Legislature(1993 - 1994)
02/02/1994 01:15 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE
February 2, 1994
1:15 p.m.
MEMBERS PRESENT
Rep. Brian Porter, Chairman
Rep. Jeannette James, Vice-Chair (arrived 2:25 p.m.)
Rep. Pete Kott (arrived 1:30 p.m.)
Rep. Gail Phillips
Rep. Joe Green
Rep. Jim Nordlund (arrived 1:35 p.m.)
MEMBERS ABSENT
Rep. Cliff Davidson
OTHER LEGISLATORS PRESENT
Rep. Mark Hanley
Rep. Sean Parnell
Rep. Gene Therriault
COMMITTEE CALENDAR
HB 277: "An Act relating to public employees defending and
indemnifying public employees with respect to
claims arising out of conduct that is within the
scope of employment."
HEARD AND HELD IN COMMITTEE
*HJR 48: Proposing amendments to the Constitution of the
State of Alaska relating to revenues from natural
resources, the Alaska permanent fund, the
appropriation limit and the budget reserve fund;
and providing for an effective date for the
amendments.
HEARD AND HELD IN COMMITTEE
(* First public hearing.)
WITNESS REGISTER
STEVE TERRY, Director
Human Resources
Anchorage Telephone Utility
600 Telephone Avenue
Anchorage, Alaska
Phone: 561-3000
POSITION STATEMENT: Testified in favor of HB 277
SUSAN COX
Department of Law
P.O. Box 110300
Juneau, Alaska 99811-0300
Phone: 465-3603
POSITION STATEMENT: Assisted the sponsor in drafting HB 277
BRAD THOMPSON
Risk Management
Department of Administration
P.O. Box 110218
Juneau, Alaska 99811
Phone: 465-2180
POSITION STATEMENT: Assisted the sponsor in drafting HB 277
ROGER CREMO, Attorney
425 G Street
Anchorage, Alaska 99501
POSITION STATEMENT: Testified in favor of HJR 48
(Spoke via offnet from Hawaii)
REP. MARK HANLEY
Alaska State Legislature
State Capitol, Room 515
Juneau, Alaska 99811
Phone: 465-4939
POSITION STATEMENT: Testified and explained the House
Finance version of HJR 48
DARREL REXWINKEL, Commissioner
Department of Revenue
P.O. Box 110400
Juneau, Alaska 99811-0400
Phone: 465-2300
POSITION STATEMENT: Testified regarding HJR 48
JIM KELLY
Alaska Permanent Fund Corporation
P.O. Box 25500
Juneau, Alaska 99811
Phone: 465-2047
POSITION STATEMENT: Testified regarding HJR 48
PREVIOUS ACTION
BILL: HB 277
SHORT TITLE: INDEMNIFICATION OF PUBLIC EMPLOYEES
BILL VERSION:
SPONSOR(S): REPRESENTATIVE(S) PORTER
JRN-DATE JRN-PG ACTION
04/07/93 1070 (H) READ THE FIRST TIME/REFERRAL(S)
04/07/93 1070 (H) STATE AFFAIRS,JUDICIARY,FINANCE
01/18/94 (H) STA AT 08:00 AM CAPITOL 102
01/18/94 (H) MINUTE(STA)
01/25/94 (H) STA AT 08:00 AM CAPITOL 102
01/25/94 (H) MINUTE(STA)
01/26/94 2157 (H) STA RPT CS(STA) 4DP 3NR
01/26/94 2157 (H) DP: KOTT, G. DAVIS, B. DAVIS,
ULMER
01/26/94 2157 (H) NR: OLBERG, VEZEY, SANDERS
01/26/94 2157 (H) -2 ZERO FISCAL NOTES (ADM,
ADM) 1/26/94
02/02/94 (H) JUD AT 01:15 PM CAPITOL 120
BILL: HJR 48
SHORT TITLE: RESTRUCTURE PERMANENT FUND
BILL VERSION:
SPONSOR(S): FINANCE
JRN-DATE JRN-PG ACTION
01/11/94 2032 (H) READ THE FIRST TIME/REFERRAL(S)
01/11/94 2032 (H) JUDICIARY, FINANCE
02/02/94 (H) JUD AT 01:15 PM CAPITOL 120
ACTION NARRATIVE
TAPE 94-15, SIDE A
Number 000
The House Judiciary Standing Committee was called to order
at 1:28 p.m. A quorum was present at 1:30 with the arrival
of Rep. Kott. Chairman Porter announced that the committee
would take up HB 277 first.
HB 277 - INDEMNIFICATION OF PUBLIC EMPLOYEES
Number 025
REP. BRIAN PORTER, Prime Sponsor of HB 277, explained to the
committee that HB 277 was currently in conceptual form and
that he planned on briefing the committee on the concept and
then next week will have it redrafted. Rep. Porter said
currently the state and most municipalities have a policy
that provide indemnification for their employees if they are
working within the scope of their employment and have not
exceeded some level of behavior, generally described as
gross negligence or an intentional act.
REP. PORTER explained there are a lot of public employees
who, every time the mayor, city council, or governor
changes, have this concern as to whether or not this policy
that exists everywhere is going to be maintained, or whether
for this one particular instance that policy might just be
set aside for one person because of personality conflicts
and things like that. He concluded that basically the bill
will establish formal indemnification versus policy, which
is the current practice.
Number 091
STEVE TERRY, Director, Human Relations, Anchorage Telephone
Utility (ATU), testified in support of HB 277. Mr. Terry
explained that it is critical that public employers send the
message to its employees, especially those employees who
must make difficult and controversial decisions, that the
employer will stand behind the employees when their actions
are in the scope of their duties. Those employees that must
make decisions, particularly of the employment nature, are
being increasingly challenged legally and are resulting in
substantial and often staggering awards. He said that
individuals are increasingly being named as defendants or
codefendants in addition to the deep pocketed employer, and
attorney fees for that individual can run as high as
$200,000, not to mention the jury's verdict, punitive
damages, etc.
MR. TERRY emphasized that it is not a theoretical problem;
it has happened to him at ATU in a termination case.
Number 194
SUSAN COX, Department of Law, Attorney General's Office, and
BRAD THOMPSON, Risk Management, Department of
Administration, were asked to answer questions from the
committee.
Number 249
REP. PORTER discussed with Ms. Cox a question posed by a
city manager in Southeast Alaska, that if an employer has
terminated an employee, are they then not required to
provide the indemnification. The question was, would this
not perhaps induce an employer to terminate an employee when
they might not otherwise have done so. just to avoid
indemnification? Rep. Porter said they toyed with the idea
of saying termination for just cause, and asked Ms. Cox
about exempt employees who may be terminated for unjust
cause, rather than any kind of normal consideration that's
used to represent employees.
Number 249
MS. COX replied that it's possible to draft a bill if it
isn't so drafted that a former employee can be subject to
the same indemnification and defense if a claim arises out
of their former employment, which is currently the practice
of the state.
Number 284
REP. PHILLIPS asked that the issue of a time frame also be
addressed.
Number 294
MS. COX replied that generally indemnification lasts as long
as the case lasts, and there is a two-year tort statute of
limitations.
Number 309
REP. GREEN noted there was a zero fiscal note and asked if
there were any costs to the state.
Number 318
MR. THOMPSON responded that the state is currently self-
insured up to $5 million, and they are already indemnify
employees, and HB 277 would codify existing practice, so
there would be no change in the costs.
MS. COX added that it may affect what a municipality may
experience if they don't have this as their existing policy.
Number 330
REP. GREEN followed up by asking if there was a cost. He
commented that certain benefits are taxable, and asked if
indemnification would create a tax problem for people who
are protected there under. He also asked if HB 277 would
provide for public employees a situation that is above and
beyond that which is provided in the private sector.
Number 352
MS. COX replied that she had never heard of any tax
liabilities with indemnification.
MR. THOMPSON explained that most private sector employees of
a substantial nature through either a self-insurance program
or through a commercial insurance policy would have the same
provision for their employees.
Number 362
REP. PORTER asked if it was a fair statement that what HB
277 will say represents a reflection of existing law in
terms of a requirement for an employer to be responsible for
the acts of his or her employees.
Number 373
MS. COX replied that the legislation doesn't affect the
circumstances in which the employer is liable for the acts
of the employee; it only discusses situations in which the
employee is sued, when the employer will take care of that.
Ms. Cox explained that the bill reflects essentially the
state's existing policy and practice with respect to state
employees. She said whether the state is required to do
that is an open question, and the state probably doesn't
have a duty of common law to do it, but it has long been the
existing practice of the state of Alaska to afford that
protection to all state employees. Ms. Cox went on to say
that there are a great many thousand state employees that
are covered by existing collective bargaining agreements and
so the state has contracted for that requirement with them,
but for those not covered by collective bargaining (and
those would be the ones covered by this bill), it's
something that the state does because they think it's right,
but not necessarily because they are legally required to.
Number 396
REP. PHILLIPS asked, when the state contracts out to
bargaining units, does that become a bargaining point or is
it an assumed benefit?
Number 402
MS. COX responded that it is negotiated, so as a result,
there is not total consistency.
Number 420
REP. PHILLIPS asked if HB 277 would supercede the
agreements.
Number 424
MS. COX said HB 277 would only apply to those not covered by
collective bargaining.
Number 436
REP. NORDLUND discussed a provision in the bill in which the
employee has to notify the employer within ten days, and
said it seems too short of a time period.
Number 440
REP. PORTER noted that it goes on to say unless good cause
for the employee's failure to provide timely or proper
notice.
Number 445
MS. COX indicated that there is generally a twenty day time
period for answering a complaint, but the ten days would
only start running from the time of receiving the complaint,
and as a practical matter, most often the employer most
likely would get notice by other means, as well as from the
employee.
REP. PHILLIPS asked if anyone explored (she said she was
playing the devil's advocate on this) not acts of
intentional or willful, but acts of stupidity.
Number 477
REP. PORTER replied that the normal terms of responsibility
are that if you have an intentional act that's obviously the
worst, then the next level down is gross negligence, which
usually is just outrageous behavior, then there is simple
negligence, and HB 277 covers simple negligence, which is an
unintentional mistake.
Number 499
REP. NORDLUND asked if you could terminate an employee to
avoid liability.
Number 512
MS. COX said that one solution would be to make clear that
the obligation of defense applies to former employees if the
claim pertains to something that occurred during their
employment, and then there is no advantage to terminating an
employee to get out of this obligation.
Number 529
REP. KOTT asked Mr. Thompson, if the employee wants to
continue legal action, but the employer doesn't want to,
would HB 277 require the employer to continue with the
action?
Number 548
MR. THOMPSON replied that he could think of only one
occasion where an individual was named that didn't want to
participate in the settlement. He said in HB 277 they hope
to address that, with a good faith effort in notification,
cooperating in the defense, and participation in the
settlement, so it would be an obligation for the employee to
participate with the employer in a good faith settlement.
Number 562
MS. COX said she would address the issue in the next draft
of HB 277.
Number 583
REP. PORTER asked for any other questions; and hearing none,
closed the hearing on HB 277 until further notice. He then
brought up HJR 48.
HJR 48 - RESTRUCTURING THE PERMANENT FUND
Number 584
ROGER CREMO, an Anchorage attorney whose proposal led to the
introduction of HJR 48, testified via teleconference from
Anchorage regarding the plan. Mr. Cremo said the purpose of
the amendment was to avoid the consequences of unsustainable
budgets. He said HJR 48 provides a system that is designed
for a government that uses its wealth rather than its broad
taxing power to finance operations and capital improvements.
Mr. Cremo pointed out that current funding practices can't
continue because of fluctuating oil prices, and the
amendment would change that by putting all natural resource
revenues that have accumulated in various reserves into the
permanent fund.
MR. CREMO said the amendment defines a maximum sustainable
level of six percent of the market value of the fund, and
there has to be a transitional period in the amendment that
gradually lowers the percentage to six over a period of
years.
MR. CREMO continued with several points supporting HJR 48,
including the fact that all resource derived monies would be
placed in the permanent fund, thereby increasing its wealth;
the money must be invested and reinvested; and the income of
the fund be retained in the fund, which would prevent the
money from being spent. He then said he was available for
questions.
Number 785
REP. NORDLUND questioned the use of the word "geometrically"
and asked why it was used and what it means.
Number 790
MR. CREMO replied that he looked for a mathematical
progression, which would be arithmetic or geometric. He
explained that using a geometrical progression would cause
much larger jumps as the progression approaches six percent,
and levels and smooths off until the year 2006, the end of
the period of the plan, unless the legislature changes it.
Number 830
REP. NORDLUND asked if there was any possibility of
ambiguity using the term geometrical, and if it could be
defined in the legislation.
Number 835
MR. CREMO responded that neither the legislature or the
courts would find any ambiguity in the definition, but it
would not be a problem to define it in the bill.
Number 842
REP. GREEN said he thought a definition might tend to
confuse the public and suggested using a table to show the
percentages over the ten years.
Number 850
MR. CREMO reflected that it was a reasonable suggestion, but
wondered if it would open it up to the legislature to change
the numbers.
Number 860
REP. PORTER said that if he understood Rep. Green's
suggestion, it wasn't necessarily putting it into the
constitution, but putting it into the document from which
the public would be voting on this proposal.
Number 865
MR. CREMO asked the chairman if the legislature could
control the document that is used to make the explanation to
the public.
Number 869
REP. PORTER responded that he believed the legislature would
have some input on who writes the explanation, and he
believed that selection would be made carefully and would
probably be someone from the House or Senate Finance
Committee.
TAPE 94-15, SIDE B
Number 000
REP. PORTER asked if there were any other questions for Mr.
Cremo. Hearing that there would be questions in the future,
he asked Mr. Cremo if he would be available at a later date
to do so. Mr. Cremo responded that he would be available.
Number 087
REP. PHILLIPS asked if there was opposition to the plan and
if the committee could hear that side.
Number 096
REP. PORTER replied that if anyone knows who the opponents
are, invite them to the table.
Number 121
REP. MARK HANLEY, Vice Chair of the House Finance Committee,
testified regarding the House Finance version of HJR 48 and
suggested that after Finance reviews the bill that it come
back to House Judiciary to make a final review of the
constitutional and judicial aspects of the bill. He said
what he wanted to do was give an explanation of the approach
Finance is looking at, and he thought it needed serious
considerations as a long term plan.
REP. HANLEY said under the proposal all oil and resource
revenues would go into the permanent fund first, and out of
the fund would come a set percentage, which is where the
geometrical plan comes in, taking 20 percent in the first
year of an average of over about five years of the earnings.
He explained that the withdrawal, plus nonresource revenues,
would be what's available to pay for all things, the
operating budget, capital budget and the permanent fund
dividend program.
REP. HANLEY discussed the spreadsheet and how the figures
were arrived at and answered questions from the committee
about the figures.
Number 506
REP. HANLEY said there was one question about the plan in
the case of a disaster, which was, will we have a pot of
money available for the emergency?
Number 520
REP. HANLEY stressed that in his opinion if the residents of
Alaska feel this plan will eliminate the permanent fund
dividend (PFD), they won't support the legislation. He also
stressed that it is not the intent of the plan to eliminate
the PFD.
Number 549
REP. G. PHILLIPS stated some concerns and gave an example of
being six years down the line and we are at a position where
only six percent is going into the budget. She said her
concern relates to entitlement growth, population growth,
and everything that will cause this side of the budget to be
so unbalanced, and to the side that would put money into
natural resource development and keep the whole thing going.
Rep. Phillips said one of the great fears she has is that as
we cut down to that certain level, we're going to have so
much of the whole program tied up in entitlement funding
that we will not have money to continue resource
development.
Number 569
REP. HANLEY said that was a concern of a lot of people, and
the plan shifts money to build up the principal of the
permanent fund, but under any scenario the cash available
would be about the same; however, up to this point, the
Cremo plan was growing faster than the traditional method.
He said those problems would always be there, but under
current spending we will eventually face a large deficient,
and then what will we do.
Number 598
REP. GREEN commented that the plan doesn't make or lose
money, and forces the legislature to do what they have to
do, and will generate more money in the long run.
Number 625
REP. JAMES said this plan assumes we are not going to do
anymore than is already being done in resource development.
Number 636
REP. HANLEY disagreed, saying there is no limit on
development and we are only limited in spending.
Number 662
REP. NORDLUND said he felt it was a minimalist proposal, and
if adopted, doesn't necessarily mean we have to cut
spending. And under either the traditional plan or the Cremo
plan the legislature will be faced with a hard decision in
either case.
Number 672
DARREL REXWINKEL, Commissioner, Department of Revenue,
expressed that it is good news that the legislature is
talking about the problem; however, he was not there to
speak for or against the proposal. He cautioned that there
is a lot of financial information floating around based on
various revenue forecasts that differ. He discussed various
other observations and expressed concern that the six
percent payout could cause the permanent fund balance to
drop.
REP. PORTER said that not all investments would be made in
common stock.
Number 740
COMMISSIONER REXWINKEL responded that they have a
diversified portfolio, and cited various estimates on
expected returns on investments.
Number 795
REP. NORDLUND asked Commissioner Rexwinkel if he would put
more faith in return on market investments versus the value
of the price of oil in future years.
Number 800
COMMISSIONER REXWINKEL replied that there is a lot of
uncertainty with both the market and oil.
Number 849
JIM KELLY, Permanent Fund Dividend Corporation, testified
and referred the committee to a paper he prepared entitled
"20 Questions and Answers on the Cremo Plan." Mr. Kelly
said it is very clear that this plan will stabilize
revenues, and there will be much more stability if the
budget is based on five years, or in this case a three year
plan, and it would increase the permanent fund under any
circumstances; however, the legislature will have less money
to spend under the plan.
MR. KELLY discussed the assumptions used and said there are
all kinds of things that could happen in either direction,
and the fund has kept up with inflation and growth.
TAPE 94-16, SIDE A
Number 000
MR. KELLY said if the conservative estimates turn out to be
the case, you will end up with significantly less money. He
discussed inflation, and if you are paying out more, then
you are not protecting the fund, but with less you are. He
discussed the impact on PFD's and said they would rise
dramatically because the principal is going to rise
dramatically, which will produce less money for the
legislature unless the statute is changed.
MR. KELLY agreed with Rep. Hanley that if residents don't
know what's going to happen to PFD's, no one will support
HJR 48. He said there is no doubt that the plan will get
the legislature where they want to go, but it could take 15
to 20 years.
Number 220
REP. PORTER asked if PFD's could be capped at a certain
amount.
Number 232
MR. KELLY stated that he thought people would want to know
what's going to happen to the PFD or they won't vote for the
plan.
MR. KELLY recommended changing the section that calls for a
seven member board, and said he thought the six member board
was working fine now. Mr. Kelly said the real suggestion he
wanted to make was on the six percent withdrawal rate. He
said it gives the legislature no assurance you are
protecting the permanent fund because in bad years with
inflation you are very likely going to be eating it up. He
suggested a possible change of using a different number,
dropping six to four, which would still provide less money.
He said, however, that a better solution would be to say the
amount withdrawn every year is not to exceed the real growth
of the fund, defined as all the new money that comes in,
subtracting inflation, and that's what you would have.
MR. KELLY endorsed the concept of the proposal and concluded
his testimony.
Number 392
REP. GREEN asked, if we don't have any kind of cap, what
happens in a high inflation year?
Number 408
MR. KELLY replied that actually it would be significant
inflation over a five year period, and that's a lot of
inflation and could probably minimize that problem by the
feature of averaging it out.
Number 422
Discussion continued about growth of the fund, inflation
proofing, PFD's and the percentage of growth in real dollar
terms.
REP. PORTER concluded the hearing on HJR 48 and held the
resolution for further hearings.
ADJOURNMENT
CHAIRMAN PORTER adjourned the hearing at 3:35 p.m.
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