Legislature(1995 - 1996)
04/17/1996 03:10 PM House L&C
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= 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.
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