 2017, and his successor, State Treasurer Jake LaTurner, continued the court battle.

Kansas does not spend unclaimed property but promotes the unclaimed property database on a website, kansascash.ks.gov, and at events around the state, including the Kansas State Fair. People are encouraged to search by name for unclaimed property — which can be as varied as royalties or a refund from a utility company.

U.S. savings bonds discovered in safe deposit boxes already can be treated as unclaimed property, but the bonds figuring in this current fight are considered abandoned bonds. LaTurner estimates more than $200 million of the $26 billion belong to Kansans.

Legislatures in Kansas and more than 20 other states have passed laws setting up their in-state process for obtaining title to bonds. Milbourn is the lead attorney for Kansas in the litigation and he also helped advise on the laws 22 states passed establishing the process to have the bonds in their possession. He traveled to those states and observed that the legislation met no resistance, as legislatures approved it on a bipartisan basis, he said.

 

Court and Congress

In August 2017, a U.S. Claims Court issued an opinion favorable to Kansas and Arkansas, seeking access to bond information. The U.S. Treasury Department appealed the ruling.

On Aug. 13, 2019, the U.S. Court of Appeals for the Federal Circuit reversed earlier rulings in the separate cases for Kansas and Arkansas. It found that federal law trumps state law, and the bonds belonged to the original owners, not the states.

Even before the 2019 ruling emerged, Kennedy was working on Senate legislation that could resolve the matter.

Kennedy’s office called Milbourn and asked if he would help staff draft a bill in the Senate. That bill was introduced Aug. 1, 2019, as the Unclaimed Savings Bond Act of 2019. Among senators signing on to the legislation on its first day was Sen. Jerry Moran, R-Kansas. Sen. Pat Roberts, R-Kansas, became a co-sponsor in December. As of Friday, the Senate bill had 24 co-sponsors: 19 Republicans, four Democrats and one independent.

The Court of Appeals' opinion was handed down less than two weeks after the Senate bill was introduced. That’s why the House bill, also called the Unclaimed Savings Bond Act of 2019, is similar but not identical. Estes’ office also reached out to Milbourn for help drafting the House version. The House bill is a little “tighter,” Milbourn said, and its language reflects that it was written after the court reversal against the states.

As of Friday, the House bill had five Democrats and four Republicans as co-sponsors. No other Kansan in the House has attached his or her name to the bill.

“For decades, the federal Treasury Department has held people’s matured savings bonds without returning them to the legal owners or heirs,” Estes said in a statement when the bill was introduced in November. “The Unclaimed Savings Bond Act of 2019 will ensure states are able to access Treasury records and return matured, unclaimed savings bonds to their legal owners. As Kansas state treasurer, I helped Kansas become one of the first states to pursue legal action to obtain unclaimed bonds and return them to their owners,” Estes said.

The lead Democrat behind the House bill, Rep. Danny Davis, of Illinois, said, “This common-sense legislation is pivotal to Illinois, where there is roughly $1 billion on unclaimed or missing bonds. I am hopeful that we can move this bill to passage and correct this problem expeditiously.”

 

Hearings

In both chambers, backers of the bills are seeking more co-sponsors from both sides of the aisle. The Senate bill is in the Senate Finance Committee and the House bill is in the House Ways and Means Committee. Hearings have not been held, and a looming impeachment Senate trial of President Donald Trump could affect the schedule.

Milbourn hopes hearings can occur in the first quarter of 2020. If both bills pass in their respective chamber, they will go to a conference committee, which will hammer out compromise language. If the final bill passes and becomes law, the court fight will be resolved.

In the meantime, the states continue to eye a remedy through the courts.

“It is anticipated that Kansas, on behalf of all other states in the litigation, will appeal the case to the United States Supreme Court,” according to Kara Zeyer, public relations director in LaTurner’s office.