Legislature(1999 - 2000)
02/28/2000 01:25 PM House JUD
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HJR 52 - CONFIRM PUBLIC CORP BD MANAGING ASSETS CHAIRMAN KOTT announced that the final order of business would be HOUSE JOINT RESOLUTION NO. 52, proposing an amendment to the Constitution of the State of Alaska relating to certain public corporations. He invited Representative James to explain the resolution. Number 1580 REPRESENTATIVE JAMES, speaking as the sponsor, advised members that HJR 52 is similar to a proposed constitutional amendment that she had introduced previously. At that time, the target was trying to protect the continuity of the members of the Alaska Permanent Fund Corporation board, which had been replaced entirely by both Governor Hickel and Governor Knowles when they came into office. Representative James offered her continuing personal opinion that those board members, who manage the biggest pot of money in Alaska, ought to have some continuity, which is why there is a revolving board. She believes those members should only be removed for cause. REPRESENTATIVE JAMES explained that although similar to the previous legislation, HJR 52 is a little more expansive. Article II, Section 26, of the constitution already states that when a board or commission is at the head of a principal department or regulatory or quasi-judicial agency, its members shall be appointed by the governor, subjection to confirmation by the legislature and may be removed as provided by law. This resolution adds, "or at the head of a public corporation that manages State assets," and, "With respect to public corporations, the legislature may by law exclude the applicability of this section based on the type or value, or both, of the State assets that are managed by the public corporation." REPRESENTATIVE JAMES said she would bet that the constitutional drafters never envisioned so many public corporations managing so much wealth in the state. She believes that adding these provisions will allow removal of board members only for cause. Public corporations now manage a lot of assets. She believes this is a good change to the constitution because it takes care of something that the original constitutional scholars had not foreseen. She emphasized its importance and urged members' support. Number 1796 REPRESENTATIVE MURKOWSKI referred to the language that says the applicability can possibly be excluded, based on the type or value of that public corporation. She asked what other public corporations are out there. REPRESENTATIVE JAMES at first indicated she had a list, then said she didn't. She said it is AIDEA [Alaska Industrial Development and Export Authority], the Alaska Housing Finance Corporation (AHFC), the Alaska Railroad Corporation and, she thinks, the Alaska Commission on Postsecondary Education (ACPE), for example. There are a lot of both large and small corporations, but the Alaska Permanent Fund Corporation is the only one that she knows of which has had a problem with having a governor wipe out the board and then start over. She expressed concern about continuity of that board in particular, noting that revolving boards exist so that there is always someone experienced on the board. She said it seems that the permanent fund should be run on more than philosophy, and she believes protection is needed in this area, as the permanent fund is Alaska's biggest asset. REPRESENTATIVE JAMES told members that if there is going to be an amendment to the constitution, all those corporations should be covered at once, which HJR 52 does. She alluded to the Alaska Science and Technology Foundation (ASTF), saying she believes that is a corporation also, and she isn't sure of all [the corporations] that are out there. She restated the need to have the option to ensure that the people put on [the boards] are the ones that the legislature would approve; she noted that usually appointees are approved. She again emphasized the need for continuity and respect for the revolving terms that these members have. In response to a question of Representative Rokeberg, she indicated that appointees to the boards in question don't need legislative approval now. Number 2055 REPRESENTATIVE ROKEBERG surmised that the chief executive officers would be board members of those corporations. REPRESENTATIVE JAMES said she doesn't know that that is always the case. REPRESENTATIVE ROKEBERG suggested they would at least have to be approved by the legislature to be in that position, which he said isn't unreasonable. REPRESENTATIVE JAMES pointed out that when the legislature does [a confirmation], there is a public hearing. That never happens in these cases now. Number 2235 REPRESENTATIVE CROFT indicated the Alaska Permanent Fund Corporation seems to be the one for which this makes the most sense and for which the most danger exists if there are bad appointments. He said at least having confirmation and a hearing on that board makes a lot of sense, as there is too much money there anymore to have that done, even by good people, without any limits. However, he doesn't know about some other corporations that [HJR 52] would affect, and he has some questions about the way it is written. He indicated he would wait until after Mr. Baldwin's testimony. REPRESENTATIVE JAMES clarified that she has no complaints about any appointees to the board of the Alaska Permanent Fund Corporation. REPRESENTATIVE ROKEBERG emphasized that these public corporations sometimes have literally billions of dollars in assets, and he believes that Alaskans can be viewed as shareholders in these corporations. Number 2409 JAMES BALDWIN, Assistant Attorney General, Civil Division (Juneau), Department of Law, came forward to testify, noting that a similar resolution in the Senate had been introduced by Senator Halford and that a draft committee substitute is pending there. TAPE 00-23, SIDE A Number 0001 MR. BALDWIN mentioned the balance between continuity and having someone be responsible for the decisions made by a the governing body of a public corporation. He asked: If members of that body aren't elected by the people but are appointed with overlapping terms, and if they can only be removed for cause, then who are they responsible to, ultimately, when they make errors in judgment? He answered that if all those things are in operation, they aren't responsible to anyone. With the current system, if the board of trustees makes an error in judgment or is unethical or incompetent, the governor can remove them and must stand and be responsible for that action at an election every four years; that is the system in place now, and there is something to be said for that, as well. MR. BALDWIN told members that the system built into the constitution is to have very few elected officers, who are responsible for almost everything in the executive branch of state government, including the permanent fund; if something goes wrong, then that officer will be held responsible at the upcoming election to the voters. That is an outgrowth from the territorial days. Mr. Baldwin explained: We're very inventive people, and the way we dealt with the absentee federalism and the absentee congressmen and absentee governors and boards was to create a bunch of boards ... that were populated by our own people; and that worked to undercut federalism, but it also was very frustrating because there wasn't anybody you could hold responsible. And then the framers came out with a new constitution that said, "We want an end to that. We want responsibility for the people who make important decisions." So, having said that, that's basically the underlying reason. MR. BALDWIN explained that the confirmation power is a shared executive power in which the legislature shares some of the governor's power of appointment. Generally, the rule in the constitution is that the governor has the appointment power within the executive branch; that power is shared through the exercise of the right to confirm, which is specifically granted in a number of places in the constitution. However, under the case known as Bradner v. Hammond, that power is only shared when expressly provided for in the constitution; it cannot be implied or assumed. Mr. Baldwin noted that a lawsuit had involved the legislature's attempting to make confirmation extend to deputy directors and lesser officers of that nature; that was found to be invalid. MR. BALDWIN indicated this resolution can be viewed, by those who do not favor this approach, as the legislature trying to share in the appointment of members of the Alaska Permanent Fund Corporation, if that is the focus. He said that can be advocated as being either a good thing or a bad thing regarding whether it is appropriate to have the legislature be involved in those appointments. Number 0324 MR. BALDWIN advised members that there are some technical problems with the resolution's wording. He believes it is apt in its description of determining a public corporation that manages state assets because the Alaska Permanent Fund Corporation is basically an overseer of a bunch of other investment managers; although it does some in-house investment, it mostly oversees what others do. The assets given to other public corporations like AHFC and AIDEA, however, may well not legally be considered state assets; rather, they may be considered their own assets, as those entities are political subdivisions of the state. The reason is to insulate the state treasury from any liability for debt. There is even a statute in AIDEA's title that says that their property, their money, is not state money but is their own. Mr. Baldwin pointed out that AIDEA or AHFC may itself be a state asset; he isn't sure how those are carried on the state's balance sheet. He said this is his legal outlook on this, and maybe this language in the resolution isn't that accurate for reaching AHFC or AIDEA. Number 0468 REPRESENTATIVE MURKOWSKI commented that it is difficult to accept that the legislature takes on the responsibility of confirming appointees to the boards related to opticians and hairdressers, for example, and yet they aren't involved in the process of something as significant as the Alaska Permanent Fund Corporation board. She said she hadn't made that step up as to why the legislature shouldn't be involved in that confirmation process. REPRESENTATIVE JAMES said she understands the delineation that Mr. Baldwin is talking about in a corporation, but to her understanding, there cannot be a public corporation that isn't owned by somebody. There are shareholders, the state as a whole. There has to be a nexus between the [legislature] and state ownership. She said those are state assets, and the legislature, to her belief, can dismantle that corporation, by statute, and therefore can manage those assets, although she doesn't know that they plan to do that. She agreed it is probably more of a legal issue than an accounting issue. MR. BALDWIN indicated he isn't disputing that the legislature, in its lawmaking capacity, has substantial powers over public corporations. He pointed out that some public corporations are more closely held than others under Alaska law; therefore, it is hard to generalize about all of the public corporations because they cover the spectrum: some are closely held, with three principal department heads sitting on the actual boards, whereas some are not at all closely held, such as the Alaska Railroad Corporation, which has one department head and a lot of verbiage in the statutes about how independent it is. But most all of them carry the language that they have a separate and independent legal existence; that basically is to insulate the state from their debt. Mr. Baldwin added: When you go to terminate one of these corporations, ... we always get into a long debate up in the Finance Committee about whether the legislature can just dip into the treasury of AHFC or something of that nature and pull out dollars and take them directly to the state treasury. And there's always sort of a process we go through so that we're not doing that directly; there's always a process so that it is appearing that the board is actually voluntarily giving us this money. And that's the reason that we want to maintain that separateness. So I think there is a legal issue here about whether these are, in fact, state assets. ... They are not assets in a typical sense. ... These corporations can be dissolved and sold off and liquidated, and that's the typical way of getting the value out of them. But ... once we give them, like the Ketchikan shipyard, or we give them an asset like that, it becomes, really, no longer a state asset. It becomes an asset of the corporation. And so that's why I think that this language here may not be hitting the mark. Number 0740 REPRESENTATIVE JAMES remarked that, on the other hand, if they truly are separated and not state assets, one wonders why [the state] is appointing board members anyway. She repeated that the legislature could dissolve these entities, by statute, and then determine where the money would go after selling everything. She indicated that although there may be some insulation, if there were a huge error and loss, for example, she doesn't feel comfortable that that line could not be crossed. Number 0825 CHAIRMAN KOTT thanked Mr. Baldwin. Noting that no other testifiers were signed up, he closed public testimony. REPRESENTATIVE CROFT alluded to the last sentence of Section 1 of the resolution, which read: "With respect to public corporations, the legislature may by law exclude the applicability of this section based on the type of value, or both, of the State assets that are managed by the public corporation." He asked Representative James what the intent is. REPRESENTATIVE JAMES answered that the intent is that the legislature may list, in law, who this doesn't apply to, such as small corporations or "the people that do the space thing over in Kodiak," for example. She said it would be a decision by the legislature to exempt any; right now, all are included. She cited the ASTF and the ACPE as further examples, asking whether the legislature wants to confirm their appointees. She restated the need to go down the list and see what the legislature wants to do. CHAIRMAN KOTT suggested it is all-inclusive now, and the legislature would have to pass a statute that would exclude those entities. He said he doesn't know how many there are in total, but he would assume there are 15 or 20. REPRESENTATIVE CROFT reminded fellow members of the need to be careful with constitutional language. He read from the proposed language, in part, "may be law exclude the applicability of this section based on". He stated: And so, then, it will be those are the only two things that you can exclude based on, and if you exclude based on anything else, it would be unconstitutional. And exclude based on the type or value of the state assets: ... it seems like if we're giving carte blanche to exclude, we should say that, rather than saying "based on specific things." "The legislature may by law exclude the applicability of this section to public corporations." ... It would be a weird question if somebody came back and said, "You excluded this student loan program but not the other, and there's another smaller one or something, and I can't find any distinction between the two based on type of value." Number 0976 REPRESENTATIVE JAMES said she believes Representative Croft is correct on that, and that it is pretty hard to define. She added: I think maybe we should have just a carte blanche authority ... to exclude them, if we so chose. It's kind of like the permanent fund issue, where it says that the permanent fund itself cannot be spent, but the earnings are up to the legislature to determine by law ... how they'll be used. So, we have it periodically throughout the constitution of "the legislature will provide by law" certain things. But this gives us authority, and then the legislature could provide exemptions by law, if it happened to be their choice to do that. REPRESENTATIVE CROFT suggested it could be given to the drafters as an idea that the legislature may by law exclude the applicability of this section to public corporations. Number 1020 CHAIRMAN KOTT pointed out the other issue brought out by Mr. Baldwin, which was to ensure that it applies only to those corporate heads or board members or commission members. REPRESENTATIVE JAMES said she thinks it is clear, but it might be easy to put it in there, if there is a need to be more specific. Number 1054 REPRESENTATIVE CROFT asked whether it should be "opt in" or "opt out." REPRESENTATIVE JAMES answered that she personally believes it should be "opt out," and it should cover everything, because it is unknown what other kinds of corporations will exist in the future. REPRESENTATIVE CROFT replied, "Or we could say the legislature has the power to, by law, require that the governing body of a public corporation be subject to this section." He commented that if written correctly, opting in or out would have the same effect. However, if [the legislature] hadn't excluded something that could be described as a corporation by statute, for example, somebody could bring a lawsuit and say that the governing board isn't legal. With the "opt in" language, the legislature knows that five specific entities are included, for example. In contrast, with the "opt out," there is a big group out there not yet defined. REPRESENTATIVE JAMES responded that she is comfortable including all public corporations at this point, and then determining which ones aren't necessary to include, more so than saying it is for certain ones only and that more could be included. She isn't certain which ones she would list right now, although she is very interested in the Alaska Permanent Fund Corporation; she also is thinking seriously about AIDEA and AHFC because they are huge, and she believes [the legislature] should have a hearing on those board members. She mentioned the Alaska Railroad Corporation as well, asking whether that should be included. She believes those are things that the legislature should decide about, one at a time. She suggested "opting them out" would be easier politically than the reverse. Number 1225 CHAIRMAN KOTT asked Representative James whether, if she had the list of public corporations, she would be willing to entertain legislation that would deal specifically with opting those entities out at the same time, to establish a nexus between the legislation and passage of the amendment. REPRESENTATIVE JAMES said she believes it is less confusing like this [to voters] than if there were specifics. CHAIRMAN KOTT clarified that he wasn't suggesting putting the specifics in the constitutional amendment. REPRESENTATIVE JAMES said she thinks it is too late in this session for the legislation, although she believes the legislature will have to determine whether there are any exceptions if this resolution passes. Number 1295 CHAIRMAN KOTT said he would like to see the list. He asked whether there were additional comments, then announced that HJR 52 would be held over so that he could work on language to incorporate the two areas discussed, to clarify that they are talking about the heads and the board members of the public corporations, and to make it clear what they are getting at with "public corporation" on page 1, lines 12-14. [HJR 52 was held over.]
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