Legislature(1995 - 1996)
04/24/1996 03:12 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 24, 1996 3:12 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 CONCURRENT RESOLUTION NO. 35 Relating to support for the Alaska Community College system within the University of Alaska. - PASSED CSHCR 35(L&C) OUT OF COMMITTEE HOUSE BILL NO. 345 "An Act relating to the procurement of investment and brokerage services by the Alaska State Pension Investment Board." - PASSED CSHB 345(L&C) OUT OF COMMITTEE (* First Public Hearing) PREVIOUS ACTION BILL: HCR 35 SHORT TITLE: SUPPORT FOR COMMUNITY COLLEGE SYSTEM SPONSOR(S): RULES BY REQUEST JRN-DATE JRN-PG ACTION 04/18/96 3843 (H) READ THE FIRST TIME - REFERRAL(S) 04/18/96 3843 (H) LABOR & COMMERCE 04/24/96 (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 04/17/96 (H) MINUTE(L&C) 04/18/96 (H) L&C AT 2:00 PM CAPITOL 17 04/18/96 (H) MINUTE(L&C) 04/19/96 (H) L&C AT 3:00 PM CAPITOL 17 04/19/96 (H) MINUTE(L&C) 04/22/96 (H) L&C AT 3:00 PM CAPITOL 17 04/22/96 (H) MINUTE(L&C) WITNESS REGISTER ERIC MUSSER, Legislative Assistant House Majority Alaska State Legislature Capitol Building, Room 116 Juneau, Alaska 99801 Telephone: (907) 465-3720 POSITION STATEMENT: Gave sponsor statement for HCR 35. WENDY REDMAN, Vice President Statewide University System University of Alaska P.O. Box 155000 Fairbanks Alaska 99775 Telephone: (907) 474-7311 POSITION STATEMENT: Testified on HCR 35. RALPH MCGRATH, President Alaska Community College Federation of Teachers 2533 Providence Drive Anchorage, Alaska 99508 Telephone: (907) 562-2666 POSITION STATEMENT: Testified in support of HCR 35. ERIC LEEGARD, Teacher University of Alaska - Southeast Alaska Community College Federation of Teachers 11120 Glacier Highway Juneau, Alaska 99801 Telephone: (907) 465-8787 POSITION STATEMENT: Testified on HCR 35. ARNE J. LYSHOLM, Teacher University of Alaska - Southeast Alaska Community College Federation of Teachers 211120 Glacier Highway Juneau, Alaska 99801 Telephone: (907) 465-8777 POSITION STATEMENT: Testified on HCR 35. CHUCK WADE, Faculty Member University of Alaska - Fairbanks Alaska Community College Federation of Teachers 121 Akiak Street Bethel, Alaska 99559 Telephone: (907) 543-4580 POSITION STATEMENT: Testified in support of HCR 35. BOB STORER, Chief Investment Officer Treasury Division Department of Revenue P.O. Box 110405 Juneau, Alaska 99811-0405 Telephone: (907) 465-4399 POSITION STATEMENT: Answered questions on HB 345. ACTION NARRATIVE TAPE 96-40, SIDE A Number 001 The House Labor and Commerce Standing Committee was called to order by Chairman Pete Kott at 3:12 p.m. Members present at the call to order were Representatives Porter, Masek, Sanders, Elton and Kott. Representative Rokeberg arrived at 3:15 p.m. and Representative Kubina arrived at 3:38 p.m. HCR 35 - SUPPORT FOR COMMUNITY COLLEGE SYSTEM Number 057 CHAIRMAN PETE KOTT announced the first order of business would be HCR 35, "Relating to support for the Alaska Community College system within the University of Alaska." ERIC MUSSER, Legislative Assistant, House Majority, Alaska State Legislature, read the sponsor statement into the record on behalf of Representative Gail Phillips: "HCR 35 was introduced in order to put focus on the issue of the merger, in 1987, of the Community College System with the University of Alaska. "This resolution confirms the opinion of many in the legislature who feel that the community college mission is not being served as it should be under the current university structure. While positive things have occurred since the restructuring, we have also seen a decline in the opportunities in vocational and developmental educational programs, which should be an integral part of Alaska's global higher education offerings. "We don't wish to detract from any of the positive movements made in recent years by the University System; however, we want to try to bring common programs, from throughout the state, together. This Resolution is not asking to have a separate community college. It is merely asking the Alaska Commission on Postsecondary Education to develop a plan for restoration of a community college system within the university, under guidance from the Board of Regents, to keep the linkage between the two institutions, and also to protect the individual missions of each sector. "Further, there is still a cultural difference between those programs that serve community college type students and those programs that serve either associate or bachelor's degree type students. There is a vast difference in faculty, students, purpose and mission and since the merger, it's been very difficult to bring those two cultures together. The typical community college student is older, usually married and often working full-time. Those students require a different kind of counseling and teaching style than other degree seeking students. "There was a commitment by the Board of Regents at the time of restructuring to maintain the community college mission. The enrollment numbers indicate that something is not working according to that commitment. As the university has been struggling to meet its financial needs, it has been raising tuition. While we are on par with the national average for university tuition, we are way over the national average in community college tuition and it's becoming a major problem. "If we are able to pull the community colleges all together to provide them the ability to develop a quick response to community education needs as the community colleges are supposed to, without going through the University curriculum process, it would allow us to develop processes which are far more appropriate for both lower division and vocational education courses. "This resolution is both timely and necessary and I would encourage and appreciate its passage." Number 335 REPRESENTATIVE NORMAN ROKEBERG referred to the statement made by Mr. Musser where the University of Alaska system is on par with the national average for university tuition and said he thought they were below the national average. Number 366 WENDY REDMAN, Vice President, Statewide University System, University of Alaska, said that they are right at the national average for universities. Number 400 RALPH MCGRATH, President, Alaska Community College Federation of Teachers (ACCFT), was next to come before the committee to testify in support of HCR 35. He informed the committee members that ACCFT represents approximately 260 faculty who teach the community college programs. For many years, they had the distinction of representing 12 accredited community colleges around the state and during that period of time, they developed a system of education that made sense for the state. He said he thinks the system was particularly sensitive to the community college student. Mr. McGrath explained community college students tend to be older students, people who have been in the workplace, individuals who are returning or are wishing to return to the workplace, and they like an environment that has open access. Issues like lower tuition is one of the benefits of that accessibility. The focus that the community college has had on vocational technical is important. MR. MCGRATH explained he has been with the university since 1967, when he first taught at the Sitka Community College. He noted in the 1970s he taught at the Anchorage Community College. He emphasized that there has been a significant erosion in that commitment to the community college. The 1987 merger, while proclaiming many different reasons for its necessity, one of the consequences has been that the administration of the community college was wiped out. Within two years, no community college administrator remained at the university. He said there hasn't been a direction or focus that the community college has value, and in that vacuum, what is developing more and more is kind of university orientation. He said ACCFT thinks there is a place for both community college and the university and they believe the board should be sensitive to that. The study being requested of the Postsecondary Commission could point out the need to restore the community college focus and it would give the university that direction. Mr. McGrath noted there is a report in the committee member's file that identifies some of ACCFT's specific reasons for thinking the resolution is timely. He noted Representative Rokeberg supported an open letter to the Board of Regents calling for a statewide community college system. Number 681 REPRESENTATIVE ROKEBERG said he thinks he made statements supporting the community colleges earlier in the year. MR. MCGRATH said that is correct. CHAIRMAN KOTT asked Mr. McGrath what he sees as the major distinguishing factor between the community college and the normal type universities. MR. MCGRATH said for the students, the focus is the accessibility and the focus that teachers place on teaching. He said they have a heavier workload in terms of a workload to focus on teaching. Mr. McGrath explained they don't get releases for research. When he came to Alaska, he was involved in hiring because he was in an administrative position, and when they hired they always focused on getting teachers who liked to work with students. That relationship is very important. Another focus is the orientation to be a part of the community. He said he thinks the saddest thing about the merger, visually, was that the university had to go around and, "paint an Anchorage green over community." When they took the "community" out of "college," they took a lot out of the focus. The job retraining types of programs are community oriented and you're working with the community. That is not a focus of the university. The focus of the university is write a book or do research. Number 973 ERIC LEEGARD, University of Alaska - Southeast (UAS), Alaska Community College Federation of Teachers, came before the committee to testify. He informed the committee earlier in the day he spent time meeting with the Academic Restructuring Committee where Marshall Lind announced what the structure for the next year will be. Mr. Leegard said he spent this year working on this committee and he is the sole member of the committee that would like to see more efficiency in the system. Mr. Leegard said, "The way it has filtered out - basically next year is going to be ruled by the committee instead of our department head, or this year she is called acting director, interim director. She will be an assistant or associate dean reporting to the dean of faculty who reports to the vice chancellor of academic affairs who in turn reports to the chancellor." MR. LEEGARD explained it is very frustrating working within this system. He said they spent a year developing an academic model for how a university should work and it's extremely inefficient. He said he was the only one on the entire committee pushing for the chancellor to take the leadership role so things would be done efficiently. Mr. Leegard noted he is a former naval officer and the philosophy is get it done. He referred to the new structure and said they can't go up or down. The faculty is down at the bottom and they will all be sitting around a large table with a representative from each of the different schools to hash out the problems of the institution. It will then go to the dean. Mr. Leegard said the administration of the university is academic in nature just because of the thought process of the administrators and the faculty that teach academic courses. It is not cost efficient at all. There are going to have to be work releases in order to maintain the labor for this. MR. LEEGARD explained when he was hired in 1978, it was a community college system and when you had a problem, you simply went to the president of the campus and it was solved. He said he is speaking with frustration of the inefficiency of the university versus the community college system. Number 1154 ARNE J. LYSHOLM, Teacher, University of Alaska - Southeast Alaska Community College; Federation of Teachers, said he teaches automotive technology. The community college is something that serves the people. The university also serves the people, but it is a higher grade up. He said there are problems across the United States. Mr. Lysholm said, "Where are we getting the work force to take care and help you guys in the end? Community College is what that boils down to. It is the next step from the high school. But the thing is, as a typical example, has anybody been to a repair shop and had their vehicle repaired? What's your frustration afterwards? You'd be forking a lot of your own personal money and you come back and say, `My car is not working.' The community college, as the typical example, it is the kind that is geared toward your help in the long run. Universities in some ways are but not to that respect. So the reason why I'm saying this is I'm also an educated automotive technician from Norway and I can't go any higher in my trade, but I'm stuck where I am right at the moment, but I love teaching and I love the students - and I love the students. I've got some people that I call students, (indisc.) 72 years old that's coming in and having a ball because they figure that `I've been a lawyer, I've been a judge, I've been whatever,' and they come in just to learn something to find out that hey, this was worth it. But this is not university, that's a community college level thing and they think they are having a ball. So in the end, you guys are going to get to that stage of the game too. The reality is there, but the thing is community college, we're gunna have to put some more emphasis on that because it's going to serve you guys the same as us. So I think what you're saying that for in 1987 - I'm totally right on that - you're totally right on that so -- but this is just something to think about real hard because I know if we just keep on going up, you're going to find out that the split between the person who has got an education and the person who is trying to get an education is going to be worse and the foreign debt is going to be a lot worse in the United States than you realize because we're the people who is making the foreign debt lower. Look at that in the end too. That's just something to think about. Thank you." Number 1320 WENDY REDMAN, Vice President, Statewide University System, University of Alaska, came before the committee members to give her testimony on HCR 35. She pointed out she was the vice chancellor for the Community College Division for 12 years from the time of its inception until the time of its demise at the time of the restructuring. She stated she comes from the community college background. The vocational programs within the statewide system are under (indisc.) currently, so she has a great deal of conflict regarding this legislation. Ms. Redman stated she is not in attendance to speak against it. She said she believes that much of the information that the committee has been presented with by Professor McGrath and others is correct. She said we have seen, over time, a loss of part-time student enrollment. There has also been a significant drop in vocational enrollments. The cause of that is not clear to a lot of people. Ms. Redman said she tends to think that one of the primary causes is cost. The tuition for our community colleges has risen along with our universities and we're frankly just costing people right out of the market at this point, especially part-time students. It is a tremendous problem. It currently costs about $300 to take one class which is high. MS. REDMAN explained she spoke to the Board of Regents the previous week about the HCR 35 and their first reaction was, "We don't want anybody telling us how to run things." The board feels strongly that they have tried hard to preserve the community college mission and, in fact, they have done a lot to try to do that. During the current program assessment, they directed the chancellors to reallocate $500,000 into community college and vocational programs. Ms. Redman said she thinks there is a difficulty between the cultures of a university and a community college and there continues to be some problems with that. She said she thinks a study, as called for in HCR 35, would be helpful. Ms. Redman said the difficulty they will have is it will be very easy for them, today, to recreate the cree (?) system for every campus except for Anchorage. She pointed out community colleges and universities have a tremendous amount of overlap at the Freshman/Sophomore level and both offer english, history, etc. In Anchorage, those have been completely integrated on the same acre. How they would deal with that, she simply doesn't know. That would be something that would come out in this kind of a study. Ms. Redman explained the chancellor in Anchorage feels very strongly that pulling his campus apart would destroy all of the advantages that have been made. As pointed out in the Speaker's statement, there have been many many pluses because of the restructuring, including the elimination of transfer problems. While the overall enrollment, for the system as a whole including part-time students, has declined and varies dramatically from campus to campus. The enrollments in the southeastern region have enormously increased and part of that was because of the restructuring. They have a much closer working relationship. She said it is a complicated system when you look at it system wide. MS. REDMAN referred to the "Whereas" clause on page 2, lines 6 through 8, and said the statement that the cost savings didn't occur is simply not true. She said there was a legislative audit done. That is the kind of inflammatory statement that she thinks might detract from their ability to get people to work towards this. She referred to the second part of that clause which states that the community college programs have been diminished and said it is covered in the other "Whereas" clauses. She urged the committee to remove it. The cost savings from the restructuring were very real as they saved nearly $6 million just in administrative costs. She said 80 administrative staff people were laid off. Not a single faculty member was laid off. She said the legislative audit is available to the committee and she would provide copies if they wished. She request that "Whereas" clause be eliminated. Number 1580 REPRESENTATIVE BRIAN PORTER asked Ms. Redman if it is true that prior to the consolidation, an instructor at the community college taught four classes a week, but as soon as they were integrated into the university, they could only teach three a week. MS. REDMAN explained it depends on the campus. In Anchorage, the faculty had retained essentially the same workload. In the northern region, however, the faculty did drop down immediately after the restructuring. She noted that until last year, and maybe even currently, they did drop down from four to three classes. In Southeast, it may have stayed the same as well. REPRESENTATIVE PORTER questioned why it would be different from one region to another. MS. REDMAN explained the campuses are individually accredited and they have different cultures. Fairbanks is considered nationally as a Doctoral institution. After the restructuring they insisted that all of their faculty, including the newly restructured faculty, take on a research workload whether it was appropriate or not. Number 1630 REPRESENTATIVE GENE KUBINA said the Prince William Sound campus is the only campus that contributes substantially to its operation. He said he thinks they put in about 35 percent. He asked if that would have any bearing, whatsoever, on reestablishing a community college system. MS. REDMAN indicated there shouldn't be any bearing. Valdez and Ketchikan also contributes to their campus. She said there would be some problems which would have to be worked out and assumed that would be part of the plan. She said they couldn't recreate cree (?) in the same way that it was. There simply isn't $6 million to do that, so the plan would have to be sharing of some administrative costs with the university centers. Number 1734 CHUCK WADE, Faculty Member, University of Alaska - Fairbanks (UAF), Alaska Community College Federation of Teachers, came forward to give his testimony. He said much of what he was going to say has already been said. Mr. Wade explained he taught ten years under the community college system and is completing his ninth year under the university system. Those who have been around for awhile have taught under both structures have had several analogies that they have used to describe what has happened to them. In fact, what they thought would happen to them has happened to them. For some reason they seem to be animal related - the big fish eating the little fish - being absorbed by UAF. He said he wrote down two columns of terms of the before and after types of things that have occurred. Mr. Wade said they were Kuskokwim Community College, one of 12 or 13 accredited colleges. Now they are Kuskokwim campus and are one of six units that is represented within UAF by the rural college which is then part of thee other units in the university. He pointed out that they were teachers and now they are professors. The leadership of the units were called presidents and now they're directors with one exception. The focus and direction was all local in terms of hiring, programs and purchasing. That is currently all centralized and everyone looks to the north in terms of community and vocational education. That was part of their instruction at the college. Mr. Wade said Ms. Redman is right. One day he was a teacher and the next day he was a professor. He said he went from teaching four classes a semester to five classes a year - three one semester and two another. That has gradually eased back, but it is still not four classes a semester. So the workload was reduced. Currently at Kuskokwim, what they have for community education or vocational education is handled by one non- faculty person who has a very popular program. It is all noncredit with zero faculty assigned to that program. MR. WADE said he believes the legislature intended for the university to continue with the community college mission. It just hasn't happened. The experiment hasn't worked. As it has been said, Alaska needs the kind of skills that are produced by people who come through the community college systems. He said there was a lady from the local welfare association who visited a meeting the other day at Kuskokwim and she said as she understood the welfare reform, they were going to be sending more and more people to the college. He said his thought was, "What are we going to do with them?" He thanked the committee for listening to him and urged support for HCR 35. Number 1922 CHAIRMAN KOTT said there was a comment made by Ms. Redman where one of the "Whereas" clauses should be removed from the resolution based on it being inaccurate. He asked Mr. Musser to respond. MR. MUSSER said while the sponsor would not oppose the wishes of the committee, she would not be very favorable of striking that clause unless the committee feels it is an inaccurate statement. As Ms. Redman testified, you can very validly make the argument that administrative costs have been reduced since the merger, through reductions in administrative staff. However, the statement really is reflective on the overall costs of the system since the merger, and the overall cost to the system has really just continued to grow year after year since the merger; therefore, that statement is really just a recognition of that fact. Number 1978 REPRESENTATIVE ROKEBERG suggested deleting the first portion and leaving in, "the community college mission and programs have been diminished;". REPRESENTATIVE PORTER suggested adding "overall long-range cost savings" between "the" and "cost". It would then read, "WHEREAS the legislature is aware that the overall long-range cost savings anticipated in the 1987 consolidation..." MR. MUSSER said there would be no objection to that wording at all. Number 2025 CHAIRMAN KOTT asked if there was an objection. Hearing none, the amendment was adopted. Number 2035 REPRESENTATIVE JERRY SANDERS made a motion to pass HCR 35 out of committee with individual recommendations. CHAIRMAN KOTT said there is a motion to pass CSHCR 35(L&C) out of committee. He said with Mr. Musser's concurrence, the committee would write a zero fiscal note. He said he would amend Representative Sander's motion to include the zero fiscal note. CHAIRMAN KOTT asked if there was an objection to moving the resolution. Hearing none, CSHCR 35(L&C) was moved out of the House Labor and Commerce Committee. HB 345 - PENSION INVESTMENT BOARD PROCUREMENTS Number 2078 REPRESENTATIVE ROKEBERG made a motion that the committee rescind their action in failing to move out of committee CSHB 345(L&C). CHAIRMAN KOTT asked if there was an objection. REPRESENTATIVE ELTON objected. REPRESENTATIVE KUBINA asked that the motion be restated. CHAIRMAN KOTT said the motion, as he understands it, is to rescind the committee's action in failing to move from committee HB 345. Number 2118 REPRESENTATIVE ELTON said he would like to have some discussion of why the committee finds it necessary to do this. REPRESENTATIVE ROKEBERG indicated there was a minuscule quorum and the whole committee didn't have the opportunity to participate in the decision during the last meeting which required the totality of members to be able to move the bill. REPRESENTATIVE ELTON said the overwhelming testimony that was heard was opposed to the bill. He said he thinks the best testimony the committee heard was from Mr. Dave Rose who said the best solution is not this, but it is a change in attitude. He said he isn't sure the legislature should be in the practices of changing attitudes by passing statutes. CHAIRMAN KOTT said in essence what they would be doing is trying to change an attitude that currently exists. REPRESENTATIVE ROKEBERG said the committee did adopt an amendment that removed the former Section 10. Number 2193 REPRESENTATIVE BEVERLY MASEK said then there is no need for the bill. REPRESENTATIVE ROKEBERG explained Section 11 remained and was renumbered as Section 10. It does make a statement as to their ability of making in-state adjustments. He said in essence, it is a "jawboning" bit of statutory language which there was testimony that it was part of the permanent fund specifications in terms of their charge. CHAIRMAN KOTT asked Representative Elton if he still maintains his objection. REPRESENTATIVE ELTON said he does maintain his objection. A roll call vote was taken. Representatives Sanders, Masek and Elton were against the motion. Representatives Porter, Kubina, Rokeberg and Kott were in favor of the motion. So CSHB 345(L&C), as amended, was back before the committee. Number 2221 REPRESENTATIVE ROKEBERG made a motion to move CSHB 345(L&C), as amended, out of committee with individual recommendations and the attached zero fiscal note. REPRESENTATIVE MASEK objected. REPRESENTATIVE ELTON said he understands the motion, but doesn't understand the zero fiscal note. He said he has a fiscal note but it is not a zero fiscal note. Representative Elton asked if somebody could explain to him why the bill is being moved with a zero fiscal note. Number 2248 CHAIRMAN KOTT said that is a good point. He said to Representative Rokeberg that he would entertain a new motion. Even though it is a wash, there is a fiscal note to it. REPRESENTATIVE ROKEBERG said he agrees, but noted the fiscal note relates back to the 7 percent solution and the other section has been removed from the bill. He said that is the reason he made the motion with a zero fiscal note. REPRESENTATIVE PORTER suggested asking the Department of Revenue for a new fiscal note before the bill moves on to the Finance Committee. Number 2308 BOB STORER, Chief Investment Officer, Treasury Division, Department of Revenue, came before the committee. He said the Treasury Division does provide the staff for the Alaska State Pension Investment Board. He said with the old Section 10 being excised from the bill and the new language, which talks about the comparable risk and comparable yield, would make it a zero fiscal note. The costs of the prior fiscal note were to evaluate the trading costs to see if there would be an impact on the legislation. The only possible costs would be a consultant that was uniquely qualified to evaluate Alaskan investments. Mr. Storer noted he doesn't see that as being an issue. REPRESENTATIVE KUBINA asked Mr. Storer what he thinks the bill does with only the one section and he also asked how it will change things. He asked Mr. Storer asked him if he still looks at the bill as a bad policy to look at Alaska when everything else is equal, the risk is the same, the yield is the same, etc. MR. STORER said, "The problem he has philosophically is that anytime you articulate what is essentially policy by statute, then I think you've created a bad situation for bad policy. No one on the board or myself would quibble with the intent of this language and think that there are potential opportunities in Alaska. And so - would not quibble with the essence of it. This language is, however, and it was mentioned before, sort of classic language for economically targeted investments. And well some large funds do use economically targeted investments and study ice on, only one study but I think it's a very good study, suggests that 83 percent of larger public funds -- public funds with assets in excess of $1 billion do not use economically target investments. So it's not the norm - this kind of language. It is consistent with the permanent fund, but again, the permanent fund is different. They don't have that liability stream, the best interest, the plan and the beneficiaries in my... I think the board is very interested in seeking opportunities and investing in Alaska at the appropriate time. They've spent over a year trying to develop a real estate policy and they're meeting tomorrow and Friday and I expect them to increase their asset allocation to real estate from 2 to 8 percent at this meeting as an example. So I think that I have no quibble with the intention. I think it's consistent with the board's desires. I have had a problem with policy by statute. I have one concern and I kind of heard it here earlier. And I want to emphasize this is a personal opinion and I'm not speaking for the board or Revenue or anything like that. This question of attitude, and it's been disappointing when one thinks that we don't have a proper attitude towards Alaska. We do have a brokerage policy that allows 30 percent of the commission's dollars in equity trades are made available to firms -- to the Alaskan offices. They don't get that much but we try to develop some policy. So it's always disturbing when you try to do things that's not perceived as positive. The personal opinion is that this kind of language could theoretically, or my concern is that it could create false expectations. Risk--comparable risk, comparable yield, at times whether you're a buyer or a seller, you have distinctly different points of view. And so I have a personal concern that this type of legislation would create false expectations. We say those yields are inconsistent - risks are inconsistent...." [END OF TAPE] TAPE 96-40, SIDE B Number 001 MR. STORER continued, "...or people that have investment opportunities would disagree and would perpetuate what I think is unfortunate - this attitudinal point of view. I hope I didn't wander too much, but I hope I answered your question." REPRESENTATIVE KUBINA referred to if the bill were to become law as it is currently written, and asked Mr. Storer if it would force him to do anything that he really doesn't want to do or if it would be imprudent. MR. STORER said the bill doesn't force the department to do anything and it still makes them evaluate whether it is appropriate risk, appropriate yield and one could call it encouragement or recognize that need. There may be a more rigorous test of proving whether something is or is not of comparable risk/comparable yield. Embedded in risk is liquidity issues -- Is it something that has a comparable yield? Is it appropriate liquidity measure? It is things like that could get into sort of prolonged issues and things like that. Number 048 REPRESENTATIVE ELTON said they could currently do everything that is envisioned with the passage of the bill. MR. STORER said that is correct. REPRESENTATIVE ELTON said he is somewhat concerned that we've taken the percentage out. He said he may feel more comfortable with the percentage left in. Representative Elton said he is interested in Mr. Storer's reaction to whether or not there should be a cap. MR. STORER said he believes that by eliminating the percentage would be better policy because then it is less forcing an issue. The markets and opportunities would dictate what you do. Number 082 REPRESENTATIVE ROKEBERG asked if it would be advisable sometimes when a portfolio allocation model is sometimes has a very small percentage for a small cap component. He said for example, in a large retirement pension wouldn't it be suitable to have a small component of a small cap allocation. MR. STORER said, "Yes and, in fact, we do evaluate the portfolio from a large cap expected return, volatility measures and small cap. We segregate those issues as well as other asset classes." REPRESENTATIVE ROKEBERG explained the reason he brought this up is because there is a small money management firm in Anchorage which was featured in Forbes magazine that actually specializes in small cap on a (indisc.) basis. He said their fees are probably a push because they're inclusive type fees. If we had the desire to have a component of a small cap and it would fit in, there would be no reason you couldn't go to that group as well as Mr. Rose's group who specializes in fixed income investments quantitative of the equity. Representative Rokeberg said there are opportunities out there that could be explored and he believes that is the intent of the bill. REPRESENTATIVE ROKEBERG said the state ombudsman issued a recommendation to the Speaker and the President of the Senate this year that said all unwritten policies of the state should either be in regulation or in statute, so that there is a clear understanding on the part of the public of what our policies are. He said he believes this bill does that. REPRESENTATIVE ROKEBERG said the department should be aware that the legislature is past the ninetieth day of the session, so whenever there is a fiscal note requested, they have two days to get the fiscal note issued. Number 173 MR. STORER informed the committee he worked for Mr. Rose for nine years and he has the highest regard for him personally. Mr. Storer said he has been following his progress and success in his new firm very closely and has a lot of contact with his firm. He said he is aware of two equity managers. One is the one Representative Rokeberg referenced that uses quantitative methods to structure a portfolio. Mr. Storer said he hasn't been contacted by this firm. He said he would like to monitor their progress and would not like to read about it in Forbes. He would like to know quarterly how they are doing and what they are doing. Mr. Storer said there is a real estate firm that has also made a presentation. We have stay abreast of what the money management firms are doing. MR. STORER referred to Representative Rokeberg's point on regulations or statutes and said, "What we do and one of the reasons it's been a pleasure working with this new board is I think public money should be managed publicly, and since the creation of this investment board -- as a matter of fact Dave was my mentor, Mr. Rose, and I brought a lot of his views with it and that is to do everything by resolution. Well, it's not regulations, we do everything by resolution. We vote it publicly and then they're available for those to see and that includes the asset allocation." Number 245 REPRESENTATIVE PORTER said he appreciates Mr. Storer's comments about policy and statute. He said to the extent that overall direction is policy and overall direction, he believes, is the responsibility of the legislature. Representative Porter asked Mr. Storer if he would have a problem following the law if that gets into statute. MR. STORER said he absolutely doesn't have a problem with following the law. Those are the rules of the road and they would do everything they could to ensure that they're followed. Number 275 CHAIRMAN KOTT referred to the current version of the bill and asked Mr. Storer if in his opinion will have a negative effect on the retirement funds. MR. STORER said, "There is nothing in this legislation, if we do our job appropriately and thoughtfully as we have done, that would have a detrimental effect to the management of the retirement system." Number 304 REPRESENTATIVE ROKEBERG made a motion to move CSHB 345(L&C), as amended, out of committee with individual recommendations and a zero fiscal note. REPRESENTATIVE SANDERS said he would object to make a comment. He said he has a great deal of respect for Mr. Rose and all the financial organizations in Alaska. However, he doesn't think that the bill does anything. He believes the bill in its current form is the most "do nothing" bill he has seen in four years. He said he doesn't think it will be the way it currently is the next time the committee members see it. Representative Sanders said it reminds him of the dairy farms, grain elevators, the pork processing plants and everything else. When a big mistake happens, they'll be able to point back and say, "Well we're the guys that told em to." Representative Sanders said he isn't going to vote to move the bill, he isn't going to vote for it on the floor and he isn't going to tell them to. He said if they want to do it, they can do it today without the bill. There is no reason to pass this bill. CHAIRMAN KOTT indicated that Representative Rokeberg indicated earlier that there was a memorandum from the ombudsman to the Speaker and the President of the Senate that there should be clear policy either by regulation or statute. Number 373 REPRESENTATIVE ROKEBERG said one of the reasons he is going to vote to move the bill out of committee is that there has been some wags in the legislative halls that have indicated that a bill he introduced was the biggest turkey bill during session and he.... REPRESENTATIVE ELTON said he would echo what Representative Sanders said. He said he also said it is important to note that he is much more comfortable. It was explained clearly how this board deals with this by resolution so that there is a record, they establish a record and that record can be relied on by the public. He said he would note that as a former ombudsman that not all the recommendations he or that office made were the best recommendations. He said we're not auditors or attorneys and those recommendations are not always followed and sometimes they're not followed for a good reason. Number 423 REPRESENTATIVE KUBINA said he will vote to move the bill out of committee. However, he said that doesn't mean he is prepared to vote for it on the floor. He said he is very sympathetic to what the bill is trying to do. It is like hiring principals and superintendents in Alaska, we always think that we'll get a better person out of Minnesota. We don't know their background, so it is easier on our conscience. He said he has been participating in the teacher's retirement system for nineteen years. Representative Kubina said he would like this board, the permanent fund board and everybody else to see we have abilities in Alaska. If it is in law, maybe they'll look a little more. He stated he doesn't want them to make bad investments, but he would like to see as much that can be done in Alaska to be done here. Representative Kubina indicated he would like to hear some of the debate that will happen in the Finance Committee where they deal with these things. He stated he would like to see as much happen in Alaska as possible without hurting the investments that are there. Number 507 REPRESENTATIVE PORTER said he was really disappointed with the testimony the committee heard against the bill. He said he believes the committee shaped the bill into probably a better product than it was because of the specific requirements that were in the first version. He said he doesn't think there is anything wrong with saying, "We don't want you to jeopardize even 10 cents but we do want you to look at Alaska first." The only thing the committee heard was, "No, me first." The Alaska spirit seems to be waning in one area of the state and it is very disappointing particularly when you look at who it is that furnished that fund in the first place. He said he intends to support the bill and will vote for it on the floor. Number 550 CHAIRMAN KOTT asked Representative Sanders if he still maintains his objection. REPRESENTATIVE SANDERS indicated he does maintain his objection. A roll call vote was taken. Representatives Porter, Kubina, Rokeberg and Kott voted in favor of moving CSHB 345(L&C), as amended, out of committee. Representatives Masek, Elton and Sanders voted against moving the bill. So CSHB 345(L&C), as amended, was passed out of the House Labor and Commerce Committee with a zero fiscal note. ADJOURNMENT CHAIRMAN KOTT adjourned the House Labor and Commerce Committee meeting at 4:15 p.m.