Legislature(1999 - 2000)
04/15/1999 08:05 AM House STA
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE STATE AFFAIRS STANDING COMMITTEE
April 15, 1999
8:05 a.m.
MEMBERS PRESENT
Representative Jeannette James, Chair
Representative John Coghill
Representative Scott Ogan
Representative Jim Whitaker
Representative Bill Hudson
Representative Beth Kerttula
Representative Harold Smalley
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
* HOUSE BILL 157
"An Act relating to absences from the state while serving on
oceangoing vessels of the United States merchant marine for
purposes of eligibility for permanent fund dividends; and providing
for an effective date."
- MOVED HB 157 OUT OF COMMITTEE
* HOUSE BILL 156
"An Act relating to investments by the Alaska Permanent Fund
Corporation; and providing for an effective date."
- MOVED CSHB 156(STA) OUT OF COMMITTEE
HOUSE BILL 132
"An Act relating to allowable absences from the state for purposes
of eligibility for permanent fund dividends; and providing for an
effective date."
- HEARD AND HELD
HOUSE BILL 16
"An Act transferring to the Department of Health and Social
Services the authority to license all assisted living facilities;
eliminating the authority of the Department of Administration to
license assisted living facilities; and providing for an effective
date."
- SCHEDULED BUT NOT HEARD
* HOUSE BILL 144
"An Act relating to access to public buildings or public facilities
by legislators and to audits of public buildings or public
facilities."
- SCHEDULED BUT NOT HEARD
HOUSE BILL 159
"An Act granting certain employees in correctional facilities
status as peace officers under the public employees' retirement
system."
- CANCELED
HOUSE BILL 179
"An Act eliminating the Alaska Public Offices Commission and all
campaign contribution and expenditure limits; repealing lobbying
and conflict of interest statutes administered by the Alaska Public
Offices Commission; relating to the definition of 'lobby,'
'lobbying,' and 'lobbyist'; repealing the required annual financial
disclosures program administered by the Alaska Public Offices
Commission; repealing the conflict of interest statutes
administered by the Alaska Public Offices Commission; relating to
reporting of campaign contributions and expenditures; amending the
definition of 'contribution,' 'group,' and 'political party';
changing the residency requirements for candidates for public
offices; and providing for criminal penalties for violation of
these provisions."
- CANCELED
(* First public hearing)
PREVIOUS ACTION
BILL: HB 157
SHORT TITLE: PFD ALLOWABLE ABSENCES
SPONSOR(S): REPRESENTATIVES(S) SANDERS, Harris
Jrn-Date Jrn-Page Action
3/24/99 555 (H) READ THE FIRST TIME - REFERRAL(S)
3/24/99 555 (H) STA, FIN
3/30/99 (H) STA AT 8:00 AM CAPITOL 102
3/30/99 (H) <BILL POSTPONED TO 4/15/99>
4/15/99 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 156
SHORT TITLE: PERMANENT FUND INVESTMENTS
SPONSOR(S): RULES BY REQUEST OF BUDGET AND AUDIT
Jrn-Date Jrn-Page Action
3/24/99 555 (H) READ THE FIRST TIME - REFERRAL(S)
3/24/99 555 (H) STA, FIN
4/15/99 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 132
SHORT TITLE: PERMANENT FUND ALLOWABLE ABSENCES
SPONSOR(S): REPRESENTATIVES(S) COWDERY BY REQUEST
Jrn-Date Jrn-Page Action
3/11/99 428 (H) READ THE FIRST TIME - REFERRAL(S)
3/11/99 428 (H) STA, FINANCE
3/23/99 (H) STA AT 8:00 AM CAPITOL 102
3/23/99 (H) ASSIGNED TO A SUBCOMMITTEE
3/23/99 (H) MINUTE(STA)
4/15/99 (H) STA AT 8:00 AM CAPITOL 102
WITNESS REGISTER
REPRESENTATIVE JERRY SANDERS
Alaska State Legislature
Capitol Building, Room 414
Juneau, Alaska 99801
Telephone: (907) 465-3476
POSITION STATEMENT: Presented HB 157.
DEBORAH VOGT, Deputy Commissioner
Department of Revenue
P.O. Box 110405
Juneau, Alaska 99811
Telephone: (907) 465-2300
POSITION STATEMENT: Provided information on HB 157 and HB 156.
She expressed concerns on both bills.
NANCI JONES, Director
Permanent Fund Dividend Division
Department of Revenue
P.O. Box 110460
Juneau, Alaska 99811
Telephone: (907) 465-2323
POSITION STATEMENT: Provided information on HB 157 and HB 156.
She expressed concerns on both bills.
HAROLD HOLTON, Representative
Seafarers International Union
721 Sesame Street, suite 1-C
Anchorage, Alaska 99503
Telephone: (907) 561-4988
POSITION STATEMENT: Testified in support of HB 157.
ROCKY LATTA, member
Seafarers Union
6704 Lunar Drive
Anchorage, Alaska 99504
Telephone: (907) 552-0370
POSITION STATEMENT: Testified in support of HB 157.
EDEN LATTA, member
Seafarers Union
6704 Lunar Drive
Anchorage, Alaska 99504
Telephone: (907) 333-9984
POSITION STATEMENT: Testified in support of HB 157.
JOHN GLENN
Seafarers Union
3513 Creekside Drive, Number 12
Anchorage, Alaska 99504
Telephone: (907) 333-2900
POSITION STATEMENT: Testified in support of HB 157.
KAREN BRAND, Vice President
Alaska State Chamber of Commerce
P.O. Box 91896
Anchorage, Alaska 99509
Telephone: (907)278-2722
POSITION STATEMENT: Testified in support of HB 157.
EDDIE BURKE, Lesislative Administrative
Assistant to Representative Sanders
Alaska State Legislature
Capitol Building, Room 414
Juneau, Alaska 99801
Telephone: (907) 465-3476
POSITION STATEMENT: Provided information on HB 157.
ERIC WOHLFORTH, Chairman
Board of Trustees
Alaska Permanent Fund Corporation
Wolforth, Vassar, Johnson, and Brecht
900 West Fifth Avenue, Suite 600
Anchorage, Alaska 99501
Telephone: (907) 276-6401
POSITION STATEMENT: Testified in Support of HB 156.
JIM KELLY, Director of Communications
Alaska Permanent Fund Corporation
P.O. Box 25500
Juneau, Alaska 99802
Telephone: (907) 465-2059
POSITION STATEMENT: Testified in Support of HB 156.
TOM MAHER, Legislative Assistant
to Representative Gail Phillips
Alaska State Legislature
Capitol Building, Room 411
Juneau, Alaska 99801
Telephone: (907) 465-6873
POSITION STATEMENT: Provided information on HB 156.
PETER TORKELSON, Researcher
to Representative Cowdery
Alaska State Legislature
Capitol Building, Room 204
Juneau, Alaska 99801
Telephone: (907) 465-6848
POSITION STATEMENT: Provided information on HB 132.
REPRESENTATIVE COWDERY
Alaska State Legislature
Capitol Building, Room 204
Juneau, Alaska 99801
Telephone: (907) 465-6848
POSITION STATEMENT: Sponsor of HB 132 Testified that he doesn't
have a problem with every individual
providing proof of residency.
ACTION NARRATIVE
TAPE 99-24, SIDE A
Number 001
CHAIR JEANNETTE JAMES called the House State Affairs Standing
Committee meeting to order at 8:05 a.m. Members present at the
call to order were Representatives James, Coghill, Whitaker,
Kerttula and Smalley. Representatives Hudson and Ogan arrived at
8:10 and 9:05 a.m. respectively.
CHAIR JAMES announced the hearing on HB 159, "An Act granting
certain employees in correctional facilities status as peace
officers under the public employees' retirement system," will not
be heard today because the fiscal note won't be available until
Monday. [Canceled prior to the meeting].
HB 157-PFD ALLOWABLE ABSENCES
Number 001
CHAIR JAMES announced the first item up is HB 157, "An Act relating
to absences from the state while serving on oceangoing vessels of
the United States merchant marine for purposes of eligibility for
permanent fund dividends; and providing for an effective date."
Number 024
REPRESENTATIVE JERRY SANDERS presented HB 157 noting that it was
brought forward for several reasons and that he has a lot of backup
for the specifics of the situation. He said there are currently 13
exemptions to the permanent fund dividend program and that he would
like to add one more to take that hex off [laughter]. He pointed
out that there's a very small number of people that this will be
made available to. And all these people meet all of the other
conditions of the permanent fund other than the 180 days and it's
only because they are out working, they're on ships and they have
to be gone. It's for merchant mariners who live and reside in the
state of Alaska and who have their families here, and who are out
of the state for more than 180 days a year.
REPRESENTATIVE SANDERS said the merchant marines are often equated
with the military, especially in times of war. He mentioned that
he worked on river boats on the Mississippi and Ohio Rivers and was
gone for nine weeks and was in port six or seven days while loading
- so he probably spent nine months outside Texas. He said no one
could have convinced him that he wasn't a Texan because his family
was there, he paid rent, and so on. Therefore, he can relate to
the mariner's concerns.
CHAIR JAMES noted Representative Hudson's arrival.
Number 103
[Seafarers Recruitment Video - five minutes].
Number 231
DEBORAH VOGT, Deputy Commissioner, Department of Revenue,
reiterated the department's stand on additions or subtractions to
the allowable absence list are in the hands of the legislature.
She said the department has two concerns, the first is that
allowable absences be administrable and that there be clear lines
around what is and what is not allowed so that staff (from the very
beginning of the process up through review and appeals) can
determine who is and who is not eligible. She said she believes
the second function, which is appropriate for the department, is to
raise equity consideration.
MS. VOGT noted that the merchant mariner proposal is an
administrable absence. She said, as she understands it, the Coast
Guard can tell the department who is and who is not a merchant
mariner. She noted that the Seafarers Recruitment Video would
qualify as a vocational program and that a person who is a student
(at that program) would qualify for an allowable absence today.
The issue is whether that person would continue to qualify if he or
she took a career in the merchant marine.
MS. VOGT emphasized that the way this legislation is drafted, the
family members would not also qualify and that's an important
distinction between it and other absences. If the point is that
the person's family and ties are all in Alaska then that's the way
it should be drafted. Most of the absences (student, military, and
so on), family members of the person who does qualify are also
eligible for dividends. She said it was a large part of HB 2,
which was brought up last year, to reinstate that absence because
a court decision had denied eligibility for spouses.
Number 286
CHAIR JAMES asked how many appeals are based on allowable absences.
MS. VOGT responded that she believes most appeals deal with
allowable absences. She indicated the question of intent is
difficult - did you maintain your intent to remain or to become a
resident - did you harbor the intent to become an Alaskan when you
arrived here (indisc.--noise) or were you really coming for
vacation and then decided to stay.
CHAIR JAMES asked what percentage of activity is on appeals.
Number 326
NANCI JONES, Director, Permanent Fund Dividend Division, Department
of Revenue, replied (between review and appeal) approximately 16
staff members handle approximately 25,000 cases during the
application period (March 31 through the next March - one year).
Number 342
HAROLD HOLTON, Representative, Seafarers International Union, came
before the committee and read the following testimony:
I'd like it clear that I'm here on behalf of all merchant
seaman, who are denied their permanent fund dividend. I was
born in Ketchikan, raised in Ketchikan, Petersburg, and
Juneau, upon my completion of six years in the Marine Corps,
I came back to Alaska and became a state trooper for a short
period of time. I was a salmon tender captain for 15 years,
before becoming a union Representative.
The Seafarers opened an office in Anchorage, almost two years
ago to the day. Our objective is to recruit Alaskans to go to
our unlicensed apprenticeship program in Piney Point,
Maryland, and give them an opportunity to obtain good paying
jobs with good benefits when they complete the program.
I first became alerted to the fact that merchant seaman
[seamen] were being denied their permanent fund, by a merchant
seaman from a different union. His name was Ross Perrine from
Palmer, and he owns a home, has an Alaska driver's license,
voter registration card, et cetera. He's been denied the fund
since the inception. I went to one of our ships, and found
that a boatswain on the Tote ship Northern Lights has also
experienced the same problems. His name is John Glenn and he
will be testifying this morning.
Number 368
My recruiting effort has taken me around a lot of the state,
and in my interviews with young people, I seem to have their
interest in the program until the question of the permanent
fund dividend comes up, then I am told they are no longer
interested. I thought to myself, and have shared this view,
if these people seemed awfully shortsighted, and until I
really thought about it, this is probably the only steady
money they have ever seen, and are reluctant to let it go
under any circumstance.
These merchant seamen being denied do not have a choice when
they sail, as to whether they can sail in Alaska or not.
Sailing is based on a seniority system, and believe it or not,
our Alaska routes, are in high demand. The ones that have the
Alaska routes Ross and John are denied because they are not
physically in state a minimum of 180 days.
All of our Alaskans that have been accepted to Piney Point
because they are Alaska residents. I would hate to discourage
good young people, (short sighted as they may be) from
enjoying such a career opportunity.
Right now we have 18 Alaskans who have graduated from Pitney
Point, and we presently have two in school. Besides the 18
graduates, we have created a "riding maintenance" gang. These
merchant seamen go on oil tankers and do preventative
maintenance. We hired 10 riding gang a year ago, and all have
done an outstanding job. When they have a year of sea time,
they will be sent back to Piney Point and upgraded to
able-bodied seaman. We will start training and working a new
crew. This crew averages $3,200.00 per month, with full
benefits. Two of these merchant seamen have recently put
money down on homes in the Wasilla area. They also will be
denied their permanent fund dividend.
Number 405
An article in the Anchorage news, last Monday the 12, did an
article on our first native Alaskan. This has generated such
a positive response it is hard for me to keep up with it. The
first day it generated about 20 calls, and yesterday I
received 71 inquiries. This has resulted in six tests being
given yesterday, and six more scheduled on Friday, plus two in
Soldotna, one in Anchor Point, two in Kodiak, two in
Ketchikan, and several from Willow. These numbers are
candidates that are qualified.
In my estimation, we are not talking about any more than 200
merchant seamen over a ten-year period although I hope for
many more than that. This concludes my statement and I urge
you to support HB 157.
Number 420
CHAIR JAMES announced that the Senate State Affairs Standing
Committee will be hearing the Senate's version of HB 157 this
afternoon [SB 119 PFD ALLOWABLE ABSENCES].
Number 433
ROCKY LATTA, member, Seafarers Union, testified via teleconference
from Anchorage noting that his son Eden has struggled for a period
of time. When Eden saw Congressman Young's letter on the merchant
marine program, it changed his life. He said his son recently made
a down payment on a home in Girdwood and is looking forward to a
bright future with the International Seafarers Union. Mr. Latta
said, while Representative Young is trying to start the fire, by
working toward building a viable merchant marine industry in
Alaska, it seems the state is pouring water on this effort by
negating the permanent fund [dividend]. He added that the merchant
seaman have high-paying jobs that offer opportunities for
advancement.
MR. LATTA stated, "I read ... the legislature is trying to push
Alaska jobs for Alaskans and I think if we allow the permanent fund
[dividend] we're going to get more members in the union who live in
Alaska and they're going to spend their paychecks in Alaska.
Currently most of the folks that are delivering goods to Alaska are
from the state of Washington, California and the East coast, they
do not spend their money here. It just seems to me what's
happening, and I like Harold [Holton] did 20 years in the United
States Marine Corps, reminds me when I was a young kid back at Camp
Pendleton, we use to go down to San Diego, and ... signs that used
to be on the door of establishments, 'No dogs or sailors allowed,'
and I kind of feel to some respect that's the way we're treating
our folks here that are merchant marines. It appears to me to be
a double standard when you look at some of the other 13 groups of
people who are allowed to receive the permanent fund [dividend ].
Please do not treat Eden like a guest in this state, this is his
home, he lives here, he spends his money here."
Number 480
EDEN LATTA, member, Seafarers Union, testified via teleconference
from Anchorage. He noted that he attended the training program in
Maryland and was recently upgraded to an able-bodied seaman. He
said he was denied his permanent fund dividend because he spent 130
days outside the state (working on a ship) and feels like an
outsider because the state is denying him the dividend. Mr. Latta
noted that he has lived in Alaska for 10 years, he loves it here,
and can't imagine living anywhere else.
MR. LATTA said he understands the military is eligible for
permanent fund dividends unless they are sent overseas. He
mentioned that he has a Department of Defense identification card,
that the merchant mariners go through drills, they do everything
with the military, they even had the military riding with them. In
addition, the merchant seamen are placed in danger (which is the
same as the military) when they go through the chemical biological
radiation defense drills every week. He also mentioned that the
ship was damaged from mortar rounds in Somalia. Therefore, he
doesn't see where this is much different from the military.
Number 518
JOHN GLENN, Seafarers Union, testified via teleconference from
Anchorage in support of HB 157 noting he has been in Alaska since
1985. He met the allowable absence when it was six months, but now
that it has gone up to eight months, it's hard for him to qualify.
When he's off the ship, he's in Alaska with his wife and
grandchildren. Mr. Glenn pointed out that he has been denied his
dividend since 1992 and has been appealing truthfully every year.
MR. GLENN further stated that he has four months of home-time in
Alaska and is a permanent employee of Northern Lights which is
operated by TOTE (Totem Ocean Trailer Express). He also mentioned
that he has completed the appeals form with the required dates but
hasn't heard from the division. Mr. Glenn stated, "Whenever I
receive information from the Permanent Fund Dividend Division, it's
impossible for me to follow it. I'm just like Eden because one
time I answered the permanent fund people, I told them that this is
my home, this is where I hang my hat, and it's where I spend my
money. Even if I have a family over in Washington, I live here ...
and I think there's only a few of us up here. I would say 90
percent of the crew on the ships right now are from a different
state. But I don't see any difference between me and a wife of a
military person that's overseas - no time in Alaska and he doesn't
even spend the money up here. I live here and I intend to stay
here. And we are also part of the military defense with the
country ... because we do carry cargos to go to the Persian Gulf."
Number 572
KAREN BRAND, Vice President, Alaska State Chamber of Commerce,
Anchorage, came before the committee. She said the Alaska State
Chamber of Commerce fully supports HB 157. She read a position
statement that was adopted by the chamber last fall, "Efforts to
provide more opportunities for local hire and quality, professional
skill developments are hampered by the continued disqualification
of merchant mariners from getting their permanent fund dividend."
She said HB 157 gives the merchant mariners that opportunity and
inspiration to pursue a career as a merchant mariner. Ms. Brand
emphasized that the permanent fund dividend would serve as an
incentive for Alaskans to retain their residency in Alaska rather
than moving outside to start a career at sea. She said it would
resolve the inequities for Alaskans who make their living employed
at sea (on the freighters and tankers) which service Alaska.
REPRESENTATIVE SMALLEY asked how many individuals would be impacted
by HB 157.
REPRESENTATIVE SANDERS replied that, in the next ten years, it
should be less than 200.
EDDIE BURKE, Legislative Administrative Assistant to Representative
Sanders, added that there are currently 28 people in the system
that would actually be impacted.
Number 614
REPRESENTATIVE HUDSON asked why aren't the spouses and dependents
included.
REPRESENTATIVE SANDERS said his understanding is that the spouses
and dependents stand on their own.
CHAIR JAMES noted that the merchant mariners live in Alaska and
have family here.
Number 635
MR. HOLTON (Representing Seafarers International Union) stated,
"The situation that we're creating, is we're creating resident
Alaskans. If indeed somebody is transferred to Seattle, they're
not resident Alaskans and they wouldn't come under our program. We
want it very clear, if a resident is qualified they're qualified on
their own merit." He reiterated that Ross Perrine's family has
lived in Palmer for several years, they receive the permanent fund
dividend, however he is not qualified because he is outside too
long. Mr. Holton noted that John Glenn's route is only from
Anchorage to Tacoma and goes nowhere else. (He spends one day in
Tacoma loading the ship, the rest of his time he's on the sea
headed to Alaska or Tacoma). He indicated that there's a line
there that Mr. Glenn crosses that he can't say that he's in Alaska
and that's where he gets into problems, and Ross Perrine is the
same (delivering oil out of Valdez).
REPRESENTATIVE WHITAKER said his concern is that we are creating a
differential between military families and the families of merchant
mariners. He stated that it's a well-known law in the permanent
fund dispersement system that military families that come to
Alaska, or are transferred out of Alaska, and "by golly," they
remain Alaskans until they are out of the military because they
have a cursory Alaskan residence. The notion is correct that if
you have a family in Alaska, you're an Alaskan and if your job
takes you out-of-state and you're coming back that's just fine. He
noted that he will not hold HB 157. However, it doesn't address,
and it's not the intent of this bill to address that other problem.
Number 674
CHAIR JAMES announced that the discussion on HB 157 will continue
after hearing testimony on HB 156.
HB 156-PERMANENT FUND INVESTMENTS
CHAIR JAMES announced HB 156, "An Act relating to investments by
the Alaska Permanent Fund Corporation; and providing for an
effective date," is before the committee.
Number 684
ERIC WOHLFORTH, Chairman, Board of Trustees, Alaska Permanent Fund
Corporation, appeared before the committee, noting that the Board
of Directors, after close study and long preparation, approved HB
156. He pointed out that HB 156 is necessary to modestly expand
the board's investment position so that they can, with a prudent
degree of risk, take advantage of market opportunities and increase
the permanent fund yield.
Number 699
JIM KELLY, Director of Communications, Alaska Permanent Fund
Corporation, testified that HB 156 modernizes the statute [AS
37.13.120] because the world has changed since these statutes were
written (in 1980) and that the trustees need to be responsive in
managing the state's and the Alaskan's money to take advantage of
the opportunities that are there and to deal with the challenges
that they have. He stated that, "The change we've asked for isn't
the moon, it's a conservative request, it continues the tradition
of the 'legal list.' It would, however, give us the chance to add
some incremental value to our returns we think, and it would allow
us to better protect the portfolio. I'd like to have you look at
the fund as we look at it, as the Board of Trustees and the staff,
and the managers, and we see it as a long-term institution. And so
when we make decisions we try to make them with a very long
horizon, not a two year, a four year, or a ten year, not even a
20-year, but a generational type of horizon."
MR. KELLY provided information which shows the rates of returns
you'd get in the various asset classes over long periods of time.
[The report, "The Case for Increased Investment Flexibility: HB
156, APFC (Alaska Public Fund Corporation) Presentation to House
State Affairs, April 15, 1999," is available in the committee
packet]. Following is his testimony:
You see that over the 70-year period, from 1925 to 1995, that
your dollar would have turned into $13.00 if you had invested
in the Treasury Bill. That same dollar would have turned into
$1,114.00 if had been in ... a S&P 500 company.
The Next page shows that chart graphically and there's a big
difference in the amount of money that compounds over time in
those asset classes. We've seen a bit of that in our own
limited 15-year life and, over this period of time that the
fund has been in the stock market, your fund has earned almost
18 percent which is about twice what we expected to make going
forward in the stock market. But that's an excellent return
historically - and fixed income has been 10 percent to a fund
about 12 percent over the last 15 years compounded.
Long-term total returns, 15 years ended December 31, 1998
Total Fund Fixed Income U.S. Stocks
12.16% 10.15% 17.69%
Non-U.S. Stocks Real Estate
10.54% (Last 5 yrs.) 8.67%
Number 732
This bill is sort of the son of the daughter of a bill that
was originally introduced by the trustees that by the LB&A
[Legislative Budget and Audit] Committee, at the request of
the trustees two years ago, that bill asked for an allocation
limitation relief. We wanted to be able to invest up to 60
percent of the fund in stocks instead of the 50 [percent] that
we're limited with now. And this is just to show you that
bill wasn't acted on in 1997, it was passed by the House in
1998, and it didn't get any action in the Senate however.
And just to show you what the impact of that non-action was
[next page], in 1997 our stock portfolio earned 31 percent,
our fixed income portfolio earned 9.52 [percent] in 1998 you
can see that it was 23.62 verses 9.90. And the third column
there shows the difference. So in other words, if we'd had
the money in stocks instead of bonds, we could have earned 21
percent more on each dollar. And in 1998, 13.7 percent more,
multiply that times the 10 percent of the fund that could have
been invested in stocks, you end up with some pretty large
numbers, $324 million in 1997 left on the table, $444 million
last year, three quarters of a billion dollars of money not in
our pockets that could have been - that's the opportunity
(indisc.). That wasn't acted on because people have a concern
and a legitimate concern about risk, and when you go out there
and you reach for higher return you have higher risk and there
is an understanding of that at the Permanent Fund Corporation,
but it's the job of the fund managers to try to manage that
risk.
We know as - right now the board, when they leave at nine
o'clock, later today they're going to make the decision about
the asset allocation for the fund for the next year. They do
that on the basis of their expectation about what they're
going to be able to earn in each one of the asset classes.
And if we've gone through this exercise this year with our
consultant Callan Associates, we see that we are expecting
over the next five-year period lower rates of return in all
the asset classes and a higher range of variability. Maybe
they're going to be higher, maybe they're going to be lower,
but it's more risk than there has been in the past and we
understand that. But there's ways to deal with risks, and one
of the ways to deal with risk is by looking at it from a
long-term horizon. Now in a given year, over this 70-year
period that I referred to earlier, you might have a year where
you made a 150 percent return in small company stocks, or you
might have lost 80 percent of that value over that period of
one year. But then over a 5-year period you can see that the
range is much less. And what's really interesting - if you
look over a 20-year period, and if you look at small stocks
versus say corporate bonds, it actually turns out over a
20-year period, any 20-year period in this 70 years, there's
actually more risk in being in corporate bonds than there was
in stocks. The worst case was better in stocks than it was in
bonds. But that's one way that deal with risk is by hanging
with it for a long time and suffering through those bad years.
Now this bill doesn't address this one in particular, although
it's a topic you'll hear about in other venues, that how we
distribute - how you choose to distribute money from the fund
for dividends or for any other purpose has an impact on the
investment decision-making. The trustees, for a long time,
have been looking at a percent of market value distribution of
income. We call it "POMV" distribution, percent of market
value. Right now we're paying a percent of income. The
dividend is based on a 50 percent of realized income. If you
want the fund to be long-term, if you want to be able to
(indisc.) of the higher kinds of returns you can take
advantage of, you want to have the distribution parts of the
scheme (indisc.) in-sink with your investment part. A
Distribution based on market value does provide greater
stability, it's sort of the difference between the way the
chart looks one year and the way it looks on 20 years, you
really reduce the range of the possible outcome. So we think
we can manage the risk that way as well.
Number 793
Then the next few charts [Projected PF Realized and Total
Rates of Return Based on the Fund's 1998 Asset Allocation and
the 1999 Callan Capital Market Assumptions] are ... the $770
million dollars is an opportunity cost over the last two
years. If you look going forward - this is a chart that we
use as we're developing our asset allocation plan for the
current year and it's a bunch of numbers, but the one
underlined in red says that we're putting 34 percent of your
fund in stocks over the next year, that's the plan, and 14
percent in non-U.S. stocks, and 42 percent in bonds, 10
percent in real estate. That will give us a 7.75 [percent] in
the circle rate of return.
The next page shows what if you kicked up the stocks 5
percent, which this bill, that's before you now would allow.
That 7.75 [percent] return becomes 8.22 [percent], so that's
47 basis points, that doesn't seem like much, but remember it.
The next one is ... if you allowed 10 percent, which this bill
doesn't do, but if you chose to make that decision you would
pick up another 47 bases points to 8.69 [percent].
Number 806
The next chart shows you what does that mean. These are rows
that I've taken off of our projection sheet - this is over a
20-year period, so between now and 20-years from now, how much
income would the fund have made. Under the status quo, with
a 50 percent ceiling, we would earn $66.8 billion. If we were
earning that extra 3.8 percent in stocks, on 5 percent of the
portfolio, that would increase the income by $6.5 billion,
roughly $200 million a year. And if we went to the 10
percent, it would go up to $80 billion, a $13 extra-billion
over 20 years. That's quite a bit of money.
And lastly, there's a chart that you can look at any time you
want to on our Web site [www.apfc.org] which is noticed on the
bottom of the page there. But it shows you where your fund is
invested from day-to-day and it's over $26 billion as of
two-days ago. But the important part about this chart is
that, if you look at the percentages invested in U.S. Equities
and Non-U.S. Equities, we had just exceeded 50 percent, so
that means we're going to have to sell some stocks. Take it
out of the stocks and put it into bonds because that's what
the law says.
Daily Unaudited Position as of April 13, 1999
Fixed Income $10,752,900,00 41%
U.S. Equities 9,727,800,00 37%
Non-U.S. Equities 3,560,700,000 14%
Real Estate 2,035,100,000 8%
Alaskan CSs 190,000,000 1%
TOTAL $26,266,500,000 100%
That is the big picture that I would like you to think about
when you look at the exact changes that we've got before you.
We do have the legal counsel who drafted the bill analysis,
and between myself and he, I'm sure we can answer any
questions you have about the particulars of the bill, but we
would very much urge you to support the bill to help us do a
better job in managing your fund.
Number 829
CHAIR JAMES said the constitution makes it perfectly clear that the
income on the "permanent fund" is the "general fund," and is
intended for appropriation. She further stated, "And we keep
saying that the permanent fund is $26 billion, the permanent fund
is only $19 billion, and the rest of it is in the earnings reserve,
which should be according to the constitution - general fund. So,
you know when we keep telling the folks there's $26 billion, aren't
we being a little untruthful."
MR. KELLY replied no, the constitution says that all the income
from the permanent fund shall be deposited in the general fund
unless otherwise provided by law. He further explained that the
lawmakers of 1982 provided that that income will be deposited
within the permanent fund in the earnings reserve account, so $26
billion is in the permanent fund and none of that money is
currently in the general fund; $7 million of that dollars are
available for appropriation to the general fund, $19 billion is
not, the principal cannot be appropriated. He noted that's the
difference.
CHAIR JAMES added that many Alaskans believe that none of that
money can be spent without their vote. She asked Mr. Kelly to
explain what is protected and what isn't in the permanent fund.
TAPE 99-24, SIDE B
Number 001
MR. KELLY continued, "...It's on our Web site [www.apfc.org], it's
in our printed publications. We made a presentation to Senate
Finance Committee last week in relation to the development of a
fiscal plan - that was the big point that we made. I agree it's
something that people need to know and we'll be glad to say it
every chance we get that the income of the permanent fund is
available for appropriation by the legislature, that's the way it
was designed and that amount is everything that's is not principal,
and the principal is $19 billion."
Number 053
REPRESENTATIVE KERTTULA indicated that she would like to offer an
amendment which simply allows the Alaska Permanent Fund Corporation
an extra 5 percent for that investment flexibility, so it would go
from 50 to 55 percent. She mentioned the testimony about how the
previous years the board has sought to raise the ability to invest
on their stocks from 50 to 60 percent.
MR. WOHLFORTH said, "As much as I'd like to say yes we'd welcome
the additional authority, I'm fearful of jeopardizing the
opportunity of getting even the 5 percent that we've asked for.
That's my apprehension."
CHAIR JAMES said that would be taken into consideration. [Hearing
on HB 156 will continue after the consideration of HB 157].
HB 157-PFD ALLOWABLE ABSENCES
Number 115
CHAIR JAMES called the committees attention back to HB 157,"An Act
relating to absences from the state while serving on oceangoing
vessels of the United States merchant marine for purposes of
eligibility for permanent fund dividends; and providing for an
effective date." She stated for the record:
First of all we keep finding ourselves boxed-in in making
decisions in the state of equity, and much of the time ... are
based on something - other decision that we've made prior,
that maybe wasn't a good idea. I believe I will vote to pass
your bill out, I just want to put these things on the record
and my concerns about this and it has to do with the
administration of the permanent fund dividend program and the
problems that we have because of absences. And we want to be
sure, when we have a permanent fund dividend, that we include
Alaskans, true Alaskans, Alaskan residents, but it's very
difficult to define what an Alaskan resident is. And
certainly, if they qualify for an Alaska residence, and their
family is here, and they live here, and they don't really live
anywhere else, but they're working somewhere else - bringing
in money from some place else to spend here in the state, I
think we should feel pretty inclined to say, "Well that's
okay." It's been a real problem trying to determine what
these valid absences are, and every year - we have another
bill coming up later in the meeting here which is the same
thing -- they're talking about people who are in private
industry, we've heard that bill before, because state
employees are allowed to be away for more than 180 days, but
private sector employees are not, so that's an inequity. So
how do we fix it, do we say the state employees aren't
eligible either - and now we're level again? Do we back down
to get level, or do we continue to go forward to get level?
I just wanted to make that comment for the record because it's
a dilemma for me. And in fact is, we ended up - as I recall
the circumstances - I got a lot of telephone calls and letters
and (indisc.--paper shuffling) from a lot of folks in this
state when we denied the Peace Corps folks and that happened
in the Senate - or the other body last year, because we're
adding more folks in, and if you're going to add somebody in,
we'll take somebody out. I mean that business of just adding
on more and more absences is a real problem. I don't know
what the answer is, I just wanted to let you know it is a
concern of mine.
Number 183
And I wish it were that we could really define Alaska
residence better in a way so we didn't have this deadline, "If
you're gone for more than 180 days, I'm sorry you're out,"
because the number of days doesn't tell us whether they're
Alaskan or not, it doesn't do it. I share with Representative
Whitaker's concern about the military, I have a huge
percentage of the people in my district are military, I'm not
going to go out and try to make something that's going to make
them mad, but on the other hand we know there are military
that come here and decide to be an Alaskan because of the
permanent fund dividend.
Having said all those kinds of things, you have to take a
second thought as to whether or not the dividend program is
really what we want for Alaska. Whether or not people are
becoming Alaskans because of the dividend or not, and just
exactly how big a dividend we could have without causing that
kind of ruckus. You know we can have people move in with
seven or eight children and the size of the dividend of now is
the real problem. So, I don't have any answers, I only have
concerns, and I don't have any positions either, I still only
have concerns, but I wanted to put all those things on the
record - that the more we open this up, and 200 folks are not
very many considering, and certainly they ought to be
entitled. And I certainly will support their entitlement on
this issue, but the whole thing has me very concerned about
the future of Alaska and who our residents are, and why
they're here. And those are very important issues to me and
I take these things very seriously.
Number 224
REPRESENTATIVE HUDSON stated, "All I'm suggesting is that this is
the policy call that we have to make and while I'm sympathetic to
this particular group [merchant mariners], we have to know that
there's a whole, whole bunch of others who maybe have lost their
job in Alaska, ... that's the policy call that we all have to make,
and so everybody knows right up front that that's what we're
dealing with."
CHAIR JAMES noted Representative Ogan's arrival.
Number 278
REPRESENTATIVE HUDSON moved to report HB 157 out of committee with
individual recommendations and the accompanying fiscal notes.
There being no objection, it was so ordered.
HB 156-PERMANENT FUND INVESTMENTS
CHAIR JAMES called the committee's attention back to HB 156, "An
Act relating to investments by the Alaska Permanent Fund
Corporation; and providing for an effective date."
Number 295
TOM MAHER, Legislative Assistant to Representative Gail Phillips,
pointed out that the sponsor's statement outlines the Legislative
Budget and Audit (LB&A) Committee's oversight responsibilities for
investment and lending entities of the state. He said HB 156 was
introduced at the request of LB&A and was presented to them on
March 23, after a brief discussion and that it passed unanimously.
REPRESENTATIVE OGAN said he doesn't understand HB 156.
CHAIR JAMES remarked that's probably because he wasn't here to hear
Jim Kelly's [Alaska Permanent Fund Corporation] presentation.
MR. MAHER explained that the corporation attempted to increase
their asset class or stocks by (he believes) 10 percent last year
and that a lot of legislators were uncomfortable with that. He
said this legislation does a number of things: It gives them a 5
percent flexibility among all their asset classes, between equity,
bonds, and allows them, depending on market conditions to move that
around. He stated, "They're the experts, quite frankly in this,
our committee felt very comfortable with giving them this 5 percent
rather than a 10 percent. ... We felt that this was a reasonable
action to take for the permanent fund. We think it's very serious
when we make changes to any investment policies of the permanent
fund and hope that through the entire review, including the Finance
Committees, that we will all feel more comfortable with this. The
details of how it all works, there's materials in the [committee]
packet ... our committee felt comfortable with these minor
changes."
MR. MAHER continued, "One other point, we've had a lot of talk, and
Mr. Kelly when he was here, they quite often speak in how this 5
percent would be applied to stocks and what the return would be had
we done that. My understanding is that this 5 percent could be
moved anywhere where they need it. So perhaps it would be equities
at this time, perhaps at a later date it would be something else
that modernizes the way can react to market trends."
Number 381
REPRESENTATIVE KERTTULA offered Amendment 1, page 6, line 20,
delete "50", insert "55". She pointed out that this would increase
the flexibility, so that if the board felt it prudent, they would
have another 5 percent. Representative Kerttula stated, "They
don't have to do this, but I think that they've shown an excellent
record of management and after talking with Mr. Kelly yesterday,
his figures are that if we had had something like this in place
already, we would have had about another $300 million this year.
And if we look at it in the long-term perspective, as a corporation
does, this is just one more tool."
REPRESENTATIVE KERTTULA referred to the information that she
provided noting that large corporations and universities invest
typically from 55 to 65 percent of their assets in equity and are
currently using this kind of investing. So, it really is just
another tool and it is well within the range of the university
endowments. On a side note, the state PERS [Public Employees'
Retirement System] ... doesn't have asset allocation limitations
and it's been doing well during the last few years.
REPRESENTATIVE KERTTULA noted that she has concerns as well. After
talked with Mr. Kelly, what if the market (indisc.) and it's that
long-term perspective that they follow and this is just one other
tool that would allow them to have a little more flexibility - not
that they have to do it by any means, but it gives them that
ability if necessary.
Number 417
CHAIR JAMES asked Mr. Maher what Representative Phillips position
would be on this amendment.
MR. MAHER replied Representative Phillips preference is as HB 156
was presented to the committee.
CHAIR JAMES said she has a lot of faith in the Permanent Fund
Corporation Board of Trustees and Callan Associates and is
impressed with the financial wizard-ability and is willing to give
them this flexibility, however she doesn't want to do anything that
might kill the bill.
REPRESENTATIVE HUDSON noted that since it is permissive, he
believes that we have to place our trust into the analysts because
they have the public's best interest in mind for the maintenance,
growth and stability of the fund. In response to the question,
will this kill the bill [HB 156], he said the Fiance Committee can
amend it from 10 percent back to 5 percent.
CHAIR JAMES said one of the problems is that when the price of the
stock that they're holding goes up, sometimes the board has to sell
prematurely in order to keep under the cap. This would give them
a little more flexibility to go up even though they're not capping
that as their goal of the 55 percent. She said it makes sense to
give this flexibility.
Number 499
REPRESENTATIVE WHITAKER commented that the financial wizards are
wonderful to trust, and of course the permanent fund financial
wizards have earned our trust and beyond that, we can trust the
time trend dynamics that's associated with the equities market. He
further stated that it is there, it is proven, and we've come
through a terrible crash in the late 20's the early 30's and we
still have tremendous growth. It's that dynamics that he trusts,
so it's a move that the committee needs to take.
CHAIR JAMES agreed with Representative Whitaker's comments.
REPRESENTATIVE KERTTULA said that's exactly what Mr. Kelly was
pointing out, that there was going to have to be some sales.
MR. MAHER mentioned a lot of the LB&A committee members are
previous members, which did introduce the legislation taking the 10
percent out.
CHAIR JAMES asked if there was an objection to the amendment.
Number 529
REPRESENTATIVE COGHILL objected. He said he believes the request
is reasonable and the other flexibility which goes into this more
than makes up for it. He further stated, "The best (indisc.)
nondomestic in carrying different properties that are
non-developed, there's an expansion of that. Before we go any
further, I think that we need to let them exercise what's already
here and so I'd be really cautious on even going that further
because we're now looking at a flexibility that allows ownership in
a greater degree and nondomestic entity that I'm not too sure where
that goes and I don't know what the limits of that are. The other
thing is there's real estate that is non-developed being allowed in
this and those are pretty good expansions. So I think the risk
goes up plenty enough as it is, and I would just speak against it
for those reasons."
Upon a roll call vote, Representatives Hudson, Smalley, Kerttula,
Whitaker and James voted in favor of adopting the amendment and
Representatives Ogan and Coghill voted against the amendment.
Therefore, the amendment passed by a vote of 5-2.
CHAIR JAMES said she has faith in the Finance Committee.
Number 558
REPRESENTATIVE HUDSON moved to report CSHB 156(STA) out of
committee with individual recommendations and the accompanying
fiscal note. There being no objection, it was so ordered.
HB 132-PERMANENT FUND ALLOWABLE ABSENCES
Number 585
CHAIR JAMES announced HB 132, "An Act relating to allowable
absences from the state for purposes of eligibility for permanent
fund dividends; and providing for an effective date," is the next
item up.
Number 592
REPRESENTATIVE COGHILL moved to adopt CSHB 132, version H, Cook,
4/8/99, as the working document before the committee. There being
no objection, it was so ordered.
REPRESENTATIVE OGAN noted that the deputy commissioner of the
Department of Administration, an assistant attorney general, and
the sponsor met with the subcommittee. He stated, "After lengthy
discussion decided that, add the language there of domicile in the
state and then let the case law - that's pretty clear in the courts
- define what domicile is, which is a tighter description of
residency. If that would satisfy possible loopholes of people
making false claims, 'Well, my employer make me work out-of-state
for awhile, it was beyond my control.' ... The thing that wasn't
resolved was, what do we do when somebody is self-employed, and so
if you're self-employed, or you're a principal in a corporation ...
there might be a loophole there where people could say, 'Well, gee
my boss made me work outside for awhile ... the person is on the
payroll but he's his own boss. That's probably the only down-side
to this. Then we ... removed the retroactivity clause in 1997 and
we also added, at Representative Smalley's request, to include
Peace Corps."
REPRESENTATIVE HUDSON asked why the retroactivity provision was
removed.
REPRESENTATIVE OGAN said he believes the sponsor's constituent
received a dividend for that particular year.
CHAIR JAMES suggested asking Nanci Jones, Department of Revenue,
about that.
Number 642
REPRESENTATIVE WHITAKER expressed his frustration with HB 132.
CHAIR JAMES remarked that she, and other folks, share his
frustration on this issue.
REPRESENTATIVE SMALLEY noted that HB 132 looks at those individuals
that are actually residents of the state, but because of their
employment situation are out of the state. He said, from a policy
standpoint, he feels comfortable with it.
REPRESENTATIVE HUDSON said he has a concern with being "required"
to be outside the state of Alaska, because the department will have
to determine when somebody "has" to be outside. He mentioned that
people want to know how they can become a resident of the state of
Alaska to be eligible for the dividend.
REPRESENTATIVE OGAN commented that there is a danger of bills
turning into Christmas trees.
CHAIR JAMES asked why the peace corps was put back in when it was
removed last year.
Number 698
PETER TORKELSON, Researcher to Representative Cowdery, stated that,
"We've really tried to sidestep the military issue, although I
understand that it's part of the larger policy question. On the
Peace Corps, the original language in the bill (Representative
Smalley noted) was such that it probably would have included
members of the Peace Corps, but it was questionable. And the AG's
[Attorney General's] office expressed their intent that if you're
going to include them just say so, let's avoid the legal hairball
of trying to decide afterwards what you really meant. And that's
where the Peace Corps came from essentially, and with
Representative Smalley's concerns the committee chose to move that
way."
REPRESENTATIVE OGAN said he told Representative Smalley that it
would be included in the committee substitute that it will fly or
not fly based on the will of the committee.
Number 718
DEBORAH VOGT, Deputy Commissioner, Department of Revenue, noted
that (in the context of the legislation [HB 157] which was earlier
considered with respect to the merchant marines) the way this
legislation is now drafted [HB 132], a person in the merchant
marines would probably qualify under this exemption. The
difference is that the spouse and family of the person would
probably also qualify because the general allowable absence for
accompanying a person who is on an allowable absence would apply to
a person who is out-of-state at the direction of his or her
employer. She said it's something the committee might want to
think about real seriously.
MS. VOGT said, "As I have heard the justification for folks being
sent outside for employment purposes, it's always been in the
context of people who really do maintain a home here, their family
is here, and so on, and they leave for a short period of time for
employment and then return, but their families don't move. The way
this is currently drafted, we would be presented with the situation
of people who took their families with them and perhaps stayed for
a number of years - coming back to work in Alaska for the
mandatory, I believe the bill does require that the person work in
Alaska for some part of the year, ... what I'm pointing out is that
this broadens considerably the pool of people that are going to be
asking to come within the exemption and it's going to be real hard
for us to find ... where to draw the line."
CHAIR JAMES said she also sympathizes with that issue. She then
referred to page 2, line 19, and asked Representative Ogan what are
the residency requirements and how do they differ from the
domiciled.
in addition to satisfying the residency requirements, the
individual is domiciled in the state; and
Number 756
REPRESENTATIVE OGAN said he believes the residency requirements are
based on Title 1, which doesn't specifically mention anything about
domicile. He indicated Legal [and Research Services Division]
throws up red flags when the legislature starts talking about
residency because it's usually litigated.
CHAIR JAMES asked Representative Ogan to read Title 1.
REPRESENTATIVE OGAN read: Residency - a person who establishes
residency in the state by being physically present in the state
with intent to remain in the state indefinitely to make a home in
the state. He said this is AS 10.055: A person demonstrates intent
under (a) of this section (that was (a) of the section) by
maintaining principle place of abode in the state for at least 30
days or longer. Or if a longer period is required by law or
regulation and by providing proof of intent. As may be required by
law or regulation which may include proof that the persons claiming
residency outside the state or obtaining benefits and (indisc.)
claiming residency outside the state.
REPRESENTATIVE OGAN further noted that under Title 16, place of
abode is basically a house, or was interpreted by the courts
actually to be a mobile home. He mentioned that Fish and Wildlife
Protection had a hard time convicting people who have mobile homes
parked year-round in the state because they were maintaining a
Title 16 residency to obtain lowcost hunting and fishing licenses
and free hunting tags. He emphasized that domicile is a much
higher standard. Representative Ogan continued, "We had originally
attempted to put some of the descriptions of domicile into the
statute and - that was a request we - the case law is very clear
and well established on what domicile is and we felt that all we
had to do is just mention domicile as a higher standard and I can
explain the differences if you'd like."
Number 795
CHAIR JAMES said she has a problem with the word "intent," because
she doesn't know how a person's intent can be measured.
REPRESENTATIVE OGAN read [Black's Law Dictionary], "A domicile is
a person's legal home, that place where a man, or woman I assume,
has his true fixed and permanent home and principal establishment
into which whenever he is absent he has the intention of
returning," that's a case law Smith vs. Smith.
CHAIR JAMES said that, unless you're in the military, that you're
required by law to go where you're told. She asked how required do
they have to be, is it just being asked to go, and if you don't go
you lose your job, how do we measure required?
Number 816
MR. TORKELSON replied, "I believe the draft is fairly clear that as
the condition of employment - which would mean at the threat of
losing your job, which isn't maybe like the military but it
certainly could be a pretty coercive situation for some people."
MR. TORKELSON said a representative from the Department of Revenue
said perhaps the whole family could go out and stay for a number of
years and come back for certain periods of time. He stated, "I
suppose well that's possible. The intent of the subcommittee was
that with domicile it would be a pretty tough standard to show.
You've got your whole family out there, your kids are going to
school in another school, or not going to school at all. ... That
you're really domiciled here, I think that's the point that
domicile does - a true and permanent home and it includes a number
of things you can show including the existing regulatory definition
that defines it as - one of the evidence for domicile - is where
you store your household goods. So, I'm not sure that it would be
quite as broad as is (indisc.--fading)."
Number 820
REPRESENTATIVE HUDSON mentioned he has seen so many different
descriptions by statutes of residency. For a student loan it takes
so many years, he believes for a fishery's loan it takes two years,
to vote it only takes 30 days and shows an intent. He emphasized
that the state had a large lawsuit with the employees of the Alaska
Marine Highways System where they were claiming that they were
being disenfranchised because they were sailing on the system and
they chose to live in Seattle, the policy is pretty clear. He
said, "I think the policy is whether or not we want to make that
first leap - which is going beyond the required absences outside
the state of Alaska. I don't know how you'd be able to determine
- for example if the guy was a contractor..."
TAPE 99-25, SIDE A
Number 001
REPRESENTATIVE HUDSON continued, "Add ornaments on this Christmas
tree."
MR. TORKELSON noted that the question has come up in the context of
the bill previously heard [HB 157]. He said he would like to make
a distinction. In that policy call a select class of employees
were chosen and given, if that bill passes, were giving that
entitlement to select classes. He said, "This does not distinguish
among different classes of employees, we recognize that all
employment is equally valuable to the state. The money that you
bring in whether you're the other type of employee or contractor,
is just as valuable. So from a policy perspective I'm not sure
that perhaps leaps have to be made."
REPRESENTATIVE HUDSON asked if the previous discussion would fall
into the same category.
CHAIR JAMES added, overlapping.
REPRESENTATIVE HUDSON noted that it will absorb them as well so, if
you had this you wouldn't need that and you would expand it to...
CHAIR JAMES remarked, but if you have this [HB 132] you also
include their family.
CHAIR JAMES further noted that their family has to stand on their
own and in HB 132 they still have to come back to the state
(indisc.--simult. speech) every year. Every year they have to work
in the state of Alaska for part of the qualifying year. She said
that might exclude some of the merchant mariners, but if they're
sailing out of the state they would return to Alaska every year for
a certain extent. Chair James said, "It [HB 132] does say that
they have to be domiciled in the state, that might protect them
from taking their family and leaving their family somewhere else."
Number 064
MS. VOGT stated, "In the merchant marine legislation which was
considered [HB 157] was specifically drafted to address the issue
of the spouses and the dependents. In the allowable absences,
currently listed as number 12 in the statute, which is accompanying
another eligible resident who is absent for a reason permitted
under the subsection as the spouse, minor dependent, or disabled
dependent of the eligible resident, that's the allowable absence
(that we have now) that applies to every other allowable absence."
MS. VOGT continued, "In the merchant marine statutes that we
considered this morning, the language was inserted to say that
accompanying eligibility only went for reasons' 1-3 and 5-12,
leaving out reason number 4, which was the merchant marine. And so
I would say if this legislation [HB 132] that we're now considering
also passed, which does not exclude that allowable absence for
spouses, we would have to say that it was intended that spouses be
included. And so if a person went, for example for a construction
contract, outside for eight months ... and took the family with him
or her, then that family would qualify under the way this is
currently drafted."
CHAIR JAMES said, if that's the case, if you take your family
along, then the family would be excused as well.
MS. VOGT replied right.
Number 116
CHAIR JAMES asked if the family can stay out during that period of
time.
REPRESENTATIVE OGAN said he assumed that the individual maintains
the domicile in the state and that this exemption only applies to
the individual, it's not a condition of the family's employment to
live there, it's an option for them to go and wouldn't qualify.
MS. VOGT pointed out that the department would have a difficult
time because the separate allowable absence for the spouse or
dependent of a person who is on an allowable absence would appear
to cover that spouse. She explained that the allowable absence
that HB 132 is talking about is the employee, but the other
allowable absence, currently number 12, is toward the spouse of a
person who is an allowable absence. She said she believes that
person would qualify as an eligible spouse even though they weren't
required to leave the state.
(12) for employment if in addition to satisfying the residency
requirements, the individual is domiciled in the state; and
the employer certifies in writing that the absence was a
condition of the employment and that the individual was
required to work in the state for part of the qualifying year;
Number 182
REPRESENTATIVE COWDERY said he doesn't have a problem with having
every individual, whether it's family, provide the same proof as
the individual who has the job if that would help matters.
Number 199
NANCI JONES, Director, Permanent Fund Dividend Division, Department
of Revenue, explained that the law currently states that in this
situation, if HB 132 were to pass, then the person's family would
only be obligated to come back every two years for 72 hours. The
individual who's trying to qualify under this employment has the
obligation to come back in the state and work part of that time in
the state. She mentioned that person can go back and forth, and
the family could remain out there which is one of the problems.
CHAIR JAMES said the individual must be domiciled in the state,
does that change that at all.
MS. JONES responded that the division has a slight difficulty with
the domicile competing with the definition of residency - that you
have this kind of higher order. She noted that it is still based
on intent - domicile is saying that you have a higher intent that
you show means that you actually have a house in Alaska, and
residency - you're saying the same thing. Ms. Jones said it is a
fuzzy line that the division will have to deal with if this
legislation passes.
Number 226
MS. VOGT agreed that domicile in the common law has a stricter
meaning than residency. She said, "The issue that we discussed in
the subcommittee is that for permanent fund dividend purposes we
use a lot of the attributes of domicile to determine PFD (permanent
fund dividend) residency. There may still be a slight shading of
difference - a person can only have one domicile, a person can have
more than one residence. And certainly under, even Title 1 in the
PFD, we require the principle place of abode to be Alaska, but they
get fuzzy when a person is in the military or a student for a
number of years and they really don't maintain a physical home in
Alaska but they are still qualified. It adds something to add the
word domicile, but it's still going to be a difficult question of
proof to determine if a family goes outside for a number of years
and still owns a home in Anchorage, they rent it out on a long-term
lease, I don't know how we're going to decide that kind of a case."
Number 256
REPRESENTATIVE COGHILL said he attended some of the subcommittee
meetings. Part of the inequity, as he understands it, started with
the State of Alaska having the ability to have employees out of the
state for a period of time [page 2, line 15, (10)]. He said he
believes there is a problem and that we can certify a state
employee a lot easier that we can almost any other kind for state
purposes, but for these purposes.
serving as an employee of the state in a field office or other
location;
REPRESENTATIVE COGHILL continued, "There are several things in this
that trouble me. One of them is that we end up having to become
discerners of intent and that's bad policy. It's almost like when
somebody brings a bill before a committee and we question their
motives, and really that's what we're putting in statute saying we
are reserving the right to judge your intentions and then there are
certain proving factors to that intention. I find that kind of
troublesome because I am one that doesn't like the state doing
that. I'd rather have a nice clear line that says if you're out of
the state 180 days you don't get it. And, even though I've got a
military base right in the middle of my district, I also have
trouble with the military exemption."
REPRESENTATIVE COGHILL emphasized that either you should be here or
you shouldn't be here. However, he has the dilemma of if they are
fellow Alaskans, he doesn't want to just cut them off. He further
stated, "That's the problem that we've got ourselves into here and
I'm, for one, really reluctant to pass this bill out [HB 132] and
I let the other one go [HB 157] without comment, but my point was
made when that precedent of letting that bill out started this one,
and we'll probably have 20 more that come up. And I think, like
the peace corps, it was taken out for a good reason, they're just
not here, you know. And I think we're going to have to now be a
discerner if an employer is telling the truth or not when he
certifies, and that could be a cause of litigation ... was that a
bogus certification, and now they become open to a civil liability
- all for a dividend check. And so I'm really cautious, I really
want to see equity, but my thinking would be to take this section
out and take section 10 out and go home. I just had to put that on
the record that I'm really having a struggle with the precedent of
what we're saying here and I think Mr. Hudson made a really good
point in what we're doing is we're shifting the whole philosophy
and so, at this point I am really reluctant to move this."
Number 338
MS. VOGT said she would like to address a couple of issues and one
of them is the issue of intent for the requirements that the
employers certify that, under the conditions of employment, that
the individual be outside. The question is going to arise, "But
did you have to have that job." Certainly volunteering to join the
military is a voluntary act and once you're in the military your
desires are no longer your own. She said the peace corps really
focuses on this issue because there was discussion about whether
the peace corps would come under this exemption because once you're
in the peace corps, which is a voluntary choice, then the peace
corps tells you where you go. Some members of the committee [HB
132 subcommittee] said, "Well, but that's a voluntary choice to go
volunteer in the peace corps," others said, "But the peace corps
tells you where you go," and for that reason the language was added
so that there's no question. Ms. Vogt said, "But you can see the
dilemma that it raises for us, then what do we do with Americorps
or VISTA [Volunteers in Service to America] once you've made the
choice to volunteer - you're assigned where you're assigned. And
so it's that kind of issue that is going to come up."
MS. VOGT stated that, "The other point I wanted to make about the
peace corps was the reason that it was removed from the allowable
absence lists last year was really largely because folks focused it
on the inequities that it raises - that it came about with a
suggestion to add volunteering for FEMA [Federal Emergency
Management Agency] to the list because we pay volunteers, we pay
VISTA, then folks recognize that, well we don't pay most
volunteers, we don't pay VISTA, we don't Americorps, we don't
volunteering for religious organizations for doctors without
(indisc.). All the other kinds really laudatory reasons that
Alaskans leave the state, and so it was decided then that it was
more fair not to pay the peace corps then to try to find a line
between what kinds of volunteering service we would choose to pay
and what we wouldn't pay."
CHAIR JAMES said she understands the dilemma.
Number 397
REPRESENTATIVE HUDSON asked for a list of positions (for employees
which are receiving the permanent fund dividend) outside the state.
MS. VOGT pointed out that the folks who are on sabbatical from the
university system should be treated as employees of the state since
they are still employed by the university. She noted that they
used to be paid under another allowable absence which was in
regulation. Ms. Vogt said, since that wasn't incorporated into the
statute last year (that people on sabbatical would no longer be
paid) then the area was raised that they are employees of the
state, so that's one category that comes within that definition.
REPRESENTATIVE HUDSON asked if sabbaticals are required or are they
by choice.
MS. VOGT said she believes sabbaticals are by choice
(indisc.--simult. speech).
REPRESENTATIVE HUDSON remarked that you apply for it.
CHAIR JAMES commented, "Take a year off."
MS. VOGT noted the point is that they are continually paid because
they are still employed.
REPRESENTATIVE COGHILL recommended that HB 132 be held because he
believes it needs to be amended.
[HB 132 was held for further consideration].
ADJOURNMENT
Number 460
There being no further business before the committee, the House
State Affairs Standing Committee meeting adjourned at 10:00 a.m.
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