Legislature(2019 - 2020)ADAMS ROOM 519

03/01/2019 01:30 PM FINANCE

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Audio Topic
01:32:27 PM Start
01:33:39 PM HB39 || HB40
01:34:00 PM Fy 20 Budget Overview: Department of Labor and Workforce Development
01:43:04 PM Fy 20 Budget Overview: Department of Revenue
01:55:13 PM Presentation: Investment Funds Update and Cash Flow Deficiency Plan Presentation
02:55:27 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 39 APPROP: OPERATING BUDGET/LOANS/FUNDS TELECONFERENCED
Heard & Held
+= HB 40 APPROP: MENTAL HEALTH BUDGET TELECONFERENCED
Heard & Held
+ FY20 Dept. Budget Overviews: TELECONFERENCED
- Dept. of Revenue
- Dept. of Labor
+ Presentation: Investment Funds Update & Cash TELECONFERENCED
Flow Deficiency Plan by Bruce Tangeman,
Commissioner, Dept. of Revenue
                  HOUSE FINANCE COMMITTEE                                                                                       
                       March 1, 2019                                                                                            
                         1:32 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:32:27 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Foster  called the House Finance  Committee meeting                                                                    
to order at 1:32 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Neal Foster, Co-Chair                                                                                            
Representative Tammie Wilson, Co-Chair                                                                                          
Representative Jennifer Johnston, Vice-Chair                                                                                    
Representative Dan Ortiz, Vice-Chair                                                                                            
Representative Ben Carpenter                                                                                                    
Representative Andy Josephson                                                                                                   
Representative Gary Knopp (via teleconference)                                                                                  
Representative Bart LeBon                                                                                                       
Representative Kelly Merrick (via teleconference)                                                                               
Representative Colleen Sullivan-Leonard                                                                                         
Representative Cathy Tilton                                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Lacey  Sanders, Budget  Director, Office  of Management  and                                                                    
Budget;  Paloma Harbour,  Administrative Services  Director,                                                                    
Department  of Labor  and Workforce  Development, Office  of                                                                    
Management and  Budget; Brad Ewing,  Administrative Services                                                                    
Director, Department  of Revenue,  Office of  Management and                                                                    
Budget;   Bruce   Tangeman,  Commissioner,   Department   of                                                                    
Revenue;   Michelle  Prebula,   State  Investment   Officer,                                                                    
Treasury  Division,  Department  of Revenue;  Bob  Mitchell,                                                                    
Chief Investment  Officer, Treasury Division,  Department of                                                                    
Revenue.                                                                                                                        
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 39     APPROP: OPERATING BUDGET/LOANS/FUNDS                                                                                  
                                                                                                                                
          HB 39 was HEARD and HELD in committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
HB 40     APPROP: MENTAL HEALTH BUDGET                                                                                          
                                                                                                                                
          HB 40 was HEARD and HELD in committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
FY 20 BUDGET OVERVIEWS: DEPARTMENT OF REVENUE                                                                                   
                         DEPARTMENT OF LABOR                                                                                    
                                                                                                                                
PRESENTATION: INVESTMENT FUNDS UPDATE and CASH FLOW                                                                             
DEFICIENCY PLAN PRESENTATION                                                                                                    
                                                                                                                                
Co-Chair Foster reviewed the meeting agenda.                                                                                    
                                                                                                                                
HOUSE BILL NO. 39                                                                                                             
                                                                                                                                
     "An  Act making  appropriations for  the operating  and                                                                    
     loan  program  expenses  of state  government  and  for                                                                    
     certain   programs;    capitalizing   funds;   amending                                                                    
     appropriations;  making appropriations  under art.  IX,                                                                    
     sec. 17(c),  Constitution of the State  of Alaska, from                                                                    
     the constitutional  budget reserve fund;  and providing                                                                    
     for an effective date."                                                                                                    
                                                                                                                                
HOUSE BILL NO. 40                                                                                                             
                                                                                                                                
     "An  Act making  appropriations for  the operating  and                                                                    
     capital    expenses   of    the   state's    integrated                                                                    
     comprehensive   mental    health   program,   including                                                                    
     supplemental  appropriations;  and   providing  for  an                                                                    
     effective date."                                                                                                           
                                                                                                                                
1:33:39 PM                                                                                                                    
                                                                                                                                
^FY 20 BUDGET OVERVIEW: DEPARTMENT OF LABOR and WORKFORCE                                                                     
DEVELOPMENT                                                                                                                   
                                                                                                                                
1:34:00 PM                                                                                                                    
                                                                                                                                
LACEY SANDERS, BUDGET DIRECTOR, OFFICE OF MANAGEMENT AND                                                                        
BUDGET, introduced herself and relayed intent to address a                                                                      
presentation.                                                                                                                   
                                                                                                                                
PALOMA    HARBOUR,    ADMINISTRATIVE   SERVICES    DIRECTOR,                                                                    
DEPARTMENT  OF LABOR  AND WORKFORCE  DEVELOPMENT, OFFICE  OF                                                                    
MANAGEMENT  AND BUDGET,  provided a  PowerPoint presentation                                                                    
titled ""FY2020  Governor's Amended  Budget" dated  March 1,                                                                    
2019 (copy on file).                                                                                                            
                                                                                                                                
Co-Chair Foster acknowledged Representative Merrick online.                                                                     
                                                                                                                                
Ms.  Harbour  began on  slide  6  of the  presentation.  She                                                                    
reported on  the department's  budget. The  overall position                                                                    
count would go from 734 to  725 - the majority of the change                                                                    
was due to statewide consolidation initiatives.                                                                                 
                                                                                                                                
Co-Chair Wilson noted the shift in positions.                                                                                   
                                                                                                                                
Ms. Harbour replied there were  two full time positions that                                                                    
would be deleted.  She shared that the  changes w3ere mental                                                                    
health agreement and  one as a result of a  bill that passed                                                                    
the previous session (HB 79).                                                                                                   
                                                                                                                                
Co-Chair Wilson noted that there  was $294,000 in UGF, which                                                                    
was not  included, but  was offset by  $269,000 in  DGF. She                                                                    
wondered whether those two items were in the same area.                                                                         
                                                                                                                                
Ms.  Harbour  replied  that  the   information  was  on  the                                                                    
upcoming slide.                                                                                                                 
                                                                                                                                
Ms.  Harbour moved  to slide  7 and  addressed the  proposed                                                                    
changes to the budget:                                                                                                          
                                                                                                                                
      ?Discontinued Alaska Mental Health Trust Agreement (-                                                                     
     $125.5 GF and -1 FT)                                                                                                       
                                                                                                                                
     ?Decrease   UGF   to    Offset   Technical   Vocational                                                                    
     Educational  Program  (TVEP)  funding  for  the  Alaska                                                                    
     Vocational   Technical  Center   (+/-$261.7  Net   Zero                                                                    
     Change)                                                                                                                    
                                                                                                                                
     ?Statewide Support     Executive Branch 50 percent                                                                         
     Travel Reduction (-$146.7 GF)                                                                                              
                                                                                                                                
Co-Chair Wilson asked  if it was a one-time  or ongoing cost                                                                    
related to TVEP.                                                                                                                
                                                                                                                                
Ms. Harbour  replied that the  figure changed  annually. She                                                                    
stated  that  the  amount   distributed  was  the  available                                                                    
projection. She noted that in  FY 20, the overall amount was                                                                    
$1.5 million  higher than  FY 19.  She anticipated  that the                                                                    
balance moving forward would be  at least that amount, based                                                                    
on  the current  revenue  projections and  healthy level  of                                                                    
state wages.                                                                                                                    
                                                                                                                                
Co-Chair Wilson  asked for verification that  the item would                                                                    
not impact other.                                                                                                               
                                                                                                                                
Ms. Harbour replied  that all of the  members were receiving                                                                    
an  increase, and  offset  by  a UGF  decrease  of the  same                                                                    
amount.                                                                                                                         
                                                                                                                                
Co-Chair Wilson wanted to ensure  that the intent was clear,                                                                    
and  that the  schools were  doing a  good job  training the                                                                    
youth.                                                                                                                          
                                                                                                                                
Co-Chair Foster requested an allocation list.                                                                                   
                                                                                                                                
1:41:36 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Ortiz asked  about  the  reduction to  statewide                                                                    
travel. He asked what would not occur due to the reduction.                                                                     
                                                                                                                                
Ms. Harbour replied  that the department would  do more with                                                                    
telecommunications. She remarked on   the ability to set the                                                                    
travel budget to  accomplish the mission, it  would still be                                                                    
allowable but would have to make reductions in other areas.                                                                     
                                                                                                                                
^FY 20 BUDGET OVERVIEW: DEPARTMENT OF REVENUE                                                                                 
                                                                                                                                
1:43:04 PM                                                                                                                    
                                                                                                                                
BRAD EWING, ADMINISTRATIVE  SERVICES DIRECTOR, DEPARTMENT OF                                                                    
REVENUE,  OFFICE OF  MANAGEMENT AND  BUDGET, continued  with                                                                    
the  PowerPoint   presentation  titled   "FY2020  Governor's                                                                    
Amended  Budget" dated  March  1, 2019  (copy  on file).  He                                                                    
began  on slide  3  of the  presentation  and addressed  the                                                                    
department's budget.                                                                                                            
                                                                                                                                
1:46:09 PM                                                                                                                    
                                                                                                                                
Mr. Ewing continued with the chart on slide 3.                                                                                  
                                                                                                                                
Vice-Chair Ortiz asked about the  increase from $291 million                                                                    
to $619  million. He thought  much of  the change had  to do                                                                    
with a  change in  accounting and  that previously  the fees                                                                    
had been  taken out of  investment totals. He asked  for the                                                                    
accuracy of his statement.                                                                                                      
                                                                                                                                
Mr. Ewing agreed with the statements.                                                                                           
                                                                                                                                
Vice-Chair  Ortiz surmised  that earnings  figures would  be                                                                    
up, wondered  whether they would  be a part of  the earnings                                                                    
total.                                                                                                                          
                                                                                                                                
Mr. Ewing would follow up.                                                                                                      
                                                                                                                                
Vice-Chair Ortiz  thought it would  mean the  earnings total                                                                    
would be greater; therefore, when  a PFD calculation or draw                                                                    
was made, it would be from a larger total.                                                                                      
                                                                                                                                
Ms. Sanders  clarified the point of  the increment reflected                                                                    
in the  chart was to show  the actual cost for  managing the                                                                    
funds.                                                                                                                          
                                                                                                                                
Vice-Chair Ortiz  asked for Ms.  Sanders to repeat  her last                                                                    
sentence.                                                                                                                       
                                                                                                                                
Ms. Sanders  answered it was  not changing the  amount being                                                                    
earned, it was changing the management fees.                                                                                    
                                                                                                                                
Vice-Chair  Ortiz replied  that  was  his understanding.  He                                                                    
pointed out that it would  increase by that calculation, and                                                                    
wondered  whether  it would  now  be  part of  the  earnings                                                                    
total.                                                                                                                          
                                                                                                                                
Ms. Sanders would follow up on the question.                                                                                    
                                                                                                                                
Co-Chair Wilson stated they were  trying to find out how the                                                                    
$291 million was used, and  whether it was true that revenue                                                                    
was eating cost.                                                                                                                
                                                                                                                                
Ms. Sanders replied  that the amount in the  reports did not                                                                    
include the amount for management fees.                                                                                         
                                                                                                                                
Co-Chair Wilson  asked for verification  that they  had been                                                                    
charging the right  amount, but it was not  reflected in the                                                                    
budget.                                                                                                                         
                                                                                                                                
Ms. Sanders agreed.                                                                                                             
                                                                                                                                
Co-Chair  Wilson  surmised  that  change and  value  of  the                                                                    
funds,  because it  was being  paid,  was not  shown in  the                                                                    
represented fashion of the presentation.                                                                                        
                                                                                                                                
Ms. Sanders  replied in  the affirmative  and stated  it was                                                                    
her understanding.                                                                                                              
                                                                                                                                
1:51:18 PM                                                                                                                    
                                                                                                                                
Representative  Josephson  recalled  a meeting  with  Angela                                                                    
Rodell,   Executive   Director,    Alaska   Permanent   Fund                                                                    
Corporation,  discussing   the  fees  associated   with  the                                                                    
investments.  He   wanted  to  ensure  that   the  statutory                                                                    
definition of  what constitutes  "earnings" did  not somehow                                                                    
get impacted  by a declaration  by the legislature  that the                                                                    
money was  considered "earnings."  He stressed that  he only                                                                    
wanted clarification.                                                                                                           
                                                                                                                                
Ms. Sanders agreed.                                                                                                             
                                                                                                                                
Co-Chair  Foster  noted  other  individuals  were  available                                                                    
online.                                                                                                                         
                                                                                                                                
Mr. Ewing continued to address the chart on slide 3.                                                                            
                                                                                                                                
1:53:20 PM                                                                                                                    
                                                                                                                                
Mr. Ewing moved to slide 4:                                                                                                     
                                                                                                                                
     ?Align Management Fees with Actuals:                                                                                       
          ? Alaska Permanent Fund Corporation (+$269,501.3                                                                      
          Other)                                                                                                                
          ? Alaska Retirement Management Board (+$60,000.0                                                                      
          Other)                                                                                                                
          ? Treasury Division (+$117.2 GF and +$70.4 Other)                                                                     
          ?Deregulate Small Charitable Gaming (-$212.2                                                                          
          Other and -2 PFT)                                                                                                     
          ?Statewide Support  Executive Branch 50 percent                                                                       
          Travel Reduction (-$53.3 GF)                                                                                          
                                                                                                                                
Co-Chair   Wilson   queried   the  deregulation   of   small                                                                    
charitable gaming, and its intent.                                                                                              
                                                                                                                                
Mr. Ewing  replied that there  were two  associated proposed                                                                    
bills addressed  reducing the  regulations. There  were also                                                                    
two positions that  would be impacted in  the gaming section                                                                    
of  the tax  division. The  proposal  was that  a permit  or                                                                    
annual fee  would no longer  be required, if  gross receipts                                                                    
for  that  organization  or   municipality  were  less  than                                                                    
$20,000 per year.                                                                                                               
                                                                                                                                
^PRESENTATION:  INVESTMENT   FUNDS  UPDATE  and   CASH  FLOW                                                                  
DEFICIENCY PLAN PRESENTATION                                                                                                  
                                                                                                                                
1:55:13 PM                                                                                                                    
                                                                                                                                
BRUCE   TANGEMAN,  COMMISSIONER,   DEPARTMENT  OF   REVENUE,                                                                    
introduced a  PowerPoint presentation titled  "Discussion of                                                                    
State Cash Flows" dated March 1, 2019 (copy on file).                                                                           
                                                                                                                                
MICHELLE   PREBULA,  STATE   INVESTMENT  OFFICER,   TREASURY                                                                    
DIVISION, DEPARTMENT  OF REVENUE,  relayed she had  been the                                                                    
cash  manager   until  the   previous  July.   She  provided                                                                    
information about her career background.  She began on slide                                                                    
2, "Treasury Division":                                                                                                         
                                                                                                                                
     The Treasury  provides cash management,  investment and                                                                    
     portfolio   management,   debt  management,   unclaimed                                                                    
     property  management and  accounting  services for  the                                                                    
     state's  general  fund, constitutional  budget  reserve                                                                    
     fund, retirement  funds, and  numerous other  funds and                                                                    
     trusts.    The  Division provides  staff to  the Alaska                                                                    
     Retirement Management  Board and Alaska  Municipal Bond                                                                    
     Bank Authority and oversees the Alaska ABLE plan.                                                                          
                                                                                                                                
Ms.  Prebula   looked  at  slide  3,   "Treasury  Facts  and                                                                    
Figures":                                                                                                                       
                                                                                                                                
     ? 45 current Treasury Division staff.                                                                                    
                                                                                                                                
     ?  At 12/31/18, managed $38.8B in assets in 45 separate                                                                  
     accounts in a pooled environment:                                                                                          
                                                                                                                                
          ? 14 defined benefit funds under the direction of                                                                   
          ARMB ($24.8B).                                                                                                        
          ? 4 participant directed funds under the                                                                            
          direction of ARMB ($6B).                                                                                              
          ? 25 funds under the direction of the                                                                               
          Commissioner of Revenue ($7.7B).                                                                                      
          ? 2 funds under the direction of other state                                                                        
          fiduciaries ($225M).                                                                                                  
                                                                                                                                
     ?  Debt Management issues state debt and lease/purchase                                                                  
     financings for the State.                                                                                                  
                                                                                                                                
     ?  Cash  Management  collects  all revenues,  pays  all                                                                  
     expenditures   and  determines   the  amount   of  cash                                                                    
     available  for  investment  daily.     Cash  flows  are                                                                    
     forecasted to determine future cash needs.                                                                                 
                                                                                                                                
2:00:43 PM                                                                                                                    
                                                                                                                                
Ms. Prebula continued to discuss slide 4, "Treasury Facts                                                                       
and Figures":                                                                                                                   
                                                                                                                                
     ?  Annually, or as needed, the Chief Investment Officer                                                                  
     and  staff perform  research  and  analysis to  develop                                                                    
     asset allocations  recommendations for  discussion with                                                                    
     the fiduciary of each fund.                                                                                                
                                                                                                                                
     ?  Consideration is  given to the  type and use  of the                                                                  
     fund, how long the fund  is expected to be invested and                                                                    
     what type of risk the fund can take.                                                                                       
                                                                                                                                
     ?   Callan and  Associates  provides  10  year  Capital                                                                  
     Market  Assumptions that  are used  to build  models to                                                                    
     determine   potential  assets   allocations  that   are                                                                    
     discussed.                                                                                                                 
                                                                                                                                
Ms. Prebula looked at slide 6, "GeFONSI I and II":                                                                              
                                                                                                                                
     ?  GeFONSI  includes the  General Fund  and Other  Non-                                                                  
     segregated funds  invested in a pooled  environment (GF                                                                    
     proper= $400 million).                                                                                                     
                                                                                                                                
     ?  Department of Administration separately accounts for                                                                  
     each fund within State Accounting system.                                                                                  
                                                                                                                                
     ?  Department of  Revenue is responsible  for investing                                                                  
     the  GeFONSI  and   calculating  and  allocating  daily                                                                    
     investment earnings to each fund.                                                                                          
                                                                                                                                
     ?  180 funds,  assigned as Types  1, 2,  or 3.   Type 1                                                                  
     funds receive their earnings, the others do not.                                                                           
                                                                                                                                
     ? GeFONSI II was created in 2018 to target a higher                                                                      
     risk return profile and includes funds that are type 2                                                                     
     or 3.                                                                                                                      
                                                                                                                                
Ms. Prebula advanced  to a chart showing  a daily projection                                                                    
model for  the General Fund on  slide 6. The slide  showed 6                                                                    
months at a time. She briefly looked at slide 7.                                                                                
                                                                                                                                
2:04:25 PM                                                                                                                    
                                                                                                                                
Ms. Prebula  moved to slide  8 and addressed  takeaways. She                                                                    
noted  that  cash  flow forecasting  was  an  estimate.  She                                                                    
remarked that  estimates were wrong.  The actual  cash flows                                                                    
would be different, and the  magnitude of the difference was                                                                    
unknown.  She remarked  that, even  with a  balanced budget,                                                                    
borrowing  for cash  flow deficits  may occur.  She remarked                                                                    
that,  even in  balanced  budget years,  there  was often  a                                                                    
requirement of a source for funding for cash purposes.                                                                          
                                                                                                                                
Commissioner Tangeman  noted that the slide  represented the                                                                    
expectation  of the  balance in  the CBR.  He remarked  that                                                                    
aggregating the slide  would show that a  $1.4 billion would                                                                    
be minimum amount. He felt  that that the current balance of                                                                    
$1.7 billion was a comfortable balance. He felt that                                                                            
                                                                                                                                
Vice-Chair  Ortiz   asked  wondered  whether  the   CBR  was                                                                    
currently at $1.7 billion.                                                                                                      
                                                                                                                                
Commissioner Tangeman answered in the affirmative.                                                                              
                                                                                                                                
Vice-Chair Ortiz  recalled that the last  figure he recalled                                                                    
was $2.1  billion. He wondered  whether the reduction  was a                                                                    
result of one of the recent borrowings.                                                                                         
                                                                                                                                
Commissioner Tangeman replied that the  first draw on July 9                                                                    
was the  entire $700 million  in the CBR that  was estimated                                                                    
based on  the passed  budget. He  explained that  the reason                                                                    
the  CBR was  drawn first  was  because it  earned less.  He                                                                    
stated  that  there  was  a desire  to  leave  the  Earnings                                                                    
Reserve  untouched  for  as  long  as  possible.  The  first                                                                    
Earnings Reserve draw was on  September 11 for the Permanent                                                                    
Fund Dividend.  He stressed  that the first  SB 26  draw for                                                                    
the government purpose was October 1.                                                                                           
                                                                                                                                
2:09:13 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Ortiz stated  that the  $2.1 billion  he thought                                                                    
was in the CBR was now $1.7 billion.                                                                                            
                                                                                                                                
Commissioner Tangeman answered it was  due to the first $700                                                                    
million  draw.  A  $200  million  draw  had  been  taken  on                                                                    
February 14  as well. He explained  that it was more  like a                                                                    
$250  million deficit,  and the  difference would  remain in                                                                    
the GF.                                                                                                                         
                                                                                                                                
Representative Josephson  asked if  the difference  would be                                                                    
swept back around the 30th of June.                                                                                             
                                                                                                                                
Ms.  Prebula  replied that  the  Division  of Finance  would                                                                    
provide that information.                                                                                                       
                                                                                                                                
Commissioner  Tangeman   added  it   would  be   drawn  down                                                                    
initially on the two dates into GF.                                                                                             
                                                                                                                                
Representative Josephson stated that  if they drew more from                                                                    
the CBR  than was needed, the  CBR would be restored  to the                                                                    
required extent.                                                                                                                
                                                                                                                                
Commissioner  Tangeman answered  that the  sweep would  take                                                                    
place.                                                                                                                          
                                                                                                                                
Representative Josephson asked about  the time prior to 1990                                                                    
and what  had been  done for cashflow.  He noted  that there                                                                    
was a smaller government at the time.                                                                                           
                                                                                                                                
Ms. Prebula replied that she  had begun as cash flow manager                                                                    
in  1998, so  she  had limited  knowledge  before then.  She                                                                    
assumed  that he  was referring  to 1999  when oil  revenues                                                                    
were approximately $9 per barrel.                                                                                               
                                                                                                                                
Representative Josephson agreed.                                                                                                
                                                                                                                                
Ms.  Prebula  responded that  GF  sufficiency  at that  time                                                                    
reached $43  million. The  legislature had  passed a  cap on                                                                    
the CBR, and how much could  be borrowed. She noted that the                                                                    
budget  was balanced  at  that time,  at  $700 million.  She                                                                    
explained that  once that legislature adjourned,  oil prices                                                                    
reduced to  roughly $9 per  barrel. She noted that  the $700                                                                    
was used  rapidly, and the  legislature reconvened  in order                                                                    
to  increase  the  cap.  She stated  that  the  minimum  was                                                                    
currently $400 million, and at  that former time it was $100                                                                    
million.                                                                                                                        
                                                                                                                                
Representative  LeBon   asked  for  verification   that  the                                                                    
working cash position was the CBR.                                                                                              
                                                                                                                                
Ms.  Prebula  replied  that  the working  cash  was  in  the                                                                    
General  Fund and  the CBR  and/or the  ERA was  the savings                                                                    
account.                                                                                                                        
                                                                                                                                
Representative LeBon  asked for verification that  daily use                                                                    
of money from the CBR did not take place.                                                                                       
                                                                                                                                
Ms. Prebula replied in the affirmative.                                                                                         
                                                                                                                                
Representative  LeBon  asked if  the  CBR  was available  if                                                                    
needed.                                                                                                                         
                                                                                                                                
Ms. Prebula answered in the affirmative.                                                                                        
                                                                                                                                
Representative  LeBon  asked  for verification  that  moving                                                                    
money   from  Alaska   Industrial  Development   and  Export                                                                    
Authority (AIDEA)  and the  SBR did  not impact  the working                                                                    
capital position of the state in any way.                                                                                       
                                                                                                                                
Ms. Prebula responded in the negative.                                                                                          
                                                                                                                                
2:15:12 PM                                                                                                                    
                                                                                                                                
Representative Merrick asked about  slide 2 and wondered the                                                                    
procedure for  clearing the cash  receipts in  suspense, and                                                                    
whether there  were departments that could  clear money more                                                                    
quickly to have cash on hand.                                                                                                   
                                                                                                                                
Ms.   Prebula  replied   that   the   procedure  varied   by                                                                    
department. She elaborated that in  1999 when there was only                                                                    
$43 million in  GF, many people were contacted  to clear the                                                                    
receipts.  She stressed  that  agencies  were monitored  for                                                                    
their clearing.  There was an  aging schedule,  and agencies                                                                    
were notified of anything older than thirty days.                                                                               
                                                                                                                                
2:16:41 PM                                                                                                                    
                                                                                                                                
Representative Josephson  asked about the minimum  amount to                                                                    
keep  a  healthy cash  cushion.  He  referenced the  amounts                                                                    
provided by  Ms. Prebula,  which was  $100 million  20 years                                                                    
prior and  was currently $400  million. He noted  that there                                                                    
was a  belief that  it was  the "minimum",  but there  was a                                                                    
healthier  more  responsible  minimum  of  $1.4  billion  or                                                                    
higher.                                                                                                                         
                                                                                                                                
Ms. Prebula  agreed. She  stated that  $400 million  was the                                                                    
bare  bones minimum  for daily  working capital.  The number                                                                    
was composed  of two days  of expenditures. She  shared that                                                                    
she had recently  found that 10 days in the  recent 3 years,                                                                    
there were out  flows of over $200 million.  She shared that                                                                    
the $1.4 billion  was considered help keep  the $400 million                                                                    
above water throughout the entire year.                                                                                         
                                                                                                                                
Commissioner Tangeman  elaborated that  it got to  the heart                                                                    
of  what was  considered  a "balanced  budget." He  remarked                                                                    
that a balanced  budget did not necessarily  mean there were                                                                    
no cash flow issues.                                                                                                            
                                                                                                                                
2:20:40 PM                                                                                                                    
                                                                                                                                
Representative  Josephson thought  of  the draw  on the  CBR                                                                    
like  a  straw connecting  the  GF  to  the CBR  to  provide                                                                    
capital  in the  event  of fires  or  state emergencies.  He                                                                    
asked if there were requests in the current budget.                                                                             
                                                                                                                                
Commissioner Tangeman deferred to OMB.                                                                                          
                                                                                                                                
Vice-Chair  Ortiz  asked  about  the  minimum  balance  that                                                                    
should be maintained in the CBR.                                                                                                
                                                                                                                                
Commissioner  Tangeman answered  that the  amount was  about                                                                    
$1.4  billion, and  he thought  it  was about  $1.7 or  $1.8                                                                    
billion -  $2 billion  would be  a more  comfortable minimum                                                                    
for the CBR.                                                                                                                    
                                                                                                                                
Vice-Chair   Ortiz   was   looking  for   the   department's                                                                    
recommendation. He clarified that he  was not an advocate of                                                                    
taking more from the CBR, but some may be.                                                                                      
                                                                                                                                
Commissioner Tangeman answered in  the affirmative, and felt                                                                    
that they were currently at the comfortable minimum.                                                                            
                                                                                                                                
2:23:07 PM                                                                                                                    
                                                                                                                                
Representative  LeBon  stated that  when  he  had worked  in                                                                    
banking  there   would  be  an  analysis   of  a  business's                                                                    
efficiency  by days  accounts receivable  and days  accounts                                                                    
payable. He  wondered whether Alaska  had a  good reputation                                                                    
in being timely payers of its obligations.                                                                                      
                                                                                                                                
Ms.  Prebula  replied that  the  Treasury  Division was  not                                                                    
responsible for  paying all of  the bills of the  state, but                                                                    
it's using its working capital to the best of its ability.                                                                      
                                                                                                                                
2:24:13 PM                                                                                                                    
                                                                                                                                
BOB MITCHELL,  CHIEF INVESTMENT OFFICER,  TREASURY DIVISION,                                                                    
DEPARTMENT   OF  REVENUE,   provided   information  on   his                                                                    
education   and   career.   He   introduced   a   PowerPoint                                                                    
presentation  titled "Performance  Comparison," dated  March                                                                    
1, 2019  (copy on file).  He moved to  slide 2 and  spoke to                                                                    
investment performance.  He pointed  to another  document in                                                                    
members' files for information only.                                                                                            
                                                                                                                                
2:29:41 PM                                                                                                                    
                                                                                                                                
Mr.  Mitchell noted  that the  information was  his personal                                                                    
assessment   of  the   portfolio.  He   stressed  that   the                                                                    
information  had not  been endorsed  by  the Permanent  Fund                                                                    
Corporation, but  they may have a  different perspective. He                                                                    
noted  that  there  was  an equity  target  of  the  various                                                                    
portfolios. He  shared that considering  the riskiness  of a                                                                    
portfolio was a  proportion of that portfolio  that was held                                                                    
in  equities. He  stated that  in some  cases, on  the state                                                                    
side,  there were  portfolios  whose  equity allocation  had                                                                    
changed  over  the  previous  five  years.  He  provided  an                                                                    
example. He shared that in  FY 14 the allocation to equities                                                                    
in  that portfolio  was  42 percent,  then  increased to  50                                                                    
percent, then to  55 percent. It stayed at 55  percent for a                                                                    
few  years  until  the  asset   allocation  was  changed  in                                                                    
November 2018.  It was currently  in the high  60 percentage                                                                    
range.                                                                                                                          
                                                                                                                                
2:35:12 PM                                                                                                                    
                                                                                                                                
Representative Sullivan-Leonard  asked about  the investment                                                                    
performance for  the past couple  of years in the  format on                                                                    
slide 2.                                                                                                                        
                                                                                                                                
Mr. Mitchell agreed to provide that information.                                                                                
                                                                                                                                
Representative  Sullivan-Leonard wanted  the information  to                                                                    
appear like slide 2.                                                                                                            
                                                                                                                                
Mr. Mitchell replied in the affirmative.                                                                                        
                                                                                                                                
Co-Chair Wilson  asked for  clarification about  the benefit                                                                    
of moving the PCE endowment.                                                                                                    
                                                                                                                                
Mr. Mitchell replied that the  CBR asset allocation was more                                                                    
conservative than the Power Cost Equalization (PCE).                                                                            
                                                                                                                                
Co-Chair  Wilson  asked  if  Mr.  Mitchell  would  recommend                                                                    
moving the PCE into the CBR.                                                                                                    
                                                                                                                                
Mr. Mitchell  answered it depended  on the use of  the fund.                                                                    
He stated it was a policy call.                                                                                                 
                                                                                                                                
Co-Chair  Wilson  countered  that  she  believed  it  was  a                                                                    
numbers call.  She thought they would  be hurting themselves                                                                    
by moving  the money that was  making more than it  would be                                                                    
if moved.                                                                                                                       
                                                                                                                                
Commissioner Tangeman  answered that  it was a  policy call.                                                                    
He stated it  was a liquidity issue - if  the purpose was to                                                                    
make  funds  more  liquid,   since  seeing  greatly  reduced                                                                    
available revenues.                                                                                                             
                                                                                                                                
Co-Chair Wilson  understood the policy  call about  what the                                                                    
money  would be  used  for,  and she  thought  it  may be  a                                                                    
question  for  the  governor. She  thought  they  were  long                                                                    
overdue if they were waiting for  oil to save the state. She                                                                    
thought it was important to save the money.                                                                                     
                                                                                                                                
2:40:08 PM                                                                                                                    
                                                                                                                                
Commissioner Tangeman  felt that was an  accurate statement,                                                                    
because the  discussion was regarding  a very  finite amount                                                                    
of revenue.                                                                                                                     
                                                                                                                                
Vice-Chair  Johnston referenced  asset allocations  for ARMB                                                                    
and   APFC.  She   asked  how   the  asset   allocation  was                                                                    
determined.                                                                                                                     
                                                                                                                                
Mr. Mitchell replied there was  a board of trustees for APFC                                                                    
and ARMB  responsible for  determining an  asset allocation.                                                                    
For other  state managed funds  the CIO worked with  the DOR                                                                    
commissioner to determine the allocations.                                                                                      
                                                                                                                                
Vice-Chair  Johnston  asked  whether the  department  did  a                                                                    
stress analysis to determine the allocation.                                                                                    
                                                                                                                                
Mr.  Mitchell characterized  the process  of revisiting  the                                                                    
funds,  addressing needed  changes, and  set a  portfolio to                                                                    
maximize  income. He  noted the  need to  build a  portfolio                                                                    
that sought to  deliver the objective with  the least amount                                                                    
of risk.                                                                                                                        
                                                                                                                                
Vice-Chair Johnston asked if they had some flexibility.                                                                         
                                                                                                                                
Mr.  Mitchell  replied  that once  an  allocation  had  been                                                                    
established, they worked to adhere to the allocation.                                                                           
                                                                                                                                
Representative LeBon asked about  the first two funds listed                                                                    
under DOR Funds on slide 2 and asked for detail.                                                                                
                                                                                                                                
Mr.  Mitchell  answered that  General  Fund  and Other  Non-                                                                    
Segregated  Investments (GeFONSI)  funds  were  in one  pool                                                                    
managed from  the investment perspective. He  explained that                                                                    
there   were  approximately   180  funds   total,  and   the                                                                    
motivation for doing so was to take a subset of the funds.                                                                      
                                                                                                                                
Representative  LeBon asked  about the  Public School  Trust                                                                    
fund and how the earnings were utilized.                                                                                        
                                                                                                                                
Mr.  Mitchell answered  that the  fund was  managed like  an                                                                    
endowment and  was paid out based  on 5 percent of  the past                                                                    
five year  average. He stated  that it was a  moving average                                                                    
based  on  market  values, which  was  a  fairly  aggressive                                                                    
target. He  noted that there  were a number of  factors that                                                                    
were  taken  into  consideration   when  thinking  about  an                                                                    
appropriate  asset allocation.  He explained  that it  had a                                                                    
risk profile with equities that were almost 70 percent.                                                                         
                                                                                                                                
2:49:02 PM                                                                                                                    
                                                                                                                                
Co-Chair Wilson  asked about the  CBR prior to  taking money                                                                    
out of  it. She asked  if he  remembered how much  the money                                                                    
they had made on the investment.                                                                                                
                                                                                                                                
Mr. Mitchell did  not recall the specifics.  He would follow                                                                    
up.                                                                                                                             
                                                                                                                                
Co-Chair Wilson thought  it would be helpful  to Alaskans to                                                                    
know that was  an effort not only trying to  keep $2 billion                                                                    
but to allow  the account to begin growing  again. She noted                                                                    
it had only been making 1 percent, which was too low.                                                                           
                                                                                                                                
Mr. Mitchell  noted Co-Chair  Wilson's point.  He elaborated                                                                    
that the intent  of the legislature at the time  had been to                                                                    
create a vehicle for DOR to earn a higher rate of return.                                                                       
                                                                                                                                
Mr. Mitchell  moved to  slide 3  and provided  an investment                                                                    
fund snapshot.                                                                                                                  
                                                                                                                                
Co-Chair  Wilson   appreciated  the   list  of   funds,  but                                                                    
understood  that many  could not  be touched.  She used  the                                                                    
airport  fund as  an example.  She asked  the department  to                                                                    
provide a list.                                                                                                                 
                                                                                                                                
Co-Chair   Foster   thanked   the   presenters   for   their                                                                    
presentation.                                                                                                                   
                                                                                                                                
Co-Chair Wilson  noted that the committee  was still waiting                                                                    
for the priority  list from OMB. She  asked commissioners to                                                                    
provide a priority. She wanted  to understand how the budget                                                                    
had been compiled. She noted they had been waiting.                                                                             
                                                                                                                                
HB  39  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
HB  40  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
Co-Chair  Foster addressed  the schedule  for the  following                                                                    
week.                                                                                                                           
                                                                                                                                
ADJOURNMENT                                                                                                                   
2:55:27 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 2:55 p.m.                                                                                          

Document Name Date/Time Subjects
Performance Comparison_House Finance_20190301Final.pdf HFIN 3/1/2019 1:30:00 PM
DOR-HFIN Presentation
Investment Presentation_House Finance_20190301Final.pdf HFIN 3/1/2019 1:30:00 PM
DOR-HFIN Presentation
Cash Flow presentation_House Finance_20190301.Final (004).pdf HFIN 3/1/2019 1:30:00 PM
DOR-HFIN Presentation
FY2020 Gov Amend Budget to HFC 3.1.19 DOR DLWD.pdf HFIN 3/1/2019 1:30:00 PM
DOR/DOL HFIN Budget Overview
DLWD TVEP Distribution HFIN Budget Overview.pdf HFIN 3/1/2019 1:30:00 PM
HFIN DOL Overview