Legislature(1995 - 1996)
04/24/1996 03:12 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
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.