Legislature(2007 - 2008)CAPITOL 106

03/22/2007 08:00 AM STATE AFFAIRS


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 184 COMMEMORATIVE TROOPS LICENSE PLATE TELECONFERENCED
<Bill Hearing Canceled>
+ HB 13 RETIREMENT SYSTEM LIABILITY/BONDS/CORP. TELECONFERENCED
Moved CSHB 13(W&M) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 171 ACCOMMODATE 90-DAY SESSION TELECONFERENCED
Heard & Held
+= HB 166 CONTRIBUTIONS FROM PERM. FUND DIVIDENDS TELECONFERENCED
Moved CSHB 166(STA) Out of Committee
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE STATE AFFAIRS STANDING COMMITTEE                                                                           
                         March 22, 2007                                                                                         
                           8:12 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Bob Lynn, Chair                                                                                                  
Representative John Coghill                                                                                                     
Representative Craig Johnson                                                                                                    
Representative Andrea Doll                                                                                                      
Representative Max Gruenberg                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Bob Roses, Vice Chair                                                                                            
Representative Kyle Johansen                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 166                                                                                                              
"An Act  relating to contributions from  permanent fund dividends                                                               
to community  foundations, to certain  educational organizations,                                                               
and  to certain  other  charitable organizations  that provide  a                                                               
positive  youth development  program, workforce  development, aid                                                               
to  the arts,  or aid  and  services to  the elderly,  low-income                                                               
individuals,  individuals   in  emergency   situations,  disabled                                                               
individuals, or  individuals with  mental illness;  and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
     - MOVED CSHB 166(STA) OUT OF COMMITTEE                                                                                     
                                                                                                                                
HOUSE BILL NO. 171                                                                                                              
"An Act relating  to the terms of legislators, the  date and time                                                               
for convening  regular legislative sessions, adoption  of uniform                                                               
rules of the legislature and to  certain of those rules, the date                                                               
for organizing  the Legislative Budget  and Audit  Committee, and                                                               
deadlines for certain  matters or reports to be  delivered to the                                                               
legislature  or   filed;  prohibiting  bonuses   for  legislative                                                               
employees; and providing for an effective date."                                                                                
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
HOUSE BILL NO. 13                                                                                                               
"An Act relating to prepayments  of accrued actuarial liabilities                                                               
of  government   retirement  systems;  relating  to   the  Alaska                                                               
Municipal Bond  Bank Authority;  permitting the  Alaska Municipal                                                               
Bond Bank  Authority or a  subsidiary of the authority  to assist                                                               
state  and municipal  governmental  employers  by issuing  bonds,                                                               
notes,  commercial  paper, or  other  obligations  to enable  the                                                               
governmental  employers  to  prepay  all  or  a  portion  of  the                                                               
governmental employers' shares of  the unfunded accrued actuarial                                                               
liabilities  of retirement  systems;  authorizing a  governmental                                                               
employer to issue  obligations to prepay all or a  portion of the                                                               
governmental employer's shares of  the unfunded accrued actuarial                                                               
liabilities of  retirement systems and  to enter into a  lease or                                                               
other  contractual  agreement  with   a  trustee  or  the  Alaska                                                               
Municipal Bond  Bank Authority or  a subsidiary of  the authority                                                               
in connection with the issuance  of obligations for that purpose,                                                               
and  relating   to  those  obligations;  and   providing  for  an                                                               
effective date."                                                                                                                
                                                                                                                                
     - MOVED CSHB 13(W&M) OUT OF COMMITTEE                                                                                      
                                                                                                                                
HOUSE BILL NO. 184                                                                                                              
"An Act  relating to  a commemorative  troops license  plate; and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
     - BILL HEARING CANCELED                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 166                                                                                                                  
SHORT TITLE: CONTRIBUTIONS FROM PERM. FUND DIVIDENDS                                                                            
SPONSOR(s): REPRESENTATIVE(s) THOMAS                                                                                            
                                                                                                                                
02/28/07       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/28/07       (H)       STA, FIN                                                                                               
03/20/07       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
03/20/07       (H)       Heard & Held                                                                                           
03/20/07       (H)       MINUTE(STA)                                                                                            
03/22/07       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
                                                                                                                                
BILL: HB 171                                                                                                                  
SHORT TITLE: ACCOMMODATE 90-DAY SESSION/LEG PROCEDURES                                                                          
SPONSOR(s): RULES                                                                                                               
                                                                                                                                
03/01/07       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/01/07       (H)       STA                                                                                                    
03/06/07       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
03/06/07       (H)       Scheduled But Not Heard                                                                                
03/15/07       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
03/15/07       (H)       Heard & Held                                                                                           
03/15/07       (H)       MINUTE(STA)                                                                                            
03/22/07       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
                                                                                                                                
BILL: HB  13                                                                                                                  
SHORT TITLE: RETIREMENT SYSTEM LIABILITY/BONDS/CORP.                                                                            
SPONSOR(s): REPRESENTATIVE(s) HAWKER                                                                                            
                                                                                                                                
01/16/07       (H)       PREFILE RELEASED 1/5/07                                                                                
01/16/07       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/16/07       (H)       W&M, STA, FIN                                                                                          
02/14/07       (H)       W&M AT 3:30 PM HOUSE FINANCE 519                                                                       
02/14/07       (H)       Heard & Held                                                                                           
02/14/07       (H)       MINUTE(W&M)                                                                                            
02/16/07       (H)       W&M AT 3:30 PM HOUSE FINANCE 519                                                                       
02/16/07       (H)       Heard & Held                                                                                           
02/16/07       (H)       MINUTE(W&M)                                                                                            
03/05/07       (H)       W&M AT 3:30 PM HOUSE FINANCE 519                                                                       
03/05/07       (H)       Moved CSHB  13(W&M) Out of Committee                                                                   
03/05/07       (H)       MINUTE(W&M)                                                                                            
03/07/07       (H)       W&M RPT CS(W&M) NT 3DP 3AM                                                                             
03/07/07       (H)       DP: FAIRCLOUGH, ROSES, HAWKER                                                                          
03/07/07       (H)       AM: WILSON, SEATON, CISSNA                                                                             
03/22/07       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
KACI HOTCH, Staff                                                                                                               
to Representative Bill Thomas, Jr.                                                                                              
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Reviewed the changes made in Version C, on                                                                 
behalf of Representative Thomas, prime sponsor of HB 166.                                                                       
                                                                                                                                
REPRESENTATIVE PAUL SEATON                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented the idea for a 31-day break mid                                                                  
90-day session during the hearing on HB 171.                                                                                    
                                                                                                                                
REPRESENTATIVE MIKE HAWKER                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented HB 13 as prime sponsor.                                                                          
                                                                                                                                
BRIAN ANDREWS, Deputy Commissioner                                                                                              
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:    Offered  an  overview  regarding  pension                                                               
obligation bonds (POBs) during the hearing on HB 13.                                                                            
                                                                                                                                
GARY M. BADER, Chief Investment Officer                                                                                         
Treasury Division                                                                                                               
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Assisted with  an overview regarding pension                                                               
obligation bonds during the hearing on HB 13.                                                                                   
                                                                                                                                
GREG SUNDBERG, Managing Director                                                                                                
Merrill Lynch                                                                                                                   
Seattle, Washington                                                                                                             
POSITION STATEMENT:  Testified during the hearing on HB 13.                                                                     
                                                                                                                                
LINDSEY SOVDE, Vice President                                                                                                   
Seattle-Northwest Securities Corporation (SNW)                                                                                  
Seattle, Washington                                                                                                             
POSITION STATEMENT:  Testified during the hearing on HB 13.                                                                     
                                                                                                                                
MIKE BARNHILL, Assistant Attorney General                                                                                       
Labor and State Affairs Section                                                                                                 
Civil Division (Juneau)                                                                                                         
Department of Law (DOL)                                                                                                         
POSITION STATEMENT:  Testified during the hearing on HB 13.                                                                     
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR BOB LYNN called the  House State Affairs Standing Committee                                                             
meeting  to  order  at  8:12:07  AM.    Representatives  Coghill,                                                             
Johnson,  Doll, and  Lynn  were  present at  the  call to  order.                                                               
Representative Gruenberg arrived as the meeting was in progress.                                                                
                                                                                                                                
HB 166-CONTRIBUTIONS FROM PERM. FUND DIVIDENDS                                                                                
                                                                                                                                
8:12:50 AM                                                                                                                    
                                                                                                                                
CHAIR LYNN announced  that the first order of  business was HOUSE                                                               
BILL NO.  166, "An Act  relating to contributions  from permanent                                                               
fund dividends  to community foundations, to  certain educational                                                               
organizations,  and  to  certain other  charitable  organizations                                                               
that  provide a  positive  youth  development program,  workforce                                                               
development,  aid  to  the  arts,  or aid  and  services  to  the                                                               
elderly,   low-income  individuals,   individuals  in   emergency                                                               
situations,  disabled  individuals,  or individuals  with  mental                                                               
illness; and providing for an effective date."                                                                                  
                                                                                                                                
8:13:07 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  moved to  adopt the  committee substitute                                                               
(CS)  for HB  166, Version  25-LS0678\C, Cook,  as a  work draft.                                                               
There being no objection, Version C was before the committee.                                                                   
                                                                                                                                
8:13:38 AM                                                                                                                    
                                                                                                                                
KACI  HOTCH, Staff  to Representative  Bill  Thomas, Jr.,  Alaska                                                               
State Legislature,  reviewed the  changes made  in Version  C, on                                                               
behalf of  Representative Thomas, prime  sponsor of HB 166.   The                                                               
first change,  she noted, opens  the program up to  all 501(c)(3)                                                               
entities,  with one  exception shown  on page  2, [lines  15-17],                                                               
which read as follows:                                                                                                          
                                                                                                                                
          (c)  The department may not include on the                                                                            
     contribution   list    an   educational   organization,                                                                    
     community foundation,  or charitable  organization that                                                                    
     is the affiliate of a group.                                                                                               
                                                                                                                                
MS. HOTCH noted  that clarification is made on page  2 that every                                                               
501(c)(3)  that is  eligible must  reapply each  year.   She said                                                               
that  requirement  will  prevent   the  necessity  of  the  state                                                               
searching  out  a 501(c)(3)  that  it  thinks  may no  longer  be                                                               
eligible.                                                                                                                       
                                                                                                                                
MS. HOTCH  pointed to another  change on  page 3, line  24, which                                                               
states that before a contract  with a corporation or organization                                                               
that will  be managing the  program is  executed, a copy  of that                                                               
entity's  policies  and  procedures  must be  on  file  with  the                                                               
Department of  Revenue. Another change  is found on page  3, line                                                               
26,  which  provides  that  the  department  can  circumvent  the                                                               
procurement code if it desires to do so.                                                                                        
                                                                                                                                
8:16:15 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON moved  to  report CSHB  166, Version  25-                                                               
LS0678\C, Cook, out of  committee with individual recommendations                                                               
and the  accompanying fiscal  notes.   There being  no objection,                                                               
CSHB  166(STA)  was  reported  out of  the  House  State  Affairs                                                               
Standing Committee.                                                                                                             
                                                                                                                                
HB 171-ACCOMMODATE 90-DAY SESSION/LEG PROCEDURES                                                                              
                                                                                                                                
8:16:45 AM                                                                                                                    
                                                                                                                                
CHAIR LYNN  announced that the  next order of business  was HOUSE                                                               
BILL NO. 171,  "An Act relating to the terms  of legislators, the                                                               
date  and  time  for   convening  regular  legislative  sessions,                                                               
adoption of  uniform rules of  the legislature and to  certain of                                                               
those rules, the  date for organizing the  Legislative Budget and                                                               
Audit Committee, and deadlines for  certain matters or reports to                                                               
be  delivered to  the legislature  or filed;  prohibiting bonuses                                                               
for legislative employees; and providing for an effective date."                                                                
                                                                                                                                
8:17:16 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE COGHILL requested  that Representative Paul Seaton                                                               
be invited  to speak  on the  matter of  a proposed  30-day break                                                               
within a  90-day session, a concept  which Representative Coghill                                                               
said Representative  Seaton initiated.   He mentioned  that there                                                               
was also a legal matter to address.                                                                                             
                                                                                                                                
8:17:47 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE PAUL  SEATON, Alaska  State Legislature,  said his                                                               
focus   was  to   accommodate   the  90-day   session  and   meet                                                               
requirements for timing  of incoming and outgoing  members of the                                                               
legislature.   He said  the big question  is how  the legislature                                                               
can  eliminate  25  percent  of  its time  in  Juneau  while  not                                                               
diminish  the  public's  access to  debate  and  notification  of                                                               
legislation  as it  goes  forward.   He  urged  the committee  to                                                               
consider  splitting the  session into  two parts,  with a  31-day                                                               
break  between.   He  stated  that although  the  wording of  the                                                               
initiative  calls  for  a  continuous   90  days,  there  was  no                                                               
campaigning  during the  initiative  process  that would  require                                                               
such continuity.   He said he has spoken to  both sponsors of the                                                               
initiative  that are  still  in the  legislature,  and they  both                                                               
think that  splitting the  session into  two parts  would comport                                                               
with the initiative intent.                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON  mentioned that the committee  has received                                                               
a  legal  opinion  stating that  the  Alaska  State  Constitution                                                               
permits  the legislature  to modify  an initiative  to make  it a                                                               
workable document,  provided those  modifications do  not violate                                                               
the intent or spirit of the initiative.                                                                                         
                                                                                                                                
8:19:53 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  said a [31-day] break  would eliminate the                                                               
number of excused absences.   Furthermore, legislators would have                                                               
more time to meet with  their constituents.  Currently, he noted,                                                               
legislators  take time  off  for the  annual  Energy Council  and                                                               
Easter break;  if the 31-day  break was placed  strategically, it                                                               
could cover that time.  He  explained the reason for stating that                                                               
the  break  would be  31  days  rather  than  30 is  because  the                                                               
legislature would  actually be changing  from 121 to 90,  not 120                                                               
to 90.                                                                                                                          
                                                                                                                                
8:22:06 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON,  regarding   staff,  said  a  legislative                                                               
employee  currently can  earn a  step increase  related to  wages                                                               
after working  115 days.  He  said there is dispute  over whether                                                               
or not to allow employees a step  increase after 85 days.  If the                                                               
31-day  break was  in  play, session  staff  could stay  employed                                                               
during the  break, and the step  increase would not be  an issue.                                                               
Furthermore,  hiring  staff  through   the  break  would  address                                                               
concerns  that have  been  raised related  to  the difficulty  in                                                               
getting staff to work in Juneau for only 90 days.                                                                               
                                                                                                                                
8:23:27 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON turned  to the fiscal note  and pointed out                                                               
that  "there's  hardly  any  savings."   He  explained  that  the                                                               
difference between  session per  diem and  long-term per  diem is                                                               
minimal; therefore,  since most  legislators would be  "working a                                                               
good  portion of  this time  on their  own anyway  and collecting                                                               
longer-term per  diem," if  they stayed on  session per  diem, he                                                               
said, they could maintain their  Juneau lodgings, which would not                                                               
disrupt the housing market.                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON remarked that  the same level of engagement                                                               
is not achieved when legislators  are spread throughout the state                                                               
participating in meetings via teleconference.                                                                                   
                                                                                                                                
8:24:39 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON directed  attention  to two  of the  legal                                                               
opinions  in committee  packet,  which are  from  Tamara Cook  of                                                               
Legislative Legal and Research Services.   The first, he noted is                                                               
dated March 16,  2007 [and shows "(Work  Order 25-LS0764)" within                                                               
the subject  line].   He cited  the first  sentence of  the first                                                               
paragraph on  the second page,  which read as  follows `[original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     If I  am correct that  the legislature is not  bound by                                                                    
     the  statutory  session  limit under  AS  24.05.150(b),                                                                    
     then  the legislature  is legally  free  to adopt  your                                                                    
     proposed schedule as a  compromise position designed to                                                                    
     limit the  actual number of days  the legislature meets                                                                    
     to 90 days, while allowing  the legislature to wait for                                                                    
     better  revenue  forecasts  before  it  reconvenes  and                                                                    
     finalizes the budget in the spring.                                                                                        
                                                                                                                                
REPRESENTATIVE SEATON said the second  of the two legal opinions,                                                               
dated March 20, 2007, is in response to the following question:                                                                 
                                                                                                                                
     Could a  statute providing for  a 31-day  recess during                                                                    
     each regular session  constitute the agreement required                                                                    
     under Art. II, sec. 10  of the state constitution for a                                                                    
     recess longer than three days?                                                                                             
                                                                                                                                
REPRESENTATIVE SEATON  read part of  Ms. Cook's response  to that                                                               
question, found  in the  last sentence  of the  second paragraph,                                                               
which read as follows [original punctuation provided]:                                                                          
                                                                                                                                
     However, so long as both  houses cooperatively abide by                                                                    
     the statute and neither  expresses its determination to                                                                    
     force  the other  house back  into  session, I  believe                                                                    
     that the  statute will serve as  acceptable evidence of                                                                    
     the concurrence  in the  recess by  each of  the houses                                                                    
     under art. II, sec. 10.                                                                                                    
                                                                                                                                
8:26:09 AM                                                                                                                    
                                                                                                                                
CHAIR  LYNN recognized  Representative Seaton's  having addressed                                                               
the  needs of  the staff,  a  consideration that  is often  times                                                               
overlooked, he indicated.                                                                                                       
                                                                                                                                
8:26:33 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE COGHILL  moved to  adopt the  committee substitute                                                               
(CS) for  HB 171, Version  25-LS0653\E, Cook, 3/16/07, as  a work                                                               
draft.                                                                                                                          
                                                                                                                                
8:26:57 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG  objected for  the purpose of  hearing a                                                               
review of Version E.                                                                                                            
                                                                                                                                
8:27:26 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  noted that  he will  have recommendations                                                               
to make regarding the bill.                                                                                                     
                                                                                                                                
8:27:41 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE COGHILL reviewed the changes  made by Version E by                                                               
referring  to the  original bill  and pointing  to the  following                                                               
language that  had been deleted:   Page 3, Section 5,  which gave                                                               
the opportunity for each house  to adopt different rules; Page 4,                                                               
Section 8,  which would have killed  any bills not passed  by one                                                               
house within the  first session; Page 6, Section 14  - the entire                                                               
section  - regarding  timeline issues;  and Page  6, Section  15,                                                               
requiring the administration's budget by January.                                                                               
                                                                                                                                
8:29:28 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GRUENBERG removed  his  objection  to Version  E.                                                               
There  being  no further  objection,  Version  E was  before  the                                                               
committee as a work draft.                                                                                                      
                                                                                                                                
[HB 171 was heard and held.]                                                                                                    
                                                                                                                                
HB  13-RETIREMENT SYSTEM LIABILITY/BONDS/CORP.                                                                                
                                                                                                                                
8:29:55 AM                                                                                                                    
                                                                                                                                
CHAIR LYNN  announced that the  last order of business  was HOUSE                                                               
BILL  NO.  13,  "An  Act   relating  to  prepayments  of  accrued                                                               
actuarial liabilities of  government retirement systems; relating                                                               
to  the  Alaska Municipal  Bond  Bank  Authority; permitting  the                                                               
Alaska  Municipal Bond  Bank  Authority or  a  subsidiary of  the                                                               
authority to  assist state  and municipal  governmental employers                                                               
by issuing  bonds, notes, commercial paper,  or other obligations                                                               
to enable the  governmental employers to prepay all  or a portion                                                               
of  the governmental  employers' shares  of the  unfunded accrued                                                               
actuarial  liabilities  of   retirement  systems;  authorizing  a                                                               
governmental employer  to issue  obligations to  prepay all  or a                                                               
portion  of the  governmental employer's  shares of  the unfunded                                                               
accrued actuarial liabilities of  retirement systems and to enter                                                               
into a  lease or  other contractual agreement  with a  trustee or                                                               
the Alaska Municipal  Bond Bank Authority or a  subsidiary of the                                                               
authority  in connection  with the  issuance  of obligations  for                                                               
that purpose,  and relating to  those obligations;  and providing                                                               
for  an  effective  date."     [Before  the  committee  was  CSHB                                                               
13(W&M).]                                                                                                                       
                                                                                                                                
8:29:58 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MIKE  HAWKER, Alaska State  Legislature, presented                                                               
HB  13  as  prime  sponsor.   He  said  the  bill  would  provide                                                               
government   employers  with   a   financial   tool  that   could                                                               
potentially save  tax payers of the  state a great deal  of money                                                               
by paying  down the  retirement system's  unfunded liability  - a                                                               
mounting liability  estimated at  over $10  billion.   He likened                                                               
the unfunded  liability of  the pension  system to  a residential                                                               
mortgage:   the  government  is the  homeowner,  and rather  than                                                               
owing money  to the  bank, it  has an obligation  to pay  off the                                                               
liability to the pension funds.   Legislators, he said, owe it to                                                               
their constituents  to pay off  the obligation to the  trust with                                                               
the least possible expenditure from  state and public treasuries.                                                               
Representative Hawker stated, "Our  liability to the pension fund                                                               
is an absolute, constitutional liability.   We have no choice but                                                               
eventually to write that check."                                                                                                
                                                                                                                                
8:33:45 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  said  HB   13  proposes  use  of  Pension                                                               
Obligation Bonds  (POBs) - a  proven financial device -  to lower                                                               
the  interest  cost of  the  unfunded  liability.   He  said  the                                                               
director  of the  Department  of Revenue  will  offer a  detailed                                                               
description of POBs  and how they could be  a substantial benefit                                                               
to the treasury of the state.                                                                                                   
                                                                                                                                
REPRESENTATIVE  HAWKER,  in response  to  a  question from  Chair                                                               
Lynn, confirmed  that there  was a similar  bill introduced  in a                                                               
previous legislature, but  it stopped its movement  in the Senate                                                               
Finance Committee.   Representative Hawker said that  end to that                                                               
particular  legislation was  appropriate, because  it had  served                                                               
the  purpose of  getting  everyone to  start  thinking about  the                                                               
concept.  Now,  he opined, "we're blessed  with an administration                                                               
that has  a very  contemporary view on  public finance  and [has]                                                               
embraced this idea  as part of [its] own budgeting  process."  In                                                               
response  to a  follow-up question  from Chair  Lynn, he  said it                                                               
could be  argued that  because the  state did  not pass  the bill                                                               
last year, it  lost 3 percent of the $2-$3  billion it might have                                                               
used in a bonding transaction.                                                                                                  
                                                                                                                                
CHAIR LYNN commented that that is not "chump change."                                                                           
                                                                                                                                
8:36:21 AM                                                                                                                    
                                                                                                                                
BRIAN  ANDREWS,  Deputy   Commissioner,  Department  of  Revenue,                                                               
offered an overview [based on  a PowerPoint presentation included                                                               
in  the  committee  packet] regarding  pension  obligation  bonds                                                               
(POBs).  He  stated that the goal  of POBs is to  reduce the cost                                                               
of the  pension plans' outstanding  liability.  He said  a simple                                                               
analogy  would  be "paying  off  your  credit  card debt  with  a                                                               
cheaper  line of  credit  against  your house."    Over the  past                                                               
decade, he noted,  there have been over 300 POBs  issued by state                                                               
and local governments  in 26 different states.  He  said POBs are                                                               
not new to Alaska - they  were issued successfully by the City of                                                               
Anchorage in 1980.                                                                                                              
                                                                                                                                
8:38:46 AM                                                                                                                    
                                                                                                                                
MR.  ANDREWS  listed  three  primary  reasons  the  state  should                                                               
consider POBs:   the  interest rate savings  on the  reduction in                                                               
cost, the possibility  of a positive earnings  arbitrage, and the                                                               
general  view that  POBs do  not add  to the  debt burden  of the                                                               
state.  Regarding the latter,  he explained, "We already have the                                                               
debt; we're just simply replacing it  with a lower cost of debt."                                                               
He  said when  he mentions  "state"  he is  also including  local                                                               
governments.   He relayed that  the pension system is  giving the                                                               
state  a bill  which, in  the reevaluation  of 2006,  totals $8.6                                                               
billion.   Of  that, $5.5  billion is  the responsibility  of the                                                               
Public Employees'  Retirement System  (PERS), while  $3.1 billion                                                               
belongs to  the Teachers' Retirement  System (TRS).  He  said the                                                               
evaluation of 2007  has not yet been seen, but  the prediction is                                                               
that the bill will have increased.                                                                                              
                                                                                                                                
MR. ANDREWS  said there are  two ways to pay  off the bill:   the                                                               
state can  pay it off  with cash, or  the pension plan  - knowing                                                               
the state's  credit is good  - can give the  state a loan  to pay                                                               
off the  bill over  a 25-year period  of time at  a cost  of 8.25                                                               
percent.  He continued:                                                                                                         
                                                                                                                                
8:40:44 AM                                                                                                                    
                                                                                                                                
     So, we  talk about interest  rate savings; let  me give                                                                    
     you a simple example:   The difference between 8.25 and                                                                    
     5.75 percent is 2.5 percent.   On a billion dollars, we                                                                    
     take a  look at the  principle and interest  payment at                                                                    
     8.25 percent, and we will  see that that annual payment                                                                    
     is $96 million a year.                                                                                                     
                                                                                                                                
     If we  can lower the  cost down to 5.75  percent, we'll                                                                    
     save 2.5 percent,  or an annual savings  of $19 million                                                                    
     a year.   Now, we take that $19, we  times it times 25,                                                                    
     and then we  discount it back to 5 percent  to bring it                                                                    
     in  today's  dollars,  and that's  a  savings  of  $272                                                                    
     million for the system.                                                                                                    
                                                                                                                                
MR. ANDREWS  stated that today's  interest rate environment  is a                                                               
favorable one as  related to using pension obligation  bonds.  He                                                               
said  last   week  the   yield  on   the  10-year   treasury  was                                                               
approximately 4.5  percent.  He  said POBs  can be issued  in the                                                               
market  with a  premium of  approximately 100  basis points  or 1                                                               
percent;  therefore, he  said last  week's cost  of issuing  POBs                                                               
would have  been between 5.6-5.7  percent.  More  importantly, he                                                               
related,  today's interest  rates are  at the  lowest level  they                                                               
have been since the late '60s.                                                                                                  
                                                                                                                                
8:42:21 AM                                                                                                                    
                                                                                                                                
MR.  ANDREWS   addressed  the  issue   of  a   positive  earnings                                                               
arbitrage, which  he defined as  "the difference between  what we                                                               
can achieve as  an investment return on the proceeds  of the bond                                                               
issuance."   He directed attention  to the  historical investment                                                               
returns  of  PERS over  the  past  15 years  [on  page  7 of  the                                                               
PowerPoint], which show an average  return of 9.09 percent.  That                                                               
takes into  effect the bare market  of 2000, which was  the worst                                                               
bare  market  since the  1929  Depression,  he noted.    Standard                                                               
deviation,  he explained,  is a  measurement  of volatility,  and                                                               
shows at 7.25 percent.  What  that really means, he said, is that                                                               
two-thirds of the time, a return  of between 16.3 percent down to                                                               
1.8 percent  can be expected.   The next page of  the PowerPoint,                                                               
he noted, shows the returns for  TRS, and they vary slightly from                                                               
PERS, at  9.14 percent.   He  explained that  the reason  for the                                                               
difference is  timing of  funds.  He  added, "But  the portfolios                                                               
are identical."                                                                                                                 
                                                                                                                                
MR. ANDREWS  reported that  the pension  plans exceeded  a return                                                               
north of 15 percent for the 2006 calendar year.                                                                                 
                                                                                                                                
8:44:11 AM                                                                                                                    
                                                                                                                                
GARY  M.  BADER,  Chief Investment  Officer,  Treasury  Division,                                                               
Department of Revenue, reviewed the  information on page 9 of the                                                               
handout, titled,  "Long Term Target  Asset Allocation."   He said                                                               
there is  an anticipated median  return of 8.05 percent  and plus                                                               
or minus 12.27 percent.  He  explained,  "Two-thirds of the time,                                                               
you  might expect  the range  of  earnings to  be as  high as  20                                                               
percent, or  it could  be as low  as a negative  4 percent."   He                                                               
said  it  is not  his  intention  to  suggest  that there  is  no                                                               
possibility to  have negative earnings;  however, the  history of                                                               
the pension  fund is that  they have  earned north of  9 percent,                                                               
and "that's the basis upon which we suggest going forward."                                                                     
                                                                                                                                
8:45:53 AM                                                                                                                    
                                                                                                                                
MR. ANDREWS turned to the  subject of credit rating consideration                                                               
[on  page 10  of  the  PowerPoint] and  read  the  two quotes  as                                                               
follows:                                                                                                                        
                                                                                                                                
     Moody's believes the issuance of POBs is an effective                                                                      
     way of addressing the unfunded liability.                                                                                  
                                                                                                                                
     Standard &  Poor's has  viewed POBs  as a  strategy for                                                                    
     savings   on   carrying   charges  as   long   as   the                                                                    
     transactions are structured  ... conservatively and the                                                                    
     assumptions are reasonable and attainable.                                                                                 
                                                                                                                                
8:46:47 AM                                                                                                                    
                                                                                                                                
MR. ANDREWS  addressed the subject of  risks, directing attention                                                               
to  page  11  of  the   PowerPoint,  entitled,  "Investment  Risk                                                               
(PERS)."   On  the page  are columns  indicating rate  of return,                                                               
cost of  borrowing, and  cumulative net  return for  fiscal years                                                               
1992  through 2006.    Some  of the  cumulative  net returns  for                                                               
certain  years show  in the  negative;  however, he  said if  the                                                               
bonds had been issued in those  years at today's rate, the return                                                               
would  have  been positive.    He  emphasized the  importance  of                                                               
timing in  issuing bonds.  Twelve  of the fifteen years  shown on                                                               
the chart showed  positive returns, and Mr.  Andrews reminded the                                                               
committee that there  are ten years yet to be  shown, because the                                                               
length of the bonds is 25 years.                                                                                                
                                                                                                                                
8:48:50 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE COGHILL  remarked that  he would be  interested to                                                               
compare the chart with the earnings of the permanent fund.                                                                      
                                                                                                                                
MR. ANDREWS said  it would be possible to  make that side-by-side                                                               
comparison.                                                                                                                     
                                                                                                                                
8:49:21 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG  requested a  list of any  problems that                                                               
have occurred for the 26 states currently using POBs.                                                                           
                                                                                                                                
MR. ANDREWS said he would provide that list for the committee.                                                                  
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked if  [page 13 of  the PowerPoint],                                                               
"Investment Return Forecast," pertains to a risk, as well.                                                                      
                                                                                                                                
MR. ANDREWS answered no.                                                                                                        
                                                                                                                                
8:50:44 AM                                                                                                                    
                                                                                                                                
MR.  ANDREWS said  page  13 shows  the results  of  using a  tool                                                               
called "Monte Carlo  Simulation."  He explained that  the past 25                                                               
years'  returns of  the S&P  500 and  the government  credit bond                                                               
index are scrambled up "over  10,000 different reiterations," and                                                               
out of  that comes an  idea of "what  the confidence level  is of                                                               
achieving  the cost  of  the  bonds," which  he  said in  today's                                                               
environment is 5.75  percent.  With all  the various combinations                                                               
of returns,  based on  a 70/30  portfolio, "you  can see  that we                                                               
were  able to  achieve that  cost of  debt 91.45  percent of  the                                                               
time," he  said, and from "the  average annual return of  all the                                                               
samples in the Monte Carlo, we came  up with 9 percent."  He said                                                               
that is similar  to the investment that is  currently coming from                                                               
the pension plans.                                                                                                              
                                                                                                                                
8:52:12 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG  said he wants  the public to  know that                                                               
the legislature  has "fully considered  both sides of  the issue"                                                               
and has acted conservatively.  He continued:                                                                                    
                                                                                                                                
     Looking at  the other  8.5 percent,  ... that  says the                                                                    
     probability  of  not outperforming.    But  in some  of                                                                    
     those  8.5 percent,  have  there  been drastically  bad                                                                    
     results?                                                                                                                   
                                                                                                                                
MR. ANDREWS responded:                                                                                                          
                                                                                                                                
       Well, you can see what the results have been, but                                                                        
      typically the results on average below 5.7 have been                                                                      
     in the neighborhood of 4 percent.                                                                                          
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked if there  is any way to  cut down                                                               
that risk.                                                                                                                      
                                                                                                                                
MR. ANDREWS said that issue can be discussed.                                                                                   
                                                                                                                                
8:53:32 AM                                                                                                                    
                                                                                                                                
MR.  ANDREWS returned  to the  PowerPoint presentation,  [to page                                                               
14, regarding "Security"].   He named the  three categories under                                                               
security:   general  obligation  bonds,  obligations imposed  [by                                                               
law], and  annual appropriation bonds.   He said POBs  fall under                                                               
the  latter  category.    He   explained  that  state  and  local                                                               
governments have to annually budget  and appropriate for the debt                                                               
service of  the bonds so that  they do not carry  the full credit                                                               
backing of the state.                                                                                                           
                                                                                                                                
8:55:12 AM                                                                                                                    
                                                                                                                                
MR.  ANDREWS turned  to the  issue of  potential savings  through                                                               
proceeds  from POBs  and  using  cash to  pay  down the  unfunded                                                               
liability.    He said  "by  doing  that"  there is  an  immediate                                                               
reduction in the  unfunded liability, an increase  in the funding                                                               
ratio  related to  the  pension  plans, and  a  reduction in  the                                                               
employers' contributions.   He directed attention to  a series of                                                               
matrixes [for  PERS and TRS,  on pages 18 and  19, respectively],                                                               
which  show cash  balances and  proceeds that  would come  from a                                                               
POB.   He illustrated how the  state could start paying  down the                                                               
unfunded liability rate to a  normal contribution rate level.  He                                                               
highlighted some examples of savings for PERS and TRS.                                                                          
                                                                                                                                
8:58:16 AM                                                                                                                    
                                                                                                                                
MR.   ANDREWS  directed   attention  to   [pages  20-21   of  the                                                               
PowerPoint], relating to tax issues.  He stated:                                                                                
                                                                                                                                
     The reason that POBs are  taxable bonds is that the IRS                                                                    
     [Internal  Revenue Service]  takes a  very dim  view of                                                                    
     using  tax exempt  privilege, as  given  to states  and                                                                    
     local  entities  for  capital   projects  ...,  for  an                                                                    
     earnings arbitrage play.   And that very  simply is why                                                                    
     we   look  at   issuing  taxable   bonds  for   pension                                                                    
     obligations.                                                                                                               
                                                                                                                                
     Now,  having said  that, the  Department of  Revenue is                                                                    
     currently  evaluating  various  tax  exempt  strategies                                                                    
     that  we ...  could  use.   But  at  this point,  those                                                                    
     strategies ... have to be  coincidental to the infusion                                                                    
     of those proceeds back into  the PERS and TRS programs;                                                                    
     there cannot  be a direct  link, otherwise we  will run                                                                    
     afoul  of the  Internal Revenue  Service, and  we don't                                                                    
     particularly want an audit at this time.                                                                                   
                                                                                                                                
8:59:36 AM                                                                                                                    
                                                                                                                                
MR. ANDREWS turned  to the topic of "Take Aways,"  [shown on page                                                               
22 of  the PowerPoint].   He paraphrased  the four points  on the                                                               
page, which read as follows [original punctuation provided]:                                                                    
                                                                                                                                
     POB  issuance is  a  financial  transaction which  will                                                                    
     lower the cost of  funding the UAAL [unfunded actuarial                                                                    
     accrued liability] by the state and local governments                                                                      
       - POBs issued in the near future will be at a cost                                                                       
     lower than 8.25% charged by the pension system.                                                                            
                                                                                                                                
     We are in a very favorable interest rate environment -                                                                     
     take advantage of it!                                                                                                      
                                                                                                                                
      Risks associated with POB issuance are quantifiable                                                                       
     and statistically justified by the rewards.                                                                                
                                                                                                                                
     Doing nothing is not a viable option.                                                                                      
                                                                                                                                
MR.  ANDREWS clarified  the Department  of Revenue's  position on                                                               
POBs:                                                                                                                           
                                                                                                                                
     Over the long run, we believe that the POB program ...                                                                     
      that is prudently implemented has a high probability                                                                      
     of success.                                                                                                                
                                                                                                                                
9:00:39 AM                                                                                                                    
                                                                                                                                
CHAIR  LYNN   expressed  appreciation  for  Mr.   Andrew's  lucid                                                               
explanation of what could be a complicated subject.                                                                             
                                                                                                                                
9:01:08 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG asked what role  POBs are playing in the                                                               
governor's overall strategy to pay  off the unfunded liability of                                                               
PERS and TRS.                                                                                                                   
                                                                                                                                
MR. ANDREWS responded  that it is just one tool.   In response to                                                               
a follow-up  question from Representative Gruenberg,  he said the                                                               
other options  are to pay  down the unfunded liability  with cash                                                               
or to do nothing and  continue to pay the exorbitant contribution                                                               
rates.                                                                                                                          
                                                                                                                                
9:02:31 AM                                                                                                                    
                                                                                                                                
CHAIR  LYNN  noted  that  there  is a  bill  in  the  works  that                                                               
addresses changing contributions rates.                                                                                         
                                                                                                                                
9:02:38 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE COGHILL,  regarding credit rating, asked  if there                                                               
is an industry standard.                                                                                                        
                                                                                                                                
9:03:16 AM                                                                                                                    
                                                                                                                                
MR.  ANDREWS said  typically a  rating agent  would look  for   a                                                               
funding  that  was  no  more  than 80  percent  of  the  unfunded                                                               
liability.   Exceeding that level  may result in over  funding in                                                               
the future.   The funds would be used for  additional benefits to                                                               
the pension  plan, which would  not call  for the paying  down of                                                               
the  debt.   He  clarified that  it  is possible  to  get into  a                                                               
situation where the proceeds from a bond issuance are overdone.                                                                 
                                                                                                                                
REPRESENTATIVE COGHILL,  regarding case  studies, asked  what Mr.                                                               
Andrews anticipates  would be  the bonding level.   He  said, "It                                                               
seemed to me it must be over half a billion dollars."                                                                           
                                                                                                                                
9:04:45 AM                                                                                                                    
                                                                                                                                
MR. ANDREWS  said the example  on page  18 uses a  combination of                                                               
$500  million in  cash  and $2  billion of  POBs,  which he  said                                                               
brings the funding level up to 92 percent.                                                                                      
                                                                                                                                
9:05:21 AM                                                                                                                    
                                                                                                                                
MR. ANDREWS, in response to  a question from Representative Doll,                                                               
said the  combined total assets  currently in PERS and  TRS equal                                                               
$15 billion.                                                                                                                    
                                                                                                                                
9:05:34 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE COGHILL  offered his understanding that  "that $15                                                               
billion represents somewhere just north  of 60 percent ... of the                                                               
actual, expected value of the payout."                                                                                          
                                                                                                                                
9:05:49 AM                                                                                                                    
                                                                                                                                
MR.  ANDREWS  confirmed  Representative  Coghill's  statement  is                                                               
correct.  He  stated that the funding ratios of  the pension plan                                                               
versus the unfunded liability is between 60-65 percent.                                                                         
                                                                                                                                
9:06:02 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE COGHILL concluded that  the obligation bonds would                                                               
help in managing  the 25-30 percent unfunded liability.   He said                                                               
he wonders if the state would have to go beyond 90 percent.                                                                     
                                                                                                                                
MR.  ANDREWS  reiterated that  an  80  percent funding  level  is                                                               
considered reasonable.                                                                                                          
                                                                                                                                
9:06:56 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  asked if  local municipalities  will also                                                               
be able to issue POBs.                                                                                                          
                                                                                                                                
9:07:24 AM                                                                                                                    
                                                                                                                                
MR. ANDREWS replied:                                                                                                            
                                                                                                                                
     That's kind  of moving target from  the standpoint that                                                                    
     the administration  has also ... submitted  a level-pay                                                                    
     bill.   If  that level-pay  bill goes  through for  the                                                                    
     Public Employees'  Retirement System, there's  going to                                                                    
     be some  sort of  ratio - taking  the PERS  program and                                                                    
     making it look like TRS.   What that funding ratio will                                                                    
     be ... is  the ratio that would be shared  as a cost on                                                                    
     the pension obligation bonds.                                                                                              
                                                                                                                                
9:08:01 AM                                                                                                                    
                                                                                                                                
MR.   ANDREWS,  in   response  to   a  follow-up   question  from                                                               
Representative Johnson, said the simple  answer is that the state                                                               
will be issuing bonds.                                                                                                          
                                                                                                                                
9:09:24 AM                                                                                                                    
                                                                                                                                
GREG  SUNDBERG, Managing  Director,  Merrill  Lynch, echoing  Mr.                                                               
Andrews'  previous remark,  said that  POBs are  but one  tool in                                                               
addressing  the unfunded  liability.   He stated,  "We think  the                                                               
state's   approach  to   this,  to   date,  has   been  extremely                                                               
responsible."                                                                                                                   
                                                                                                                                
9:10:00 AM                                                                                                                    
                                                                                                                                
LINDSEY  SOVDE,  Vice   President,  Seattle-Northwest  Securities                                                               
Corporation (SNW), concurred with the remarks of Mr. Andrews.                                                                   
                                                                                                                                
9:10:22 AM                                                                                                                    
                                                                                                                                
CHAIR LYNN closed public testimony.                                                                                             
                                                                                                                                
9:10:31 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DOLL  said she wants to  get a sense of  the risks                                                               
involved related to increasing medical costs.                                                                                   
                                                                                                                                
9:11:08 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER said:                                                                                                     
                                                                                                                                
     Our unfunded  pension liability exists because  we have                                                                    
     less financial resources - less  money - in the pension                                                                    
     trust  than  what we  estimate  the  liabilities to  be                                                                    
     today.   Where today ...  - ... as Mr.  Andrews pointed                                                                    
     out -  the most recent  valuation was the  $8.6 billion                                                                    
     shortfall,  most   of  us  are  anticipating   the  new                                                                    
     calculation to be in excess of $10 billion.                                                                                
                                                                                                                                
     As  your question  goes  to what  would  ... a  greater                                                                    
     escalation  in medical  costs  be to  the  future:   It                                                                    
     would actually  widen that gap.   ... With  that larger                                                                    
     unfunded   liability  clearly   accumulating  an   even                                                                    
     greater rate  of interest,  it makes  it even  ... more                                                                    
     paramount  that we  take advantage  of  the ability  to                                                                    
     mitigate some of that (indisc. - coughing) cost.                                                                           
                                                                                                                                
     The risk  of future medical  growth is not part  of the                                                                    
     market risk associated with a  transaction like this at                                                                    
     all.                                                                                                                       
                                                                                                                                
9:12:40 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   DOLL   stated   her  understanding   that   some                                                               
municipalities  have paid  into their  pension funds  and do  not                                                               
have any  unfunded liability.   She asked  whether all  cities or                                                               
municipalities,  whether paid  up or  not, would  be expected  to                                                               
participate in the issuance of the proposed bonds.                                                                              
                                                                                                                                
9:13:39 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   HAWKER  said   many   of   the  questions   that                                                               
Representative  Doll  is raising  are  addressed  by other  bills                                                               
currently in the legislature.  He offered further details.                                                                      
                                                                                                                                
9:14:55 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG  said he  would support the  movement of                                                               
HB  13 at  the earliest  opportunity; however,  he said  he would                                                               
like Mr. Andrews to answer his questions pertaining to risks.                                                                   
                                                                                                                                
9:15:32 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  noted that  in the  committee packet  is a                                                               
primer   regarding  pension   bonds  published   by  the   Orrick                                                               
Organization.   He said  the primer offers  a background  on risk                                                               
analysis, including  specific case histories where  entities have                                                               
unadvisedly "entered into transaction."                                                                                         
                                                                                                                                
9:16:18 AM                                                                                                                    
                                                                                                                                
MR. ANDREWS said  there are two factors that seem  to have a high                                                               
correlation  with  an "unsuccessful  issuance."    The first,  he                                                               
said, is  related to the  timing into  the market.   He explained                                                               
that he is  talking about the interest rate cost  that is paid on                                                               
the POBs.   Typically,  he said, the  entities that  issued bonds                                                               
from  the late  '90s through  the early  2000s did  so at  a high                                                               
interest rate, and  that high interest rate  worked against them.                                                               
He relayed  that HB  13 includes language  that controls  that by                                                               
requiring  a  positive interest  rate  arbitrage  of 1.5  percent                                                               
before the bonds can be issued.                                                                                                 
                                                                                                                                
REPRESENTATIVE  GRUENBERG  said  he  would  like  the  record  to                                                               
reflect where in bill this problem is addressed.                                                                                
                                                                                                                                
9:19:06 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER said  that  language appears  on page  14,                                                               
[lines 25-30], which read as follows:                                                                                           
          Sec. 37.16.080.  Purposes and sufficiency of                                                                        
     revenue.   The proceeds  of bonds may  be used  for the                                                                  
     purposes described in  AS 37.16.030(a), as appropriate.                                                                    
     Bonds may  not be  issued unless the  corporation first                                                                    
     finds that  the actuarially  assumed rate of  return on                                                                    
     the funds  managed by the Alaska  Retirement Management                                                                    
     Board is projected to exceed  the true interest cost to                                                                    
     be paid on the bonds by at least 1.5 percent annually.                                                                     
                                                                                                                                
REPRESENTATIVE HAWKER said that 1.5  percent shows up anywhere in                                                               
the bill  where there  is an  authority for  any state  or public                                                               
agency to conduct transactions.                                                                                                 
                                                                                                                                
9:19:55 AM                                                                                                                    
                                                                                                                                
MR. ANDREWS said  the second factor that has  weighed against the                                                               
issuance  of  POBs  is  when  an issuing  entity  has  taken  the                                                               
proceeds  from the  sale of  bonds and  used them  to fix  "other                                                               
budgetary purposes or  problems" rather than using  them to lower                                                               
the unfunded liability.                                                                                                         
                                                                                                                                
REPRESENTATIVE  GRUENBERG  asked,  "Is  that  prohibited  in  the                                                               
bill?"                                                                                                                          
                                                                                                                                
REPRESENTATIVE  HAWKER replied,  "I do  not know  that we  have a                                                               
specific  prohibition there,  but the  authority is  specifically                                                               
for the purpose of addressing unfunded pension liabilities."                                                                    
                                                                                                                                
REPRESENTATIVE   GRUENBERG  asked,   "To   be  absolutely   sure,                                                               
shouldn't we add a provision that does that?"                                                                                   
                                                                                                                                
REPRESENTATIVE HAWKER  deferred the question to  a representative                                                               
of the Department  of Law, remarking that he is  not qualified to                                                               
answer legal questions.                                                                                                         
                                                                                                                                
9:21:26 AM                                                                                                                    
                                                                                                                                
MIKE  BARNHILL,  Assistant  Attorney  General,  Labor  and  State                                                               
Affairs  Section,  Civil  Division (Juneau),  Department  of  Law                                                               
(DOL), said  he believes the  bill requires proceeds of  the bond                                                               
issuance  to be  paid to  the commissioner  of the  Department of                                                               
Administration into the pension fund;  therefore, he said he does                                                               
not believe any  additional language would be  required to ensure                                                               
that action.   He added, "The  Bond Council will require  that in                                                               
the bond  documents - that the  money be used for  that purpose -                                                               
so, I don't think there's any  conceivable way the money could be                                                               
diverted to some other purpose."                                                                                                
                                                                                                                                
9:22:12 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG  said he knows bond  council members are                                                               
among  the  most  careful  and  cautious  members  of  the  legal                                                               
profession.   He asked Mr. Andrews  if there are any  other risks                                                               
that he would like to state for the record.                                                                                     
                                                                                                                                
MR.  ANDREWS stated  that there  is  no guarantee  of a  positive                                                               
earnings arbitrage;  however, records  have proven that  over the                                                               
long  haul the  cost of  the POBs  are typically  covered by  the                                                               
investment results.                                                                                                             
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked for discussion  regarding Section                                                               
1 of the  bill.  He asked  about a single system,  whether or not                                                               
TRS  would be  changed,  and  how the  school  district would  be                                                               
affected according to size and financial ability.                                                                               
                                                                                                                                
9:24:19 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  noted that as  chair of the  House Special                                                               
Committee on  Ways and Means,  he had promised  to Representative                                                               
Seaton  to  "address that  specifically  on  the record  in  this                                                               
committee."  He said:                                                                                                           
                                                                                                                                
     The  short answer  is ...  no, as  contemplated in  the                                                                    
     bill, it would not affect  the single rate structure of                                                                    
     TRS ....                                                                                                                   
                                                                                                                                
MR.  ANDREWS concurred  with  Representative Hawker's  statement.                                                               
He continued:                                                                                                                   
                                                                                                                                
     What Representative Hawker's  trying to do in  HB 13 is                                                                    
     provide a  lot of optionality  out there.   And because                                                                    
     the TRS  is a single-pay  system, typically, this  is a                                                                    
     call on the state's general  fund.  So, through [those]                                                                    
     mechanisms, all  the Teacher's Retirement  Systems will                                                                    
     be  participating  in  this indebtedness  in  an  equal                                                                    
     fashion.                                                                                                                   
                                                                                                                                
9:25:48 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  COGHILL  said  it  always  pains  him  to  create                                                               
another government corporation, but  this one would be singularly                                                               
focused.   He directed attention  to page  10, Section 8,  of the                                                               
bill, and  he asked, "Is there  a need to transcend  a particular                                                               
administration,  and do  we need  to put  something in  here that                                                               
gives us that kind of continuity between administrations?"                                                                      
                                                                                                                                
REPRESENTATIVE  HAWKER responded  that continuity  already exists                                                               
within the state.  He said:                                                                                                     
                                                                                                                                
     The  real  cohesiveness  that transcends  the  temporal                                                                    
     nature  of any  individual administration  ... is  that                                                                    
     we're  dealing with  very  contractual obligations  ...                                                                    
     that   are  very   specific,   legal  documents,   very                                                                    
     carefully  scripted ....   And  so, the  combination of                                                                    
     the  bond  indenture  agreements   ...  that  any  debt                                                                    
     issuance entails,  and the  continuity of  bond council                                                                    
     ..., really,  in our case,  I believe,  compensates for                                                                    
     the inherently  temporal nature of folks  that serve at                                                                    
     the will of the people of the state.                                                                                       
                                                                                                                                
9:29:22 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER, in  response  to Representative  Coghill,                                                               
said  the legislature's  responsibility is  to come  up with  $10                                                               
billion  to  pay  off  the  unfunded  liability.    The  proposed                                                               
legislation proposes one tool to meet the challenge.                                                                            
                                                                                                                                
9:30:09 AM                                                                                                                    
                                                                                                                                
MR. ANDREWS added that  in the bill there is a  cap of $5 billion                                                               
for  the  issuance  of  POBs.    In  response  to  Representative                                                               
Coghill, he confirmed that relates to half the obligation.                                                                      
                                                                                                                                
REPRESENTATIVE  HAWKER said  it would  be imprudent  to fund  100                                                               
percent of the  obligation, because market prices will  go up and                                                               
down in  the future.   There is nothing in  the HB 13  that would                                                               
prohibit  future administrations  or  legislatures from  changing                                                               
direction.                                                                                                                      
                                                                                                                                
9:32:31 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE COGHILL  said Alaska can  be low on funds  one day                                                               
and  "awash" the  next.   He said  it could  be possible  for the                                                               
state, through  a windfall,  to pay  off the  top 50  percent and                                                               
still retain  a bonding rate  that "then  we put in  tension what                                                               
that bonding  rate could be."   He said  that is a  discussion he                                                               
hopes the legislature gets to.                                                                                                  
                                                                                                                                
REPRESENTATIVE HAWKER  said Representative Coghill  is absolutely                                                               
correct.   He stated that  he is willing  to put more  of today's                                                               
surplus  into  the  pension  plans  than  many  legislators  are,                                                               
because he  thinks that is one  of the best investments  that the                                                               
state has.   He indicated that money put  into the constitutional                                                               
budget  reserve (CBR)  only earns  about 3.7  percent.   The bill                                                               
provides the  authority for the  state to defease  obligations in                                                               
the chance that a windfall occurs.                                                                                              
                                                                                                                                
9:34:28 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GRUENBERG directed  attention to  page 10,  lines                                                               
18-22, AS  37.16.020.   He noted that  the three  directors would                                                               
all be commissioners  who are subject to removal  at the pleasure                                                               
of the governor.  He stated  that that makes the board vulnerable                                                               
to changes within  the administration.  He asked  if other boards                                                               
are set  up in such  a manner that they  are subject to  a strong                                                               
executive, or if there is any broader control.  He explained:                                                                   
                                                                                                                                
     The reason I'm saying this  is because there is quite a                                                                    
     difference  between the  last administration's  view of                                                                    
     this concept  and this.   ... It's not just  a question                                                                    
     to me of  whether we might have a problem  ... once the                                                                    
     bonds are  set up, but  whether we would be  ... wisely                                                                    
     or unwisely  prevented from issuing  new bonds  when we                                                                    
     should.   How much  independence is  there?   How would                                                                    
          that affect the bond rating?  How have other                                                                          
     jurisdictions dealt with that particular issue?                                                                            
                                                                                                                                
9:36:16 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  said he  thinks what  is most  relevant is                                                               
the constitution  under which Alaskans  live.  Alaska has  one of                                                               
the strongest  executive branches.  Commissioners  of the various                                                               
state  departments enjoy  much  greater powers  than  they do  in                                                               
other states.   Is  said it  is most  important to  consider "how                                                               
this  issue  functions  in  Alaska"  and  what  the  "appropriate                                                               
mitigating  controls over  political  volatility" would  be.   He                                                               
said the  financial market provides the  greatest consistency and                                                               
control  over   both  a  renegade   commissioner  and   board  of                                                               
directors; the  market itself is the  single, greatest mitigating                                                               
control.   That  market  is comprised  of  the people  purchasing                                                               
bonds, the  underwriters, and the legal  community who structures                                                               
the transactions.                                                                                                               
                                                                                                                                
9:38:12 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GRUENBERG moved  to  report CSHB  13(W&M) out  of                                                               
committee with  individual recommendations and  the indeterminate                                                               
fiscal note.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER   explained  that   the  fiscal   note  is                                                               
indeterminate because the bill does  not authorize or empower any                                                               
individual  transaction; it  gives  the state  the authority  "to                                                               
pursue them and bring them back to us."                                                                                         
                                                                                                                                
CHAIR  LYNN announced  that without  objection, CSHB  13(W&M) was                                                               
reported out of the House State Affairs Standing Committee.                                                                     
                                                                                                                                
The committee took an at-ease from 9:39:07 AM to 9:40:43 AM.                                                                
                                                                                                                                
9:40:56 AM                                                                                                                    
                                                                                                                                
CHAIR LYNN discussed the upcoming committee calendar.                                                                           
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
State  Affairs  Standing  Committee   meeting  was  adjourned  at                                                               
9:41:28 AM.                                                                                                                   

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