Legislature(1995 - 1996)

04/24/1996 03:12 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
 HB 345 - PENSION INVESTMENT BOARD PROCUREMENTS                              
                                                                               
 Number 2078                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG made a motion that the committee rescind              
 their action in failing to move out of committee CSHB 345(L&C).               
                                                                               
 CHAIRMAN KOTT asked if there was an objection.                                
                                                                               
 REPRESENTATIVE ELTON objected.                                                
                                                                               
 REPRESENTATIVE KUBINA asked that the motion be restated.                      
                                                                               
 CHAIRMAN KOTT said the motion, as he understands it, is to rescind            
 the committee's action in failing to move from committee HB 345.              
                                                                               
 Number 2118                                                                   
                                                                               
 REPRESENTATIVE ELTON said he would like to have some discussion of            
 why the committee finds it necessary to do this.                              
                                                                               
 REPRESENTATIVE ROKEBERG indicated there was a minuscule quorum and            
 the whole committee didn't have the opportunity to participate in             
 the decision during the last meeting which required the totality of           
 members to be able to move the bill.                                          
                                                                               
 REPRESENTATIVE ELTON said the overwhelming testimony that was heard           
 was opposed to the bill.  He said he thinks the best testimony the            
 committee heard was from Mr. Dave Rose who said the best solution             
 is not this, but it is a change in attitude.  He said he isn't sure           
 the legislature should be in the practices of changing attitudes by           
 passing statutes.                                                             
                                                                               
 CHAIRMAN KOTT said in essence what they would be doing is trying to           
 change an attitude that currently exists.                                     
                                                                               
 REPRESENTATIVE ROKEBERG said the committee did adopt an amendment             
 that removed the former Section 10.                                           
                                                                               
 Number 2193                                                                   
                                                                               
 REPRESENTATIVE BEVERLY MASEK said then there is no need for the               
 bill.                                                                         
                                                                               
 REPRESENTATIVE ROKEBERG explained Section 11 remained and was                 
 renumbered as Section 10.  It does make a statement as to their               
 ability of making in-state adjustments.  He said in essence, it is            
 a "jawboning" bit of statutory language which there was testimony             
 that it was part of the permanent fund specifications in terms of             
 their charge.                                                                 
                                                                               
 CHAIRMAN KOTT asked Representative Elton if he still maintains his            
 objection.                                                                    
                                                                               
 REPRESENTATIVE ELTON said he does maintain his objection.                     
                                                                               
 A roll call vote was taken.  Representatives Sanders, Masek and               
 Elton were against the motion.  Representatives Porter, Kubina,               
 Rokeberg and Kott were in favor of the motion.  So CSHB 345(L&C),             
 as amended, was back before the committee.                                    
                                                                               
 Number 2221                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG made a motion to move CSHB 345(L&C), as               
 amended, out of committee with individual recommendations and the             
 attached zero fiscal note.                                                    
                                                                               
 REPRESENTATIVE MASEK objected.                                                
                                                                               
 REPRESENTATIVE ELTON said he understands the motion, but doesn't              
 understand the zero fiscal note.  He said he has a fiscal note but            
 it is not a zero fiscal note.  Representative Elton asked if                  
 somebody could explain to him why the bill is being moved with a              
 zero fiscal note.                                                             
                                                                               
 Number 2248                                                                   
                                                                               
 CHAIRMAN KOTT said that is a good point.  He said to Representative           
 Rokeberg that he would entertain a new motion.  Even though it is             
 a wash, there is a fiscal note to it.                                         
                                                                               
 REPRESENTATIVE ROKEBERG said he agrees, but noted the fiscal note             
 relates back to the 7 percent solution and the other section has              
 been removed from the bill.  He said that is the reason he made the           
 motion with a zero fiscal note.                                               
                                                                               
 REPRESENTATIVE PORTER suggested asking the Department of Revenue              
 for a new fiscal note before the bill moves on to the Finance                 
 Committee.                                                                    
                                                                               
 Number 2308                                                                   
                                                                               
 BOB STORER, Chief Investment Officer, Treasury Division, Department           
 of Revenue, came before the committee.  He said the Treasury                  
 Division does provide the staff for the Alaska State Pension                  
 Investment Board.  He said with the old Section 10 being excised              
 from the bill and the new language, which talks about the                     
 comparable risk and comparable yield, would make it a zero fiscal             
 note.  The costs of the prior fiscal note were to evaluate the                
 trading costs to see if there would be an impact on the                       
 legislation.  The only possible costs would be a consultant that              
 was uniquely qualified to evaluate Alaskan investments.  Mr. Storer           
 noted he doesn't see that as being an issue.                                  
                                                                               
 REPRESENTATIVE KUBINA asked Mr. Storer what he thinks the bill does           
 with only the one section and he also asked how it will change                
 things.  He asked Mr. Storer asked him if he still looks at the               
 bill as a bad policy to look at Alaska when everything else is                
 equal, the risk is the same, the yield is the same, etc.                      
                                                                               
 MR. STORER said, "The problem he has philosophically is that                  
 anytime you articulate what is essentially policy by statute, then            
 I think you've created a bad situation for bad policy.  No one on             
 the board or myself would quibble with the intent of this language            
 and think that there are potential opportunities in Alaska.  And so           
 - would not quibble with the essence of it.  This language is,                
 however, and it was mentioned before, sort of classic language for            
 economically targeted investments.  And well some large funds do              
 use economically targeted investments and study ice on, only one              
 study but I think it's a very good study, suggests that 83 percent            
 of larger public funds -- public funds with assets in excess of $1            
 billion do not use economically target investments.  So it's not              
 the norm - this kind of language.  It is consistent with the                  
 permanent fund, but again, the permanent fund is different.  They             
 don't have that liability stream, the best interest, the plan and             
 the beneficiaries in my...  I think the board is very interested in           
 seeking opportunities and investing in Alaska at the appropriate              
 time.  They've spent over a year trying to develop a real estate              
 policy and they're meeting tomorrow and Friday and I expect them to           
 increase their asset allocation to real estate from 2 to 8 percent            
 at this meeting as an example.  So I think that I have no quibble             
 with the intention.  I think it's consistent with the board's                 
 desires.  I have had a problem with policy by statute.  I have one            
 concern and I kind of heard it here earlier.  And I want to                   
 emphasize this is a personal opinion and I'm not speaking for the             
 board or Revenue or anything like that.  This question of attitude,           
 and it's been disappointing when one thinks that we don't have a              
 proper attitude towards Alaska.  We do have a brokerage policy that           
 allows 30 percent of the commission's dollars in equity trades are            
 made available to firms -- to the Alaskan offices.  They don't get            
 that much but we try to develop some policy.  So it's always                  
 disturbing when you try to do things that's not perceived as                  
 positive.  The personal opinion is that this kind of language could           
 theoretically, or my concern is that it could create false                    
 expectations.  Risk--comparable risk, comparable yield, at times              
 whether you're a buyer or a seller, you have distinctly different             
 points of view.  And so I have a personal concern that this type of           
 legislation would create false expectations.  We say those yields             
 are inconsistent - risks are inconsistent...."  [END OF TAPE]                 
                                                                               
 TAPE 96-40, SIDE B                                                            
 Number 001                                                                    
                                                                               
 MR. STORER continued, "...or people that have investment                      
 opportunities would disagree and would perpetuate what I think is             
 unfortunate - this attitudinal point of view.  I hope I didn't                
 wander too much, but I hope I answered your question."                        
                                                                               
 REPRESENTATIVE KUBINA referred to if the bill were to become law as           
 it is currently written, and asked Mr. Storer if it would force him           
 to do anything that he really doesn't want to do or if it would be            
 imprudent.                                                                    
                                                                               
 MR. STORER said the bill doesn't force the department to do                   
 anything and it still makes them evaluate whether it is appropriate           
 risk, appropriate yield and one could call it encouragement or                
 recognize that need.  There may be a more rigorous test of proving            
 whether something is or is not of comparable risk/comparable yield.           
 Embedded in risk is liquidity issues -- Is it something that has a            
 comparable yield?  Is it appropriate liquidity measure?  It is                
 things like that could get into sort of prolonged issues and things           
 like that.                                                                    
                                                                               
 Number 048                                                                    
                                                                               
 REPRESENTATIVE ELTON said they could currently do everything that             
 is envisioned with the passage of the bill.                                   
                                                                               
 MR. STORER said that is correct.                                              
                                                                               
 REPRESENTATIVE ELTON said he is somewhat concerned that we've taken           
 the percentage out.  He said he may feel more comfortable with the            
 percentage left in.  Representative Elton said he is interested in            
 Mr. Storer's reaction to whether or not there should be a cap.                
                                                                               
 MR. STORER said he believes that by eliminating the percentage                
 would be better policy because then it is less forcing an issue.              
 The markets and opportunities would dictate what you do.                      
                                                                               
 Number 082                                                                    
                                                                               
 REPRESENTATIVE ROKEBERG asked if it would be advisable sometimes              
 when a portfolio allocation model is sometimes has a very small               
 percentage for a small cap component.  He said for example, in a              
 large retirement pension wouldn't it be suitable to have a small              
 component of a small cap allocation.                                          
                                                                               
 MR. STORER said, "Yes and, in fact, we do evaluate the portfolio              
 from a large cap expected return, volatility measures and small               
 cap.  We segregate those issues as well as other asset classes."              
                                                                               
 REPRESENTATIVE ROKEBERG explained the reason he brought this up is            
 because there is a small money management firm in Anchorage which             
 was featured in Forbes magazine that actually specializes in small            
 cap on a (indisc.) basis.  He said their fees are probably a push             
 because they're inclusive type fees.  If we had the desire to have            
 a component of a small cap and it would fit in, there would be no             
 reason you couldn't go to that group as well as Mr. Rose's group              
 who specializes in fixed income investments quantitative of the               
 equity.  Representative Rokeberg said there are opportunities out             
 there that could be explored and he believes that is the intent of            
 the bill.                                                                     
                                                                               
 REPRESENTATIVE ROKEBERG said the state ombudsman issued a                     
 recommendation to the Speaker and the President of the Senate this            
 year that said all unwritten policies of the state should either be           
 in regulation or in statute, so that there is a clear understanding           
 on the part of the public of what our policies are.  He said he               
 believes this bill does that.                                                 
                                                                               
 REPRESENTATIVE ROKEBERG said the department should be aware that              
 the legislature is past the ninetieth day of the session, so                  
 whenever there is a fiscal note requested, they have two days to              
 get the fiscal note issued.                                                   
                                                                               
 Number 173                                                                    
                                                                               
 MR. STORER informed the committee he worked for Mr. Rose for nine             
 years and he has the highest regard for him personally.  Mr. Storer           
 said he has been following his progress and success in his new firm           
 very closely and has a lot of contact with his firm.  He said he is           
 aware of two equity managers.  One is the one Representative                  
 Rokeberg referenced that uses quantitative methods to structure a             
 portfolio.  Mr. Storer said he hasn't been contacted by this firm.            
 He said he would like to monitor their progress and would not like            
 to read about it in Forbes.  He would like to know quarterly how              
 they are doing and what they are doing.  Mr. Storer said there is             
 a real estate firm that has also made a presentation.  We have stay           
 abreast of what the money management firms are doing.                         
                                                                               
 MR. STORER referred to Representative Rokeberg's point on                     
 regulations or statutes and said, "What we do and one of the                  
 reasons it's been a pleasure working with this new board is I think           
 public money should be managed publicly, and since the creation of            
 this investment board -- as a matter of fact Dave was my mentor,              
 Mr. Rose, and I brought a lot of his views with it and that is to             
 do everything by resolution.  Well, it's not regulations, we do               
 everything by resolution.  We vote it publicly and then they're               
 available for those to see and that includes the asset allocation."           
                                                                               
 Number 245                                                                    
                                                                               
 REPRESENTATIVE PORTER said he appreciates Mr. Storer's comments               
 about policy and statute.  He said to the extent that overall                 
 direction is policy and overall direction, he believes, is the                
 responsibility of the legislature.  Representative Porter asked Mr.           
 Storer if he would have a problem following the law if that gets              
 into statute.                                                                 
                                                                               
 MR. STORER said he absolutely doesn't have a problem with following           
 the law.  Those are the rules of the road and they would do                   
 everything they could to ensure that they're followed.                        
                                                                               
 Number 275                                                                    
                                                                               
 CHAIRMAN KOTT referred to the current version of the bill and asked           
 Mr. Storer if in his opinion will have a negative effect on the               
 retirement funds.                                                             
                                                                               
 MR. STORER said, "There is nothing in this legislation, if we do              
 our job appropriately and thoughtfully as we have done, that would            
 have a detrimental effect to the management of the retirement                 
 system."                                                                      
                                                                               
 Number 304                                                                    
                                                                               
 REPRESENTATIVE ROKEBERG made a motion to move CSHB 345(L&C), as               
 amended, out of committee with individual recommendations and a               
 zero fiscal note.                                                             
                                                                               
 REPRESENTATIVE SANDERS said he would object to make a comment.  He            
 said he has a great deal of respect for Mr. Rose and all the                  
 financial organizations in Alaska.  However, he doesn't think that            
 the bill does anything.  He believes the bill in its current form             
 is the most "do nothing" bill he has seen in four years.  He said             
 he doesn't think it will be the way it currently is the next time             
 the committee members see it.  Representative Sanders said it                 
 reminds him of the dairy farms, grain elevators, the pork                     
 processing plants and everything else.  When a big mistake happens,           
 they'll be able to point back and say, "Well we're the guys that              
 told em to."  Representative Sanders said he isn't going to vote to           
 move the bill, he isn't going to vote for it on the floor and he              
 isn't going to tell them to.  He said if they want to do it, they             
 can do it today without the bill.  There is no reason to pass this            
 bill.                                                                         
                                                                               
 CHAIRMAN KOTT indicated that Representative Rokeberg indicated                
 earlier that there was a memorandum from the ombudsman to the                 
 Speaker and the President of the Senate that there should be clear            
 policy either by regulation or statute.                                       
                                                                               
 Number 373                                                                    
                                                                               
 REPRESENTATIVE ROKEBERG said one of the reasons he is going to vote           
 to move the bill out of committee is that there has been some wags            
 in the legislative halls that have indicated that a bill he                   
 introduced was the biggest turkey bill during session and he....              
 REPRESENTATIVE ELTON said he would echo what Representative Sanders           
 said.  He said he also said it is important to note that he is much           
 more comfortable.  It was explained clearly how this board deals              
 with this by resolution so that there is a record, they establish             
 a record and that record can be relied on by the public.  He said             
 he would note that as a former ombudsman that not all the                     
 recommendations he or that office made were the best                          
 recommendations.  He said we're not auditors or attorneys and those           
 recommendations are not always followed and sometimes they're not             
 followed for a good reason.                                                   
                                                                               
 Number 423                                                                    
                                                                               
 REPRESENTATIVE KUBINA said he will vote to move the bill out of               
 committee.  However, he said that doesn't mean he is prepared to              
 vote for it on the floor.  He said he is very sympathetic to what             
 the bill is trying to do.  It is like hiring principals and                   
 superintendents in Alaska, we always think that we'll get a better            
 person out of Minnesota.  We don't know their background, so it is            
 easier on our conscience.  He said he has been participating in the           
 teacher's retirement system for nineteen years.  Representative               
 Kubina said he would like this board, the permanent fund board and            
 everybody else to see we have abilities in Alaska.  If it is in               
 law, maybe they'll look a little more.  He stated he doesn't want             
 them to make bad investments, but he would like to see as much that           
 can be done in Alaska to be done here.  Representative Kubina                 
 indicated he would like to hear some of the debate that will happen           
 in the Finance Committee where they deal with these things.  He               
 stated he would like to see as much happen in Alaska as possible              
 without hurting the investments that are there.                               
                                                                               
 Number 507                                                                    
                                                                               
 REPRESENTATIVE PORTER said he was really disappointed with the                
 testimony the committee heard against the bill.  He said he                   
 believes the committee shaped the bill into probably a better                 
 product than it was because of the specific requirements that were            
 in the first version.  He said he doesn't think there is anything             
 wrong with saying, "We don't want you to jeopardize even 10 cents             
 but we do want you to look at Alaska first."  The only thing the              
 committee heard was, "No, me first."  The Alaska spirit seems to be           
 waning in one area of the state and it is very disappointing                  
 particularly when you look at who it is that furnished that fund in           
 the first place.  He said he intends to support the bill and will             
 vote for it on the floor.                                                     
                                                                               
 Number 550                                                                    
                                                                               
 CHAIRMAN KOTT asked Representative Sanders if he still maintains              
 his objection.                                                                
                                                                               
 REPRESENTATIVE SANDERS indicated he does maintain his objection.              
 A roll call vote was taken.  Representatives Porter, Kubina,                  
 Rokeberg and Kott voted in favor of moving CSHB 345(L&C), as                  
 amended, out of committee.  Representatives Masek, Elton and                  
 Sanders voted against moving the bill.  So CSHB 345(L&C), as                  
 amended, was passed out of the House Labor and Commerce Committee             
 with a zero fiscal note.                                                      

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