Legislature(1993 - 1994)
03/12/1994 08:00 AM House STA
| 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 STATE AFFAIRS STANDING COMMITTEE
March 12, 1994
8:00 a.m.
MEMBERS PRESENT
Representative Al Vezey, Chairman
Representative Pete Kott, Vice Chairman
Representative Bettye Davis
Representative Gary Davis
Representative Harley Olberg
Representative Jerry Sanders
Representative Fran Ulmer
MEMBERS ABSENT
None
COMMITTEE CALENDAR
*HB 512: "An Act relating to the awarding of attorney
fees and costs in civil actions to a
prevailing party in a civil action in which
the losing party is a public interest
litigant; and amending Alaska Rules of Civil
Procedure 79 and 82."
PASSED OUT OF COMMITTEE
*HB 494: "An Act changing the Alaska State Pension
Investment Board to the Alaska Pension
Investment Authority and relating to the
authority; and providing for an effective
date."
PASSED OUT OF COMMITTEE
HB 450: "An Act relating to investment pools for
public entities; and providing for an
effective date."
PASSED OUT OF COMMITTEE
*HB 369: "An Act relating to state leases and to state
lease-purchase and lease-financing
agreements, and repealing a legislative
authorization previously given for
acquisition of a facility through a lease-
purchase agreement; and providing for an
effective date."
PASSED OUT OF COMMITTEE
HB 342: "An Act extending the termination date of the
Alaska Tourism Marketing Council."
NOT HEARD
(*First public hearing)
WITNESS REGISTER
REPRESENTATIVE AL VEZEY, Chairman
House State Affairs Committee
Alaska State Capitol, Room 102
Juneau, AK 99811-0460
Phone: 465-3719
POSITION STATEMENT: Addressed HB 512
DAVID HARDING, Staff
Representative Eileen MacLean
Alaska State Capitol, Room 507
Juneau, AK 99811-0460
Phone: 465-4833
POSITION STATEMENT: Addressed HB 494 for Representative
MacLean, Sponsor
BILL CORBUS, Chairman
Alaska State Pension Investment Board
612 W. Willoughby
Juneau, AK 99801
Phone: 586-2222
POSITION STATEMENT: Supported HB 494
GAIL R. OBA, Vice Chairman
Alaska State Pension Investment Board
10615 Main Tree
Anchorage, AK 99516
Phone: 276-1550
POSITION STATEMENT: Supported HB 494
DARREL REXWINKEL, Commissioner
Department of Revenue
P.O. Box 110400
Juneau, AK 99811-0400
Phone: 465-2300
POSITION STATEMENT: Supported HB 494
ROBERT D. STORER, Chief Investment Officer
Department of Revenue
P.O. Box 110405
Juneau, AK 99811-0405
Phone: 465-4399
POSITION STATEMENT: Supported HB 494
STEVE MCPHETRES, Executive Director
Alaska Council on School Administration
326 4th Ave. #404
Juneau, AK 99801
Phone: 586-9702
POSITION STATEMENT: Supported HB 494
CLAUDIA DOUGLAS
NEA Alaska
114 Seward St.
Juneau, AK 99801
Phone: 586-3090
POSITION STATEMENT: Supported HB 494
JOHN BITNEY, Staff
Representative Ron Larson
Alaska State Capitol, Room 502
Juneau, AK 99811-0460
Phone: 465-3878
POSITION STATEMENT: Addressed HB 450 for Representative
Larson, Co-Chairman of the House
Finance Committee
DAVE ROSE, Principal
Alaska Permanent Management Company
Financial Advisor, Alaska Municipal League Investment Pool
900 W. 5th Ave. #701
Anchorage, AK 99501-2029
Phone: 272-7575
POSITION STATEMENT: Commented on HB 450
KENT SWISHER, Executive Director
Alaska Municipal League
217 2nd St.
Juneau, AK 99801
Phone: 586-1325
POSITION STATEMENT: Answered questions on HB 450
DUGAN PETTY, Director
General Services Division
Department of Administration
P.O. Box 110210
Juneau, AK 99811-0210
Phone: 465-2250
POSITION STATEMENT: Addressed HB 369
PREVIOUS ACTION
BILL: HB 512
SHORT TITLE: COURT COSTS/ATTORNEY FEES:PREVAILING PTY
SPONSOR(S): STATE AFFAIRS
JRN-DATE JRN-PG ACTION
02/28/94 2550 (H) READ THE FIRST TIME/REFERRAL(S)
02/28/94 2551 (H) STATE AFFAIRS, JUDICIARY
03/12/94 (H) STA AT 08:00 AM CAPITOL 102
BILL: HB 494
SHORT TITLE: ALASKA PENSION INVESTMENT AUTHORITY
SPONSOR(S): REPRESENTATIVE(S) MACLEAN
JRN-DATE JRN-PG ACTION
02/14/94 2380 (H) READ THE FIRST TIME/REFERRAL(S)
02/14/94 2380 (H) STATE AFFAIRS, FINANCE
03/12/94 (H) STA AT 08:00 AM CAPITOL 102
BILL: HB 450
SHORT TITLE: INVESTMENT POOLS FOR PUBLIC ENTITIES
SPONSOR(S): FINANCE
JRN-DATE JRN-PG ACTION
02/09/94 2315 (H) READ THE FIRST TIME/REFERRAL(S)
02/09/94 2315 (H) STATE AFFAIRS, FINANCE
02/24/94 (H) STA AT 08:00 AM CAPITOL 102
03/12/94 (H) STA AT 08:00 AM CAPITOL 102
BILL: HB 369
SHORT TITLE: STATE LEASES & LEASE-PURCHASE FINANCING
SPONSOR(S): RULES BY REQUEST OF LEGISLATIVE BUDGET AND AUDIT
JRN-DATE JRN-PG ACTION
01/14/94 2061 (H) READ THE FIRST TIME/REFERRAL(S)
01/14/94 2062 (H) STATE AFFAIRS, FINANCE
03/12/94 (H) STA AT 08:00 AM CAPITOL 102
BILL: HB 342
SHORT TITLE: EXTEND TOURISM MARKETING COUNCIL
SPONSOR(S): REPRESENTATIVE(S) KOTT,Hudson,Ulmer
JRN-DATE JRN-PG ACTION
01/03/94 2017 (H) PREFILE RELEASED
01/10/94 2017 (H) READ THE FIRST TIME/REFERRAL(S)
01/10/94 2017 (H) L&C, STATE AFFAIRS, FINANCE
01/20/94 (H) L&C AT 03:00 PM CAPITOL 17
01/20/94 (H) MINUTE(L&C)
01/21/94 2122 (H) L&C RPT 6DP
01/21/94 2122 (H) DP: MACKIE, HUDSON, WILLIAMS,
SITTON,
01/21/94 2122 (H) DP: PORTER, GREEN
01/21/94 2122 (H) -ZERO FISCAL NOTE (DCED)
1/21/94
01/21/94 2122 (H) REFERRED TO STATE AFFAIRS
03/12/94 (H) STA AT 08:00 AM CAPITOL 102
ACTION NARRATIVE
TAPE 94-28, SIDE A
Number 000
CHAIRMAN AL VEZEY called the meeting to order at 7:58 a.m.
Members present were REPRESENTATIVES KOTT, SANDERS, G.
DAVIS, OLBERG, AND B. DAVIS. A quorum was present.
HB 512 - COURT COSTS/ATTORNEY FEES: PREVAILING PARTY
CHAIRMAN VEZEY opened HB 512, introduced by the House State
Affairs Committee, for discussion.
VICE CHAIRMAN KOTT was given control of the gavel so
CHAIRMAN VEZEY could address HB 512.
CHAIRMAN VEZEY, HOUSE STATE AFFAIRS COMMITTEE, said HB 512
codifies the legislature's intent in passing SCR 4. He
noted SCR 4 was a recommendation to the Supreme Court, and
HB 512 would make the same action into law. The House
passed HB 512 by a 33 to 4 vote.
Number 045
REPRESENTATIVE GARY DAVIS inquired why the original SCR 4
was not in bill form.
Number 053
CHAIRMAN VEZEY responded that a resolution requires a
majority vote to pass the legislature and a bill changing a
court rule requires a two-thirds vote. He believed the
original sponsor of SCR 4 had felt a two-thirds vote was not
attainable. He emphasized HB 512 would not pass without a
two-thirds vote.
Number 070
CHAIRMAN VEZEY moved to pass HB 512 from committee with
individual recommendations.
Number 073
VICE CHAIRMAN PETE KOTT recognized the motion and asked the
committee secretary to call the roll.
IN FAVOR: VEZEY, KOTT, B. DAVIS, G. DAVIS, SANDERS,
OLBERG.
ABSENT: ULMER
The House State Affairs Committee passed HB 512, with
individual recommendations.
VICE CHAIRMAN KOTT returned control of the gavel to CHAIRMAN
VEZEY.
HB 494 - ALASKA PENSION INVESTMENT AUTHORITY
CHAIRMAN VEZEY opened HB 494 for discussion.
Number 099
DAVID HARDING, STAFF, REPRESENTATIVE EILEEN MACLEAN, PRIME
SPONSOR, addressed HB 494. He stated HB 494 will lead to
greater long-term financial stability, and more appropriate
lines of authority for the state's pension investment
system. With HB 494, the Alaska State Pension Investment
Board (ASPIB) would be moved out of the Department of
Revenue (DOR), and reconstituted as a separate authority.
This separation will allow employees of the Pension
Authority to focus solely on the investment of the $7
billion in PERS, TRS, and SBS funds they manage. The
Treasury Division, DOR, will be able to focus on other
functions, including the management of cash balances in the
general fund. New positions would be created, but the DOR
analysis shows the net result would be an annually general
fund gain of $10 million or more. He thought the private
sector would agree with the gain created by HB 494 and the
state should follow suit.
MR. HARDING explained there would be a political
consideration, in addition to the fiscal consideration. The
current ASPIB structure and its' membership has a smooth
relationship with the DOR; however, he noted there could be
problems in the future. Presently, the ASPIB makes
decisions which are carried out solely by people would work
for the commissioner of Revenue. He expressed the current
structure was not stable and people would be better served
if it was improved.
(REPRESENTATIVE ULMER arrived at 8:10 a.m.)
MR. HARDING outlined an amendment REPRESENTATIVE MACLEAN
proposed for HB 494, due to an oversight in drafting. Page
2, line 20, would be amended to read, "council and the
executive director," and "Department of Revenue" would be
deleted. This amendment would make HB 494 consistent
throughout in its separation of the Pension Authority from
the DOR.
Number 211
CHAIRMAN VEZEY clarified that on page 2, line 20, the
"Department of Revenue" would be deleted. He questioned the
connection between the expenditures and the revenues in the
fiscal note.
Number 221
MR. HARDING could not answer and deferred the question to
another witness.
Number 232
BILL CORBUS, CHAIRMAN, ALASKA STATE PENSION INVESTMENT
BOARD, supported HB 494. He stated the ASPIB has
approximately $7 billion in assets for which it has
fiduciary responsibility. There are approximately 57,000
beneficiaries, retired or current.
MR. CORBUS stated the ASPIB was created by the passage of HB
329 in 1992. Trustees consist of two members of the Public
Employee's Pension System, two members from the Teacher's
Retirement System, three members appointed by the Governor
and the commissioner of Revenue. As of December 31, 1993,
the ASPIB has $6.8 billion in defined benefits, $150 million
in defined contribution moneys, and $900 million dollars in
the Supplemental Benefits program. MR. CORBUS stated as of
December 31, 1993, the ASPIB had returns in excess of 14
percent, which is greater than that earned by the permanent
fund.
MR. CORBUS explained HB 494 was proposed because the current
structure of the ASPIB maintains that the staff works for
the commissioner of Revenue, not the ASPIB. The ASPIB has
fiduciary responsibility for these large sums of money,
however, they do not have the authority to retain or let go
any of the staff. He expressed it was essential, for the
future, for the ASPIB to be able to manage their staff.
MR. CORBUS stated a separate authority should be created
with the same Board of Directors, and they should have the
ability to hire an executive director and manage their own
staff.
MR. CORBUS said the ASPIB unanimously passed a resolution in
an effort toward this separation, which has led to the
introduction of HB 494.
Number 315
GAIL OBA, VICE CHAIRMAN, ALASKA STATE PENSION INVESTMENT
BOARD, commented on HB 494. She stated HB 494 merely
substitutes the executive director and employees in the
proposed authority, for the commissioner of Revenue. She
noted there are no increases in benefits for any of the
planned beneficiaries, and there would not be any embedded
costs for either the employers or the employees. The ASPIB
believes this will provide a better structure for managing
the funds for which they have fiduciary responsibility.
MS. OBA stated the staff of the DOR conducted a survey to
confirm the fiduciary responsibility and structure of large
public retirement funds. Five questions were asked of 46
participants, and all of these public funds have assets of
over $5 billion. The participants were selected from a
Pensions & Investments publication. Questions were as
follows:
1) In regard to investment of pension funds, who is the
fiduciary?
2) If a board is their subcommittee?
3) If an individual is a position elected or appointed?
4) To whom does the chief administrative officer report?
5) To whom do investments staff report?
MR. OBA explained the survey indicated that 37 of the 46
pension funds had boards with fiduciary responsibility and
staff reporting directly to the administrative officer,
hired by the board. Only six had sole fiduciaries, either
state treasurers or chief financial officers, with staff
reporting directly to them. Of these six, four were elected
and two were appointed. The Oregon PERS, New York City, and
the ASPIB were the only three of the 36 pension funds which
had boards where the staff reported directly to the
treasurer or another individual.
Number 366
CHAIRMAN VEZEY stated he would like a copy of the ASPIB
resolution.
Number 370
MR. CORBUS replied he would provide CHAIRMAN VEZEY with one.
Number 373
CHAIRMAN VEZEY asked if the term "participants" in relation
to 57,000 meant beneficiaries, both currently employed and
retired.
MR. CORBUS affirmed CHAIRMAN VEZEY.
Number 380
CHAIRMAN VEZEY asked the number of people currently retired
and receiving benefits.
MR. CORBUS did not know.
Number 382
CHAIRMAN VEZEY asked MR. CORBUS to explain what would happen
in the change from a board to a corporate structure. He
believed staff would be transferred without change and
questioned why operating costs would increase.
MR. CORBUS deferred the question to DARREL REXWINKEL.
Number 399
CHAIRMAN VEZEY asked if the current structure allows the
commissioner of Revenue to exert undue influence upon his
work.
Number 409
MR. CORBUS answered the ASPIB feels that potential exists.
Number 412
MS. OBA rephrased the commissioner of Revenue did not have
undue influence, but a future commissioner might thwart the
implementation of ASPIB policies.
Number 425
CHAIRMAN VEZEY asked DARREL REXWINKEL to be the next
individual to testify.
Number 434
DARREL REXWINKEL, COMMISSIONER DEPARTMENT OF REVENUE,
commented on HB 494. He stated the separation as proposed
in HB 494 was considered in 1991 as SB 18, but it was
ultimately vetoed for two reasons; board composition and the
cost of creating a separate corporation. In 1992, SB 329
was passed which created a balance investment board which
took care the board composition. He noted the cost is still
a problem in creating a separate authority; however, both SB
18 and SB 329 passed with a substantial majority. MR.
REXWINKEL clarified the resolution passed by the ASPIB was a
motion to request legislation to create a separate
authority.
MR. REXWINKEL addressed the two fiscal notes for HB 494.
One was for revenue operations or treasury management, and
the other is for the investment board. He explained the
discrepancy with the addition of employees without an
increase in workload. The ASPIB advisory council deduced
the board was very close to being fiduciarily irresponsible
due the already low amount of staff they have. He assumed
if the ASPIB had more staff they could generate more revenue
for the state. He noted HB 494 would force the increase in
cost, which would give the DOR the capability to add
revenues to the State of Alaska. Currently, staff is
divided between different duties. With HB 494, however,
the employees would be solely focused on the investment
management process. He added with $7 billion, the cost of
$497,000 for the investment board, would amply be covered
even with 1/100th of a percent increase in earnings,
$700,000. He stated the 1993 ASPIB returns, which were in
excess of 14 percent, landed them in the top eight percent
of an independent performance measurement firm hired by the
Pension Board.
MR. REXWINKEL stated the ASPIB is concerned because they
would like the increased returns to continue. Increasing
the funded status of the programs helps reduce the employer
contribution rate, thereby providing a cost savings to the
state of Alaska and all of the participating employers.
MR. REXWINKEL referred to an organizational chart. The
Permanent Fund program has 27 positions in their FY 95
budget, therefore the amount of positions required in HB 494
would still be relatively light. He accounted for some of
the additional cost in the expansion of work space necessary
to accommodate more employees. They are not being charged
for the current space in the State Office Building, but new
space would have to be acquired by the ASPIB.
MR. REXWINKEL agreed with the fiscal note for treasury
operations costing $398,000, with a net increase of about
seven positions. The Treasury Division would need these
positions because the present positions, which are more
dedicated toward the pension funds, would go away.
Investment officers would also have to be added to focus on
the cash flow requirements of Alaska. As these officers
coordinate with the agencies, determining the nature of the
cash flow, they would be able to invest further out on the
yield curve achieving incremental returns. He emphasized an
incremental return of one basis point with the $7 billion
would equal $700,000. The portfolio staff believes $10
million would be the minimum increase they could return to
the nonpension fund moneys. He pointed out the actual
figures could run $10-30 million.
MR. REXWINKEL stated the ASPIB and the DOR would have
reciprocal functions, whereby if one system were to go down,
they could share the other operative one. He stated the
example of the DOR's reciprocal relationship it shares with
the Permanent Fund Division with respect to data processing.
Number 565
CHAIRMAN VEZEY assumed some of the current DOR employees
would become employees of the new corporation.
Number 569
MR. REXWINKEL replied CHAIRMAN VEZEY was correct.
Number 570
CHAIRMAN VEZEY clarified the employees would be paid for by
the ASPIB out of pension funds.
Number 572
MR. REXWINKEL affirmed CHAIRMAN VEZEY, and noted there would
be a net increase of about one half of a full-time
equivalent position in the Pension Board. The fiscal note,
however, states it would increase by one.
Number 578
CHAIRMAN VEZEY stated, regarding the ASPIB, DOR, fiscal
note, FY 95 operating expenditures would be $497,000 and
capital expenditures would be $388,000, to set up the
office. He clarified all of the money would come from the
pension system.
Number 581
MR. REXWINKEL affirmed CHAIRMAN VEZEY, and stated there
would be no general fund money.
Number 590
CHAIRMAN VEZEY examined the Treasury Management, DOR, fiscal
note and made clear MR. REXWINKEL stated positions would be
added in the Treasury Division to make up for losing those
positions.
Number 594
MR. REXWINKEL agreed and clarified a couple of additional
positions would be added to the Treasury Division to provide
portfolio management individuals. A total of eight
positions would be added.
Number 598
CHAIRMAN VEZEY asked if under component #1961 a total of
eight people would leaving the DOR and transferring to
ASPIB.
MR. REXWINKEL stated he thought there be more employees
leaving, because most employees in the Treasury Division,
except in cash management, are allocated between treasury
general fund moneys and pension fund moneys. A lot of
positions and costs are being divided amongst different
program categories so that programs pay for their
appropriate share of the function. He clarified the pension
funds could not be charged anymore than the services they
are receiving. The positions were divided by their
percentage of work, therefore; the ASPIB, DOR, fiscal note
reads one position would be added because of this analysis.
Number 627
CHAIRMAN VEZEY clarified the net result would be eight
additional positions.
Number 629
MR. REXWINKEL stated yes, but it would really amount to
seven full-time equivalent employees. He pointed the added
positions to Treasury would provide for better cash
management and more positive returns.
Number 650
CHAIRMAN VEZEY believed the pension funds should be self
supporting. He asked if the new authority would have
approximately the equivalent of eight full-time employees.
Number 655
MR. REXWINKEL corrected, by referring to the organizational
chart, the new authority would have 20 employees. Treasury
Division would be left with 17 positions total. He
clarified cash management individuals would process
warrants, maintain bank accounts, and run the regular
treasury functions.
Number 663
CHAIRMAN VEZEY examined the $278,000 increase to the DOR for
the separation.
Number 670
MR. REXWINKEL explained the cost was minor compared to this
opportunity to earn more money. The state would not want to
invest short-term money "long", need it, and then have to
sell the securities and realize the loss.
Number 683
CHAIRMAN VEZEY stated general fund moneys definitely need to
be short-term.
MR. REXWINKEL continued the difference between a 30-day
investment compared to a 180-day investment could be
substantial with relation to the current interest
environment.
Number 687
REPRESENTATIVE HARLEY OLBERG clarified at the present time
the DOR has 29 employees working on both pensions and
treasury.
Number 690
MR. REXWINKEL replied REPRESENTATIVE OLBERG was
approximately correct.
Number 691
REPRESENTATIVE OLBERG clarified 20 of those positions would
leave the DOR, and they would add 7 positions to the 8-9
remaining positions after the transfer.
Number 694
MR. REXWINKEL responded the exact number would depend upon
the decision by the investment board and who they hire as
the executive director. The exact transfer amount would
depend upon the negotiations.
TAPE 94-28, SIDE B
Number 000
REPRESENTATIVE OLBERG asked, referring to the Treasury
Division within the DOR, if most divisions had a director.
Number 011
MR. REXWINKEL responded no, instead a director, the DOR
sequentially has a commissioner, deputy commissioner,
comptroller, debt manager, cash manager, and portfolio
manager. The portfolio manager would go under the cash
manager in the revised organization chart. The deputy
commissioner also functions in child support. He noted the
deputy commissioner is somewhat elevated from a director
because of the importance of the treasury function. Those
positions just under the deputy commissioner he said could
be termed as directors.
MR. REXWINKEL pointed out the impressiveness of the FY 93
return of approximately $150 million more than what all the
employers in the state paid into the pension fund.
Increasing returns will reduce costs two years in the
future.
REPRESENTATIVE OLBERG clarified Treasury would only manage
the general fund. He asked if the basis point values were
based only on that amount.
Number 071
MR. REXWINKEL responded yes, but on top of the general fund
there are more funds within the general investment fund.
Number 075
CHAIRMAN VEZEY noted there is a difference between the
general fund and the general investment fund.
Number 076
MR. REXWINKEL confirmed CHAIRMAN VEZEY.
Number 078
REPRESENTATIVE OLBERG clarified the $10 million increment is
based on the general investment fund and has nothing to do
with pensions.
Number 081
MR. REXWINKEL said REPRESENTATIVE OLBERG was correct, the
general investment and a few other minor funds.
Number 086
REPRESENTATIVE FRAN ULMER commented this change has been
worked on for nearly four years. She mentioned, in
reference to the veto letter from June 1991, that MR.
REXWINKEL's past principle objection dealt with the
philosophical concept of shared fiduciary responsibility, as
opposed to money. She quoted the Governor as saying, "It
appears the real purpose of SB 18 is to create shared
fiduciary responsibility. Shared fiduciary boards have been
involved in imprudent and questionable actions throughout
the country." She asked why he had changed his mind when
faced with HB 494.
Number 114
MR. REXWINKEL answered, in the past, one of the major
concerns was the board composition. The bill that passed in
1992 created an eight member board, four appointed by the
Governor and four elected by the beneficiaries. He felt
this was a good board composition. He related to the survey
MS. OBA outlined, and noticed out of 46 participants, 36 had
boards and only 6 still had a sole fiduciary. He noted
these funds were operating well. MR. REXWINKEL stated as he
has worked with the board and it has been successful, it
has become apparent the board needs to have their own staff
to prevent their policies from being thwarted by a future
commissioner. He is better educated about the board and the
cost structure for incremental returns now.
Number 168
REPRESENTATIVE ULMER clarified that MR. REXWINKEL is
persuaded that the money needed to provide the management is
justified in terms of the likely improved result.
MR. REXWINKEL said REPRESENTATIVE ULMER was correct, and the
money was also for the board to carry out their fiduciary
responsibility.
Number 177
REPRESENTATIVE ULMER referenced the Governor's 1991 veto
letter and how it specified the lack of benefit to the
beneficiaries for the amount of money that would be spent.
The letter also relates to the imprudent investments as the
result of shared fiduciary responsibilities. She
understood, however, MR. REXWINKEL's reasoning for his
change in opinion.
Number 190
MR. REXWINKEL commented there have been public funds which
have made inappropriate investments, but the sole fiduciary
problem was resolved in 1992 when SB 329 was passed and a
board was formed. The situation in 1991, where the
commissioner of Revenue was the sole fiduciary, is much
different than the current structure.
MR. REXWINKEL stated the pension fund has had relatively
good returns, and excellent returns over the past two years.
The ASPIB fixed income portfolio managers have been in the
top 25 percent continuously over the last five years. He
pointed out equity management is improving. The benefits
from the substantial invested moneys should continue for the
beneficiaries. What is good for the beneficiaries, is also
good for the state and participating employers.
Number 230
REPRESENTATIVE ULMER felt deferred compensation was
remaining status quo. She asked if it would continue to be
managed by the new corporation.
MR. REXWINKEL replied deferred compensation would also be
managed by the investment board, so it will be active. He
noted there are now 6-7 alternatives for the participating
employees to invest in with a substantially reduced cost, by
cooperation from the Department of Administration. He felt
the lack of education may be a problem because the employees
do not know of the risk factors.
MR. REXWINKEL did not believe there would be very much
opposition to HB 494. He stated some people thought the
permanent fund should be separated, instead of the pension
authority. He explained the difference between a permanent
fund mandate and a pension fund mandate. With a pension
mandate, the moneys have to be handled in the best interest
of the beneficiaries and there is an obligation for benefits
to be paid as they come due. In comparison to the permanent
fund, the pension funds have a long-term perspective without
a legal list, a prudent expert rule of investment, a
different basis of accounting, a different group of
constituency and they are able to generate better returns.
Number 313
ROBERT STORER, CHIEF INVESTMENT OFFICER DEPARTMENT OF
REVENUE, commented on HB 494. He stated the shape in the
normal yield curve in fixed income securities, is normally
positive, i.e., the longer the maturity, the higher the
expected rate of return. Those who can afford to invest in
a longer maturity would be served. The benefits of better
cash flow analysis, which will add incremental returns, will
come in these ways: 1) keeping a minimum amount of cash on
hand, which is typically the lowest rate of return in a
normal yield curve environment; and 2) the staff will be
able take additional maturity risk on the entire portfolio,
with their gained information.
Number 357
CHAIRMAN VEZEY mentioned the change in their accounting
method for evaluating its assets in terms of its fixed
income securities, the ASPIB underwent in 1992. He asked if
he was correct.
MR. REXWINKEL responded the market basis of accounting has
always been used for the pension funds.
Number 364
MR. STORER stated the procedure of computing income, how the
income is distributed into an index, was reevaluated on July
1, 1993.
Number 369
CHAIRMAN VEZEY remembered the accounting method was changed
in 1993 starting fiscal year 1992.
Number 372
MR. REXWINKEL clarified CHAIRMAN VEZEY's information could
be found in the Actuarial Evaluation Report. He noted the
DOR disagreed with their evaluation of assets.
Number 373
CHAIRMAN VEZEY pointed out the two reports did not agree on
the amount of assets.
Number 374
MR. REXWINKEL made clear the DOR assets are accounted for on
a market value basis, compared to the permanent fund's
report accounting for cost. The actuarial report is
smoothed out so the one year investment performance does not
have a tremendous annual effect on the pension contributions
made by the participating employers. He said the actuaries
changed some of their evaluations because they agreed with
the DOR that they were not at the proper market rate in
their analysis.
Number 389
REPRESENTATIVE OLBERG asked if the DOR could report on any
given day the balance and composition of the general fund.
Number 391
MR. STORER replied the DOR could report with market yield of
every security.
REPRESENTATIVE OLBERG inquired if the annual yield of the
general investment fund was tracked separately so the rate
fluctuations were apparent.
Number 397
MR. STORER answered the DOR tracks not only on an annual
basis, but also on a monthly basis.
Number 400
REPRESENTATIVE OLBERG assured the benefits of HB 494 would
be seen in less than a year.
Number 402
MR. STORER affirmed the benefits would be apparent in less
than a year; however, in incremental portions, not the full
$10 million.
Number 407
CHAIRMAN VEZEY introduced STEVE MCPHETRES as the next
individual to testify.
ATEVE MCPHETRES, EXECUTIVE DIRECTOR ALASKA COUNCIL OF SCHOOL
ADMINISTRATORS, supported HB 494. He stated the Alaska
Council of School Administrators wanted to ensure there will
be stable amounts of money for the benefit programs in the
future. From their analysis, HB 494 would provide this
stability, therefore they are in support.
Number 438
REPRESENTATIVE G. DAVIS asked what people the Teachers
Retirement System (TRS) included.
MR. MCPHETRES answered, from his organization the TRS
includes all the principals, business managers, special
education directors, district level people and
superintendents.
Number 445
REPRESENTATIVE OLBERG questioned if a superintendent's
retirement varied from a teacher's retirement.
MR. MCPHETRES responded the retirement for both
superintendents and teachers are based on the same
calculation.
Number 451
REPRESENTATIVE OLBERG questioned if both groups were lumped
into the same plan, or if MR. MCPHETRES was only
representing one group.
CHAIRMAN VEZEY clarified MR. MCPHETRES was before the
committee representing the Alaska Council on School
Administrators. He clarified their organization consists of
700 members which are members of the TRS. He believed the
TRS has five pension programs covered by the board.
CLAUDIA DOUGLAS, PRESIDENT NEA ALASKA, supported HB 494.
NEA Alaska, representing both the TRS and the Public
Employees Retirement System (PERS), supported changing the
ASPIB to the Alaska Pension Investment Authority. She
emphasized HB 494 has potential for enhanced financial
stability, continuity, better accountability, member
confidence and enhanced member economic security.
Number 480
CHAIRMAN VEZEY stated there were two separate issues in HB
494; creating the authority and setting the staff level. He
recognized REPRESENTATIVE MACLEAN's amendment
recommendation, whereby on page 2, line 20, a period would
be inserted after "director," and the words "and the
Department of Revenue" would be deleted. He stated this
amendment did seem to be the original intent of the drafter;
however, "and the Department of Revenue" had failed to get
deleted.
Number 493
REPRESENTATIVE B. DAVIS so moved the amendment.
Number 493
CHAIRMAN VEZEY asked the committee secretary to call the
roll.
IN FAVOR: VEZEY, KOTT, ULMER, B. DAVIS, G. DAVIS,
SANDERS, OLBERG.
CHAIRMAN VEZEY announced the amendment to HB 494 had passed.
Number 501
REPRESENTATIVE ULMER moved HB 494 be passed from committee
as amended with individual recommendations, asking unanimous
consent.
Number 504
CHAIRMAN VEZEY clarified the bill which the committee was
acting on would be a committee substitute, reflecting the
amendment. He modified REPRESENTATIVE ULMER's motion to
reflect the correction. He asked the committee secretary to
call the roll.
IN FAVOR: VEZEY, KOTT, ULMER, B. DAVIS, G. DAVIS,
SANDERS, OLBERG.
CHAIRMAN VEZEY announced CSHB 494 passed from the House
State Affairs Committee.
CHAIRMAN VEZEY called a recess at 9:15 a.m. The meeting
reconvened at 9:20 a.m. REPRESENTATIVES G. DAVIS and OLBERG
were present.
HB 450 - INVESTMENT POOLS FOR PUBLIC ENTITIES
Number 524
CHAIRMAN VEZEY opened HB 450, sponsored by the HOUSE FINANCE
COMMITTEE, for discussion.
JOHN BITNEY, STAFF FOR REPRESENTATIVE RON LARSON, CO-
CHAIRMAN HOUSE FINANCE COMMITTEE, addressed HB 450 for the
sponsor. Beginning four years ago, through the Alaska
Municipal League (AML), various political subdivisions
approached the legislature. They strove for statutory
authority so they could have the ability to pull together
their cash assets, providing better returns for their
investments. In 1992, SB 374 was passed by the legislature
which enabled these subdivisions to pull their assets
together, and also provided guidelines in the types of
investments they should make. MR. BITNEY stated this system
is now in place and various political subdivisions,
municipalities, school districts, and "REAAs" across the
state, are now beginning to incorporate into the system to
provide better investment management.
(REPRESENTATIVES KOTT and SANDERS rejoined the meeting at
9:25 a.m.)
MR. BITNEY explained REPRESENTATIVE LARSON had been made
aware that the AML was examining additional ways to improve
the investments. After consultation, the AML brought
forward the recommendations to REPRESENTATIVE LARSON, and
they were drafted into what is now HB 450.
(REPRESENTATIVE ULMER rejoined the meeting at 9:27 a.m.)
Number 562
DAVE ROSE, PRINCIPAL, ALASKA PERMANENT MANAGEMENT COMPANY,
FINANCIAL ADVISOR TO THE AML INVESTMENT POOL (AMLIP),
commented on HB 450. He said the AML pool presently
consists of 27 different municipalities throughout Alaska,
holding $33,282,000. MR. ROSE functions as an extension of
AML staff to monitor the investment pool, deal with the
cities, and supervise J.P. Morgan, the banking custodian,
and supervise the Templeton Franklin organization, doing the
actual investing. He ensures that state statute and policy
of AMLIP is followed. MR. ROSE commented state statute
merely enables cities to form a pool, and there is not any
actual state involvement.
MR. ROSE outlined the amendments HB 450 would set forth in
the statutes. First, additional language would be added so
the pool would be able to acquire floating rate securities,
as long as the rate was reset within each annual period.
Current statute requires the pool not to invest in any
security with a maturity of more than 13 months. This would
enable the cities to reach a greater return. The second
amendment, dealing with debt that is rated A, is corrective
language to ensure dollar denominated obligations issued by
U.S. branches of a foreign banks. He noted the problem that
all debt, particularly debt issued by bank branches located
within the U.S. but are from foreign banks, are typically
not rated at all. The AMLIP interpreted, as long as the
parent bank is rated A, the child bank operating within the
U.S. is also rated A. The third amendment deals with
securities lending. He related to the "prudent investor
rule," whereas if all institutions of a like type engage in
securities lending, it is a norm. He explained PERS, TRS
and the permanent fund lends securities; however, they also
do not have specific wording in statute allowing this. The
AMLIP felt uncomfortable lending securities, although it is
a norm of the "prudent investor rule" because they with so
many entities. He expressed the statute should specifically
address the empowerment to lend securities by the AMLIP.
The fourth amendment waives the restriction that the AMLIP
is not able to purchase more than 30 percent of the
portfolio in stock, CDs, or issuance of the banking
industry. This waiver would make the AMLIP consistent with
other money market funds throughout the country. MR. ROSE
stated these four amendments would create better returns for
the cities, while not adding risk to the investments.
Number 649
CHAIRMAN VEZEY referred to the floating rate fixed income
instruments, and felt the amendment would not exist unless
it would offer a higher yield than short-term instruments.
MR. ROSE affirmed CHAIRMAN VEZEY.
Number 657
CHAIRMAN VEZEY referred to page 2, section 1, which states,
"an A rating by one of the national recognized rating
services." He mentioned the names of Standard and Poors,
and Moodys, as rating services he knew of, and asked of
others MR. ROSE might know about.
(REPRESENTATIVE ULMER left the meeting at 9:30 a.m.)
MR. ROSE added there was also Fitch, but Standard and Poors,
and Moodys were the organizations typically used by the
AMLIP.
Number 662
CHAIRMAN VEZEY announced REPRESENTATIVES ULMER and B. DAVIS
had left the meeting. He believed Standard and Poors, and
Moodys do not use the same scale.
MR. ROSE responded there were some differences, but having
reached investment grade B, AA, or better, they fall into
line. Below investment grade there are more differences.
Number 668
CHAIRMAN VEZEY inquired if there had been a failure of a
fixed rate instrument rated B, AA, or higher since the
rating agencies began.
MR. ROSE replied, particularly on the corporate side, an AA
purchase could change overnight to BA, then six months later
it could continue to C or D in default.
Number 675
CHAIRMAN VEZEY understood the instruments rate changes, but
was under the assumption there has never been a default on
an instrument rated BB or higher.
Number 678
MR. ROSE suspected there has been.
Number 679
CHAIRMAN VEZEY stated he was trying to relate to the
standard of fiducial responsibility addressed in HB 450.
Number 680
MR. ROSE responded the life of an average security is
between 60-100 days. If a security was found and bought at
an A level, the maturity life would be so short that by the
time an agency would downgrade or default the security, they
would not be affected because it would have already been
cleared. He noted the average life of the total aggregated
portfolio on February 28 was 81 days.
Number 690
CHAIRMAN VEZEY clarified Standard and Poors, and Moodys, are
comparable in an A rating.
Number 697
MR. ROSE affirmed CHAIRMAN VEZEY. He continued, the state
and the permanent fund engage in securities lending without
specific legislative authority, because it is a convention
of the industry. The AMLIP believed having the securities
lending authority in statute would provide "solace for the
small cities."
TAPE 94-29, SIDE A
Number 000
REPRESENTATIVE G. DAVIS asked if the 13 months in investing
would carry over into lending.
MR. ROSE answered all of the securities in the portfolio can
be lent, including floating rates, CDs or bills.
Number 018
REPRESENTATIVE G. DAVIS repeated his question.
MR. ROSE replied the securities can be lent for any length
of time, but the average life of a maturity is 81 days,
therefore they will usually be lent for less.
Number 025
CHAIRMAN VEZEY asked why someone would want to borrow a
security with a life expectancy of less than 81 days.
MR. ROSE responded most securities lending only lasts for 2-
3 days, when a broker sells something they do not have, or
short, they have to borrow a security from someone to be
able to deliver what they do not have to the buyer.
Generally 102 percent collateral is put up in cash, a fee is
paid to the lender, and then they buy it on the market and
replace it in the lender's portfolio.
Number 042
CHAIRMAN VEZEY stated lending the securities would be a
source of income for the AMLIP because they receive a fee.
Number 043
MR. ROSE affirmed CHAIRMAN VEZEY. He stated one year, when
he was with the permanent fund, they earned $5.3 million by
lending out securities. This $5.3 million was enough to
cover the total administrative cost of the permanent fund at
that time.
Number 051
CHAIRMAN VEZEY questioned the quality of the collateral in
terms of cash.
Number 057
MR. ROSE replied if the collateral is not cash, then it
would be a like instrument of the same range of maturity.
If a 30-day treasury bill was being lent, they could give
the AMLIP a 60-day treasury bill as collateral. The
borrower has to deliver a specific instrument because that
is what they sold to someone.
Number 067
CHAIRMAN VEZEY did not understand what was being deleted in
section 3. He clarified the requirement would be deleted
which says the AMLIP cannot put more than 30 percent of its
investments in one instrument.
Number 078
MR. ROSE stated he had also had trouble interpreting the
change. He explained the AMLIP wanted to be able to invest
in an industry, such the banking industry. The banking
industry is not a single security or single company.
CHAIRMAN VEZEY felt the wording was rather broad.
MR. ROSE stated attorneys had been uneasy when the AMLIP had
more than 30 percent in the banking industry, as a whole.
The AMLIP thought the best solution would be do delete the
30 percent restriction.
Number 099
CHAIRMAN VEZEY clarified the intent of the restriction was
to prohibit the AMLIP from putting 30 percent of its funds
into a security or an industry.
MR. ROSE agreed. He pointed out, not being able to put 30
percent of the AMLIP assets in banks totally was very
restrictive. Putting more than five percent in each bank
would lower the percentage for other invested in other
banks.
Number 128
CHAIRMAN VEZEY introduced KENT SWISHER as the next
individual to testify.
Number 131
REPRESENTATIVE G. DAVIS asked MR. SWISHER if the AML had a
resolution.
KENT SWISHER, EXECUTIVE DIRECTOR ALASKA MUNICIPAL LEAGUE,
answered questions on HB 450. He replied to REPRESENTATIVE
G. DAVIS, that HB 450 was the request of the AMLIP Board,
which is a separate board of largely elected local officials
and finance officers. He noted the AML Board is aware of
and knowledgeable about HB 450.
Number 147
CHAIRMAN VEZEY stated he would like to take action on HB
450, but it did not have a fiscal note.
Number 153
MR. BITNEY reminded the committee HB 450, as it stands, did
not apply to any state agencies. Therefore, no state
agencies have submitted a fiscal note. The House Finance
Committee intended a zero fiscal note for HB 450 and asked
if the House State Affairs Committee could prepare this
fiscal note.
Number 168
CHAIRMAN VEZEY submitted to the committee that they prepare
a zero fiscal note for HB 450, so it may be attached to the
packet. He asked the committee secretary to call the roll
on his motion.
IN FAVOR: VEZEY, KOTT, G. DAVIS, SANDERS, OLBERG.
ABSENT: ULMER, B. DAVIS.
CHAIRMAN VEZEY announced the zero fiscal note was adopted.
Number 180
REPRESENTATIVE OLBERG moved HB 450 be passed from committee
with individual recommendations and accompanying fiscal
note.
Number 184
CHAIRMAN VEZEY recognized the motion and asked the committee
secretary to call the roll.
IN FAVOR: VEZEY, KOTT, G. DAVIS, SANDERS, OLBERG.
ABSENT: ULMER, B. DAVIS.
CHAIRMAN VEZEY announced HB 450 passed from the House State
Affairs Committee with individual recommendations.
HB 369 - STATE LEASES & LEASE-PURCHASE FINANCING
CHAIRMAN VEZEY opened HB 369 for discussion. He announced a
representative of the sponsor was not present to testify,
but DUGAN PETTY was present.
Number 201
DUGAN PETTY, DIRECTOR, DIVISION OF GENERAL SERVICES,
DEPARTMENT OF ADMINISTRATION (DOA), addressed HB 369. He
stated the DOA has been in support of the companion bill, SB
247 in the Senate, after some minor amendments. He directed
the committee to section 6 & 7 of HB 369, which clarifies
the relationship of current law between leasing and lease-
financing. He stated HB 369 would create two sections in AS
36.30, one dealing with the lease of real property, and the
other dealing with lease-financing of real property. He
emphasized AS 36.30 was beginning to get fairly confusing in
current law.
MR. PETTY recommended amendments to section 7 of HB 369,
which have been made in SB 247. He recommended on page 6,
line 16 which states "when evaluating proposals to acquire
property under lease-purchase," that the term "real" be
inserted before "property." He recommended the same
amendment on page 6, line 22. On page 7, line 9, he
recommended inserting, after the word "agreement," "to
acquire real property." Under the current definition of
lease-purchase or lease-financing in AS 36.30, transactions
for copier leases which cost between $100-$1,700 a month are
included. The DOA has approximately 1,000 of these copier
agreements by the agencies. He did not believe it was the
intent of HB 369 to include those sorts of transactions
approved by law. HB 369 was intended to focus on real
property.
Number 266
CHAIRMAN VEZEY stated HB 369 would be involved with items
such as computers, copy machines, and road maintenance
equipment. He asked if there is not already a $1 million
cap on lease-purchase agreements. He thought HB 369 would
not apply to a purchase of less than $1 million.
MR. PETTY responded the $1 million cap affects the lease
side. He pointed out; however, with the current form of HB
369 there is no cap whatsoever. Under section 7, any lease-
purchase transaction regardless of dollar amount would
require approval by the legislature.
Number 282
CHAIRMAN VEZEY clarified the state would not require
legislative approval to lease-purchase a $1.5 million
excavator.
MR. PETTY replied, as HB 369 is written, an approval would
be required from the legislature to acquire a $1.5 million
excavator or a $100 copier contract applied to the
definition of lease-purchase or lease agreement.
CHAIRMAN VEZEY believed a dollar cap might be more effective
than a blanket approval.
Number 297
REPRESENTATIVE OLBERG asked if the dollar cap did not
already exist.
MR. PETTY replied yes, for lease-financing with a cap of $1
million a year, and $10 million over the term of the lease.
Number 304
REPRESENTATIVE OLBERG inquired if HB 369 was termed the
"Wildwood Bill."
CHAIRMAN VEZEY answered that terminology for HB 369 is in
the sponsor statement by RANDY WELKER. He quoted, "This
legislation has been responsible for ongoing review and
concern over lease-purchases of the Wildwood Correction
Center, and the Court Plaza Building." He asked if MR.
PETTY had his proposed amendment in writing.
Number 319
MR. PETTY did not, but he marked on his copy of the HB 369.
Number 339
CHAIRMAN VEZEY clarified the recommended amendments were as
follows: Page 6, line 16, shall read, "when evaluating
proposals to acquire real property..."; page 7, line 9,
shall read, "may not enter into lease-purchase agreement to
acquire real property..."
Number 347
MR. PETTY added page 6, line 22, shall read, "whether
acquisition of the real property by lease-purchase
agreement..."
Number 350
REPRESENTATIVE G. DAVIS moved to adopt the requested
amendments to HB 369.
Number 353
CHAIRMAN VEZEY recognized the motion and asked the committee
secretary to call the roll.
IN FAVOR: VEZEY, KOTT, G. DAVIS, SANDERS, OLBERG
ABSENT: ULMER, B. DAVIS
CHAIRMAN VEZEY announced the requested amendments were
adopted to HB 369 and a committee substitute will be drawn
up to reflect them.
Number 362
REPRESENTATIVE G. DAVIS moved to pass CSHB 369 from
committee with individual recommendations and attached
fiscal notes.
CHAIRMAN VEZEY recognized the motion and asked the committee
secretary to call the roll.
IN FAVOR: VEZEY, KOTT, G. DAVIS, SANDERS, OLBERG.
ABSENT: ULMER, B. DAVIS
CHAIRMAN VEZEY announced CSHB 369 passed from the House
State Affairs committee.
ADJOURNMENT
CHAIRMAN VEZEY adjourned the meeting at 9:57 a.m.
BILLS NOT HEARD
HB 342: "An Act extending the termination date of the
Alaska Tourism Marketing Council."
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