Legislature(2001 - 2002)
03/13/2001 10:02 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 93
"An Act relating to the Arctic Winter Games Team Alaska trust;
and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Senator Phillips, sponsor, noted that the Department of Revenue had
technical suggestions. He spoke to the bill, giving the 30-year
history of the Arctic Winter Games, established by the
Commissioners of the Yukon and Northwest Territories of Canada, and
Governor Hickel of Alaska.
Senator Phillips shared that funding for Alaska's participation in
the Games must be secured annually, and that there have sometimes
been difficulties. He said he therefore introduced this
legislation, which establishes a trust similar to the Alaska
Children's Fund and would be called The Arctic Winter Games Team
Alaska endowment. He assured that once the endowment is
established, there would be no further annual requests for funding
the Games. He explained that the interest from the endowment would
fund Team Alaska and the Games themselves when hosted in Alaska. He
noted that the Games are next scheduled for Alaska in 2006.
DAN SULLIVAN, Development Director, Arctic Winter Games Team Alaska
testified via teleconference from Anchorage about his involvement,
both as an athlete and as an organizer and board member. He relayed
past difficulties in receiving funding. He stated that the goal of
this legislation is to provide a manner in which the group could
remain viable long into the future without continuous state
funding. He gave the history and participation of Alaska in the
games. He thought that establishing the trust account, similar to
the Alaska Children's Fund, would benefit the Games.
Mr. Sullivan spoke to the importance of preserving the cultural
aspect of the many sports included in the games. He stated that
this one-time investment would allow state funding in the future to
be allocated to other uses.
Mr. Sullivan asserted that sports are an effective deterrent
against teen smoking. He suggested that the legislature consider
allocating approximately one-percent of the tobacco settlement
funds to the Games, which keep young people involved in athletics.
He also noted that the athletes represent Alaska and the entire
United States as well, as Alaska is the only state that
participates. Unlike other countries, he stressed that Alaska's
athletes themselves pay approximately one-third of the cost of
participating in the bi-annual games. He noted that each athlete
would be charged approximately $1000 to participate in the upcoming
Games held in Greenland if the current funding level remains
unchanged. He surmised that many rural athletes would be unable to
participate due to the cost.
Senator Leman referred the $5 million appropriation from the state.
However, he noted large financial participation from business and
individuals for the Special Olympic Games. He asked if the witness
thought the Arctic Winter Games could generate similar enthusiasm
and if the $5 million could come from private and corporate
donations.
Mr. Sullivan replied that while there would be some private input,
it would not equal the amount obtained by the Special Olympics
World Games, held in Alaska during the current year. This he said
is due to the lower profile of the Arctic Winter Games. He pointed
out that the Special Olympics involved 80 countries, obtained
approximately $8 million in federal funding, and had large exposure
from US Senator Ted Stevens. He qualified that when the Arctic
Winter Games are held in Alaska, their profile does increase, but
when the Games are held elsewhere, corporations do not see the
publicity benefits.
Senator Olson asked the sponsor how many athletes and personnel are
involved in the Games.
Senator Phillips replied that approximately 2,000 athletes and
1,500 to 2,000 personnel are expected to participate in the
upcoming Greenland Games. He noted that Alaska has the largest
contingency, with 328 athletes. He stressed that the Games are the
2nd largest winter sporting event in the world.
Mr. Sullivan reiterated that Alaska has approximately 330 athletes,
plus 30 to 40 coaches and support staff, from 40 to 50 communities,
travel to the Games.
Senator Phillips added that the prior Games, held in Eagle River,
Alaska cost approximately $2 million of which 60 percent were
privately raised funds.
Mr. Sullivan affirmed.
Senator Phillips noted that when the Games were held in Chugiak in
1996, the Municipality of Anchorage donation of $100,000 was paid
back.
Senator Austerman asked for an explanation of how the trust would
operate. He wanted assurance that only the interest earnings of the
trust would be used. He also wanted to know when and where the $5
million is accounted since it is not included in the fiscal note.
LEE LIVERMORE, Chief Investment Officer, Department of Revenue,
Treasury Division, Department of Revenue, explained that the trust
is set up with a $5 million endowment. He said that the funds would
be invested with long-term goals. He clarified that the interest
payments are not actually used to annually fund the Games, but
rather the market value is calculated, and the trust has the
ability to pay out up to five percent of that value each year. He
noted that the trust would hopefully grow enough to allow a larger
pay out in the years the Games are held in Alaska.
Mr. Livermore described two ways to handle the trust, one that
focuses on short-term goals, such as income. However, he
recommended that because of the long-term needs of the Games, the
trust should be managed so that the market value grows. He
explained that by establishing this trust to focus on market value,
more funds would be invested in the stock market and with a focus
to appreciate over time. This, he said, protects the trust from
inflation as well as providing an annual appropriation.
Ms. Livermore expressed that the funds would be invested similarly
to how pension funds are invested. He stated that if the goal were
to achieve a 5.25 percent real rate of return, the same as the
pension fund, the trust would invest 50 percent in US stock, 20
percent in international stock, with the remainder invested in the
bond market.
Senator Austerman referred to a Department of Revenue spreadsheet
with an assumed 8.495 percent each year in total returns, with five
percent used to fund the Games. [Copy on file.] He asked if the
projected earnings were based on an average rate of return and what
would happen if the annual rate dropped below 8.495 percent.
Mr. Livermore replied that the figures are based on a three-year
average on the market value of the fund. He explained that this
takes into account volatility in the return, particularly in the
stock market. He pointed out that while the previous year was poor,
it followed five high years and therefore the average was not
affected as dramatically.
Co-Chair Kelly asked if the proposed changes from the Department of
Revenue were included in the committee substitute.
Senator Phillips replied they were not.
Co-Chair Kelly requested that a new committee substitute be drafted
to address the changes.
Senator Austerman repeated his question as to the source and date
of the $5 million appropriation.
Senator Phillips responded that a special appropriation would be
necessary to establish the fund. He reiterated that this trust
would employ the same method as the establishment of the Alaska
Children's Fund.
Senator Green read from page 1, of the bill, starting on line 12,
"The commissioner of revenue shall manage the trust as an
endowment, with the goal of ensuring that the purchasing power of
the trust will not diminish over time without regard to additional
contributions that may be made to the trust." She wanted to know if
this is standard language.
NEIL SLOTNIC, Deputy Commissioner, Department of Revenue, replied,
"that is consistent with modern endowment theory - how endowments
for universities, for hospitals, for large institutions are
managed." He explained that the intent is to manage for "real rate
of return," or adjusting for inflation, and to protect the
purchasing power of the endowment itself so it does not diminish
over time. He stated that this is to let the beneficiaries of the
endowment know the consistent payout would be from year to year.
Senator Green commented if she were an Arctic Winter Games'
proponent, she would not want the state closely tied to the
management of the trust as proposed in the legislation. She noted
the Department of Revenue would collect a four or five percent
administration fee and suggested that the fund could be managed
privately.
Mr. Sullivan responded that because the state founded the Games,
"maintaining that tie was probably appropriate." He stressed that
the governments of the different regions all participate, with
Lieutenant Governor Fran Ulmer serving as Alaska's representative
to the Games. He added that the international committee that
governs the Games, work closely with all pertinent government
entities.
Mr. Sullivan shared that it was initially considered whether the
trust should be independently managed, but it was decided that,
given the 30-year history, the state should continue to be
involved. He stated that the trust could be managed either way, but
warned that if the trust were managed privately, there would be
similar management fees from the private manager as well.
Senator Green understood Mr. Sullivan's explanation but questioned
why the state should be involved when the organization could
establish its own board of trustees, charter and other measures to
ensure independence from the state.
Co-Chair Kelly ordered the bill HELD in Committee.
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