Legislature(1997 - 1998)

03/05/1998 01:40 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
             HOUSE FINANCE COMMITTEE                                           
     March 5, 1998                                                             
                          1:40 P.M.                                            
                                                                               
TAPE HFC 98 - 54, Side 1.                                                      
TAPE HFC 98 - 54, Side 2.                                                      
TAPE HFC 98 - 55, Side 1.                                                      
                                                                               
CALL TO ORDER                                                                  
                                                                               
Co-Chair Hanley reconvened the House Finance Committee                         
meeting to order at 1:40 P.M.                                                  
                                                                               
PRESENT                                                                        
                                                                               
Co-Chair Hanley   Representative Kelly                                         
Co-Chair Therriault   Representative Kohring                                   
Representative J. Davies  Representative Martin                                
Representative G. Davis  Representative Moses                                  
Representative Foster  Representative Mulder                                   
Representative Grussendorf                                                     
                                                                               
ALSO PRESENT                                                                   
                                                                               
Representative Ivan Ivan; Dan Spencer, Chief Budget                            
Analyst, Office of Management and Budget, Office of the                        
Governor; Annalee McConnell, Director, Office of Management                    
and Budget, Office of the Governor; Margot Knuth, Assistant                    
Attorney General, Department of Law; Jeff Logan, Staff,                        
Representative Joe Green; Jim Sourant, Staff,                                  
Representative Brian Porter; David Pree, Staff,                                
Representative Joe Ryan; Richard Thwaites, Private                             
Attorney, Alaska Trust Corporation, Anchorage; Mike                            
Mosesian, (Testified via Teleconference), Anchorage; Steve                     
Noey, Alaska Trust Corporation, Anchorage.                                     
                                                                               
SUMMARY                                                                        
                                                                               
HJR 36 Proposing amendments to the Constitution of the                         
State of Alaska relating to redistricting of the                               
legislature, and repealing as obsolete language                                
in the article setting out the apportionment                                   
schedule used to elect the members of the first                                
state legislature.                                                             
                                                                               
CS HJR 36 (FIN) was reported out of Committee                                  
with a "do pass" recommendation and a fiscal note                              
by the Office of the Lt. Governor dated 1/23/98.                               
                                                                               
HJR 44 Proposing amendments to the Constitution of the                         
State of Alaska relating to redistricting of the                               
legislature.                                                                   
                                                                               
CS HJR 44 (FIN) was reported out of Committee with                             
"individual recommendations" and with fiscal notes                             
by the Department of Law dated 2/18/98 and the                                 
Office of the Lt. Governor dated 2/18/98.                                      
                                                                               
HB 290 An Act relating to motor vehicle license plates                         
for ranchers, farmers, and dairymen.                                           
                                                                               
 CS HB 290 (TRA) was reported out of Committee                                 
with a "no recommendation" and with a fiscal note                              
by the Department of Administration dated                                      
2/25/98.                                                                       
                                                                               
HB 321 An Act relating to trusts, to the prudent                               
investor rule, and to standards of care                                        
applicable to personal representatives,                                        
conservators, and trustees; and providing for an                               
effective date.                                                                
                                                                               
HB 321 was HELD in Committee for further                                       
consideration.                                                                 
                                                                               
HB 370 An Act making an appropriation for relief of the                        
1997 fishery disaster in Bristol Bay and on the                                
Kuskokwim River; and providing for an effective                                
date.                                                                          
                                                                               
CS HB 370 (FIN) was reported out of Committee                                  
with "individual recommendations".                                             
                                                                               
HB 461 An Act making supplemental and special                                  
appropriations; and providing for an effective                                 
date.                                                                          
                                                                               
CS HB 461 (FIN) was reported out of Committee                                  
with a "do pass" recommendation.                                               
HOUSE BILL 461                                                                 
                                                                               
"An Act making supplemental and special                                        
appropriations; and providing for an effective date."                          
                                                                               
DEPARTMENT OF CORRECTIONS                                                      
                                                                               
Co-Chair Hanley distributed Amendment #3.  [Copy on file].                     
He stated that Judge Hunt has ordered the Department of                        
Corrections to reduce current jail capacity by 500 people                      
bringing it down to emergency status.  The plan as proposed                    
by the Department is to use more Community Residential                         
Center (CRC) beds.  Amendment #3 would add enough money                        
into the Department's budget to meet Judge Hunt's request                      
for this fiscal year.                                                          
                                                                               
ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGMENT AND                           
BUDGET, OFFICE OF THE GOVERNOR, distributed a handout                          
titled "FY98 Costs To Be In Compliance With Cleary Order as                    
of May 1, 1998 (Through June 30, 1998)".  [Copy on file].                      
                                                                               
Representative Mulder criticized that this information had                     
not been available for a Corrections Subcommittee meeting                      
this morning.  He requested a detailed breakout of the $40                     
thousand general fund dollars to be used for CRC beds.                         
                                                                               
MARGO KNUTH, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW,                    
advised that once there are over 500 prisoners placed in                       
Arizona, the State is required to provide a probation                          
officer on the premise to deal with grievance procedures.                      
                                                                               
She added that the "gratuity" amount was a "term of art"                       
which means in-mate wages.  In-mates are put to work and                       
they are paid a small stipend.                                                 
                                                                               
Ms. Knuth continued, the projected $55 dollars per day                         
prisoner cost is actually $2 dollars a day less than the                       
current rate.  Exceeding a specified number allows that the                    
state be eligible to qualify for a discount.  Ms. Knuth and                    
Representative Mulder discussed the handout and costs                          
associated with it.                                                            
                                                                               
Representative Mulder asked where the new CRC beds would be                    
located.  Ms. Knuth stated there would be 32 beds in                           
Anchorage, 20 in Fairbanks, 20 in Nome and 10 in Bethel.                       
The 10 beds in Bethel are already in process.  The cost                        
breakout is for 72 beds which excludes Bethel.                                 
                                                                               
Co-Chair Therriault asked about the one-time set-up costs                      
and if there were any used supplies which might be                             
available.  Ms. Knuth stated that the tents had been sold a                    
couple of years ago.  She was not aware of any organization                    
from which the State could borrow equipment now needed by                      
the Department of Corrections.                                                 
                                                                               
Ms. Knuth clarified that the $40 thousand general fund                         
dollars and the $25.7 thousand federal fund dollars for CRC                    
beds would be the Department's supplemental request in                         
addition to funds on hand.                                                     
                                                                               
Representative J. Davies asked if the State would be                           
eligible to receive a discounted rate in Arizona for all                       
prisoners or just the amount over 500.  Ms. Knuth explained                    
that the price break would be only for the additional                          
prisoners over the first 500.                                                  
                                                                               
Representative Mulder MOVED to adopt Amendment #3.  There                      
being NO OBJECTION, it was adopted.                                            
                                                                               
DEPARTMENT OF FISH AND GAME                                                    
                                                                               
Representative Grussendorf MOVED to adopt Amendment #4.                        
[Copy on file].  The amendment addresses the request by the                    
Department of Fish and Game for costs associated with the                      
Sitka herring roe on kelp fishery for fiscal year ending                       
6/30/98.  Co-Chair Hanley pointed out that the costs would                     
be paid by the people having the testing done.  There being                    
NO OBJECTION to Amendment #4, it was adopted.                                  
                                                                               
Co-Chair Hanley MOVED that Section (J) from work draft 0-                      
LS1638\B, Cramer, 3/05/98, remain in Amendment #3.  There                      
being NO OBJECTION, it was adopted.                                            
                                                                               
Co-Chair Therriault MOVED to report CS HB 461 (FIN) out of                     
Committee with individual recommendations.  There being NO                     
OBJECTION, it was so ordered.                                                  
                                                                               
CS HB 461 (FIN) was reported out of Committee with a "do                       
pass" recommendation.                                                          
HOUSE BILL NO. 370                                                             
                                                                               
"An Act making an appropriation for relief of the 1997                         
fishery disaster in Bristol Bay and on the Kuskokwim                           
River; and providing for an effective date."                                   
                                                                               
Representative Moses MOVED to adopt Amendment #1.  [Copy on                    
file].  Co-Chair Hanley OBJECTED for the purpose of                            
discussion.                                                                    
                                                                               
Representative Moses explained that Amendment #1 corrected                     
a misprint in the legislation.  Co-Chair Hanley WITHDREW                       
his OBJECTION.  There being NO further OBJECTION, it was                       
adopted.                                                                       
                                                                               
Co-Chair Therriault MOVED to report CS HB 370 (FIN) out of                     
Committee with individual recommendations.  Representative                     
Kohring OBJECTED.                                                              
                                                                               
Representative Kohring noted that he philosophically                           
opposed the legislation.  He commented that state                              
government should not be in the business of subsidizing                        
village activity.  Representative Kohring suggested that                       
there are alternative ways to assist people in economic                        
distress.                                                                      
                                                                               
A roll call vote was taken on the motion.                                      
                                                                               
IN FAVOR: J. Davies, G. Davis, Foster, Grussendorf,                            
Kelly, Moses, Hanley, Therriault                                               
OPPOSED:  Kohring, Martin                                                      
                                                                               
Representative Mulder was not present for the vote.                            
                                                                               
The MOTION PASSED (8-2).                                                       
                                                                               
Representative Kohring offered to help assist these areas                      
by contacting non-profits and churches for support.                            
                                                                               
CS HB 370 (FIN) was reported out of Committee with                             
"individual recommendations".                                                  
HOUSE BILL NO. 290                                                             
                                                                               
"An Act relating to motor vehicle license plates for                           
ranchers, farmers, and dairymen."                                              
                                                                               
JEFF LOGAN, STAFF, REPRESENTATIVE JOE GREEN, stated that HB
290 would clarify that a person, defined in AS 01.10.060 to                    
include a corporation, company, partnership, firm,                             
association, organization, business trust, or society, as                      
well as a common person, be eligible for agricultural                          
plates issued by the Division of Motor Vehicles (DMV).                         
                                                                               
Representative J. Davies asked if certain corporations                         
would be eligible for the plates through passage of the                        
legislation.  Mr. Logan replied that they would if they met                    
the other qualifications listed in the bill.                                   
Representative J. Davies questioned the need for allowing a                    
lower rate in this classification.                                             
                                                                               
MIKE MOSESIAN, (TESTIFIED VIA TELECONFERENCE), ANCHORAGE,                      
stated that the intent of the original law was to address                      
the short growing season.  He suggested that it would be                       
unfair for the farmer to be required to pay the same fee                       
paid for commercial use.  He believed this bill would                          
provide more farmer incentives.                                                
                                                                               
Representative G. Davis asked if these vehicles could be                       
used for anything else in off-season and would they be                         
required to be insured as a commercial vehicle.  Mr.                           
Mosesian replied that the vehicle would be used for hauling                    
agricultural supplies.                                                         
                                                                               
Representative Foster MOVED to report CS HB 290 (TRA) out                      
of Committee with individual recommendations and with the                      
accompanying fiscal note.  There being NO OBJECTION, it was                    
so ordered.                                                                    
                                                                               
CS HB 290 (TRA) was reported out of Committee with "no                         
recommendation" and with a fiscal note by the Department of                    
Administration dated 2/25/98.                                                  
HOUSE JOINT RESOLUTION NO. 36                                                  
                                                                               
Proposing amendments to the Constitution of the State                          
of Alaska relating to redistricting of the                                     
legislature, and repealing as obsolete language in the                         
article setting out the apportionment schedule used to                         
elect the members of the first state legislature.                              
                                                                               
Co-Chair Therriault spoke to changes made to Page 3, Line                      
19, resulting from Committee concerns.  The change keeps                       
the 60-day requirement which could be problematic.   Co-                       
Chair Therriault noted that Amendment #2 would address that                    
concern.  [Copy on file].  It would guarantee the                              
transition from one plan to the next.                                          
                                                                               
Co-Chair Therriault MOVED to adopt Amendment #2.                               
                                                                               
(Tape Change HFC 98- 54, Side 2).                                              
                                                                               
Co-Chair Therriault explained the intent addressed concerns                    
in those areas of the State which could loose                                  
representation because their population had declined. That                     
could result in litigation to keep the old plan in place                       
for two years.                                                                 
                                                                               
Representative Mulder questioned if the timing would cause                     
concern for the Court system.  Co-Chair Therriault noted                       
that the Court established a plan with minor flaws to work                     
as an interim plan.                                                            
                                                                               
Representative J. Davies voiced concern that should there                      
be a legal challenge and if that challenge was resolved 30                     
days before the election, then which plan would the                            
election be held under.  Co-Chair Therriault responded that                    
the Courts have moved the primary date back in previous                        
years to accommodate all the time lines.  In working with                      
the Division of Elections, the Court could make it work.                       
                                                                               
There being NO OBJECTIONS to Amendment #2, it was adopted.                     
                                                                               
Representative J. Davies MOVED to adopt Amendment #3.                          
[Copy on file].  Co-Chair Therriault OBJECTED.                                 
Representative J. Davies stated that Amendment #3 would                        
address an issue raised by Assistant Attorney General                          
Baldwin.  It would allow the redistricting board to take                       
into account and deduct non-resident military personnel and                    
dependants.                                                                    
                                                                               
Co-Chair Hanley opposed the amendment, which he felt would                     
be unconstitutional.  Representative Mulder added that from                    
the Hickel vs. Southeast Conference case in 1992, the Court                    
found it impossible to accurately identify non-resident                        
military personnel.  Representative Martin echoed his                          
opposition.  Representative J. Davies WITHDREW the MOTION                      
to adopt Amendment #3.  There being NO OBJECTION, it was                       
withdrawn.                                                                     
                                                                               
Representative Mulder MOVED to report CS HJR 36 (FIN) out                      
of Committee with individual recommendations and with the                      
accompanying fiscal note.                                                      
                                                                               
CS HJR 36 (FIN) was reported out of Committee with a "do                       
pass" recommendation and with a fiscal note by the Office                      
of the Lt. Governor dated 1/23/98.                                             
HOUSE JOINT RESOLUTION NO. 44                                                  
                                                                               
Proposing amendments to the Constitution of the State                          
of Alaska relating to redistricting of the                                     
legislature.                                                                   
                                                                               
Co-Chair Therriault noted that the Committee would be                          
working with the 0-LS0528\I, Glover, 3/3/98, version of the                    
proposed legislation.                                                          
                                                                               
Co-Chair Therriault MOVED to adopt Amendment #6.  [Copy on                     
file]. Discussion followed among Committee members                             
regarding deletion of the language, "until sixty days after                    
adoption and final adjudication of the succeeding                              
redistricting plan and proclamation of redistricting".                         
There being NO OBJECTION, Amendment #6 was adopted.                            
                                                                               
Representative Gary Davis asked the outcome of the final                       
redistricting plan referenced on Page 4, Line 6 - 13.  Co-                     
Chair Therriault noted that passage of Amendment #6 would                      
remove the confusion.                                                          
                                                                               
Co-Chair Therriault spoke to the fiscal note as provided by                    
the Department of Law.  Representative J. Davies understood                    
that the fiscal note had been submitted because there would                    
be costs in obtaining pre-clearance which would require                        
expertise and time.                                                            
                                                                               
JIM SOURANT, STAFF, REPRESENTATIVE BRIAN PORTER, thought                       
that the fiscal note would not be relevant with passage of                     
Amendment #6.  Co-Chair Therriault explained that the                          
mechanism for drawing the lines would be changed, not the                      
requirements of who is eligible to vote.  He also                              
questioned the need for the fiscal note.                                       
                                                                               
Representative J. Davies commented that the base of the                        
fiscal note was to address preclearance which would                            
guarantee that there are no problems before the changes are                    
implemented.  This would be an expense which would occur in                    
any case when a significant change has been made.  Co-Chair                    
Therriault reiterated that a change in the method of                           
drawing the lines would not require a preclearance.                            
Representative Mulder suggested that the bill's fiscal note                    
could be changed on the House Floor or in Conference                           
Committee.                                                                     
                                                                               
Representative Mulder MOVED to report CS HJR 44 (FIN) out                      
of Committee with individual recommendations and with the                      
accompanying fiscal notes.  Representative J. Davies                           
OBJECTED.                                                                      
                                                                               
Representative J. Davies believed that the approach taken                      
with the province of the justice system could be a large                       
mistake.  He suggested that this system would encourage                        
politicizing among the Supreme Court Judges with far                           
reaching consequences.  He stated that he strongly opposed                     
the legislation.                                                               
                                                                               
Representative Martin acknowledged that the legislation                        
could be interuptive to the political process, causing                         
chaos.                                                                         
                                                                               
A roll call vote was taken on the motion to MOVE the bill                      
from Committee.                                                                
                                                                               
IN FAVOR: Foster, Kelly, Mulder, G. Davis, Hanley,                             
Therriault                                                                     
OPPOSED: Grussendorf, Kohring, Martin, Moses, J.                               
Davies                                                                         
                                                                               
The MOTION PASSED (6-5).                                                       
                                                                               
CS HJR 44 (FIN) was reported out of Committee with a "do                       
pass" recommendation and with fiscal notes by the                              
Department of Law dated 2/18/98 and the Office of the Lt.                      
Governor dated 2/18/98.                                                        
HOUSE BILL NO. 321                                                             
                                                                               
"An Act relating to trusts, to the prudent investor                            
rule, and to standards of care applicable to personal                          
representatives, conservators, and trustees; and                               
providing for an effective date."                                              
                                                                               
DAVID PREE, STAFF, REPRESENTATIVE JOE RYAN, stated that the                    
Uniform Prudent Investor Act would reverse common law rules                    
that restrict the investment powers of trustees.  The new                      
act would require a trustee to invest as a prudent investor                    
would, using reasonable care, skill and caution in light of                    
the objectives and risk tolerance of the individual trust.                     
                                                                               
Diversification of assets is an obligation.  Trustees can                      
delegate investment responsibilities to experts.  Within                       
the scope of these powers and duties, trustees can choose                      
to invest in any kind of asset that meets the objective of                     
the specific trust.                                                            
                                                                               
Co-Chair Therriault acknowledged that the bill would add                       
new verbiage as recommended by the Uniform Law Commission.                     
                                                                               
RICHARD THWAITES, PRIVATE ATTORNEY, ALASKA TRUST                               
CORPORATION, ANCHORAGE, testified in support of the                            
legislation.  The purpose of the Uniform Act was to bring                      
Alaska in line with the rest of the states.  Like the                          
Uniform Commercial Code, which made businesses able to deal                    
from one state to another, the bill would allow fiduciaries                    
in each of the states to rely on consistency in Alaska Law.                    
                                                                               
The Alaska Law currently, is not the Uniform Act.  The                         
Uniform Prudent Investor Act changes and unifies the                           
investment standard throughout the country by providing                        
more flexibility.  The new act would allow the fiduciary to                    
select the standard appropriate for the beneficiary.                           
                                                                               
(Tape Change HFC 98- 55, Side 1).                                              
                                                                               
Mr. Thwaites continued, the legislation would standardize                      
the language while at the same time providing the leeway                       
necessary to allow the trustee to customize the investment                     
plan for a particular person.                                                  
                                                                               
Representative Kelly questioned language used on Page 3,                       
Line 4, asking if it would become more "risky" when more                       
wealth was involved.  Mr. Thwaites commented that the risk                     
would have to be in line with the amount of money                              
available.  The normal investment standard would require                       
only a fractional share of high-risk investment versus the                     
other.  "Other resources of the beneficiaries" relates to                      
situations where there might be children in a family with                      
developmental disabilities.  There could be a greater                          
distribution to the child with the disability.  The                            
language opens the flexibility for the fiduciary to make                       
those kinds of decisions on distribution.                                      
                                                                               
Representative Kelly questioned the language on Page 4,                        
Line 16.  Mr. Thwaites noted that language indicated in                        
section (a) that the trustee "shall" not "may" exercise                        
reasonable skill and caution in selecting an agent.                            
                                                                               
Representative Kelly asked if section (b) would relate to                      
section (d).  Would the agent need to be bonded.  Mr.                          
Thwaites explained that in the bank licensing process, most                    
of the probate codes require bonding unless the entity                         
acting as the fiduciary is either exempt from the statute                      
or they have some other type of insurance protection.                          
Representative Kelly understood that section (c) would                         
require that someone bonded would be obligated.                                
                                                                               
Representative Kelly inquired if the current prudent                           
standards are now a problem.  Mr. Thwaites replied that                        
they have been.  There have been in some estates, certain                      
assets which were not trust quality, and they were required                    
to be liquidated, against the families wishes.  That action                    
resulted because the prudent standards, which currently                        
exist, require the fiduciary to have a certain number of                       
assets to qualify, even though the family might want the                       
assets to be maintained.                                                       
                                                                               
Representative J. Davies asked about the prohibition of the                    
review.  Mr. Thwaites noted that the bill would require a                      
standard of care for the fiduciary to review decisions.  If                    
there is a conflict between trusts, the proposed act would                     
provide more freedom to make exceptions under the right                        
case.  Independent approval should be obtained.                                
                                                                               
Mr. Thwaites added that the legislation would require that                     
there be an evaluation if a conflict exists.  They would be                    
required to look at the beneficiaries of both trusts to                        
make sure that there was equal treatment.                                      
                                                                               
Representative J. Davies reiterated concern that by being                      
the manager of a trust, under the prudent person rule,                         
there is a duty to manage both trusts for the benefit of                       
the beneficiaries.  If a person was in the business of                         
selling one trust for another, there would be an apparent                      
conflict of interest which could result in a determent in                      
one trust and a benefit to the other trust.  Mr. Thwaites                      
explained that the conflict concern before was too strict;                     
this legislation has chosen to give the discretion and                         
liability to the trustee.                                                      
                                                                               
Mr. Thwaites continued, common law has reinforced stricter                     
standards.  Most of the conservative fiduciaries around the                    
country have a list of trust quality assets, which excludes                    
common trust funds and mutual funds.                                           
                                                                               
In response to Representative Mulder, Mr. Thwaites said                        
that the settler of a trust could establish specific                           
standards in the trust that are wider than what was                            
contained under the prudent man rule.  That has been                           
narrowed over the years.  The typical minimum rate charge                      
in Alaska to manage a trust account is around $1000 dollars                    
per year or .75% of the account value, whichever is                            
greater.                                                                       
                                                                               
STEVE NOEY, DIRECTOR, ALASKA TRUST COMPANY, ANCHORAGE,                         
voiced support for the purposed legislation.                                   
                                                                               
Representative J. Davies pointed out that language on Page                     
2, Line 11-14, indicates that the prudent investor rule is                     
the default rule; it would be expanded or eliminated by                        
provisions of the trust and the trustee would not be                           
liable.  He voiced concern with the possibility of                             
eliminating the prudent investor rule.  Mr. Thwaites stated                    
that any court would repeal that rule if it was not                            
appropriately requested.                                                       
                                                                               
Representative J. Davies asked if there were situations,                       
which might not be prudent.  He struggled with use of the                      
word "eliminated".  Mr. Thwaites ascertained this was how                      
the standard had been developed.  The term fiduciary means                     
that you look after the other party's interest more than                       
you would look after your own.  The bill addresses only the                    
investment standards.  The legislation is an attempt to                        
open the door, providing as much flexibility as possible,                      
for the planners.                                                              
                                                                               
HB 321 was HELD in Committee for further consideration.                        
ADJOURNMENT                                                                    
                                                                               
The meeting adjourned at 3:55 P.M.                                             
H.F.C. 12 3/05/98                                                              

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