01/29/2009 08:00 AM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB5|| HB45|| HB92 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 42 | TELECONFERENCED | |
| *+ | HB 5 | TELECONFERENCED | |
| *+ | HB 45 | TELECONFERENCED | |
| *+ | HB 92 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
January 29, 2009
8:05 a.m.
MEMBERS PRESENT
Representative Bob Lynn, Chair
Representative Paul Seaton, Vice Chair
Representative Carl Gatto
Representative Craig Johnson
Representative Peggy Wilson
Representative Pete Petersen
MEMBERS ABSENT
Representative Max Gruenberg
COMMITTEE CALENDAR
HOUSE BILL NO. 5
"An Act relating to certain investments of the Alaska permanent
fund, the state's retirement systems, the State of Alaska
Supplemental Annuity Plan, and the deferred compensation program
for state employees in companies that do business in Sudan, and
restricting those investments."
- HEARD AND HELD
HOUSE BILL NO. 45
"An Act relating to certain investments of the Alaska permanent
fund, the state's retirement systems, the State of Alaska
Supplemental Annuity Plan, and the deferred compensation program
for state employees in companies that do business in Sudan, and
restricting those investments."
- HEARD AND HELD
HOUSE BILL NO. 92
"An Act relating to certain investments of the Alaska permanent
fund, the state's retirement systems, the State of Alaska
Supplemental Annuity Plan, and the deferred compensation program
for state employees in companies that do business in Sudan, and
restricting those investments; and providing for an effective
date."
- HEARD AND HELD
HOUSE BILL NO. 42
"An Act establishing the Legislative Study Group on the
Establishment of an Immediate Online Political Campaign
Reporting System; and directing the study group to prepare a
report on the possibility of creating an immediate online state
political campaign reporting system."
- BILL HEARING POSTPONED
PREVIOUS COMMITTEE ACTION
BILL: HB 5
SHORT TITLE: DIVEST INVESTMENTS IN SUDAN
SPONSOR(s): REPRESENTATIVE(s) LYNN
01/20/09 (H) PREFILE RELEASED 1/9/09
01/20/09 (H) READ THE FIRST TIME - REFERRALS
01/20/09 (H) STA, FIN
01/27/09 (H) STA AT 8:00 AM CAPITOL 106
01/27/09 (H) <Bill Hearing Rescheduled to 01/29/09>
01/29/09 (H) STA AT 8:00 AM CAPITOL 106
BILL: HB 45
SHORT TITLE: DIVEST INVESTMENTS IN SUDAN
SPONSOR(s): REPRESENTATIVE(s) GARA, GARDNER, PETERSEN, KERTTULA
01/20/09 (H) PREFILE RELEASED 1/9/09
01/20/09 (H) READ THE FIRST TIME - REFERRALS
01/20/09 (H) STA, FIN
01/27/09 (H) STA AT 8:00 AM CAPITOL 106
01/27/09 (H) <Bill Hearing Rescheduled to 01/29/09>
01/29/09 (H) STA AT 8:00 AM CAPITOL 106
BILL: HB 92
SHORT TITLE: DIVEST INVESTMENTS IN SUDAN
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/28/09 (H) READ THE FIRST TIME - REFERRALS
01/28/09 (H) STA, FIN
01/29/09 (H) STA AT 8:00 AM CAPITOL 106
WITNESS REGISTER
DIRK MOFFATT, Staff
Representative Bob Lynn
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 5 on behalf of Representative
Lynn, prime sponsor.
REPRESENTATIVE LES GARA
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 45 as co-prime sponsor.
PATRICK GALVIN, Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Testified during the hearing on HB 92 on
behalf of the House Rules Standing Committee, sponsor by request
of the governor.
JERRY BURNETT, Deputy Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Testified during the hearing on HB 92 on
behalf of the House Rules Standing Committee, sponsor by request
of the governor.
MICHAEL J. BURNS, Executive Director
Permanent Fund Corporation
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Testified during the combined hearing of HB
5, HB 45, and HB 92.
ACTION NARRATIVE
8:05:33 AM
CHAIR BOB LYNN called the House State Affairs Standing Committee
meeting to order at 8:05 a.m. Representatives Johnson, Seaton,
Wilson, Peterson, and Lynn were present at the call to order.
Representative Gatto arrived as the meeting was in progress.
HB 5-DIVEST INVESTMENTS IN SUDAN
HB 45-DIVEST INVESTMENTS IN SUDAN
HB 92-DIVEST INVESTMENTS IN SUDAN
8:06:12 AM
CHAIR LYNN announced the order of business was the combined
hearing of:
HOUSE BILL NO. 5, "An Act relating to certain investments of the
Alaska permanent fund, the state's retirement systems, the State
of Alaska Supplemental Annuity Plan, and the deferred
compensation program for state employees in companies that do
business in Sudan, and restricting those investments."
HOUSE BILL NO. 45, "An Act relating to certain investments of
the Alaska permanent fund, the state's retirement systems, the
State of Alaska Supplemental Annuity Plan, and the deferred
compensation program for state employees in companies that do
business in Sudan, and restricting those investments."
HOUSE BILL NO. 92, "An Act relating to certain investments of
the Alaska permanent fund, the state's retirement systems, the
State of Alaska Supplemental Annuity Plan, and the deferred
compensation program for state employees in companies that do
business in Sudan, and restricting those investments; and
providing for an effective date."
CHAIR LYNN announced that public testimony would not be heard
until the next hearing on the aforementioned bills.
8:08:20 AM
DIRK MOFFATT, Staff, Representative Bob Lynn, Alaska State
Legislature, presented HB 5 on behalf of Representative Lynn,
prime sponsor. He read his testimony as follows:
On December 31, 2007, President Bush signed in to law
U.S. Senate Bill S.2271, the Sudan Accountability
Divestment Act, and it became Public Law 110-174. In
Section 3 of the Public Law 110-174, the U.S.
Government gives support and authority to the state
and local governments to divest investments in Sudan.
In Section 7 of the same law, the U.S. Government
encourages other countries to adopt similar divestment
measures to stop Sudan from committing genocide and
oppressing its people. This is the first time in
history that the U.S. Government has passed a law
recognizing genocide while it's still occurring.
In Sudan, the situation is dire. More than 400,000
people have been killed, an additional 2.5 million
have been forced from their homes, and untold
thousands of women and children have been raped and
abducted since Sudan began sponsoring attacks on
innocent civilians on Darfur. Alaska should not
invest money in ... Sudan until the Sudanese
Government ends its policy of genocide.
HB 5 mandates targeted divestment and prohibits future
divestment of the state-managed PFD [and] pension
fund[s] in targeted companies that do business in
Sudan. The overall objective of this legislation is
to pressure Sudan economically until it ends its
genocide in Darfur. The State of Alaska can do this
with slim to no impact on our fund manager's wise
investment mandate to invest principle while
maximizing total return. Alaska has very little
invested in Sudan, and it's important to note that
none of the targeted companies in Sudan are American.
U.S. Senator Sam Brownback said, "We've said often,
'never again,' and taken up the pledge of 'not on our
watch.' We also need to take of the pledge, 'Not on
our dime.'" To date, 27 states already divest assets
from companies doing business with the government of
Sudan. Alaska is the forty-ninth state to join the
Union; it should not be the last to say no to
genocide, "Not on our dime."
8:11:39 AM
REPRESENTATIVE GATTO asked how one judges when genocide has
ended.
MR. MOFFATT responded that genocide [in Sudan] was declared by
the United States Government, and it will be the federal
government that declares when it no longer is happening.
8:12:27 AM
REPRESENTATIVE SEATON expressed his concern that the intent and
scope of the bill be clarified for the record.
CHAIR LYNN responded that the bill is strictly limited to the
government of Sudan. If the U.S. were to declare genocide in
another nation, that would be a matter to be considered
separately.
8:16:11 AM
REPRESENTATIVE JOHNSON directed attention to language on page 2,
beginning on line 5, which read: "The board shall prepare and
update on a quarterly basis a scrutinized companies list." He
asked if it would be possible for a copy of that list to be
given to the committee "in advance."
MR. MOFFATT said he would endeavor to make that happen.
8:17:10 AM
REPRESENTATIVE WILSON directed attention to the language on page
2, lines 18-22, which read:
(b) A company may not be included on the scrutinized
companies list if
(1) its primary purpose in Sudan is to provide
humanitarian goods or services, services of a purely
clerical or reporting nature, or food, clothing, or
consumer goods that do not include oil-related
activities, mineral extraction activities, or power
production activities"
REPRESENTATIVE WILSON asked if that includes guns.
CHAIR LYNN asserted that the whole idea behind the bill is not
to punish the people the bill would be aimed at helping.
REPRESENTATIVE WILSON expressed concern that the bill not
promote the delivery of weaponry to those responsible for the
genocide.
MR. MOFFATT responded that the companies that would not be
targeted would be companies that provide services, such as gas
stations, to the people of Sudan. He stated his belief that the
sponsor does not support the importation of military "material"
into Sudan. In response to a follow-up question, he said he
would find the section in the bill that would support that.
8:19:45 AM
REPRESENTATIVE PETERSEN noted that there is background
information in the committee packet which includes a list of
companies that would be divested if HB 5 were to pass.
REPRESENTATIVE SEATON directed attention to a legislative
research report in the committee packet, report number 09.109,
dated January 23, 2009. The Alaska Permanent Fund Corporation
and other state stock holdings subject to divestment are listed
in a chart on page 4 of the report, he noted.
8:20:58 AM
REPRESENTATIVE LES GARA, Alaska State Legislature, testifying as
co-prime sponsor of HB 45, said that he and Chair Lynn have
worked for a considerable time on the issue before the
committee, and it doesn't matter so much which of the bills move
forward, as long as one of them does. He said it would be fine
for HB 92 to move ahead.
REPRESENTATIVE GARA, in response to Representative Wilson's
previous question, said there is a specific exemption in the
bill that states that the permanent fund cannot be invested in
companies involved in the supply of military equipment to the
Sudanese Government. He indicated that this has to do with the
reference to "mineral extraction activities," because the
Sudanese Government basically gets money for its military from
its oil extraction.
8:23:05 AM
REPRESENTATIVE GARA, regarding the request for the list that
would be used by the Permanent Fund Corporation, confirmed
Representative Seaton's observation that the companies that
would be impacted by the bill are listed in the aforementioned
legislative research report, and the effect of divestment would
be on less than one-tenth of one percent of the permanent fund
holdings. He stated, "The [Alaska] Retirement [Management]
Board doesn't invest in any of these companies ..., and they've
been sympathetic to this effort all along; it's the Permanent
Fund [Corporation] that has disagreed with us so far." He
added, "But we don't have the list, because the bill requires
that the ... Permanent Fund [Corporation] create the list." He
said the corporation could borrow a third-party list being used
by other states. He noted that there are 30 other states that
are in the process of divesting from Sudan.
REPRESENTATIVE GARA stated that probably over 400,000 people
have been killed by genocide in Sudan, and now there is a
problem of displacement. People are being put into
concentration camps where they are dying. The United Nations
(UN) has been trying to stop the genocide, but it can only go
into a country with that country's consent.
CHAIR LYNN clarified that it was last year when related
legislation had no support from the Permanent Fund Corporation.
He said he has not had a conversation with those involved with
the corporation to determine its present attitude toward the
current related bills.
REPRESENTATIVE GARA remarked that short of having the agreement
of the Permanent Fund Corporation, proponents of the bill now
have the investment expertise and support of the Department of
Revenue.
REPRESENTATIVE GARA addressed the question asked by many as to
why the bill is limited to investments in companies that support
the Sudanese Government. He said, "Many of those other areas
are debatable. Some aren't. But the Sudanese situation -
that's genocide - and we draw the line at genocide." He said
there is debate as to whether China is a productive member of
the international community or not. He mentioned problems of
feasibility. He related that U.S. Congress has already banned
United States companies from operating in Sudan, so there is no
worry about the impact to American companies or the American
economy.
CHAIR LYNN remarked that the previous and current President and
U.S. Congress have all agreed that the situation in Darfur is
genocide.
REPRESENTATIVE GARA said the list of companies is small and
manageable. U.S. Congress has already set policy and encouraged
states to move ahead with divestment. He indicated that
divesting from Sudan works not only from the standpoint of
policy and feasibility, but also from a humanitarian standpoint.
8:29:17 AM
REPRESENTATIVE SEATON asked if after the initial quarterly
report there would have to be a search through all stock
holdings done on a quarterly basis.
REPRESENTATIVE GARA replied that the quarterly report could be a
short letter. He said the bill would disallow direct
investments in particular companies.
8:31:08 AM
REPRESENTATIVE GARA, in response to Representative Gatto,
credited activist groups such as the Sudan Divestment Taskforce
and savedarfur.org for doing "the yeoman's work" on the issue
and bringing it to the attention of the legislature. He
directed attention to language [on page 2, beginning on line 5],
which read as follows:
The board shall prepare and update on a quarterly
basis a scrutinized companies list or, in good faith,
rely on a scrutinized companies list generated and
duplicated on a quarterly basis by another entity the
board determines has suitable expertise.
REPRESENTATIVE GARA said the goal of that part of the bill is to
point out the various ways the information can be acquired.
REPRESENTATIVE GATTO remarked on how extensive the list of those
involved in this issue is. He expressed concern regarding the
difficult nature of enforcing divestiture without every
investment somehow becoming connected to each other.
REPRESENTATIVE GARA emphasized that the bill targets the
companies that work directly with the Sudanese Government, such
as Sinopec and the China National Gas Company. He noted that
one company that had been on the list has been removed from it
because it divested and donated its mineral extraction equipment
to relief efforts in Sudan.
REPRESENTATIVE WILSON said she supports the intent of the bill
but questions how it can be carried out. She talked about human
nature in finding loopholes to laws. She said she does not
understand why U.S. Congress did not take charge rather than
leaving it to each state to come up with its own rules and
regulations.
REPRESENTATIVE GARA responded that there are statutes to prevent
fraud but it still occurs. He stated that passing a bill is not
going to stop genocide in Darfur; however, it might force some
companies out of the country who support the Sudanese
Government, and that would be a good thing. He surmised that
most of the other states formulating divestment policy are
relying on similar lists; no one is hiring a huge staff to
monitor which companies are doing business in Sudan, and Alaska
should not either. Representative Gara reiterated that the
resulting loss of revenue for the permanent fund investment
would be only a small percentage of the money generated by the
fund.
REPRESENTATIVE WILSON mentioned footnotes 7 and 8 in a
legislative research report in the HB 45 committee packet:
report number 09.118, dated January 27, 2009. She ascertained
that there would be a representative from the Permanent Fund
Corporation invited to testify in an upcoming hearing and said
she would wait until then to express her concerns related to the
aforementioned footnotes.
8:41:43 AM
REPRESENTATIVE SEATON brought attention to the bill title of HB
45, which read as follows:
"An Act relating to certain investments of the Alaska
permanent fund, the state's retirement systems, the
State of Alaska Supplemental Annuity Plan, and the
deferred compensation program for state employees in
companies that do business in Sudan, and restricting
those investments."
REPRESENTATIVE SEATON said he wants to know if a quarterly
report would be required from the retirement systems, annuity
plan, and deferred compensation program.
REPRESENTATIVE GARA replied that he does not think there is any
language in the bill that would require such a report, but said
he would look into that. He said the intent is not to regulate
mutual funds or investments in mutual funds. In response to a
follow-up comment from Representative Seaton, he confirmed that
the bill would ban "the boards of the two big entities" from
directly investing in corporations that do business in Sudan;
... it would not affect mutual funds at all. In response to
another question from Representative Seaton, he reiterated that
the bill specifies that it would only affect targeted
investments in Sudan - those related to the genocide. The bill,
if passed into law, could not be interpreted in a way that would
"broaden the investment prohibition aspect to other situations
around the world ...."
REPRESENTATIVE SEATON asked Representative Gara to give
assurance that the administration could not broaden this
legislation once passed into law, without coming back to the
legislature for specific legislation.
REPRESENTATIVE GARA confirmed that is correct. He added, "In
our bill, the list of companies are called 'scrutinized
companies,' and that's defined as the Sudanese companies on page
5 of the bill."
REPRESENTATIVE SEATON said he wants assurance from the sponsor
of each bill that this is the case.
CHAIR LYNN suggested perhaps Representative Seaton may want to
formulate an amendment to address his concern.
8:48:23 AM
REPRESENTATIVE GATTO commented that there are a lot of places in
which genocide occurs, such as Cambodia, but the bill only
addresses Sudan. He questioned freeing just part of the world
from terrorism. He reiterated that he supports the concept of
the bill, but thinks it may be like running down a rabbit trail.
He asked if the legislation is fashioned to make a point or to
"accomplish something on a global basis."
REPRESENTATIVE GARA invited Representative Gatto to view a film
or witness material related to the Darfur genocide. He said he
thinks doing so will show that "the other evils of the world
aside, it's appropriate to do something about this one." This
issue is tied for first place in the category of things worthy
of acting upon, he concluded.
8:52:01 AM
REPRESENTATIVE PETERSEN observed that it was an historic
occasion when the President and U.S. Congress declared the
situation in Darfur as genocide. He explained that it had never
been declared before while it was occurring. He directed
attention to language on page 6, line 24, which supports Mr.
Moffatt's previous statement that either the President of the
United States or U.S. Congress will make the decision as to when
the genocide has ended.
CHAIR LYNN thanked Representative Gara for his tireless work on
the bill.
8:54:22 AM
PATRICK GALVIN, Commissioner, Department of Revenue, presented
HB 92 on behalf of the House Rules Standing Committee, sponsor
by request of the governor. He talked about the joint effort
being made by the sponsors of HB 5, HB 45, and HB 92 to oppose
the activities of the government of Sudan in the Darfur region.
He echoed the remark of previous testifiers that this is an
unprecedented situation where genocide is being labeled as such
by the government of the United States and by the United
Nations, while it is occurring. He relayed the governor's
belief that that situation "provides us with a moral imperative
to act." One way to take action is through divestment of funds
from businesses involved in activities which support the
government of Sudan.
COMMISSIONER GALVIN said last year the department testified in
support of the concept of a similar bill but expressed concern
regarding the mechanism that was being proposed. He explained,
"We wanted to be able to achieve the goal and to maximize that
result, while also minimizing costs and unintended
consequences." With that in mind, he said, HB 92 was crafted.
The goal of HB 92 is to achieve the divestiture of the state's
funds from companies involved with the Sudanese Government,
while also minimizing costs. He pointed out that there is a
zero fiscal note in the committee packet. He said the
department supports the directive of the legislature, as carried
out through the accounting mechanism of the department, rather
than burdening the investment managers. He said HB 92 would
achieve the same result in a much less costly manner.
8:58:11 AM
COMMISSIONER GALVIN stated that the administration, in
consultation with the Department of Law, has found it does not
have the discretion to implement a divestiture policy alone
under the current rules and statutes that govern the
commissioner of the Department of Revenue, the Alaska Retirement
Management (ARM) Board, and the Permanent Fund Corporation. The
proposed bill, HB 92, is needed in order to implement this
policy, he said. In response to Representative Seaton's
previously expressed concern, he said the language of HB 92 is
limited to the situation in Sudan and specific companies; it
does not provide any sort of gateway for other issues to be used
as an investment decision-making process in the future.
9:00:16 AM
COMMISSIONER GALVIN, in regard to [Representative Wilson's]
question related to weapons manufacturers, directed attention to
page 2, line 28, which specifies the companies to be targeted
would be those that conduct or have direct investments in
business operations in Sudan. He noted that the definition of
"business operations" is found at the bottom of page 3, and
includes "the production of military equipment", and the
definition of "military equipment", found on the bottom of page
4, is "weapons, arms, military supplies, and equipment that
readily may be used for military purposes". In response to
[Representative Gatto's] previously stated concern regarding how
the legislature will be able to determine it has achieved the
desired result and can lift the requirement that would be
imposed by the proposed legislation, noted that there is a
repeal of the statute on page 6, line 18. He explained that the
repeal could take place as a result of two different situations,
both of which rely upon actions of the President and/or Congress
in recognizing that the situation in Darfur has changed and is
no longer one that requires this type of policy.
9:02:29 AM
COMMISSIONER GALVIN said the department proposes that the
commissioner of the Department of Revenue take on the
responsibility to generate for the state the aforementioned list
of companies. That list would initially be generated by
December 31, [2009], and be renewed each year on December 31.
The intent is to stigmatize companies who are placed on the
list; however, each company will be given notice that it is
going to be placed on the list and has, within 90 days, a chance
to provide information to convince the state why the company
should not be on the list. The list would be made a part of the
department's daily monitoring of the state's investments. He
stated his belief that the Permanent Fund Corporation would be
able to monitor the list and provide the Department of Revenue
with compliance reports on a regular basis. He pointed out that
this would be a daily activity, which is in contrast to the
quarterly report mentioned in the other bills.
9:04:48 AM
COMMISSIONER GALVIN said it is accepted among all the bill
sponsors that the targets for the divestiture policy are those
funds that the state fully controls, which he said is an
important distinction within "our investment portfolio." He
continued:
There are certain funds -- if we are investing in
what's generally referred to as an index fund, where
we're trying to match a particular index, then we are
basically handing over the types of companies that are
going to be in that to those that would match the
index. And we're not able to specifically identify
companies and say these are going to be excluded if
the whole purpose is to match the index.
Similarly, if we're into what's referred to as a co-
mingled fund or co-managed fund, where there are other
owners besides the state in that fund, we don't have
the contractual right to direct where the investments
are going to be. And so, it would only be those funds
that we solely have responsibility for that we can
direct our manager to take certain steps to divest or
not to invest in particular companies.
And this would go to even some of the investment
options that are provided for the [deferred
compensation] (DC) programs and other similar type
situations where we are providing a particular fund.
If it's where the state is solely managing that fund,
then we will have the opportunity to tell the manager
that we do not want them to have funds in these
particular companies, and they would comply with that.
9:06:41 AM
COMMISSIONER GALVIN said reference has been made to the size of
the impact of the bill. He said there are proxies by which to
measure this, and there are a number of entities that have taken
on this task and generated lists. Furthermore, there is a small
group of companies that have provided the service of identifying
those companies and providing similar lists. He said the
department can use that information with respect to its
investments within the ARM Board in particular to find out "what
would pop up." Having done so with information through the end
of calendar year 2008, he reported, there are roughly $3.5
million [that would be divested], which is, in the grand scheme
of things, a small percentage of the total investments.
Although that may be a small number, he said, the department
believes that both the message and the purpose of stigmatizing
the companies is an important function for the State of Alaska.
9:08:48 AM
COMMISSIONER GALVIN said there have been comments made regarding
the Permanent Fund Corporation's view on this issue. Speaking
as a trustee of the permanent fund, he expressed his
appreciation of Mr. Burns, the executive director of the
Permanent Fund Corporation Board, and said the man has been put
in a difficult position. He explained that Mr. Burns is working
on behalf of the trustees, and the position of the trustees has
always been to avoid this type of social investment policy.
Commissioner Galvin said Mr. Burns was just carrying that out.
He said he appreciates that Mr. Burns' concern has always been
with regard to unintended consequences and costs. He said he
thinks Mr. Burns' efforts on this issue have been in keeping
with the policy of the Permanent Fund Corporation. He stated
his belief that the trustees would likely support HB 92, because
of [the zero fiscal note] and the moral imperative associated
with it.
9:10:16 AM
JERRY BURNETT, Deputy Commissioner, Department of Revenue, said
the department looks at [HB 92] as a compliance issue. He
related that the department's custodial bank is State Street
Bank, and that bank has a contractor currently called
RiskMetrics Group, a company that has produced the
aforementioned list for other states. Mr. Burnett said such a
list would be a starting point for the department. Next,
letters would be sent to [the companies being targeted], because
of due process, and they would have the previously mentioned 90
days in which to respond. The official list would then be
completed after that 90 days. That list would then apply to the
ARM Board, the commissioner of the Department of Revenue, and
the Permanent Fund [Corporation], he said.
MR. BURNETT, in response to a prior question from Representative
Seaton regarding the state's Defined Contribution (DC) plan and
Supplemental Benefits System (SBS), said the DC plan that is
unique to the State of Alaska is comprised of investment
options. He said the department would have the authority to
direct its managers not to invest with regard to those
investment options; however, it would not have that authority in
the case of co-mingled funds. Instead, it would notify the
managers, let them know who is on the list, and ask - not direct
- them to divest.
9:12:31 AM
REPRESENTATIVE SEATON named some funds, including the Alaska
Target 25 Trust and the Alaska Long-Term Balance Funds, and
asked if they would be examples of those for which "we control
the investment."
MR. BURNETT said he would have to look those up, because they
may be made up of "components which are a mix."
9:13:52 AM
COMMISSIONER GALVIN, in response to a follow-up question from
Representative Seaton, said, for example, that the nature of the
state's relationship with Brandeis International may be such
that it has a separate account within its fund. He continued:
If that is one where we have basically joined in as
just one investor in a pool of investors in that
particular fund, then it would be one, as Jerry said,
that we would be providing them notice and asking them
to divest. If it's one where we have a contractual
relationship that would provide us with the
opportunity to direct them, then we would be directing
them.
REPRESENTATIVE SEATON asked the department to bring to the next
hearing a listing of the funds and a description of the
characteristics of those funds.
COMMISSIONER GALVIN said the department would pull something
together.
MR. BURNETT said the department would look into that.
9:15:40 AM
CHAIR LYNN asked Commissioner Galvin to explain why HB 92 has a
zero fiscal note.
COMMISSIONER GALVIN answered:
It goes primarily to that question of passive, co-
mingled, and then the nature of the reporting. Our
design is to try to make it - as we both indicated -
something that would fall into our compliance shop as
opposed to something that's going to fall out and
become a burden on other parts of our operation. And
then the issue with the co-mingled: if we were put in
a position where we would have to actually pull out of
investment vehicles simply to be able to provide us
with the control necessary to implement this policy,
then that would have a cost. And so, those are both
recognized in the other fiscal notes.
9:16:53 AM
MR. BURNETT added that there is an ongoing compliance function
through which the department gets compliance reports from the
custodial bank on a regular basis, and this would be added to
that. He indicated that no further staff would be required to
just look at one more factor.
CHAIR LYNN asked if there is any language in either HB 5 or HB
45 that the department would like to add to HB 92.
COMMISSIONER GALVIN responded that the department has done so
already and produced a bill that it believes maximizes the
intent of providing the divestiture, while meeting the structure
of the state's investment situation so that the bill can be
carried out in the least costly manner.
CHAIR LYNN stated his intent for Alaska to do as much as
possible regarding this issue; it does not matter which bill is
used as the vehicle, he said.
9:19:11 AM
REPRESENTATIVE WILSON observed that in the committee packet the
bill sponsor has included a comparison of the bills, and the
changes made in HB 92 are highlighted. She asked if the list
that is made is given at no cost.
MR. BURNETT answered that he is not certain of the cost
structure or how it would be incorporated at this point;
however, he said the list would not increase the total cost of
"our compliance effort."
COMMISSIONER GALVIN clarified that the list will be generated by
the commissioner of the Department of Revenue. Lists from other
entities will be used as a guide, he said. The list currently
being produced by RiskMetrics Group will be used as a starting
point.
REPRESENTATIVE WILSON directed attention to the legislative
research report, dated 1/27/09, and asked if HB 92 takes care of
the concerns mentioned in footnotes 7 and 8.
COMMISSIONER GALVIN said the department believes it does. He
offered further details.
9:22:12 AM
REPRESENTATIVE PETERSEN said he would like the bill, if passed,
to be implemented as soon as possible.
COMMISSIONER GALVIN, in response, said the sponsor's intent is
to implement the bill as soon as possible; however, it would not
be immediate, because of the compliance notice.
9:23:21 AM
REPRESENTATIVE GATTO observed that HB 92 describes the meaning
of business and direct investment and business operations. He
then turned to page 4, and noted that [paragraph (3)] lists
specifics defining the government of Sudan. He expressed
concern that the language would not allow the divestment from
Sudan to happen in an uncomplicated manner.
9:26:11 AM
COMMISSIONER GALVIN returned that it is the precision of the
definitions to which Representative Gatto referred that is what
will make HB 92 implementable.
9:30:01 AM
REPRESENTATIVE JOHNSON directed attention to page [5], line [2],
[subparagraph (B)], which states that military equipment
"includes radar systems or military-grade transport vehicles,
supplies, or services sold or provided directly to a force
actively participating in armed conflict in Sudan". He
described a scenario in which the United States supports
Southern Sudan in a hypothetical war against Northern Sudan, and
pointed out that that may result in Alaska not being able to
invest in a company that makes helicopters that are involved in
the hypothetical war. He suggested a need for the definition of
Sudan to be clarified.
COMMISSIONER GALVIN responded that he believes the language of
the bill addresses that concern. He said he would show
Representative Johnson where that language appears. He
explained that the ultimate definition is business that supports
the government of Sudan; therefore, if the U.S. were to provide
military equipment to Southern Sudan, it would be excluded from
the definition of the government of Sudan.
REPRESENTATIVE JOHNSON said he plans to look into that.
9:32:55 AM
REPRESENTATIVE SEATON directed attention to the language on page
2, line 28, which read, "companies that conduct or have direct
investments in business operations in Sudan." He pointed out
that it does not say, "with the government of Sudan." He said
he wants to ensure clarity.
COMMISSIONER GALVIN responded, "We'll make sure that that's the
case."
9:34:40 AM
MICHAEL J. BURNS, Executive Director, Permanent Fund
Corporation, Department of Revenue, confirmed the previous
statement made by Commissioner Galvin that the Permanent Fund
Corporation Board's longstanding position is against social
investing. He noted that the board will be discussing this
issue in its upcoming meeting on February 18 and 19.
MR. BURNS emphasized that the board will abide by the
legislature's policy in this matter. He indicated that he
thinks the bill does as good a job with regard to definitions
and geography. Regarding index funds and co-mingled funds, he
said, "It would be expensive for us and very awkward for us to
try to control those processes." He suggested the committee may
want to consider exchange traded funds, which he explained are a
small, but focused type of index fund. When those stocks are
purchased, he said, "You buy the basket - you don't buy
individuals in there."
MR. BURNS relayed that the most important issue for the
corporation relates to how the commissioner would come forth
with the aforementioned list and the responsibility that the
corporation would have to monitor whether its investments comply
with the list. He stated, "We really don't want to be in the
list business. We're busy enough trying to make the right
investments."
9:39:00 AM
COMMISSIONER GALVIN, in response to Chair Lynn, said he does not
feel the committee needs to wait until the board meets before it
hears these bills again. He said he would bring forward any
concerns before the committee's next meeting.
9:40:07 AM
REPRESENTATIVE WILSON referred again to footnote [7], to the
last sentence, which read, "Gary Bader, chief investment
officer, Alaska Department of Revenue, expressed his belief that
Alaska funds would likely perform substantially worse after
divestment." She asked if Mr. Burns would like to comment.
MR. BURNS remarked that that is the first time he has seen that.
COMMISSIONER GALVIN noted that Gary Bader works for him as the
chief investment officer for the treasury. He stated, "I
believe what he was referring to was that the structure of the
bill that was introduced last year dealt with requiring the
state to basically pull out of a number of our co-managed funds
and potentially our index funds, and that that, in itself, would
result in a potential loss of investment revenue." In response
to Chair Lynn, he confirmed that Mr. Bader had been referring to
last year's bill. He added that he is not sure where "those
comments" are from, but speculated they might have been from
personal conversations held by a staff member with Mr. Bader;
therefore, he said, they are not on-the-record but are simply
observations.
9:42:34 AM
REPRESENTATIVE PETERSEN asked Commissioner Galvin to clarify if
he thinks the exchange-traded funds should be added to the list
of mutual-type funds over which there is no control.
MR. BURNS said he does not think that type of fund is
specifically referenced, and he said he would like to get back
to the committee on the subject.
9:43:15 AM
REPRESENTATIVE SEATON related that he is much more comfortable
with the process that the Commissioner of Revenue has
established regarding the list and the 90-day period that would
be given to the companies to come into compliance.
9:43:54 AM
CHAIR LYNN said he is encouraged by what he has heard during the
testimony on HB 5, HB 45, and HB 92. He expressed his
willingness to work together with the governor to get the
desired legislation passed.
COMMISSIONER GALVIN expressed his thanks to Chair Lynn for
bringing the issue forward. He stated that the governor and her
entire administration feel strongly about the issue.
[HB 5, HB 45, and HB 92 were held over.]
9:45:05 AM
CHAIR LYNN discussed the upcoming calendar.
9:45:16 AM
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at 9:45
a.m.