Legislature(1995 - 1996)
04/17/1996 03:10 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE April 17, 1996 3:10 p.m. MEMBERS PRESENT Representative Pete Kott, Chairman Representative Norman Rokeberg, Vice Chairman Representative Beverly Masek Representative Jerry Sanders Representative Brian Porter Representative Kim Elton Representative Gene Kubina MEMBERS ABSENT All members present COMMITTEE CALENDAR HOUSE BILL NO. 483 "An Act relating to the calculation of unemployment insurance benefits; and providing for an effective date." - PASSED CSHB 483(L&C) OUT OF COMMITTEE HOUSE BILL NO. 501 "An Act requiring competition in local exchange telephone service." - HEARD AND HELD HOUSE BILL NO. 345 "An Act relating to the procurement of investment and brokerage services by the Alaska State Pension Investment Board." - HEARD AND HELD HOUSE BILL NO. 549 "An Act relating to partnerships; and providing for an effective date." - SCHEDULED BUT NOT HEARD HOUSE BILL NO. 416 "An Act relating to fees or assessment of costs for certain services provided by state government, including hearing costs related to the real estate surety fund; fees for authorization to operate a postsecondary educational institution or for an agent's permit to perform services for a postsecondary educational institution; administrative fees for self-insurers in workers' compensation; business license fees; fees for activities related to coastal zone management, training relating to emergency management response, regulation of pesticides and broadcast chemicals, and subdivision plans for sewage waste disposal or treatment; and providing for an effective date." - SCHEDULED BUT NOT HEARD HOUSE BILL NO. 510 "An Act relating to occupational licensing fees and regulatory costs for occupational licensing functions; and providing for an effective date." - SCHEDULED BUT NOT HEARD HOUSE BILL NO. 363 "An Act requiring banks to pay interest on money in reserve accounts held in connection with mortgage loans." - SCHEDULED BUT NOT HEARD HOUSE BILL NO. 518 "An Act exempting certain persons engaged in selling or servicing certain vehicles from overtime wage requirements." - SCHEDULED BUT NOT HEARD HOUSE BILL NO. 407 "An Act relating to discrimination by certain insurers against a person with a genetic defect." - SCHEDULED BUT NOT HEARD CS FOR SENATE BILL NO. 193(L&C) "An Act requiring insurance coverage for certain costs of birth; and providing for an effective date." - SCHEDULED BUT NOT HEARD CS FOR SENATE BILL NO. 199(FIN) "An Act relating to environmental audits and health and safety audits to determine compliance with certain laws, permits, and regulations." - SCHEDULED BUT NOT HEARD PREVIOUS ACTION BILL: HB 483 SHORT TITLE: CALCULATION OF UNEMPLOYMT INS BENEFITS SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR JRN-DATE JRN-PG ACTION 02/09/96 2689 (H) READ THE FIRST TIME - REFERRAL(S) 02/09/96 2689 (H) L&C, STATE AFFAIRS, FINANCE 02/09/96 2690 (H) FISCAL NOTE (LABOR/ALL DEPT'S) 02/09/96 2690 (H) GOVERNOR'S TRANSMITTAL LETTER 02/28/96 (H) L&C AT 3:00 PM CAPITOL 17 02/28/96 (H) MINUTE(L&C) 03/06/96 (H) L&C AT 3:00 PM CAPITOL 17 03/06/96 (H) MINUTE(L&C) 04/17/96 (H) L&C AT 3:00 PM CAPITOL 17 BILL: HB 501 SHORT TITLE: COMPETITIVE LOCAL PHONE SERVICES SPONSOR(S): REPRESENTATIVE(S) THERRIAULT,Martin,Mulder,Toohey,Vezey JRN-DATE JRN-PG ACTION 02/12/96 2726 (H) READ THE FIRST TIME - REFERRAL(S) 02/12/96 2726 (H) STATE AFFAIRS, LABOR & COMMERCE, JUD 02/27/96 (H) STA AT 8:30 AM CAPITOL 102 02/27/96 (H) MINUTE(STA) 02/28/96 2909 (H) STA RPT 2NR 3AM 02/28/96 2909 (H) NR: JAMES, PORTER 02/28/96 2909 (H) AM: GREEN, ROBINSON, WILLIS 02/28/96 2909 (H) ZERO FISCAL NOTE (H.STA/DCED) 02/28/96 2909 (H) REFERRED TO LABOR & COMMERCE 03/08/96 (H) L&C AT 3:00 PM CAPITOL 17 03/08/96 (H) MINUTE(L&C) 03/26/96 (H) L&C AT 2:00 PM CAPITOL 17 03/26/96 (H) MINUTE(L&C) 03/30/96 (H) L&C AT 12:00 PM CAPITOL 17 03/30/96 (H) MINUTE(L&C) 04/17/96 (H) L&C AT 3:00 PM CAPITOL 17 BILL: HB 345 SHORT TITLE: PENSION INVESTMENT BOARD PROCUREMENTS SPONSOR(S): REPRESENTATIVE(S) FOSTER, Ivan JRN-DATE JRN-PG ACTION 05/10/95 2088 (H) READ THE FIRST TIME - REFERRAL(S) 05/10/95 2088 (H) STATE AFFAIRS, L&C, FINANCE 03/21/96 (H) STA AT 8:00 AM CAPITOL 102 03/21/96 (H) MINUTE(STA) 03/21/96 3259 (H) COSPONSOR(S): IVAN 03/26/96 (H) STA AT 8:00 AM CAPITOL 102 03/26/96 (H) MINUTE(STA) 03/27/96 3390 (H) STA RPT CS(STA) 2DNP 4NR 03/27/96 3391 (H) DNP: ROBINSON, WILLIS 03/27/96 3391 (H) NR: JAMES, PORTER, GREEN, OGAN 03/27/96 3391 (H) FISCAL NOTE (REV) 04/03/96 (H) L&C AT 3:00 PM CAPITOL 17 04/03/96 (H) MINUTE(L&C) 04/17/96 (H) L&C AT 3:00 PM CAPITOL 17 WITNESS REGISTER DWIGHT PERKINS, Special Assistant Office of the Commissioner Department of Labor P.O. Box 21149 Juneau, Alaska 99802-1149 Telephone: (907) 465-2700 POSITION STATEMENT: Testified on CSHB 483(L&C). RON TORGERSON, Chief Hearing Officer Division of Employment Security Department of Labor P.O. Box 25509 Juneau, Alaska 99802-5509 Telephone: (907) 465-2775 POSITION STATEMENT: Answered questions on CSHB 483(L&C). TED MONINSKI, Director Regulatory Affairs AT&T Alascom 210 East Bluff Drive Anchorage, Alaska 99501 Telephone: (907) 264-7876 POSITION STATEMENT: Testified on the proposed committee substitute for HB 501. JIMMY JACKSON GCI 2550 Denali Street, Suite 1000 Anchorage, Alaska 99503 Telephone: (907) 265-5545 POSITION STATEMENT: Testified against the proposed committee substitute for HB 501. BOB LOHR Alaska Public Utilities Commission 1016 West Sixth Avenue Anchorage, Alaska 99501 POSITION STATEMENT: Testified on the proposed committee substitute for HB 501. JACK RHYNER, Representative Alaska Telephone Association and Tel Alaska, Incorporated 2121 Abbott Road Anchorage, Alaska 99507 Telephone: (907) 349-2400 POSITION STATEMENT: Testified on the proposed committee substitute for HB 501. STEPHEN CONN, Executive Director Alaska Public Interest Research Group P.O. 101093 Anchorage, Alaska 99510 Telephone: (907) 278-3661 POSITION STATEMENT: Testified on the proposed committee substitute for HB 501. GEORGE DOZIER, Legislative Assistant to Representative Pete Kott Capitol Building, Room 432 Juneau, Alaska 99801 Telephone: (907) 465-3777 POSITION STATEMENT: Explained CSHB 345(L&C), Version K. JOHN WALSH, Legislative Assistant to Representative Richard Foster Alaska State Legislature Capitol Building, Room 410 Juneau, Alaska 99801 Telephone: (907) 465-3789 POSITION STATEMENT: Answered questions on behalf of the sponsor, Representative Foster, on HB 345. DOUGLAS MERTZ, Attorney 319 Seward Street Juneau, Alaska 99801 Telephone: (907) 586-4004 POSITION STATEMENT: Testified against HB 345. MILT BARKER 119 Seward Street, Suite 3 Juneau, Alaska 99801 Telephone: (907) 586-4301 POSITION STATEMENT: Testified against HB 345. DAVE ROSE, Chairman and Chief Executive Officer Alaska Permanent Capital Management Company 900 West Fifth Anchorage, Alaska 99501 Telephone: (907) 272-7575 POSITION STATEMENT: Testified in support of HB 345. STERLING GALLAGHER, President Sterling Limited 727 Canoga Avenue Woodhill, California 91367 POSITION STATEMENT: Testified on HB 345. ACTION NARRATIVE TAPE 96-35, SIDE A Number 001 The House Labor and Commerce Standing Committee was called to order by Chairman Pete Kott at 3:10 p.m. Members present at the call to order were Representatives Kott, Masek, Elton and Sanders. Representative Rokeberg arrived at 3:15, Representative Porter arrived at 3:20 and Representative Kubina arrived at 3:25 p.m. HB 483 - CALCULATION OF UNEMPLOYMT INS BENEFITS Number 069 CHAIRMAN PETE KOTT announced the first order of business would be HB 483, "An Act relating to the calculation of unemployment insurance benefits; and providing for an effective date." Chairman Kott said the committee has previously heard HB 483 and the bill has taken a different approach from the previous bill that was before the committee. It decreases the employer contribution slightly and increases the employee contribution slightly. Number 149 REPRESENTATIVE BEVERLY MASEK moved that the committee adopt CSHB 483(L&C). CHAIRMAN KOTT asked if there was an objection. Hearing none, CSHB 483(L&C) was before the committee. Number 169 DWIGHT PERKINS, Special Assistant, Office of the Commissioner Department of Labor, was first to testify. Mr. Perkins stated that before he would explain the changes that have occurred, he would give a historical view of the program. He read the following statement into the record: "For years, the unemployment insurance system has enabled Alaskan workers, their families and their communities to weather periods of unemployment with their economic well-being and dignity intact. Recent events in Sitka and Wrangell, as well as in other areas of the state affected by plant closures or layoffs, have demonstrated all too well the importance of this safety net for our working men and women. "The schedule of benefits for unemployment insurance has not been adjusted to increase the maximum weekly benefit amount since 1990. Alaska currently ranks forty-ninth in the nation in unemployment insurance wage replacement, with the average weekly benefit amount only slightly more than 27 percent of the average weekly wage for the state. In terms of the maximum weekly benefit amount, Alaska ranks thirty-fifth in the nation, notwithstanding the higher cost of living here. "I want to emphasize that this is a modest proposal. The bill would raise Alaska's wage replacement less than 1 percent, to a little over 28 percent. While not enough to change our wage replacement ranking amongst the states, this small change would provide a measure of additional security to Alaska's average wage earners and help slow the erosion of purchasing power during hard times. "As we work together to strengthen Alaska's economy to provide quality jobs for Alaska's families and to move certain low-income people from welfare to work, we must ensure that there is an adequate safety net in place to allow unemployed workers sufficient finances to remain in their homes, in their communities, and in Alaska until they are reemployed." Number 430 MR. PERKINS stated in the version of the bill before the committee, 9-GH2027\C, Cramer, 4/16/96, is a big difference from the previous version. The bill is an act relating to employer and employee contribution rates for unemployment insurance and to the calculation of unemployment insurance benefits and providing for an effective date. Mr. Perkins explained it would become effective January 1, 1997, whereby the rate of contributions for each employer will go from 82 percent to 80 percent of the average benefit cost rate multiplied by the employer's experience factor set out in the table. In addition, the rate of contributions for an employer must be rounded to the nearest one-one hundredth. MR. PERKINS explained currently, the employee picks up 18 percent of the average benefit cost rate and that will increase to 20 percent. He referred to page 3 of the bill and said it is the beginning of the unemployment weekly benefit amount that an individual will receive. Mr. Perkins noted the wording from page 3 to page 6, line 3, is currently in statute. Mr. Perkins said, "What this bill proposes to do, in statute, because that was another difference - it was a floating rate that would have occurred based on income, the average income of the state is 75 percent of the average income in the old bill. That was a floating schedule of benefits. It would go up and down with the amount of wages made in particular years by the employee." Mr. Perkins said there was concern that it would not work in the best interest of certain parties. The legislature felt it would be more comfortable to have it in statute in the event that a down-turn in the economy went so bad it could have some significant changes in the amounts of the rate that the employee would receive. Number 635 MR. PERKINS referred to page 6, line 4, and said the new schedule starts at the maximum benefit amount of $22,250. For every $250 of wage increase, the weekly benefit amount will go up $2. It starts at $214 and reaches a maximum of $248 at 75 percent of the average annual wage base of $26,750. The maximum they will receive is $248. Mr. Perkins said today, the average annual is $22,250. Mr. Perkins discussed a chart he gave committee members titled, "Employer and Employee Contributions Under the Proposal to Cap the WBA (Weekly Benefit Amount) at $248 in 1997, Change the Employer/Employee Tax Share to 80/20, and Round the Employee Tax to the Nearest 100th." MR. PERKINS pointed out that it has been since 1990 that anything has been done. In the first proposal the department brought forward was going to be by a flexible cap. There were concerns about that. The current version before the committee is supported by the department and it is a very modest proposal. Mr. Perkins said he would answer any questions the committee may have. Number 110 CHAIRMAN KOTT indicated the new version is a good compromise solution to the problem and much of the concern expressed by industry has been addressed. He said it is fair that employees at least share in some of the burden rather than placing all of the burden on the shoulders of the employers. Number 1146 REPRESENTATIVE KIM ELTON questioned whether the previous fiscal note, dated February 27, still applies to the new version. MR. PERKINS gave committee members a new fiscal note that applies to the Senate version. CHAIRMAN KOTT noted there is a significant difference. REPRESENTATIVE ELTON said he can see why industry would be pleased. They would be saving $3 million and the cost would be transferred to the employees. He stated it is probably unfair to characterize this for all employees. The people at the low end of the wage scale will be paying more, but they will not see any more benefits. The only people that will get increased benefits are those at the upper end of the wage scale. MR. PERKINS referred to Representative Elton's concern regarding where the benefit amount starts and rises at the upper level as we know it today and said Representative Elton is correct. He said he wants to address Representative Elton's concern, but he doesn't want to sound biased to one group of wage earners over another. At the lower end of the weekly benefit amount based on $1,000, if you take those figures and see what the benefit amount is for the other end of the scale, you will see that just the opposite has occurred. He referred to the wage base in today's figures and said the average wage currently for Alaska above $22,000. Number 1354 CHAIRMAN KOTT said he believes the average earnings in Alaska is about $32,000. MR. PERKINS said that is correct. He stated that this is based on 75 percent of that average wage base. REPRESENTATIVE ELTON questioned whether it is fair to characterize that the low income people will be paying more and will not get any benefit. MR. PERKINS said Representative Elton is right in saying that but conversely just the opposite has been happening on the upper end. The upper end has been paying for the lower end in the benefit amount in the ratio by which they receive. In other words, they actually receive more percentage wise than the person making $22,250 based on the same amount of the unemployed weeks. Number 1430 REPRESENTATIVE BRIAN PORTER asked if another way to characterize the bill be to a redistribution of the costs and benefits based on a more equitable formula. MR. PERKINS said Representative Porter is close. That could be a characterization. Number 1450 REPRESENTATIVE GENE KUBINA said he looks at this differently in that the people at the low end probably have not worked full-time 40 hour weeks in order to have this low of a base. Number 1482 REPRESENTATIVE JERRY SANDERS said he thinks that Representative Kubina is correct. He said another thing that he thinks would be an advantage is that a lot of the people making a small wage over this period of time, not necessarily by the hour, are people from outside Alaska who work three or four months during the summer. They will be contributing a little higher rate and when they leave Alaska, they won't gain as much and the people in Alaska will. He stated he supports the bill. REPRESENTATIVE ELTON said his understanding is that a minimum wage job is $4.75 an hour in Alaska. That equates to about $10,000 a year. So somebody could be working full-time and make $10,000 a year which would place them down on the scale. He said it is not just part-time people the committee is taking about. Number 1539 CHAIRMAN KOTT said that is a valid point. To a large extent it wouldn't be under that scenario. There may, however, be other assistance programs that would be available to those people who are making $10,000 or under $16,000 per year. Number 1554 REPRESENTATIVE BEVERLY MASEK asked how many people are at the $22,000 level compared to employees that are at the lower level. MR. PERKINS said currently, 33 percent of the claimants are in the top range of the claimants receiving weekly benefit amounts. He said 33 percent of those claimants are crowded into the upper end. If you go from that point and work the distribution back to the other direction, you will find an interesting scenario. Mr. Perkins asked Mr. Torgerson to comment. Number 1616 RON TORGERSON, Chief Hearing Officer, Division of Employment Security, Department of Labor, informed the committee he worked on the draft of the bill. He said to keep in mind that the entire benefit schedule is based on less than average wages. So the people even at the very top end of the schedule who are making the maximum are qualifying on wages that are three quarters of the average wage in the state. It really isn't a windfall to the high- end wage earners. With the change, they will be qualifying on wages well below the average wage, approximately $26,000. Mr. Torgerson explained the schedule is a creature of legislative compromise and it over compensates employees at the bottom end of the scale and it under compensates people making close to the average wage. People at the very bottom end of the scale can actually draw out more in benefits than they made in base period wages, but the average replacement is only about 24 percent. The schedule is certainly is not top heavy in terms of who has been compensated. CHAIRMAN KOTT said there were no further witnesses to testify. Number 1696 REPRESENTATIVE KUBINA made a motion to move CSHB 483(L&C) out of committee with individual recommendations and the new accompanying fiscal note. MR. PERKINS pointed out that the fiscal note the committee members have is for a committee substitute of the Senate version of the bill. He said he will have a corrected version of the fiscal note for CSHB 483(L&C) before the committee adjourn. CHAIRMAN KOTT indicated that would be fine. He stated without objection CSHB 483(L&C) is moved out of the House Labor and Commerce Committee. HB 501 - COMPETITIVE LOCAL PHONE SERVICES Number 1784 CHAIRMAN KOTT announced the next order of business would be HB 501, "An Act requiring competition in local exchange telephone service." He said HB 501 was before the committee about six weeks ago. Both HB 501 and HB 531 was put into a subcommittee. Both of those bills deal with telecommunications based on the revolutionary Congressional Act that was signed into law February, 1996. He said, "It was our impression that we should at least look at some of the provisions and reach some kind of a conclusion or compromise on what the state should be doing and based on that assumption, we sent both bills to the subcommittee." Chairman Kott said there has been a considerable amount of time spent in trying to reach some kind of conclusion or a compromise within the industry. It was the intent to bring some kind of consensus to the table and then move a bill out of committee if that consensus was acquired. Number 1835 REPRESENTATIVE SANDERS, chairman of the subcommittee, explained the subcommittee has spent a considerable amount of time on the issue in trying to reach a compromise that will maintain support for universal services while still paving a way for fair and open competition between the different factions. There are several factions and all of them have been cooperative but it is so complicated. You have the rural, urban, local and long-distance. When you get into long-distance, you've got the interstate and the intrastate. Representative Sanders said the committee worked on both of the bills. One bill was a one page very simple bill and the other was a 16 page very complicated bill. They were broken down into a four page very complicated bill that everybody likes a little bit, but nobody like very much. Nobody is anxious to pass the bill out of committee. People have expressed an interest to work on the bill more during the interim and perhaps get something done next year. Representative Sanders said with the possibility that the committee could make a breakthrough during the next week, it could be brought forward. He said there is still a possibility that something could be brought up that would satisfy everyone, but it could be very hard to do. There are some people that say there is a need for a bill but not this bill. There are some people who say there isn't a need for a bill at all, but this one would be O.K. if they had to have one. There are people who say there isn't a need for a bill, especially this bill and some say there is a need for the bill now. Representative Sanders said they have made progress and the committee could be maybe about 65 percent on the way to reaching a compromise. Number 1946 CHAIRMAN KOTT said it is his intent to take public testimony regarding the committee substitute, which is not before the committee. He said rather than to adopt it, he would like to leave it before the committee in order to listen to comments. Based on the comments, the committee will either adopt the committee substitute or refer it back to the subcommittee. The version is Version R, dated 4/9/96. TED MONINSKI, Director, Regulatory Affairs, AT&T Alascom, testified via teleconference from Anchorage. He said AT&T Alascom is one of the participants that have been following the bills. Mr. Moninski said there has been previous testimony from his company where the committee was told that the earlier version of HB 501 was confusing and they have some serious objections to HB 531. He pointed out that there is now CSHB 501(L&C) and AT&T Alascom still has concerns about the bill. Mr. Moninski indicated AT&T Alascom would enter objections to the bill as it is currently written. They are still very concerned that there is a great deal about this major change in structure that has not been fleshed out yet. MR. MONINSKI referred to the Telecom Act - the federal bill, which is on the books and said they know what it says but they aren't entirely sure yet what it all means. They know that the federal Communications Commission is undergoing numerous rule makings to help them understand what it means. There is a federal/state joint board that has been convened to deal with the significantly important issues such as universal service. He noted Alaska has a representative on the staff of that joint board. The Alaska Public Utilities Commission (APUC) has stated its intent to commence rule making to help interpret the federal law. Mr. Moninski said it seems to him that with all of this work to be done and with the complexities that have been noted, the legislature is probably not yet aware of which issues need to be resolved. While there may very well be the need for some legislative action in the future, to do it in advance of all of the work that needs to be done by the various expert in industry, government and other, might make it difficult for the legislature to undertake that task. Mr. Moninski urged the committee to take no action at this time and to revisit the issue, as necessary, in the future. He noted they stand ready to participate in any further discussions and work sessions. Number 2113 CHAIRMAN KOTT asked if there are any particular areas of the bill that are extremely objectionable to AT&T Alascom. MR. MONINSKI said there are certainly some issues that AT&T Alascom believes have not clearly resolved and compromises that have not yet really been achieved. There are areas where the playing field is not really as level as we would all like it to be. Mr. Moninski said Section 6 is incredibly complicated and has not been thoroughly developed yet. It is not at a point where good legislating can be done. Mr. Moninski said that is the section of the bill that would on (indisc.) appear to simply turnaround some rules that were created in the federal Act and apply them to interexchange carriers. But what happens is it become very much entangled in some regulatory policy that has been out in the state of Alaska for some time. That needs to be disentangled before we can really look at those questions about issues and determine what really is in the public's interest. The (indisc.) simple issue about whether or not it is appropriate and good policy making to allow one market segment, for example, the local exchange market that continues to enjoy interconnection exemptions under the federal bill to simply move into a market without its own market being open for competition at all. Mr. Moninski said he would echo Representative Sander's comments in that these are very difficult issues and they need further development before something is put before the legislature for resolution. Number 2202 JIMMY JACKSON, GCI, was next to testify via teleconference from Anchorage. He said he agrees with Representative Sanders regarding the bill. Mr. Jackson said GCI opposes the proposed draft of HB 501 and urged that the committee not pass the bill forward for further consideration. He said GCI had hoped that the various interested parties might be able to come to an agreement on a bill that everyone could support. An acceptable compromise has not been reached. He said GCI doesn't believe that it is feasible to work out an acceptable compromise during the remainder of the legislative session and they believe that the legislature's further attention to this matter is not desirable during the short time left in the session. Mr. Jackson said he would agree with Mr. Moninski that Section 6 is a problem. He referred to there being an amendment in Section 3 and said he thinks the committee tried hard to come to a compromise, but it is extremely hard to say how that compromise is going to be interpreted and they fear it wipes out the (indisc.) principle. He said there are things that aren't included in the bill which GCI feels are very important. One is a provision to remove the antitrust exemption that local exchange carriers presently enjoy. If they are going to be competing with GCI, they shouldn't be exempted from the antitrust law. Mr. Jackson referred to Section 5 regarding local exchange competition and said it isn't strong enough. Number 2324 BOB LOHR, Alaska Public Utilities Commission, testified via teleconference from Anchorage. He said, as the APUC has done in the past, they remain available to answer specific questions. He said as the bill is currently drafted, some specific provisions cause the staff concern. Section 2, for example, the notion of a fast turnaround on application for an unserved area is not a problem except in resource limitations. He referred to the last sentence in Section 2, "If the commission fails to act within the 90 days, the application is considered to be granted," and said he believes it is shaky public policy because it is a false grant of a certificate of public convenience and necessity which otherwise would require a finding of public needs and necessity and a finding of fit willing and able just doesn't seem appropriate. He said the commission has the message that things need to move more quickly and within the available resources, they will do the best job they can. He said he doesn't think a default provision for granting the certificate is necessarily appropriate. MR. LOHR referred to Section 3 and said the rather confusing compromise that does erode the used and useful standard as a consumer protection vehicle is a concern to the commission staff. He said he believes there has already been adequate comment about the IFC competition provisions and what those mean. He said this is an extremely complex provision. They do require a sifting out process which is actively underway at the Federal Communication Commission (FCC) level as well as within the APUC itself. It is very resource intensive and they are doing the best job they can with it. Probably the worst thing that could happen would be hastily crafted state legislation that doesn't add to the clarity rather than the confusion or the capacity. He said he would be happy to answer any question. Number 2427 JACK RHYNER, Representative, Alaska Telephone Association and Tel Alaska, Incorporated, came before the committee to give his testimony. He explained Tel Alaska, Incorporated, is a company which operates two telephone companies in the state of Alaska, Interior Telephone and Mukluk Telephone. Mr. Rhyner discussed the hard work done in the subcommittee meetings. He said the 17 page bill was supported by the local telephone companies of the state who are subject of the federal Act and who are now to face competition. He said there is a lot of confusion about the new version of the bill. TAPE 96-35, SIDE B Number 001 MR. RHYNER said while the current proposed committee substitute for HB 501 doesn't fully address all of the issues that were raised by the federal Telecom Act, it does address a number of outstanding problems and issues with the APUC and would provide a needed "jump start" to getting that agency moving. He said he is a little surprised and disappointed in that he participated in all the meetings of the subcommittee and at the end of the last meeting, he was under the impress that a compromise had been met. The chairman asked those present whether or not there were any other objections to the bill and at that time the answer was "no." Now there are objections to the compromise. MR. RHYNER referred to extending service areas and said the staff of the commission is concerned about the length of time. He said he feels that is a consumer issue. Historically, the people in the state of Alaska have been waiting a year and in many cases longer just to obtain service. They have been waiting for approval by the APUC for extension of service areas. That would have been remedied by the bill. MR. RHYNER referred to eligible telecommunications carriers and said this is something that relates directly to the federal Act. All telephone companies that are going to receive universal service funding have to be designed by the APUC as eligible. The final rules from the FCC, by law under the Act, are supposed to be completed in October which is between Alaska's legislative sessions. If the APUC doesn't move and designate these companies as eligible, the consumers and the local telephone companies will lose $4.2 million every month until they are designated as eligible. He said he couldn't say whether that go to direct losses for those companies or whether it would somehow passed through to the consumer. He referred to rate flexibility and said when these companies are faced with competition they would be allowed to compete rather than being an incumbent carrier that was held down by regulation and allowing someone else to come in and compete with them. MR. RHYNER referred to the long-distance section of the bill turns the rules in the federal bill around so that anyone else that wants to get into the long-distance market has exactly the same type of arrangement for utilizing their facilities and service as they will then have when they come in and use the local facilities. Both GCI and AT&T have already demonstrated their desire to get into that market and have both already filed to compete in the Anchorage telephone utility service area. Mr. Rhyner said he would answer questions the committee members may have. Number 159 STEPHEN CONN, Executive Director, Alaska Public Interest Research Group, was next to come before the committee. He stated, "I agree with the positions of the representative AT&T and GCI that the questions -- the forthcoming questions as the federal legislation is implemented - the factoring in of the 2001 telecommunications report, an inquiry that was completed only recently, chaired by the lieutenant governor, and ultimately the consumer's concerns - the consumer's involvement in these debates, all suggest that this matter - despite the hard work in energy undertaken to make a compromise of these two pieces of legislation - should mean that this matter is taken past the session perhaps into interim hearings and into the next legislative session. The issues are startling here as to universal service. Alaska Public Interest Research Group has prepared a two page statement on universal service. It is our strongly felt position that we would encourage the legislature to hold hearings that would involve the public to focus not on the technical side of regulation and competition, but rather on universal service as such. What does it mean to Alaskans? What do they anticipate both in urban and rural Alaska? How can we achieve improved penetration of telecommunication services in rural Alaska to improve the economic political and economic well being of the people out there. In other words, hearings held by the legislature with an end result, perhaps statutory and perhaps to even lay the basis for a constitutional amendment that would make of universal service an affirmative right. This may be necessary in order that the consumers and the public and their position in this receive equal statue to that of the service providers - the large service providers and the small service providers. So I find myself in agreement with these people. I certainly hope that the waters during the interim are not muddied by untoward pressure upon our candidates and our lawmakers in the form of lobbying and most especially in the form of campaign contributions. I want your heads clear to really evaluate this. This is a critical moment in Alaska's history and so perhaps, not to be precipitous is the smartest thing to do and I thank you very much for this opportunity." Number 279 CHAIRMAN KOTT closed public testimony as there were no further people to testify. Number 292 REPRESENTATIVE KUBINA indicated that he had thought they were closer to a resolution that they are. He said he hopes everything works out until a year from now and he hopes that if the legislature doesn't do something, he hopes it doesn't cause a problem. Number 300 REPRESENTATIVE PORTER said he would echo Representative Kubina's comments. Number 320 REPRESENTATIVE SANDERS said he would agree with both of his fellow subcommittee members. He said he also thought that at the end of the last subcommittee meeting that they were a lot closer to a solution than they obviously are. Representative Sanders pointed out that the parties involved did say they would have to review the new bill. They did and then they came back. Everybody said they felt like progress was made, but nobody felt like enough progress was made. Number 353 REPRESENTATIVE MASEK moved to hold the bill until there are further rulings from the FCC. Work should also be done on the bill during the interim. CHAIRMAN KOTT indicated he appreciated the work done by the subcommittee and all parties involved. He said when the matter was sent to the subcommittee, his remarks were to the extent that he wanted to ensure that the product that would come out of the subcommittee would be the very best product for Alaskans. Based on the testimony he heard today, he believes it would be in the best interest of all the parties involved to retain this matter in the subcommittee. There is a work draft appearing as HB 501. He said he would ask the chairman of the subcommittee to continue to evaluate and look for middle ground to bring the parties together during the interim and come up with a product that everyone can agree to. Chairman Kott said there was a motion by Representative Masek to retain the bill in the subcommittee. He asked if there was an objection. Hearing none, the motion carried. HB 345 - PENSION INVESTMENT BOARD PROCUREMENTS Number 536 CHAIRMAN KOTT announced the committee would hear HB 345, "An Act relating to the procurement of investment and brokerage services by the Alaska State Pension Investment Board." The bill has been heard before and there were some concerns. Chairman Kott said there is a proposed committee substitute. Number 563 REPRESENTATIVE SANDERS made a motion to adopt the proposed committee substitute for CSHB 345(L&C), Version K, Bannister, dated 4/10/96. CHAIRMAN KOTT asked if there was an objection. REPRESENTATIVE NORMAN ROKEBERG objected. He said the 7 percent figure is still included in the bill and he objected to the original bill and will object to the committee substitute. Representative Rokeberg said he sees no reason to conduct further deliberations on the bill. CHAIRMAN KOTT indicated the committee is addressing Version K and the 7 percent figure has been omitted. REPRESENTATIVE ROKEBERG indicated he was looking at the wrong bill. He removed his objection. CHAIRMAN KOTT said Version K was before the committee. Number 624 GEORGE DOZIER, Legislative Assistant to Representative Pete Kott, came before the committee to explain the difference between the State Affairs Committee version of the bill and the proposed committee substitute. He explained the bill, as the Labor and Commerce Committee received it, directed the board to increase brokerage in investment services to the level of 7 percent in the state of Alaska utilizing state of Alaska businesses. Unless the board made a written finding that it was unable to meet this goal because there weren't sufficient individuals present in the state of Alaska with the requisite competency levels. Mr. Dozier said at the last hearing on the bill there was also a committee substitute that was before the committee which was not adopted. It went a little further by adding a subparagraph 11 which required the board to invest funds in the state of Alaska under certain conditions. There was a considerable amount of testimony by individuals who felt that this bill would undermine the fiscal integrity of the trust corpus. Accordingly, a committee substitute, which the committee members currently have before them, was generated. The new committee substitute directs the board to utilize investment and brokerage services in the state of Alaska, but only if the business can provide services without materially sacrificing the level of competency that is available or without materially increasing the cost of utilizing that particular service. It defines an in-state business as a business that is located in the state of Alaska and where the majority of its employees are located in the state of Alaska. MR. DOZIER explained the committee substitute goes further in that it directs the board to invest funds in state of Alaska investments, but only to the extent that these investments would have a risk level that is comparable to or more beneficial to the other beneficiaries of the trust as alternative investments that could be made. He pointed out this would only be to the extent that the in-state investments would have an anticipated yield that is as favorable to or more favorable than other alternative investments that could be made. He said that concludes his presentation. Number 764 REPRESENTATIVE ELTON asked if there is currently anything that stops the state from using an in-state brokerage or investment house if the yields are going to be greater. MR. DOZIER said he couldn't say for certain, but he believes that there is currently nothing in statute that would prevent that. Number 789 JOHN WALSH, Legislative Assistant to Representative Richard Foster, came before the committee. He said he has reviewed the committee substitute that is currently before the committee and has no objections to the changes made. REPRESENTATIVE KUBINA questioned the reason for the bill. He asked if a problem has been identified where the investment board is not investing at all in the state. MR. WALSH said he thinks of it more as more of an opportunity. This is an incentive to take a closer look at investment potential and investment services in the state. He said the tendency, which is understandable, is to go to professional services in some of the larger financial communities such as Chicago, New York, San Francisco and Seattle. While that is understandable in that the professional community and financial markets are there, he said it is less likely that they would look at investments in the state. It is going to be less likely that they package investments to be considered given that they reside out of state. Mr. Walsh said this is not uncommon in pension trusts throughout the nation, yet they have economically targeted investment motive to the pension fund or requirement. There has been testimony from the union in Alaska. This is clearly a requirement in their union trusts. Mr. Walsh said Section 11 is current law in the Alaska permanent fund investment fund, so it isn't unreasonable that it be included in the bill. He said he feels there are opportunities for establishing or utilizing brokerage services in Alaska. Given the age of communication and telecommunications, it is not unreasonable to begin the search for the use of local services and local investments. It is an opportunity to enhance the economy and circulate the money more than it currently is. Mr. Walsh said there is no interest in diminishing the integrity of the funds or unduly compromising the fiduciary responsibilities of the board. Number 923 REPRESENTATIVE KUBINA asked if Section 10 is also in the permanent fund requirements. MR. WALSH said not to his knowledge. REPRESENTATIVE ELTON asked what the meaning is of "without materially sacrificing competency or performance." MR. WALSH said he thinks the intent is, as he understands it, is to avoid what was characterized as a quota system in the 7 percent previous language. He said they didn't want to force the board to meet a minimum test, the 7 percent test, at the expense of signing on to less than competent or less than professional services. He said he thinks it more accurately defines the intent of the legislature. In other words, use it where possible, but don't diminish in any way what you'd normally require. Mr. Walsh said, "That keep you from having to do a quota test - 7 percent of transactions to - you know - looking at proposals before you from Alaskan firms unless otherwise incompetent you would consider using them." Number 1014 REPRESENTATIVE ELTON said in Section 10 it says, "In-state business means a business that is located in this state if the majority of individuals in the business to participate in providing the services to the board or locally in-state...." He said he would read that where Smith Barney could do that if the people who were providing were Smith Barney employees in Juneau or Fairbanks. You would be talking about local firms, but would be talking about national firms. MR. WALSH said he couldn't comment as the integrity of particular individuals and particular firms because Representative Foster's intent. The board defines requirements for the investment. He said he doesn't think they're going to diminish the investment grade just because the transaction is done in-state. If it is done in-state, the likelihood that local investments may be packaged or offered should increase. Mr. Walsh said he believes there are people waiting to testify via teleconference. He referred to Mr. Rose and said he understands that he is a capable investment counselor that could offer these types of services. Mr. Walsh said he doesn't think it is unreasonable to expect down the road that we develop this in-state with the Pacific Rim being the potential client base. This is something that could help anchor financial services in Alaska. Hong Kong has a deadline on its life expectancy with respect to free market operations. It is uncertain at any rate. To encourage this in Alaska is an opportunity that should be seriously looked at. Number 1204 REPRESENTATIVE PORTER referred to the competency language and said most of the businesses have data available on their return on investments and the (indisc.) costs that they take off the top. He commented that is the bottom line of competency. He said he would read it as saying that if that difference is too severe, they wouldn't have to buy into it. Representative Porter said he understands the concern about these kinds of these things, but he finds it interesting that the president of the state AFL-CIO said that their trust funds have these kinds of requirements and they like it fine. Number 1279 REPRESENTATIVE SANDERS said he doesn't understand what the bill accomplishes. He said there is nothing keeping these funds from currently doing these things. We're not telling them they have to do it, it is a suggestion. He asked Mr. Walsh what is being accomplished. MR. WALSH said, "It is possible for them to use these services now. It may be the power of suggestion through statute that helps them-- it--we can't give a bidders preference as you do in vendor services when the state procures computers or different capital needs. We can offer a preference because all parties would be offering the same specifications, a computer with such and such specs. So given that we're gonna get the same equipment, it is reasonable that we can give a preference that does business in Alaska. Professional services don't exactly have that same spec that we're not sure at the end what we will get. In other words, there is variability and so we can't offer, according to Legal, a bidders preference in an RFP package. So the next best thing is sort of incentive without, again, transgressing that fiduciary responsibility in the obligation, which none of us want to do. So I guess it's between moral persuasion an requirement. And we think that as the governor is working different political campaigns for marketing Alaska, we think this is a similar type of local business, persuasion, and we think it should yield, over time, results that help keep the classrooms full which, therefore, employs a teacher, helps keep our community wholesome. And I think, personally, that it helps root a financial community that I think is prime in a global market where it doesn't matter that you're commuting daily to Chicago or New York. You can do it tele-commuting and I think we're wise to suggest that - it is a (indisc.) industry and Anchorage is clearly a hub with this kind of necessary soil, in other words, to grow such crops and I think this is the beginning of our sophistication in the marketplace and I think it's a reasonable challenge for all of us to suggest and to encourage." Number 1433 REPRESENTATIVE ROKEBERG referred to page 3, line 3, "without materially increasing the cost to the board," and asked him to comment on the word "materially." MR. WALSH explained there is a fiscal note attached to the legislation from the Department of Revenue. It is their position that by slowing down the transactions, in other words, by going to a retail outlet or by backing away from block transaction, we could increase the transaction costs. He said "materially" may be a given, but we don't want to go any further than we have to in support of a local hire provision. Number 1485 REPRESENTATIVE ROKEBERG referred to line 13 and said Mr. Walsh mentioned that subsection 11 was similar to language in the permanent fund investment statute. He referred to there being a reference to (2) of this subsection, "are consistent with the investment policies established by the board under (2) of this subsection," and said (2) of this subsection says is the board will establish policies to make investments." Representative Rokeberg then referred wording on page 2, (2) "establish investment policies for the funds for which it is responsible after reviewing recommendations from the investment advisory council and the Department of Revenue." He asked if the permanent fund statute has a similar clause. MR. WALSH said he would check on the permanent fund language. He noted the reference to subsection (2) is unique to this bill because it is a certain statute which is referenced that is not in a permanent fund statute. He said it is arguable that they could have amended Section 2 to say the same thing, but other than the reference to Section 2, the language is identical to the permanent fund language. Mr. Walsh noted they have spoke to Mr. Mallott, Executive Director of the permanent fund and he indicated his is clearly pursuing that persuasion in his statute and is working with the local investment community. He said he is very interested and is looking forward to possibly packaging something with the community to the board for consideration. Number 1780 REPRESENTATIVE MASEK asked Mr. Walsh if he could respond regarding the current work draft, Bannister. MR. WALSH indicated he hasn't seen the current work draft. CHAIRMAN KOTT said what he thinks Ms. Bannister, drafter of the bill, is saying is she isn't sure if there is a problem or not. MR. WALSH said that was probably the hesitation in the first committee substitute, that it be left at 7 percent. He said he doesn't object to the modification. He explained he thinks what Ms. Bannister is raising is the potential for a conflict or repercussion in the definition of "in-state." REPRESENTATIVE MASEK said she would appreciate it if Ms. Bannister could address the committee at the next meeting on the measure. Number 1818 DOUGLAS MERTZ, Attorney, came before the committee to testify on HB 345. He explained he is an attorney in private practice in Juneau. Mr. Mertz told the committee that for the last four years he has represented a client who is a beneficiary of one of the trust funds administered by the state Pension Investment Board. The goal during this period is to educate and to remind the state Pension Investment Board of its duty as a trustee, mainly, its duty to invest solely for the best interest of the beneficiaries of this pension fund and for no other reason. Mr. Mertz said his concern with the previous version of the bill and the current version is that this may be the opening wedge for a classic pension fund raid, the kind of thing we've seen all over the country. Everyone of those raids on a pension fund, whether it is a large or small raid, has been justified on the basis that it's good for the beneficiaries. Mr. Mertz pointed out that even when the real design of the pension fund raid is to divert money from the beneficiaries or from the fund to someone else's pocket, that is the justification that is used. He said he thinks that is the way to fairly characterize this. Mr. Mertz referred to the current version of the bill and said the important thing is to look at the bottom line. If the bill changes the way the Pension Investment Board makes its investments now, and now it invests solely for the best interest of the beneficiaries, if it changes that then it does indeed violate the trust duty because that is the only concern that they are supposed to have which is solely the best interest of the beneficiary, in which case it would be illegal and a violation of the statute and the constitutional provision on public employee pension funds. Mr. Mertz said if it doesn't affect the way they do it, if they still would exercise their complete independent judgement on what investments are in the best interest of the beneficiaries, then it doesn't accomplish anything and you might as will not waste any of your time on it. MR. MERTZ reminded the committee that the last time that the state decided to act as if pension funds in its control were the state's own funds and were available for purposes other than the sole benefit of the benefit of the beneficiary group was with the mental health trust lands litigation. He said you don't want to do something here that is going to create litigation either by the beneficiaries or by people who think that the bill should give them something else out of this, for instance like the brokerage community in Anchorage. Mr. Mertz pointed out there are many beneficiaries of these trust funds and the people know that these pension funds are funds that they have earned and there is a legal duty to invest solely for their own interest. It is highly likely that if the Pension Investment Board is forced, by this bill, to change the way it invests some of those beneficiaries will not accept it and will decide that litigation is in order. He urged the committee to not move the legislation. Number 2085 REPRESENTATIVE ELTON said in listening to Mr. Mertz's testimony, he could almost make an argument that if we're going to do this, not to have a 7 percent cap because at least no more than 7 percent is at risk. MR. MERTZ said in a sense that is correct and in another sense a 7 percent cap would at least give some clarity, whereas in the current version, you can have litigation over what "materially sacrificing" means or some of the other terms. Number 2162 MILT BARKER was the next person to testify on HB 345. He informed the committee he is a public employee retirement system (PERS) beneficiary and a former deputy commissioner of the Department of Revenue. He said he would underscore the comments made by Mr. Mertz about the difference between this fund and other funds. He said we are talking about various funds under the supervision of the Pension Investment Board and these are trust funds. They are different in character from the permanent fund and the standards that apply are different. Mr. Barker said he would like to point out that within the bill there is a difference of standards, even within the proposed amendment to the statutes, that is the standards for brokerages and investment advisory businesses is that the use of such in-state firms must result in no material sacrifice of the interest of the pension fund and the beneficiaries. With respect to investment of funds, you have a different standard in which the criteria is that the investment would provide a performance yield equal to or better than other investment opportunities. Mr. Barker said what is really being said is that the use of in-state investment management services does not have to provide some positive or at least no detriment to the funds. He said he thinks that is the different in standards that should be addressed in the legislation. Mr. Barker said for the reasons Mr. Mertz indicated, he believes that these standards are in conflict with fiduciary obligations. He said with respect to the in-state investment he would like to give an example of what could be in conflict with the fiduciary obligations. Fiduciaries not only have to consider the cash flow from investments, but they need to take into account the cash flow from employer contributions. When you do that, you have to recognize that in-state investments could in their timing of gains and losses tend to produce losses at the same time that employer contributions would be under stress. For that reason, if fiduciaries are going to act in the best interest of the fund they would have to invest in Alaska less than they would in investments elsewhere. Mr. Barker said he thinks the legislation is unnecessary. [End of tape...] TAPE 96-36, SIDE A Number 001 MR. BARKER continued, "...about that could be affected because AHFC has recently initiated a multi-family mortgage program. It's for multi-family housing of five or more units and it does not have any income restrictions on it. This is something that has been a hurdle for many communities and many projects around the state - large or multi-family projects - that now has a potential source of financing. And I would -- I do have some copies of a news article relating to that that I can pass around if the committee is not fully aware of that. Thank you, Mr. Chairman." Number 158 DAVE ROSE, Chairman and Chief Executive Officer, Alaska Permanent Capital Management Company, testified via teleconference from Anchorage. He explained the organization he represents is a money management firm located in Anchorage. He said they deal with institutional investment only and not high network individuals or single individuals of any kind. Mr. Rose stated they only work in Alaska and currently manage a little less than $1 billion of Alaskan money, none of which is PERS/TRS money. He said ordinarily he wouldn't testify in favor of what he would call a compulsive piece of legislation. What we have in this case is a situation where the Alaska purchasing code allows a lot of discretion to the PERS and PERS operatives, with respect to how they bid work and conduct themselves. Unfortunately, what has happened is PERS and TRS folks have not exercised very good common sense. They have not recognized that they have come to realization that some Alaskan funds can be managed, in part, by Alaskans. Both common sense and less realization does not seem to have employed. Clearly, we have an out of balance situation and it cries for solutions in two ways, either the adoption of this bill or a change to the purchasing code which puts Alaskans on a more even playing field. MR. ROSE referred to the last fiscal year and said the PERS/TRS folks in the marketable debt area, the purchasing and sale of bonds, purchased and sold $3,324,418,776 worth of bonds. He said that is $3.3 billion and not one cent of that trade was conducted through Alaska. Mr. Rose said last fiscal year, the PERS/TRS board employed 19 money managers and not one of them was Alaskan. Last fiscal year money management fee by PERS/TRS combined was $11.8 million and none of that was expended in Alaska. Last year they hired special consultants and paid $56,000 and none of them were Alaskans. With respect bank custody, which is a securing of cash and securities, last year the PERS/TRS board spent $1,441,798. Not one cent was spent in Alaska. Mr. Rose informed the committee that currently the PERS/TRS operatives are entering into negotiations for contracts, that if indeed there is a problem in Juneau with respect to physical or personal ability to maintain the fund, those operations would move to San Francisco and nowhere in Alaska. Mr. Rose said he would like to speak to one thing about competence. He explained the firm he works for is a small firm which manages to do about 8 percent to 10 percent of its business in Alaska with Merrill Lynch, who has an institutional desk and does a fine job. He said most of their business is done out of Alaska, but they make it a point to give 8 percent to 10 percent of their business to local competent people can handle it. He said as money managers managing money for other folks in this state other than PERS/TRS, last fiscal year their most representative account earned about 17.25 percent audited. The PERS/TRS return was 15.89 percent. He said last year his firm earned 1.36 percent better than PERS/TRS, and overlaid on a $6 billion fund, his firms strategy would have returned $81.6 million more for PERS/TRS than the firms outside of Alaska. MR. ROSE referred to banks and said nearly all his firm's clients in Alaska use either National Bank of Alaska Trust or Key Trust services. They do an excellent job. They don't have fails on the transactions and they move hundreds of millions of dollars for his firm and probably hundreds of millions of dollars for pension funds (indisc.). MR. ROSE referred to financial consultants and said he thinks that some of the people who made themselves available to the one RFP last year, he and Bill (indisc.) who have handled millions of dollars didn't even make the preliminary cut. Mr. Rose said he believes that what we've had is a realization of a total imbalance and loss of common sense with respect to how you deal in the Alaskan community. There are other agencies that use that common sense. While Alaskans don't get huge amounts of business, they do get tossed a bone. These folks would rather deal outside. Mr. Rose explained the solutions are: (1) Adopt HB 345; (2) amend the purchasing code; or (3) change some attitudes of how these folks operate. We are all Alaskans, we have some real competency and we deserve a shot to at least compete for contracts. He thanked the committee for listening to him. Number 657 STERLING GALLAGHER, President, Sterling Limited, was next to testify via teleconference. He explained he currently does a slightly different service than what is being talked about regarding HB 345, but he has some experience having been the commissioner of the Department of Revenue during 1974 to 1979. Mr. Gallagher explained that 1974 to 1979 was the pipeline construction era. We didn't have any savings in the savings industry in the state at that point in time. We had $100 million in the savings industry and AHFC and AIDA wasn't up and running. Mr. Gallagher said he used up to 25 percent of the pension funds to make investments in the state. He indicated he got political pressure. He said there was losses of $1 million, but it worked out to be a quarter of 1 percent. The overall results of the funds was that we were the number one fund earning in the United States. There were high earnings on fixed income and there was extraordinary high earnings in our stock (indisc.). While you make investments in Alaska, you can also make strategies in other places. One of the failures with investment management in this state over the last 20 years is that we have a tendency to put procedure over responsibility. We make it very cumbersome procedurally, but if someone screws up, we don't ever fire them. Mr. Gallagher said he thinks it is far more important that we turn the clock back and make people more responsible. He said, "Under this sort of arrangement here, you're gonna hire Alaska firms. If they screw up, they're going to be screwing up in their own back yard. It's gonna be very personal for them. They're gonna do you a damn good job. I can assure you of that." MR. GALLAGHER said, "The other reason this hurts me - the whole need for this legislation - I had a financial advisory service in this state who in six years there was two RFPs to bid on with state government. One, I misplaced it and the other one I just wasn't a big enough firm to beat against the outside firms. Since that time, I've been able to be hired by the University of Moscow to -- in Russia -- hired by the government at India, been hired by the City of Socking (Sp.?), I have had to move out some of my operations out of this state all because you don't get an opportunity here and it really hurt. We've come back to Alaska to say, `Wake up guys, there are some competent people here who could provide this service and they should be given an opportunity to work here.'" Number 839 REPRESENTATIVE ROKEBERG said there has been testimony in the past that one of the concerns about hiring local brokerages and money managers is that they have not been able to get large block training discounts on large blocks of stock when you're dealing with security transactions. He said Mr. Rose mentioned that he used the Merrill Lynch institutional desk and so forth. He asked Mr. Rose if his firm is able to get large block trading discounts as far as his direct dealing with member brokers on the New York Exchange. MR. ROSE said his firm is able to get what they consider to be the best possible pricing. He said they look at the same screens that the people on Wall Street look at. He said, "There aren't many cases where we have to go outside to get the very best pricing, but there are cases when we know what we wish to pay or wish to receive for a purchase and sale, which is on the screen, and if you call your local Merrill Lynch institutional folks up here and they can match the screen price, then they get the deal. And that is exactly the kind of deal that we get from anyone else in the country. So that we know the prices and if these folks up here can get into their trader, it should be available." MR. ROSE told Representative Rokeberg he has looked at the fiscal note and almost gagged. He said he thinks it is ridiculous to say you have to spend $125,000 to figure out who you're dealing with and what the costs are. The fact of the matter is that the $3 billion in marketable debt is transacted by two or three people within the treasury. He said he thinks that those people, in dealing with that $3 billion, can spread some of that business around. He said he wouldn't get it because he isn't in brokerage, but if he can find 10 percent of the time to give money to Merrill Lynch locally, PERS/TRS could do the same. Number 973 REPRESENTATIVE ROKEBERG asked Mr. Rose, with the exception of his firm, how many other money managing firms are in the state of Alaska that his company competes with. He noted there is McKinley Capital Management and Mr. Godstein has a firm. MR. ROSE said, "Actually, because I do more fixed income rather than stock, I really compete against National Bank of Alaska and Key Trust. Godstein and Gillum are McKinley both equities folks and while we have about $60 million in equities, we don't offer the same service as they do. So there are essentially five major entities. CHAIRMAN KOTT said the HB 345 would be held until the following day. ADJOURNMENT CHAIRMAN KOTT recessed the House Labor and Commerce Committee meeting until 2:00 p.m., April 18, 1996.