Legislature(2003 - 2004)
04/22/2004 08:40 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 544 - PERM FUND BOARD PUBLIC MEMBER REMOVAL CHAIR WEYHRAUCH announced that the first order of business would be House Bill 544, "An Act providing that public members of the Board of Trustees of the Alaska Permanent Fund Corporation may be removed only for cause; and providing for an effective date." Number 0027 REPRESENTATIVE SEATON moved to adopt the committee substitute (CS) for HB 544, Version 23-GH2142\D, Cook, 4/15/04, as work draft. CHAIR WEYHRAUCH objected for discussion purposes. Number 0034 MIKE BARNHILL, Assistant Attorney General, Commercial/Fair Business Section, Civil Division (Juneau), Department of Law, presented HB 544 on behalf of the House Rules Committee, by request of the governor. He stated that [HB 544] would provide that public members of the Board of Trustees of the Alaska Permanent Fund Corporation may be removed only for cause. Under current law, he explained, a board member can be removed for any reason, including partisan reasons. Mr. Barnhill offered examples of cause [found on page 1, lines 7-9 of Version D]. He summarized the steps of removal as outlined in the bill. He explained that "the reason why we do this" is to insulate the board, which manages $28 billion in state assets. He explained that [HB 544] would ensure continuity. Mr. Barnhill noted that there is a list [included in the committee packet] that his office prepared in 1980, listing all the felonies involving moral turpitude. He indicated that his office has generated a more updated list since then. In conclusion, he stated that the language of the bill is patterned after similar language for the Alaska Board of Fisheries in AS 16.05.280. Number 0275 ROBERT D. STORER, Executive Director, Alaska Permanent Fund Corporation (APFC), Department of Revenue, revealed that "several boards representing several administrations have supported this statutory change to ... protect the board from removal for cause." He noted that the board is comprised of six members, of which two are cabinet members who would change automatically with administration changes. The other four board members are appointed by the governor and serve four year staggered terms. He continued as follows: Prior to ... several administrations, a new governor has come in and replaced five of the six board members. Now, I can't say that it disadvantaged the fund's management, but I would suggest that the fund now is far more mature, in terms of how it implements its assets strategies - the kind of investment it makes - versus when that occurred. And investment knowledge, institutional memory, a continuity of education we believe is very important, and this is why board members support this. We're now looking at contemporary investment strategies that can take over ... two years of study. That doesn't mean that you adopt these strategies, but it's important that you study what other large plan sponsors are doing, so that you're well aware of why they adopted ... the intricacies of these strategies. MR. STORER stated that he finds that new board member learn far more quickly if there is some institutional memory that exists in the board. He indicated that better questions are asked and [those senior members of the board] remember how the decisions were made originally. He indicated that there are 19 individuals [on boards] who are protected for removal for cause, including the Alaska State Pension Investment Board. He stated that this issue is important and institutional memory is needed in order to make better, more informed investment decisions. Number 0496 REPRESENTATIVE GRUENBERG directed attention to the term "misconduct in office" on page 1, line 7, and asked if that is defined anywhere. MR. BARNHILL answered that it is not defined in the bill. REPRESENTATIVE GRUENBERG asked if the term is defined anywhere in state statute or common law. MR. BARNHILL said he would have to find out. REPRESENTATIVE GRUENBERG assumed that the term "misdemeanor or felony involving moral turpitude" means only misdemeanors or felonies involving moral turpitude. MR. BARNHILL answered that's correct. REPRESENTATIVE GRUENBERG opined, "I think that if we are going to be referencing some fairly obscure statute in the elections code, we should have that defined in here." He indicated that he may offer an amendment to that effect, and he asked Mr. Barnhill if he would have any problem with such an amendment. MR. BARNHILL answered no. He noted that the Senate Judiciary Standing Committee decided to "delete the words involving moral turpitude." He commented that that is also fine. He reminded the committee that a list had been provided to define the terms. He said, "If a board member gets convicted of any crime, that should constitute reason for cause." Number 0668 CHAIR WEYHRAUCH professed, "This is really a potential huge can of worms, politically and substantively, I think - doing this." He illustrated, "Moral turpitude with respect to ... child abuse is not necessarily moral turpitude with respect to the knowledge necessary to manage a permanent fund, but it may be an excuse ... or a reason to remove someone if you didn't want them." He said being charged with a crime may result in a huge political embarrassment, particularly regarding something like bribery or theft. He continued as follows: Let's say you're accused of that crime. Of course, nobody wants to be convicted before they have their day in court. But you have somebody accused of a serious crime, but before the removal is final, they have to go through this huge due process hearing, this huge public spectacle embarrassing both the person on the board, potentially the governor, the members of the fund, the staff. You know, I just -- if you guys want this, you might get it, but you better be careful what you wish for. Number 0752 MR. BARNHILL responded that Chair Weyhrauch's concerns are legitimate. He stated that what he thinks is most important to the administration is that it narrows removal for cause. He said, "If the committee feels that it's important to leave 'involving moral turpitude' in there, we're fine with that. I mean, that's why we drafted it in there - to make it narrow." CHAIR WEYHRAUCH responded, "The policy goal here is to keep continuity - keep people on the board and not ... throw them out because of political whim. On the other hand ..., to keep that continuity, you want some cause. But if there's cause that exists, maybe it's best to just get rid of them, without going through this cumbersome political trial." Number 0833 MR. STORER proffered that "those facts are not lost on us." He said the conclusion essentially was that the board members have historically been high profile individuals throughout the state who have been under a lot of scrutiny prior to their appointment. He said that is the downside risk. He emphasized, "The importance of this is from the investment management point of view and that continuity, and not making decisions -- it is a double edged sword, and we believe the latter issues I've just observed material outweighs that potential risk on the other side." Number 0859 REPRESENTATIVE SEATON stated: Under the definition of moral turpitude, I guess the promoting gambling, now - of course this is once a person is a member - but if we had pull tab legislation that came up and ... someone voted for that, then they would be guilty under this? I mean, ... there seems to be, under this definition, some funny things. MR. BARNHILL said the answer's no. He said, "Promoting gambling's a criminal offense and, if we pass a bill that authorizes, for instance, gaming or legal gambling, that would be exempted from a criminal offense." Number 0908 REPRESENTATIVE GRUENBERG said he strongly supports the bill, but wants to think about it. Number 1000 MR. STORER, in response to a question from Representative Holm, noted that he thinks the permanent fund's broad market returns are comparable to the [Standard & Poors (S&P)] index. He indicated there has been excess returns of between 3/4 and 1 percent. He stated that he has worked with virtually all of the board members who have been with the permanent fund. He assured the committee that "when you're a fiduciary for a large fund, you take that role very seriously." He stated that the history and tradition of the permanent fund is "incrementalism" and long evaluation and study; therefore, he would envision changes to be incremental, rather than sweeping. REPRESENTATIVE SEATON stated that part of the problem he sees in the bill is its legalistic manner. He suggested changing the language [beginning on page 1, line 6] to read, "only for cause, including inefficiency, neglect of duty, misconduct in office, and may not be removed simply for political convenience." CHAIR WEYHRAUCH interjected that he had to leave momentarily and was, therefore, handing the gavel over to Representative Holm. Number 1186 VICE-CHAIR HOLM suggested that Representative Seaton add his idea in the form of a committee substitute to be heard in the next hearing of HB 544. Number 1194 MR. BARNHILL, in response to Representative Seaton's aforementioned suggestion, stated that there is actually no provision in the bill for an appeal. He said, "It's just a hearing." He clarified, "Because of the decision, the aggrieved board member -- they wouldn't appeal from that; there's no provision in here for administrative appeal - they'd probably have to sue the state." In regard to putting a decision in writing, he noted that there is supreme court precedent that says that administrative decisions should be detailed in writing. He added, "So, I think that's important to leave that in there, otherwise you get into an area of arbitrary and capricious decision-making by an administrative agency. I don't really think we want to do that." REPRESENTATIVE SEATON stated that the point of the bill is to let administrations know that "they do not have the authority, for political reasons, to remove people, if there has to be a removal for cause." He questioned whether listing all the causes may restrict the ability too much or raise the bar so much that it becomes a very contentious issue. [HB 544 was heard and held.]
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