04/03/2018 03:15 PM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Overview of Permanent Fund Proposals | |
| HB407 | |
| SCR17 | |
| SB163 | |
| Approval of Introduction of Potential Committee Legislation | |
| HB83 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 407 | TELECONFERENCED | |
| + | SCR 17 | TELECONFERENCED | |
| + | SB 163 | TELECONFERENCED | |
| += | HB 83 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
April 3, 2018
3:18 p.m.
MEMBERS PRESENT
Representative Jonathan Kreiss-Tomkins, Chair
Representative Gabrielle LeDoux, Vice Chair
Representative Chris Tuck
Representative Adam Wool
Representative Chris Birch
Representative DeLena Johnson
Representative Gary Knopp
MEMBERS ABSENT
Representative Andy Josephson (alternate)
Representative Chuck Kopp (alternate)
COMMITTEE CALENDAR
PRESENTATION(S): OVERVIEW OF PERMANENT FUND PROPOSALS
- HEARD
HOUSE BILL NO. 407
"An Act relating to the duties of the Alaska Public Offices
Commission; clarifying the limits on making, accepting, and
reporting certain cash campaign contributions; relating to
campaign finance reporting by certain groups; relating to the
identification of certain campaign communications; increasing
the time the Alaska Public Offices Commission has to respond to
a request for an advisory opinion; repealing a reporting
requirement for certain contributions; relating to propositions
and initiative proposals; and providing for an effective date."
- HEARD & HELD
SENATE CONCURRENT RESOLUTION NO. 17
Proclaiming April 2018 as Sexual Assault Awareness Month.
- HEARD & HELD
CS FOR SENATE BILL NO. 163(STA)
"An Act relating to commercial motor vehicles."
- HEARD & HELD
APPROVAL OF INTRODUCTION OF POTENTIAL COMMITTEE LEGISLATION
HOUSE BILL NO. 83
"An Act relating to new defined benefit tiers in the public
employees' retirement system and the teachers' retirement
system; providing certain employees an opportunity to choose
between the defined benefit and defined contribution plans of
the public employees' retirement system and the teachers'
retirement system; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 407
SHORT TITLE: APOC; CAMPAIGN CONTRIBUTIONS/REPORTING
SPONSOR(s): STATE AFFAIRS
03/26/18 (H) READ THE FIRST TIME - REFERRALS
03/26/18 (H) STA, FIN
04/03/18 (H) STA AT 3:15 PM GRUENBERG 120
BILL: SCR 17
SHORT TITLE: APRIL 2018:SEXUAL ASSAULT AWARENESS MONTH
SPONSOR(s): MEYER
02/16/18 (S) READ THE FIRST TIME - REFERRALS
02/16/18 (S) STA
02/27/18 (S) STA AT 3:30 PM BUTROVICH 205
02/27/18 (S) Moved SCR 17 Out of Committee
02/27/18 (S) MINUTE(STA)
02/28/18 (S) STA RPT 5DP
02/28/18 (S) DP: MEYER, WILSON, GIESSEL, COGHILL,
EGAN
03/01/18 (S) TRANSMITTED TO (H)
03/01/18 (S) VERSION: SCR 17
03/05/18 (H) READ THE FIRST TIME - REFERRALS
03/05/18 (H) STA
03/22/18 (H) STA AT 3:15 PM GRUENBERG 120
03/22/18 (H) -- Rescheduled to 3/23/18 at 8:45 am --
03/23/18 (H) STA AT 8:45 AM GRUENBERG 120
03/23/18 (H) -- Rescheduled from 3/22/18 --
03/29/18 (H) STA AT 3:15 PM GRUENBERG 120
03/29/18 (H) <Bill Hearing Canceled>
04/03/18 (H) STA AT 3:15 PM GRUENBERG 120
BILL: SB 163
SHORT TITLE: DEFINITION OF COMMERCIAL MOTOR VEHICLES
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/26/18 (S) READ THE FIRST TIME - REFERRALS
01/26/18 (S) TRA, STA
03/01/18 (S) TRA AT 1:30 PM BUTROVICH 205
03/01/18 (S) Heard & Held
03/01/18 (S) MINUTE(TRA)
03/06/18 (S) TRA AT 1:30 PM BUTROVICH 205
03/06/18 (S) Moved SB 163 Out of Committee
03/06/18 (S) MINUTE(TRA)
03/07/18 (S) TRA RPT 1DP 1NR 1AM
03/07/18 (S) NR: STEDMAN
03/07/18 (S) DP: EGAN
03/07/18 (S) AM: WILSON
03/13/18 (S) STA AT 3:30 PM BUTROVICH 205
03/13/18 (S) Moved CSSB 163(STA) Out of Committee
03/13/18 (S) MINUTE(STA)
03/14/18 (S) STA RPT CS 4DP 1NR SAME TITLE
03/14/18 (S) DP: MEYER, GIESSEL, COGHILL, EGAN
03/14/18 (S) NR: WILSON
03/21/18 (S) TRANSMITTED TO (H)
03/21/18 (S) VERSION: CSSB 163(STA)
03/22/18 (H) READ THE FIRST TIME - REFERRALS
03/22/18 (H) TRA, STA
03/27/18 (H) TRA AT 1:15 PM BARNES 124
03/27/18 (H) Moved CSSB 163(STA) Out of Committee
03/27/18 (H) MINUTE(TRA)
03/28/18 (H) TRA RPT 5DP 1NR
03/28/18 (H) DP: KOPP, CLAMAN, NEUMAN, WOOL, STUTES
03/28/18 (H) NR: SULLIVAN-LEONARD
04/03/18 (H) STA AT 3:15 PM GRUENBERG 120
BILL: HB 83
SHORT TITLE: TEACHERS & PUB EMPLOYEE RETIREMENT PLANS
SPONSOR(s): KITO
01/27/17 (H) READ THE FIRST TIME - REFERRALS
01/27/17 (H) L&C, STA, FIN
03/25/17 (H) L&C AT 1:00 PM BARNES 124
03/25/17 (H) Heard & Held
03/25/17 (H) MINUTE(L&C)
04/12/17 (H) L&C AT 3:15 PM BARNES 124
04/12/17 (H) Scheduled but Not Heard
04/14/17 (H) L&C AT 3:15 PM BARNES 124
04/14/17 (H) Scheduled but Not Heard
04/19/17 (H) L&C AT 3:15 PM BARNES 124
04/19/17 (H) <Bill Hearing Canceled>
02/16/18 (H) L&C AT 3:15 PM BARNES 124
02/16/18 (H) Heard & Held
02/16/18 (H) MINUTE(L&C)
02/17/18 (H) L&C AT 1:00 PM BARNES 124
02/17/18 (H) Heard & Held
02/17/18 (H) MINUTE(L&C)
02/19/18 (H) L&C AT 3:15 PM BARNES 124
02/19/18 (H) Moved HB 83 Out of Committee
02/19/18 (H) MINUTE(L&C)
02/21/18 (H) L&C RPT CS(L&C) 4DP 2DNP
02/21/18 (H) DP: STUTES, WOOL, JOSEPHSON, KITO
02/21/18 (H) DNP: SULLIVAN-LEONARD, BIRCH
03/20/18 (H) STA AT 3:15 PM GRUENBERG 120
03/20/18 (H) -- MEETING CANCELED --
03/27/18 (H) STA AT 3:15 PM GRUENBERG 120
03/27/18 (H) Heard & Held
03/27/18 (H) MINUTE(STA)
03/29/18 (H) STA AT 3:15 PM GRUENBERG 120
03/29/18 (H) <Bill Hearing Canceled>
04/03/18 (H) STA AT 3:15 PM GRUENBERG 120
WITNESS REGISTER
REPRESENTATIVE JENNIFER JOHNSTON
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced an overview of Permanent Fund
proposals.
ROBERT ERVINE, Staff
Representative Jennifer Johnston
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Co-presented a PowerPoint on "Overview of
Permanent Fund Proposals.
REID MAGDANZ, Staff
Representative Johnathan Kreiss-Tomkins
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Co-presented PowerPoint on "Overview of
Permanent Fund Proposals.
DAVID TEAL, Director
Legislative Finance Division
Legislative Agencies and Offices
Juneau, Alaska
POSITION STATEMENT: Answered questions during the
Presentation(S): Overview of Permanent Fund Proposals.
CATHY SCHLINGHEYDE, Staff
Representative Jonathan Kreiss-Tomkins
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided a sponsor statement and section-
by-section analysis of HB 407 on behalf of House State Affairs
Standing Committee, prime sponsor.
HEATHER HEBDON, Executive Director
Alaska Public Offices Commission (APOC)
Department of Administration
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
407.
EDRA MORLEDGE, Staff
Senator Kevin Meyer
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of the sponsor of SCR
17, Senator Kevin Meyer.
DANIEL BYRD, Chief, Commercial Vehicle Enforcement
Anchorage Office, Division of Measurement Standards & Commercial
Vehicle Enforcement
Department of Transportation & Public Facilities (DOT&PF)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the discussion of
SB 163.
JOHN BINDER, Deputy Commissioner
Office of the Commissioner
Department of Transportation & Public Facilities (DOT&PF)
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing on SB
163.
EDRIC CARRILLO, Staff
Representative Sam Kito
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented the committee substitute (CS) for
HB 83 on behalf of Representative Kito, prime sponsor.
CHRIS CAIRNS, Staff
Information Technology
Juneau School District;
Representative
Alaska Public Employees Association (APEA)
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 83.
ALICIA HUGHES-SKANDIJS, Member
Alaska State Employees Association (ASEA)
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 83.
TIM PARKER, President
NEA-Alaska
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 83.
ACTION NARRATIVE
3:18:40 PM
CHAIR JONATHAN KREISS-TOMKINS called the House State Affairs
Standing Committee meeting to order at 3:18 p.m.
Representatives Kreiss-Tomkins, Knopp, Wool, LeDoux, Birch,
Johnson were present at the call to order. Representative Tuck
arrived as the meeting was in progress.
^PRESENTATION(S): Overview of Permanent Fund Proposals
PRESENTATION(S): Overview of Permanent Fund Proposals
3:20:07 PM
CHAIR KREISS-TOMKINS announced that the first order of business
would be a presentation, entitled "Overview of Permanent Fund
Proposals."
3:20:18 PM
REPRESENTATIVE JENNIFER JOHNSTON, Alaska State Legislature,
stated today's presentation resulted from three legislators
holding a rather robust discussion on the Permanent Fund (PF)
and the method the legislature would use to address the fund
going forward. Although the proposals used three very different
approaches, each of the three methods was right. All three
legislators agreed that the fund should be preserved for the
future. Each proposal used different structures and differed in
whether the changes should be made in the Alaska Constitution or
in statute. She stated the overarching goal of these three
legislators was to maintain the PF for future generations.
3:22:03 PM
ROBERT ERVINE, Staff, Representative Jennifer Johnston, Alaska
State Legislature, introduced himself.
REID MAGDANZ, Staff, Representative Johnathan Kreiss-Tomkins,
Alaska State Legislature, introduced himself.
3:22:25 PM
MR. ERVINE said the presentation prepared by himself and Mr.
Magdanz highlighted critical decision points facing the
legislature regarding the PF. There seemed to be consensus in
the legislature that the earnings reserve fund would play some
role in solving the budget crisis either this year or next year.
During the last committee hearing, the committee heard from the
CEO of the Alaska Permanent Fund Corporation (APFC), Angela
Rodell, and the director of the Legislative Finance Division
(LFD), David Teal. They framed the discussion in a thorough
manner. He referred to a diagram on the first slide of his
PowerPoint, titled "Overview of Permanent Fund Proposals," which
described two sections of the presentation to orient
legislators: a discussion on the draw amount and secondly on
the distribution and dividends. The smaller boxes represented
themes that would be discussed in more detail. He offered to
provide members with a broader perspective and Mr. Magdanz would
provide more detail.
3:23:44 PM
REPRESENTATIVE WOOL recalled during the previous presentation by
Ms. Rodell and Mr. Teal the concept of merging the earnings
reserve account (ERA) with the corpus of the PF. He asked for
further clarification on which square on slide 1 represented
that merger.
MR. ERVINE answered that this theme would arise throughout the
PowerPoint. He responded that the "Earnings Reserve" box would
predominately be the focus of the discussions.
MR. ERVINE directed attention to slide 2, titled "Draw Amount."
He stated that fundamentally the conversation about the draw
amount was important because it established the long-term goals
versus short-term needs and wants. He explained that a smaller
draw would mean PF growth but would leave larger deficits, and a
larger draw would mean more revenue for public services but
potentially could create a larger budget gap in the future.
3:24:54 PM
MR. MAGDANZ explained that there were two essential ways to
decide how to draw funds from the PF. The first and most
commonly proposed was the [slide 3, titled,] "Percent of Market
Value Approach," often referred to as the POMV. Most of the
proposals currently before the legislature took this approach,
often used in large wealth funds worldwide, whether funds were
university endowments, sovereign wealth funds, or foundation
endowments.
3:25:24 PM
MR. MAGDANZ stated that a POMV approach simply meant the
legislature would withdraw a set percentage of the fund's total
value each year for spending. Using this approach, the
legislature would need to decide the percentage amount to draw.
Legislative public discussions and proposals have considered a
variety of percentages ranging from 4 percent to 5.25 percent,
with most legislative proposals - in the form of bills and
amendments to the Alaska Constitution - falling in the 4.75
percent to 5 percent range of the POMV. He underlined that 5
percent has widely been considered the maximum draw rate while
still minimizing the risk of reducing the real value of the PF
over the long term, he said. As Mr. Ervine said, the decision
to lower the draw rate would mean the less money will be
available now and in the near term but would equate to greater
potential for fund growth over the long term. Whereas higher
draw rates would mean more money would be available now, the
fund would grow at a slower rate, he said.
3:26:41 PM
REPRESENTATIVE BIRCH recalled an earlier committee discussion on
the education fund. He further recalled a discussion on a POMV
approach that indicated that the legislature could potentially
erode the corpus or core value of the fund. He shared his
understanding that the corpus of the PF was $40 billion, and the
remainder of the fund resided in the ERA or in the
constitutional budget reserve (CBR). He asked whether the core
fund amount could be eroded via a POMV draw.
MR. MAGDANZ offered to discuss it more fully later; however, he
offered the quick answer was that different things could be done
with the principal and still allow the legislature to use a POMV
for calculating the draw.
3:28:14 PM
MR. MAGDANZ directed attention to slide 4, titled "Earnings-
Based Draw," which identified another approach to consider when
taking a draw. Committee members may be familiar with this
approach from the current statutory dividend formula, which uses
an earnings-based draw. Instead of taking a portion of the
total value of the fund, a portion of the recent earnings would
be used. The main distinction between an earnings-based draw
and a POMV approach was that more volatile draws occurred with
an earnings-based approach because the amount available is more
responsive to short-term market conditions. That becomes
visible in reviewing how the dividend values have changed over
the past 15 years. When the stock market crashed, dividends
fell very fast and when the market increased, dividend values
rose quickly, he said. Thus, using any portion of the draw to
fund the budget would result in a more volatile draw, noting
obviously many people wish to avoid volatility.
3:29:19 PM
MR. MAGDANZ pointed out only two of the proposed [Alaska]
constitutional amendments before the legislature propose an
earnings-based draw - SJR 1 and HJR 34 - one of which is in this
committee. Both proposals take the statutory language for the
permanent fund dividend (PFD) and place it in the constitution,
he said.
3:29:39 PM
MR. MAGDANZ turned to slide 5, titled "Lookback Options," noting
another consideration when making an overall draw amount is
whether to use a lookback period. This simply meant instead of
basing the draw on the prior year's fund value or earnings, the
draw would be based off the average fund value for the past five
years or average earning over the past year. The main effect of
using a lookback period was to achieve a more stable funding
stream. He directed attention to the chart on slide 5, which
showed some bills or resolutions before the legislature with a
five-year lookback. Some proposals do not include a lookback
period, he said.
3:30:22 PM
MR. MAGDANZ directed attention to slide 6, titled "Cap Draw at
Prior Year Net Income," stating that many of the proposed
constitutional amendments before the legislature included this
provision. Essentially, this meant that whatever the draw
amount, whether it was set at 4 percent, 4.5 percent, or 5
percent, or even at three-fourths of the earnings, the draw
would be limited to no more than what the PF earned in the prior
year. The effect of the cap draw at prior year net income was
that the legislature could not spend more than the fund earned
in the prior year. This provides stronger protection for the
fund, he said. However, the legislature would not have any
funds available to pay for dividends or any other purposes if
the fund had a low return or no return for one year.
3:31:14 PM
REPRESENTATIVE KNOPP asked, in terms of a cap draw at prior year
net income, whether this considered a five-year lookback model.
He further asked whether this model would provide more
protection for the corpus of the PF.
MR. ERVINE answered that this would not necessarily provide more
protection for the corpus, which was already well protected;
however, it would provide more protection for the overall value
of the fund, such that the value of the fund would not decrease
in instances with a downturn in the market.
3:32:22 PM
REPRESENTATIVE KNOPP wondered if this method would create
instability.
MR. ERVINE agreed that was one of the big concerns.
CHAIR KREISS-TOMKINS cautioned that having a cap draw at prior
year net income could result in zero dollars for dividends and
services with a downturn in the market.
3:33:00 PM
REPRESENTATIVE TUCK recalled that HJR 23 had a lookback of only
one year and the House Finance Committee's new committee
substitute (CS) contained a five-year lookback. He asked how
that would remove the cap or if there were other changes to HJR
23 that removed the cap.
MR. MAGDANZ responded that he was almost certain that the CS for
HJR 23 removed the language relating to the cap on prior-year
net income and added a 5-year lookback.
3:33:48 PM
MR. ERVINE turned to slide 8, titled "Earnings Reserve," noting
that currently the PF consisted of the principal and the
earnings reserve account (ERA). The principal has been
considered "unspendable" and has been perceived to be in the
[Alaska] constitution. The legislature can appropriate from the
ERA at any point for any purpose, he said.
MR. MAGDANZ turned to slide 9, titled "Maintain ERA and
Principal as Separate Accounts," and remarked that this was what
Representative Wool previously asked about. The legislature has
two options with respect to the ERA. These options would be
present if considering a constitutional amendment; however, a
statutory draw, such as with SB 26, would retain the status quo
regarding the ERA.
MR. MAGDANZ said the first option would be to maintain the ERA
and the principal of the PF as separate accounts as they are
today. As Representative Birch noted, this has the effect of
establishing a floor value for the fund. Whatever the principal
amount, it cannot be drawn into, he said. If the fund falls to
that amount and the ERA was spent, nothing more than the income
spun off in the prior year would be available for spending. He
characterized this as creating essentially the tradeoff for
maintaining the ERA such that the principal would establish a
floor value to the PF that one cannot fall below. For example,
if market returns were low and the legislature made draws from
the ERA, once the account hits zero, there would not be funds
available to pay for dividends or services in times when the
state has a deficit.
3:36:04 PM
REPRESENTATIVE BIRCH related his understanding that the current
PF balance was $65 billion fund, with $40 billion in the corpus.
He asked whether the difference, the $25 billion, was all in the
ERA.
MR. ERVINE answered that the ERA balance was roughly $15 billion
to $17 billion and $40 billion was attributed to the corpus of
the fund, with $10 billion in unrealized gains.
3:36:37 PM
MR. MAGDANZ turned to slide 10, titled "Combine ERA and
Principal into Single Endowment Fund." A second option would be
to combine the ERA and the principal of the fund into a single
endowment fund, he said. He suggested that was what
Representative Birch indicated with his question. He
characterized this as a pure endowment or true endowment
approach.
3:37:06 PM
REPRESENTATIVE WOOL recalled Ms. Rodell mentioned that the PF
was considered an endowment.
MR. MAGDANZ responded that was the reason for "pure" or "true"
because the PF is an endowment. He directed attention to the
last bullet point, which read, "Nearly all large funds are
managed as a single endowment."
3:37:45 PM
CHAIR KREISS-TOMKINS interjected that his recollection differed.
He recalled that Ms. Rodell indicated the APFC was noted for its
prudent investment practices as the best practice in the world,
along with New Zealand, not because the PF had an endowment
model.
MR. MAGDANZ agreed that matched his recollection. He offered
his belief that Ms. Rodell referred to the PF as a sovereign
wealth fund, but it was not managed in the investment world as
an endowment fund. He offered that the PF distinction between
the principal and the earnings was considered a highly unusual
accounting approach as compared to other sovereign wealth funds.
Management as a single fund was a much more common approach.
The main advantage to the PF approach was it would always
provide a funding stream, an important aspect to funding
programs or dividends.
3:39:26 PM
MR. MAGDANZ recalled that the management of the fund as a single
endowment came up in the discussion of HB 213. In times with a
prolonged market downturn, the total fund value could fall lower
than in the case of a separate principal, he said. Setting the
draw rate - 4 percent to 5 percent that would allow the fund
to be stable or to grow in real terms; however, in the short
term in a "pure endowment" model, the fund value could go lower
than in models in which the principal was protected.
3:40:00 PM
MR. ERVINE turned to slide 11, titled "Overview of Permanent
Fund Proposals." Under current law, the legislature can
appropriate any amount from the ERA for any purpose which was
important at the time. Hypothetically, the legislature could
appropriate $5 billion from the ERA this year for the budget and
if so, the APFC would need to liquidate the assets to meet the
demands for that cash. This has serious implications and
consequences when it comes to the management of the fund.
Essentially, the APFC must change its investment strategy to
allow funds to be available for spending at the "whims" of the
legislature, which limits potential future returns and can cause
serious problems.
MR. ERVINE turned to slide 12 titled, "Ad-Hoc Draws," stating
that prohibiting ad hoc draws is one of the most important ways
to ensure sustainability of the ERA and the PF going forward.
3:41:07 PM
MR. MAGDANZ reminded members that Mr. Teal also spoke somewhat
to this choice. As Mr. Ervine said, prohibiting ad hoc draws on
the ERA would require a constitutional amendment. One cannot
prohibit the legislature from accessing funds from the ERA with
a majority vote with a statutory framework. Some of the
proposed constitutional amendments continue to allow ad hoc
draws and a couple, including one introduced by Representative
Kreiss-Tomkins, prohibit them. Some proposals before the
legislature would raise the bar for accessing the ERA outside
the 4 percent to 5 percent structured draw but leave the funds
accessible in certain cases.
3:42:02 PM
MR. ERVINE turned to slide 13 titled, "Overview of Permanent
Fund Proposals," stating that inflation-proofing becomes an
important part of the conversation if ad hoc draws are allowed
or disallowed. In the past few years, the legislature has opted
not to inflation-proof the PF, which was one of the things Ms.
Rodell objected to during her presentation last week.
3:42:27 PM
MR. MAGDANZ turned to slide 14 titled, "Inflation Proofing
Transfers: A tricky question," stating that inflation-proofing
was one of the more confusing aspects of the PF management
structure. Primarily, the importance of inflation-proofing also
depended on the other choices being made, for example, in terms
of handling the ERA or treating ad hoc draws. He offered to
discuss this further in future slides. He clarified when using
a POMV draw, there is a distinction between inflation-proofing
the entire fund - principal plus ERA - and inflation-proofing
the principal itself.
3:43:16 PM
MR. MAGDANZ turned to slide 15, titled "Scenario: Ad-hoc draws
allowed from the earnings reserve," noting there were three
scenarios to consider. The first would maintain a line between
the principal and the ERA, while allowing ad hoc draws on the
ERA, which describes the current situation or for any statutory
draw formula, such as with SB 26. The next two scenarios would
require a constitutional amendment, he said.
3:43:55 PM
CHAIR KREISS-TOMKINS emphasized that Mr. Magdanz effectively
described the status quo scenario.
MR. MAGDANZ agreed. In this instance, it was critically
important that the legislature make inflation-proofing transfers
between the ERA and the principal of the fund. This was
critically important because the legislature could at any time
with 21 votes choose to drain the entire ERA and put it towards
any purpose it chose. He questioned whether the legislature
would do so.
REPRESENTATIVE JOHNSON answered, "Yes."
3:44:35 PM
MR. MAGDANZ said he deferred to legislators to decide but
suggested it remained a possibility. If one believed in
maintaining the value of the PF for future generations, in this
situation, it was essential to inflation-proof the fund, he
said.
3:44:50 PM
REPRESENTATIVE TUCK commented that the corpus of the fund would
not be as large as it is today if the legislature had not
continually made deposits into the principal. In terms of
inflation-proofing, he asked whether, if the ad hoc draw were
limited to 4 percent of the POMV, that would be viewed as
inflation-proofing the fund.
MR. MAGDANZ answered yes; that the 4 percent ad hoc draw would
effectively and "in a very real way" inflation-proof the PF.
MR. MAGDANZ offered his belief that if [the legislature] made ad
hoc draws beyond 4 percent it would not "truly" be sufficient to
protect the fund by inflation-proofing because any future
legislature could choose to exceed the 4 percent limit and draw
the fund down further.
3:45:55 PM
REPRESENTATIVE TUCK added, Unless there was a constitutional
amendment that limits the draw at 4 percent.
MR. MAGDANZ answered that was exactly correct. If there was a
constitutional amendment that truly limited any ad-hoc draws to
4 percent, these types of inflation-proofing transfers would be
less important. He offered to discuss those types of transfers
in the next two scenarios.
3:46:10 PM
REPRESENTATIVE JOHNSON asked for further clarification on the
constitutional amendment and the reason it could not be done by
statute. She further asked whether the Alaska Supreme Court has
already issued an opinion on that matter.
MR. MAGDANZ answered that the legislature cannot limit ad hoc
draws to 4 percent by statute because Alaska's constitution
requires all income from the fund to be available for
appropriation. He suggested that the statutes could limit the
ad hoc draw to 4 percent of the fund; however, if a future
legislature decided that in a given year it wanted to draw 4
percent plus another $1 billion, it could do so.
3:47:08 PM
REPRESENTATIVE JOHNSON added that the legislature has currently
been taking unstructured draws. She related her understanding
that to establish this, it must be by constitutional amendment
and not by statute.
MR. MAGDANZ emphasized that the point of slide 15 was to stress
that without a constitutional amendment, it was important for
the legislature to make inflation-proofing transfers from the
ERA to the principal to maintain the value of the fund over
time.
CHAIR KREISS-TOMKINS answered that it would require a
constitutional amendment to create the hard structure.
3:47:52 PM
REPRESENTATIVE WOOL offered his belief that the key word was
"hard structure" because the constitutional amendment [that
created the PF] included, as delegated by law.
MR. MAGDANZ offered his belief that last week's hearing
emphasized the existing constitutional language does allow for
ad hoc draws, as Representative Johnson pointed out, which is
the reason a constitutional amendment would be needed.
3:48:23 PM
CHAIR KREISS-TOMKINS interjected that would in part amend the
language shown [slide 3 of Ms. Rodell's PowerPoint last week
depicting Alaska Constitution, Article IX, Section 15].
3:48:33 PM
REPRESENTATIVE JOHNSON asked whether the corpus was protected in
[Alaska's] constitution. She asked for further clarification on
this.
MR. ERVINE cautioned that while he was not a constitutional
expert, several interpretations about defining the corpus of the
fund exist. One definition of the PF would be the 25 percent of
the royalties deposited over the past 40 years or approximately
$16 billion. Another definition of the PF would include the
additional $16 billion that the legislature has appropriated for
inflation-proofing the fund. Over the past 40 years, the
legislature has also made about $7 billion in additional
appropriations to the corpus of the fund, he said.
3:49:52 PM
REPRESENTATIVE JOHNSON commented that she had not thought about
the additional deposits to the PF and whether to include them as
part of the corpus of the fund.
MR. ERVINE stated that the Legislative Legal and Research
Services attorneys and the LFD also have had some thoughts about
the definition of the corpus of the fund which may provide more
clarity.
MR. MAGDANZ added that the most commonly understood definition
of the corpus would include all of the above, plus most of the
unrealized gains on the assets.
3:50:48 PM
REPRESENTATIVE LEDOUX asked whether the unrealized gains were
part of corpus [of the fund] and not part of the ERA.
MR. MAGDANZ offered his belief that unrealized gains were split
between the corpus and ERA. He said that someone with more
expertise could correct him.
CHAIR KREISS-TOMKINS offered his belief that the unrealized
gains were proportionally split between the ERA and the corpus
of the fund.
REPRESENTATIVE LEDOUX asked for further clarification on whether
the split between the corpus and the ERA was done statutorily.
MR. ERVINE believed that it was attributed to the general
accounting principles and management policy; however, he was
unsure.
3:52:09 PM
REPRESENTATIVE LEDOUX asked for further clarification on what
would happen if there were unrealized gains; that means it was
not sold. She related a scenario in which a stock that went
from $500,000 to $750,000 in one year, but was not sold off.
The next year the stock prices dropped to $450,000. She asked
how that would work.
MR. MAGDANZ deferred to Representative Johnston.
REPRESENTATIVE JOHNSTON answered that the PF was shored up
quarterly so the assets, realized gains, unrealized gains, and
liquid assets were known. She quoted the former APFC's CEO,
Mike Burns, as saying, "The fund is managed for the very long
term." She said in 2009 when the stock market lost over 30
percent, he had said, "That was a very, very long day." She
advised that the PF is managed as a whole, so the realized gains
and unrealized gains and losses are shored up on a quarterly
basis. She indicated that the PF diversification has become
more sophisticated as the state has also become more diversified
and sophisticated. She said this means the PF does not
experience the sharp drops that the fund had when it was managed
as a limited investment. She pointed out that the APFC has real
estate earnings in Spain, for example. She compared the PF to
anyone's 401(k) plan in terms of any realized and unrealized
gains.
3:54:38 PM
REPRESENTATIVE LEDOUX said she grappled with whether it was
apportioned, for example, if there was a 100 percent rise and if
part of the stock would be placed in the ERA.
REPRESENTATIVE JOHNSTON interjected that it was how it would be
allocated; that the stock would be segregated into how much of
the 100 percent of the $40 billion would be deposited into the
corpus with the remainder going into the ERA. It becomes more
complicated when considering assets that are not as liquid, and
non-liquid assets are the ones being invested in over the long
term, she said.
3:55:56 PM
REPRESENTATIVE KNOPP related a scenario in which the APFC had $1
million in real estate and sold it for $5 million and split the
$4 million realized gains between the ERA and corpus of the
fund.
REPRESENTATIVE JOHNSTON interjected that the realized gains
would be deposited into the ERA.
REPRESENTATIVE KNOPP related his understanding that unrealized
gains were credited to each account. He his point was whether
it would eventually be considered as inflation-proofing the
fund, considering the allocation between the ERA and the corpus
of the fund.
MR. MAGDANZ responded that the APFC would indicate that the $8
billion to $10 billion attributed to the principal is unrealized
gains. The APFC could sell every asset with an unrealized gain
and that would have the immediate effect of increasing the ERA
balance by $8 billion to $10 billion and decreasing the
principal by $8 billion to $10 billion. He concluded that the
unrealized gains currently attributed to the principal truly are
not fully protected as part of the principal.
CHAIR KREISS-TOMKINS commented that the ERA of $16.8 billion
could jump up to $24 billion tomorrow if the APFC chose to do
so.
3:58:14 PM
MR. MAGDANZ directed attention to slide 15, stating that there
were options to inflation-proof. In the current scenario, the
ERA and the principal are separate, with ad hoc draws allowed.
The first option would be statutory inflation-proofing, which
was basically the status quo, such that an amount of money is
transferred from the ERA to the principal each year that
accounts for the effect of inflation on the principal. He
stated that two constitutional amendments were before the
legislature that make such a transfer mandatory [HJR 34/SJR 1]
and for other constitutional amendments it would be an option as
it is currently an option.
3:59:09 PM
MR. MAGDANZ stated that the second approach for inflation-
proofing has been called the "waterfall approach," as contained
in SB 26. This essentially takes the approach that if the ERA
reached a certain size, any money over that amount would be
transferred to the principal. In contrast to statutory
inflation-proofing, the waterfall approach would prioritize
making certain enough funding exists in the ERA to provide a
stream of funding to reduce the chance that the ERA would reach
a zero balance. At that point, funds would not be available to
pay PFDs or for government services, he said. Some people have
criticized this approach because it does not represent "true"
inflation-proofing since the transfers to the principal are tied
to the size of the ERA and not to inflation. If the fund was
earning great returns, far more could be transferred to the
principal than necessary for inflation-proofing, which might be
a good thing, he said. However, if the fund returns were low,
far too little might be transferred to the principal to cover
inflation-proofing of the fund.
4:00:25 PM
MR. MAGDANZ turned to slide 16, titled "Scenario: ERA and
Principal combined and managed as a single endowment," which he
said Representative Tuck mentioned a few minutes ago. Under
this scenario, the ERA and principal are combined and managed as
a single fund. This could only be accomplished by a
constitutional amendment. And as Representative Tuck said,
inflation-proofing the fund would mean setting a draw rate low
enough so the earnings of the fund cover both the amount being
drawn and the effect of inflation. The formula was simply that
the earnings must be greater than or equal to the draw plus
inflation and if not, the fund would lose value over time.
There would not be a set-aside principal since it would consist
of a single fund. That meant that transfers from an ERA to the
principal could not happen since that distinction would no
longer exist. The only inflation-proofing that matters would be
inflation-proofing the entire fund value, he said.
4:01:38 PM
MR. MAGDANZ turned to slide 17, titled "Scenario: ERA remains
separate, but ad hoc draws prohibited," which he referred to as
a "hybrid scenario." Under this scenario a line would be
maintained between the ERA and the principal of the fund. A
constitutional amendment would be passed to prohibit ad hoc
draws. He said a constitutional amendment would state that 4.75
percent of the fund value or 5 percent of the fund value would
be available to draw every year; however, the draw could only
come from the ERA. He said that it was worth noting that in
this case the inflation-proofing discussion closely resembled
the pure endowment scenario. This was because, as
Representative Tuck mentioned, if the draw amount was
established in the [Alaska] constitution, not allowing the
legislature to exceed it, provides inflation-proofing for the
entire fund - the ERA and the principal. He reiterated that the
draw amount functions as the inflation-proofing mechanism.
MR. MAGDANZ indicated that the legislature could still transfer
funds from the ERA to the principal but that would only
accomplish raising the minimum floor value of the fund. He said
if funds were transferred from the ERA to the principal and the
market had a downturn, the ERA would reach a zero balance and
hit a fiscal cliff, in which funds would not be available. If
transfers were made that point would be hit sooner, and if
transfers were not made, the fiscal cliff would be hit later, he
said.
4:03:16 PM
CHAIR KREISS-TOMKINS asked to attempt a summary statement. He
said that the ERA, the corpus, and inflation-proofing from one
to the other was somewhat complicated. He offered his belief
that one could make things work, but it could over engineer the
structure that the state has inherited. He argued that one
could accomplish the same ends through a more elegant and
simplified structure, which was through an endowment structure.
He indicated those represented the two paths forward to create a
POMV sovereign wealth fund. He asked whether that was
approximately accurate.
MR. ERVINE said that he was absolutely right but there was a
potential perception problem with the pure endowment model for
those concerned about spending down the principal or corpus of
the fund in a pure endowment model over time. He characterized
that as an obstacle.
MR. MAGDANZ stated if ad hoc draws were allowed for more than
the percentage that was set, it was really important to make
inflation-proofing transfers. If ad hoc draws were prohibited,
making transfers between the ERA and the principal was less
critical, he said.
4:04:45 PM
REPRESENTATIVE WOOL imagined that one would need "a parachute"
for situations in which ad hoc draws were prohibited, and the
principal could not be touched due to constitutional
prohibitions, but a catastrophe drained the ERA.
MR. MAGDANZ responded that was exactly why some people advocate
for the pure endowment approach since it was the only way to
avoid the situation where the ERA was depleted, and the fiscal
cliff point was hit. He hoped savings were "stashed" elsewhere.
The proponents of the pure endowment approach would argue that
it would eliminate the possibility of running into the fiscal
cliff.
4:06:47 PM
REPRESENTATIVE WOOL related his understanding that it was
possible to get to that point - the fiscal cliff - with the pure
endowment approach with one fund, but it would take much longer
to get there plus there would be time to change the percentage
rate.
MR. ERVINE said it was important to point out that draining the
overall value 5 percent of the time assumed there would not be
any return.
REPRESENTATIVE TUCK reminded members that the parachute could be
a revenue bond in an emergency situation. He offered his belief
that leaving funds in the principal meant that the state would
be earning more money from the principal than the cost of
revenue bonds. He characterized it as "making money off of our
money" if the state issued a revenue bond. He further thought
it would be beneficial to have a structure for the financial
community to assess and have enough confidence in the state's
fiscal plan to loan money.
4:08:15 PM
REPRESENTATIVE TUCK offered one scenario would be to have a
constitutional draw and put more money back into the principal
of the PF. He related his understanding that putting money into
the ERA was a realized gain or loss. He asked whether there
really is a need to put funds back into the principal with a
structured draw since the fund would be "trued up" quarterly.
MR. MAGDANZ referred to slide 17 and noted that if a
constitutional draw rate cannot be exceeded, it was not
incredibly important to make transfers from the ERA to the
principal since that would only serve to increase some floor
value that one could never fall below.
4:09:26 PM
CHAIR KREISS-TOMKINS added that as the prime sponsor of an
amendment to move $5.5 billion from the ERA to the principal,
that there was not any value in doing that if there "is no
cheating allowed." He explained that with a structured,
sustainable draw, the legislatures cannot grab an extra couple
billion dollars to balance the budget. If that "cheating" was
prohibited, there would not be any value in making those
transfers, he said.
4:09:55 PM
REPRESENTATIVE TUCK related his understanding that if the
legislature went to a pure endowment model, it would not offer
those protections.
CHAIR KREISS-TOMKINS answered that a pure endowment model set up
in the [Alaska] constitution would also not allow any cheating
since the sustainable draw would be established and it could not
be exceeded.
REPRESENTATIVE TUCK related his understanding that the draw
would be spelled out in the endowment.
CHAIR KREISS-TOMKINS added that was true so long as it was in
the [Alaska] constitution as statutes can be "cheated on."
4:10:21 PM
MR. ERVINE turned to slide 19, titled "The Prudent Investor
Rule," which Ms. Rodell touched on in her presentation. It
essentially stated that the APFC would act prudently in the same
manner that an institutional investor of sound mind and
intelligence would invest to maximize returns and also meet
future demands on the fund. He said there might need to be a
discussion about including this framework in any constitutional
amendment. This was important to prevent potential political
pressure to invest in projects that may benefit Alaska in a way
that is different from actually just providing returns to the
state, he said. He recalled someone mentioned last week that
Alberta had invested its permanent fund in government buildings
and now the province has a lot of nice buildings.
MR. MAGDANZ remarked that Alberta does not have a permanent
fund.
4:11:43 PM
REPRESENTATIVE TUCK recalled that Alberta had attempted to do a
developmental bank system, which was one reason it encountered
problems.
4:11:54 PM
MR. MAGDANZ turned to slide 20, titled "Notes on Constitution
vs. Statute," which summarized some of the high-level
differences between the two approaches. He indicated a
statutory approach would be easier to change since it could be
done by a majority vote of the legislature, whereas with a
constitutional approach would be more difficult to change since
it would require 2/3 vote of each house of the legislature, plus
passage with a majority of voters of the state of Alaska in a
general election ballot. Second, with a statutory approach more
policy options would be available since more complicated
formulas could be written and specific numbers could be used.
Whereas with a constitutional amendment, the rules must be
simple; such that it would not be possible to write an eight-
page constitutional amendment. Finally, as Chair Kreiss-Tomkins
previously mentioned, with a statutory approach, the rules could
be broken at will by the legislature through the budget process;
whereas rules set in the [Alaska] constitution could not be
broken. For example, the 120-day legislative session length set
in the [Alaska] constitution represents a hard stop, and
although there may be political costs to going past 90 days set
in statute, it would be legally allowed, and the legislature
could break the rule.
4:13:34 PM
REPRESENTATIVE LEDOUX related the formula for calculating the
PFD has been disregarded at will.
MR. MAGDANZ agreed that was another example; that it would be
necessary to put the formula into the [Alaska] constitution if
one wanted a formula that the legislature could not disregard at
will.
4:13:57 PM
REPRESENTATIVE BIRCH related his understanding that it was not
possible to put a payment provision in the [Alaska]
constitution. He said he was not an advocate of putting a
dividend distribution in the [Alaska] constitution; and, in
fact, he thought "it is a terrible idea."
MR. MAGDANZ responded that there have been legal questions
raised as to whether that was possible. He stated that
Representative Kreiss-Tomkinss office has done some research
into that and some lawyers have said "you could" and some have
said it would be risky to very risky" to do so. He
acknowledged that there was disagreement in the legal community
on that matter.
REPRESENTATIVE BIRCH recalled that the earnings from the PF go
to the general fund (GF) and obviously it was incumbent upon the
legislature to do an allocation. He also pointed out that one
aspect about using statutory language was that some have said
that that the dividend represents breaking the law since it uses
a fund allocation; however, budgets change prior year statutes
all the time. The legislature could always supplement the
statute by writing a new one.
MR. MAGDANZ answered that the legislature could always write a
new statute to change it. In terms of breaking the law, the
legislature at times does not change the statute and just
functionally changes statute through the budget process, which
sometimes makes people concerned.
4:16:44 PM
REPRESENTATIVE LEDOUX asked for further clarification on the
comment that the lawyers disagreed and said it is risky or very
risky" as a policy consideration or whether it was questionable
as to constitutional validity.
MR. MAGDANZ answered that some lawyers would say that if the
legislature proposed a constitutional amendment that required a
dividend payment at a set figure, that the courts could
potentially take that constitutional amendment off the ballot
because it would constitute a revision of the [Alaska]
constitution rather than an amendment.
CHAIR KREISS-TOMKINS said that from his perspective a dividend
should be in the [Alaska] Constitution. He said of all the
attorneys that he has spoken with, there could be a risk of
false equivalents; that his impression has been that there is a
much larger cluster of legal thought that if the constitutional
language read "the dividend shall be paid," that there would be
a very strong argument for upholding it. He felt it was
important to put that in the record.
4:18:27 PM
REPRESENTATIVE LEDOUX offered her belief that it was a different
question as to whether it needed to happen via a constitutional
amendment or through a constitutional convention, which is what
she believed Mr. Magdanz implied.
CHAIR KREISS-TOMKINS responded a question of amendment versus
revision.
MR. MAGDANZ answered yes; that was the legal question he had
heard regarding putting the dividend in the constitution via an
amendment to [Alaska's] constitution. There have been some
lawyers who believe that under case law precedent that it would
require going to a constitutional convention to put a specified
dividend in the [Alaska] Constitution. He noted that the
concern about putting a dividend in the constitution is that it
infringes on legislature's powers of appropriation and the
governor's power to veto these other sections of the [Alaska]
constitution. One thing Representative Kreiss-Tomkin's office
has noted was that the current constitutional language that
created the permanent fund provides for a dedicated stream of
revenue into the permanent fund - at least 25 percent of oil and
mineral royalties. Obviously, that also infringes on the
legislature's ability to appropriate and the governor's power to
veto those royalty funds. The legislature cannot fail to
appropriate those funds and the governor cannot veto that
transfer. He pointed out that there was some precedent in
leaning that way as well.
4:20:15 PM
REPRESENTATIVE LEDOUX related her understanding that was all
done through the amendment process as opposed to a
constitutional convention process. She asked for further
clarification.
MR. MAGDANZ answered that was correct; however, lawyers would
also point out that the case law on which they are making their
determinations came about twenty years after the PF
constitutional amendment was put on the ballot in 1976. The
case [Bess v. Ulmer] being cited was decided in 1999.
CHAIR KREISS-TOMKINS said that any argument that would be made
against putting a POMV or a PFD in the constitution could also
be directed at the PF itself. If someone was saying that
putting POMV or dividend in the constitution would constitute a
constitutional revision instead of a constitutional amendment,
the same argument and logic would say that the PF itself
represents a constitutional revision as maybe itself
constitutionally questionable.
MR. MAGDANZ answered that he has had lawyers tell him that as
well.
4:21:33 PM
REPRESENTATIVE KNOPP wondered what the legislature was striving
to prevent or fix. He said that obviously the legislature was
seeking to preserve the PF, and inflation-proofing, a structured
draw, stopping the ad hoc draws, as well as prevent statutory
changes were part of that process. He noted that every
legislature could make statutory changes and do something
different. One goal was to seek stability, he said. He related
that when the legislature discusses putting the PFD in the
[Alaska] constitution that it might be necessary to discuss the
best benefit to residents, since the constitution does not
specify PFD. He wondered if there was a proposal to put the PFD
in the [Alaska] Constitution, if the legislature should have a
broader discussion on infrastructure projects or capital
projects would create more benefits and jobs that a PFD payout
would. He further wondered if the legislature should even
consider services that the public demands. He wondered if that
should be part of the discussion.
4:23:54 PM
MR. MAGDANZ deferred to the legislature to make that decision.
4:24:05 PM
REPRESENTATIVE TUCK asked whether the discussion should include
whether the dividend should continue to be an annual dividend or
if it should be a quarterly dividend so the money might be
better spent in Alaska's economy.
CHAIR KREISS-TOMKINS agreed that there were half a dozen
constitutional amendments currently before the committee, none
of which have been heard, including his own proposal. He said
these were broader questions relating to how to balance the
budget, and the size of the PFD. Further, he stated that he was
interested in protecting the real value of the fund for future
generations to ensure its growth and to protect the fund. He
said it was important that legislatures not "get into the cookie
jar" because "it's so hard to raise a tax" or "it's so hard to
cut a program" so instead of balancing the budget, the
legislature would just "grab a couple billion dollars here" and
"a couple billion dollars there," and after a few years find the
fund has been depleted by $10 billion to $20 billion and thereby
lose the real value of the fund.
4:25:38 PM
REPRESENTATIVE WOOL said some of these issues were being raised
because of the state's current fiscal situation. He said there
really has not been a lot of flagrant violation of statutes in
the prior 30 or 40 years. The past few years drained the CBR
and other accounts because the state revenues declined. He said
that this ad hoc draw seemed to be a fairly new phenomenon.
REPRESENTATIVE WOOL said it seemed as though the legislature was
steering towards a pure endowment model that would address many
of the things Representative Knopp mentioned, including ad hoc
draws and preserving the fund. He asked how other funds around
the world were managed and whether other pure endowment funds
were typically constitutional or have a fixed draw or if they
were subject to economics. He further asked whether any
endowment funds had a payout.
4:27:16 PM
REPRESENTATIVE JOHNSTON offered her belief that in terms of
sovereign wealth funds, Alaska was unique with its dividend.
She said she was somewhat familiar with the Norwegian fund that
consists of up to 4 percent draw, which she thought was
constitutionally guarded. She said that Norway's sovereign
wealth fund has yet to draw the full 4 percent.
4:27:43 PM
CHAIR KREISS-TOMKINS asked whether Mr. Teal knew of any
sovereign wealth funds that were established by constitution or
in statute.
DAVID TEAL, Director, Legislative Finance Division (LFD),
Legislative Agencies and Offices, said that he does not know of
another one.
CHAIR KREISS-TOMKINS remarked that it would be good to find out.
He advised that he was fairly certain Alaska was the only
sovereign wealth fund that pays out a dividend.
4:28:17 PM
REPRESENTATIVE LEDOUX suggested that places like Abu Dhabi may
operate under different rules than in Alaska and might not be
concerned about constitutional limitations.
4:28:41 PM
REPRESENTATIVE JOHNSTON related that statutory or constitutional
measures have been considered by three legislators, just as the
committee has been considering, as to what would work or what
would not work. She pointed out that this is not the first time
Alaska has been at this juncture. She recalled that it may have
been in the 1980s, that the Murkowski administration considered
putting a POMV structure on the ballot. She offered her belief
that this was the first time the legislature has gone through so
much savings in such a short time. The state has extended the
pipeline well beyond its projected life.
REPRESENTATIVE WOOL remarked that he meant since the history of
the PF and PFD, it has only been in recent years that the
legislature has broken from the statutory formula.
REPRESENTATIVE JOHNSTON agreed.
4:29:54 PM
MR. ERVINE turned to slide 22, titled "Distribution and
Dividends," stating it was important to note that the entire
distribution could potentially be optional. The legislature
could draw 4 percent or 5 percent and pay a dividend. The
equation on slide 22 was fairly simple: the more that goes to
the dividend, the less that goes to public services, resulting
in a larger deficit that would need to be met by budget cuts or
increases in other revenue sources, including potentially -
taxes.
4:30:59 PM
MR. MAGDANZ turned to slide 23 titled "The 50/50 Plan," stating
that as Mr. Ervine mentioned, it was not necessary to do the
distribution split side. Instead, one option would let the
money flow in and every year in the budget cycle and the
legislature could "fight over" how to use the $2.7 billion from
PF earnings. He offered his belief that was what the
constitutional amendments and statutory draw formulas before the
legislature were intended to prevent. Most legislators seemed
to be interested in more of a rules-based structure. This
section of the presentation would briefly identify some of the
splits. He said that obviously with a statutory draw formula,
the rules could be defined in statute or in annual budgets.
4:31:54 PM
MR. MAGDANZ said that passing a constitutional amendment to use
a constitutional draw formula would basically add a tier. One
option would define the draw amount in the [Alaska]
constitution; for example, 4.75 percent, and determine by
statutory formula where the money goes. A second option, as the
constitutional amendments before the legislature accomplish,
would be to establish in the [Alaska] constitution that some
portion of the draw must be paid in dividends. He said both
options would be available to the legislature. The 50/50 split
simply says that 50 percent of the draw would be directed to
dividends and 50 percent would be available for other purposes.
He indicated that three proposed constitutional amendments were
before the legislature [HJR 34, SJR 1, and SJR 8].
4:32:41 PM
MR. MAGDANZ turned to slide 24, titled "Other Splits," and
outlined common splits. He pointed out the most common proposal
before the legislature designates approximately one third of the
draw for dividends with the remainder available for public
services, fund capitalization, and other purposes. He related
that the specific split varied from 25 percent in SB 26 as
passed by the Senate to as high as 44 percent of the maximum
draw as per Senator Bert Stedman's SJR 9.
4:33:22 PM
MR. MAGDANZ stated that the legislature could require a minimum
dividend, as does Chair Kreiss-Tomkin's resolution, HJR 36, and
this committee's resolution [HJR 41]. Obviously, in any of the
constitutional amendments additional money could be directed to
dividends besides the floor in the constitutional amendment,
with the remainder available for public services. He pointed
out that some constitutional amendments force that remainder
into the GF every year and other ones leave the funds in the PF
unless it was appropriated for a specific purpose by the
legislature. As Mr. Ervine stated that when considering a split
at a time with a large deficit, as is the current situation, the
equation for this decision is simple: the more money put into
dividends, the more money that must be found from other sources
to meet the budget. The other sources of revenue equate to cuts
to programs, drawing from other savings accounts - such as the
CBR, raising more revenue, or making unstructured draws above
the 4.5 percent or 5 percent on the ERA.
4:34:31 PM
REPRESENTATIVE BIRCH asked whether anyone has proposed a split
where the state pays its bills first and any remaining funds
would be used for dividends.
MR. MAGDANZ asked to finish the final slide and address his
question in a moment.
4:34:51 PM
MR. MAGDANZ turned to the final slide [slide 25], titled
"Revenue Caps," stating another option would be to force money
back to the PF or into higher dividends, if revenue - oil
revenue - is high. He stated that this was done in SB 26, when
oil revenue hits a certain level the PF draw is reduced. He
clarified it was a dollar-for-dollar reduction in the Senate
version and 80 cents on the dollar in the House version.
Although possible, it would harder to do in a constitutional
amendment since the rules must be simple and stand the test of
time; however, one could cap the amount of money that can be
used for government services at the budget deficit for the
fiscal year. The remaining amount could be deposited into the
PF or be used for higher dividends.
4:36:02 PM
MR. MAGDANZ, speaking to Representative Birch's earlier
question, said that the legislature could flip the order of
payments, such that the first use of PF earnings would be to
meet the deficit with the 5 percent draw and any remaining
amount, if any, would be used to pay dividends.
REPRESENTATIVE BIRCH acknowledged the legislature has struggled
to decide on funding for education, highways, and road
maintenance. He said it did not seem unreasonable to expect
that the draw would first pay obligations and next pay a
dividend.
MR. ERVINE responded that a bill from a prior legislature
proposed to do that, which basically used the POMV to meet the
budget deficit, repay the CBR, repay the statutory budget
reserve fund, and the remainder would go to dividends. He
recalled it was House Bill 224 introduced by a former legislator
for House District 28. That bill did not have a floor to ensure
a dividend would be paid out, which some argued was a flaw;
however, some people felt it was a valid approach.
4:37:45 PM
REPRESENTATIVE TUCK emphasized that one reason the legislature
was even considering constitutional amendment for the PF was due
to the concern that once government "gets their hands on it,"
[spending] would never end. The state has had a 30-year history
of paying out dividends, but the current situation is different.
In the past several years, the statutory formula has been
broken, which was noted earlier, in that statutes can be
changed. He offered his belief that the PF would not rescue the
state and the legislature must consider other measures. He
argued the importance of the legislature to constitutionalize
the permanent fund if it wants to use the fund to rescue Alaska.
REPRESENTATIVE LEDOUX said she did not understand what
Representative Birch meant by "pay your bills first" because
until the legislature decides what programs to offer, it does
not represent a bill. The legislature could decide to have
limited government services and spend a significant amount on a
PFD. She offered her belief that would not violate the idea of
paying the state's bills first because it identified what the
state wants to provide and pay first.
4:39:40 PM
CHAIR KREISS-TOMKINS thanked the presenters, Mr. Magdanz and Mr.
Ervine, for their presentation. He characterized the
presentation as an excellent one.
HB 407-APOC; CAMPAIGN CONTRIBUTIONS/REPORTING
4:40:57 PM
CHAIR KREISS-TOMKINS announced that the next order of business
would be HOUSE BILL NO. 407, "An Act relating to the duties of
the Alaska Public Offices Commission; clarifying the limits on
making, accepting, and reporting certain cash campaign
contributions; relating to campaign finance reporting by certain
groups; relating to the identification of certain campaign
communications; increasing the time the Alaska Public Offices
Commission has to respond to a request for an advisory opinion;
repealing a reporting requirement for certain contributions;
relating to propositions and initiative proposals; and providing
for an effective date."
4:40:30 PM
REPRESENTATIVE KREISS-TOMKINS related that this was a committee
bill that was previously discussed. He asked his staff to
present an overview of the bill. He reminded members that the
bill contained statute changes resulting from the House Finance
Subcommittee process.
4:40:44 PM
CATHY SCHLINGHEYDE, Staff, Representative Jonathan Kreiss-
Tomkins, Alaska State Legislature, reiterated that the bill
contained recommendations by the Department of Administration
Finance subcommittee.
MS. SCHLINGHEYDE paraphrased the sponsor statement for HB 407,
which read as follows [original punctuation provided]:
The Alaska Public Offices Commission (APOC) has seen a
42.4% reduction in UGF since the FY15 management plan,
resulting in the loss of six positions. HB 407 would
streamline reporting requirements to allow APOC to
operate more efficiently within the current budgetary
restraints.
HB 407 increases APOC efficiency by also easing the
auditing requirements, allowing APOC to exercise
discretion when reviewing reports and statements,
eliminating duplicative reporting, extending response
times for advisory opinions, and extending small
campaign reporting exemptions to groups.
In addition to the streamlining measures, HB 407
provides needed clarification by specifying the
requirements of "paid for" lines on campaign
communications and defining a calendar year for cash
contribution limits.
APOC provides an important public service ensuring the
enforcement of campaign finance ethics requirements.
HB 407 allows APOC to complete their mission more
efficiently and cost effectively.
4:40:58 PM
MS. SCHLINGHEYDE reviewed the section-by-section analysis for HB
407, titled "HB 407 - APOC; Campaign Contributions/Reporting,
Sectional Analysis, which read as follows [original punctuation
provided]:
Section 1: This section eases the report auditing
requirements by removing the word all. The change
allows APOC to strategically select reports and
statements to audit.
Section 2: This section inserts calendar to clarify
confusion on the definition of year in regards to
reporting contributions.
Section 3: This section extends the small campaign
reporting exemptions to groups in addition to
individuals. The minimum threshold for groups to
report would be raising or expending $2,500 in a
calendar year.
Section 4: This section renumbers the statute to
accommodate the changes in Section 3.
Section 5: This section inserts calendar to clarify
confusion on the definition of year in regards to the
cap on candidate's acceptance cash contributions.
Section 6: This section inserts calendar to clarify
confusion on the definition of year in regards to the
cap on donating cash contributions.
Section 7: This section provides standardized rules to
ensure the readability of paid for lines in campaign
communications.
Section 8: This section extends by three days the time
allowed for APOC to provide an advisory opinion.
Section 9: This section eliminates duplicative
reporting of contributions to ballot initiatives by
removing the requirement that donors self-report in
addition to the campaign's report.
Section 10: This section sets an effective date of
January 1, 2019, after the conclusion of the current
election cycle.
4:41:00 PM
MS. SCHLINGHEYDE said that Section 1 allowed the APOC to
have the discretion in report auditing to review specific
documents, not necessarily every document that is
submitted. Sections 2, 5, and 6 all insert the word
calendar to clarify the definition of year, which has been
disputed. Section 3, small campaigns for individuals, have
a minimum reporting threshold and this allows groups to
have a minimum reporting threshold as well. The minimum
threshold for groups to report would be raising or
expending $2,500 in a calendar year.
4:41:25 PM
MS. SCHLINGHEYDE related that Section 4 was statutory
cleanup to renumber based on Section 3. Section 7
specified the requirement for paid for lines in campaign
communications. Section 8 would extend by three days the
time allowed for APOC to issue an advisory opinion due to
their decreased staffing capacity.
MS. SCHLINGHEYDE related that Section 9 states that ballot
initiative donors do not have to submit duplicative reports
when the campaigns were already reporting those
contributions, which means APOC only needs to process them
once and not twice. Section 10 would set an effective date
of January 1, 2019, after the conclusion of the current
election cycle.
4:42:00 PM
REPRESENTATIVE TUCK asked for further clarification on Section
9.
MS. SCHLINGHEYDE responded that for ballot initiatives, the
campaign must report donors who contribute above $500; however,
the donors must also fill out a form, form 15-5, and if they do
not the donors are subject to fines. Concern has been expressed
that APOC must process the reporting twice and must "track down"
people who are not aware of the reporting requirement. She said
this tended to create excess paperwork with no additional
reports.
4:42:45 PM
REPRESENTATIVE TUCK expressed concern on how one would know
someone was reporting unless it was checked on both sides. He
also had the same concern that donors might not know the need to
do so. He suggested that perhaps there should be a disclosure
printed on the donation envelopes, so people would be informed.
MS. SCHLINGHEYDE clarified that this only applied to ballot
initiatives and not to other campaign donations.
4:43:32 PM
REPRESENTATIVE LEDOUX recalled that years ago both candidates
and donors had to report; however, most donors did not know they
needed to report these donations, so it was ultimately changed.
She offered her belief that this was in keeping with regular
political campaigns. In fact, she was surprised it had not been
changed already. In response to Representative Tuck's earlier
concern, she stated that the same logic would apply to regular
political campaigns.
REPRESENTATIVE TUCK agreed but otherwise it was by faith. He
offered his belief that the reason for a public process was to
provide transparency.
4:44:46 PM
REPRESENTATIVE BIRCH offered he had personal experience with a
contributor to a campaign in which the donation was reported and
the contributor did not report separately. The information was
complete, but it was not reported in duplicate, he said. He
offered his belief that it was reasonable to update this.
4:45:12 PM
REPRESENTATIVE KNOPP referred to Section 8. He said it would
not necessarily extend by three days the advisory opinion. He
offered his belief that it would double the time by changing the
language from 7 days to 10 business days would actually amount
to 14 total days. He asked for further clarification as to the
reasonableness of the length of time and how time sensitive the
opinion would be.
4:46:05 PM
HEATHER HEBDON, Executive Director, Alaska Public Offices
Commission (APOC), Department of Administration, responded that
was correct. She said this would extend the requirement for
issuing draft advisory opinions by allowing an additional five
days. While the APOC understood it could be critical to the
requestor, it would reduce unnecessary overtime at the APOC
office. She pointed out that the APOC drafts were also reviewed
by the Department of Law (DOL) prior to issuance. She said this
change would allow APOC to reduce overtime costs.
4:46:56 PM
REPRESENTATIVE KNOPP asked for further clarification on whether
it would be critical from the individual or organization's
perspective that requests an advisory opinion and if any of the
advisory opinions would be time-sensitive.
MS. HEBDON answered that it was difficult to answer without
specific facts. She said that APOC receives simple and
straight-forward questions. The majority of times, the
requestor has already contacted staff and has a general idea of
which direction the agency was going. This would formalize it
and get APOC's approval.
4:47:56 PM
REPRESENTATIVE KNOPP asked whether it was fair to say that if
APOC realized some urgency in the advisory opinion, it would be
prioritized.
MS. HEBDON answered absolutely; that just because the bill
extended the time to 10 days would not mean the commission could
not complete the advisory opinion and have it reviewed by DOL
sooner.
4:48:43 PM
REPRESENTATIVE TUCK referred to Section 3 but decided he did not
have a question.
4:49:00 PM
CHAIR KREISS-TOMKINS announced HB 407 would be held over.
SCR 17-APRIL 2018:SEXUAL ASSAULT AWARENESS MONTH
4:49:29 PM
CHAIR KREISS-TOMKINS announced that the next order of business
would be SENATE CONCURRENT RESOLUTION NO. 17, Proclaiming April
2018 as Sexual Assault Awareness Month.
4:49:43 PM
EDRA MORLEDGE, Staff, Senator Kevin Meyer, Alaska State
Legislature, stated that SCR 17 was a resolution that proclaims
April 2018 as Sexual Assault Awareness Month. This was part of
a national campaign to raise public awareness about sexual
assault and to educate communities and individuals on how to
prevent sexual violence.
MS. MORLEDGE stated that Senator Meyer first brought this
resolution forward in 2001 when he was a Representative. The
reason the sponsor continues to bring forward resolutions on an
annual basis rather than to place it in statute permanently was
to bring attention to the issue and to continually educate our
communities throughout the state.
4:50:35 PM
MS. MORLEDGE reported that sexual assault statistics nationwide
are staggering, such that one in five women have been victims of
violent sexual assault during their lifetimes. Unfortunately,
those statistics are much higher. In fact, the 2015 Alaska
victimization survey reports that one-third of adult women in
Alaska have experienced sexual assault.
MS. MORLEDGE informed members that sexual assault was
preventable. It represents a public health, criminal justice,
and human rights issue. She pointed out the importance of
educating the public.
MS. MORLEDGE stated the 2018 sexual assault awareness month
campaign has focused on "embrace your voice." She hoped that
this resolution would help to strengthen that effort across
Alaska.
MS. MORLEDGE offered her belief that members heard the companion
bill, HCR 22 last month. She hoped both resolutions would help
to educate Alaskans.
4:51:45 PM
CHAIR KREISS-TOMKINS announced that SCR 17 would be held over.
SB 163-DEFINITION OF COMMERCIAL MOTOR VEHICLES
4:52:41 PM
CHAIR KREISS-TOMKINS announced that the next order of business
would be CS FOR SENATE BILL NO. 163(STA), "An Act relating to
commercial motor vehicles."
4:52:51 PM
The committee took a brief at-ease.
4:53:02 PM
CHAIR KREISS-TOMKINS asked if Mr. Byrd could present the bill.
4:53:45 PM
DANIEL BYRD, Chief, Commercial Vehicle Enforcement, Anchorage
Office, Division of Measurement Standards & Commercial Vehicle
Enforcement, Department of Transportation & Public Facilities
(DOT&PF) introduced himself and stated he would try to do so.
CHAIR KREISS-TOMKINS expressed concern about the audio quality
for the testifier.
4:54:04 PM
The committee took a brief at-ease.
4:54:59 PM
JOHN BINDER, Deputy Commissioner, Office of the Commissioner,
Department of Transportation & Public Facilities (DOT&PF)
introduced himself. He stated that SB 163 would bring Alaska's
definition of commercial motor vehicles into the 21st century
and in alignment with the Federal Highways Reauthorization Act
of 2012, "Moving Ahead for Progress in the Twenty-First Century
Act," commonly referred to as MAP-21.
4:55:26 PM
MR. BINDER stated that the proposed changes in SB 163 would
benefit farmers who transport agricultural commodities or
supplies in Alaska because existing restrictions on farm
vehicles limit their movement to within 150 miles of their farm.
This bill would allow farmers to operate anywhere in Alaska. He
stated that MAP-21 made the federal regulations less restrictive
than current Alaska statutes. This bill, SB 163, would also
propose that transportation of hazardous materials be amended to
only apply to (indis.) regardless of the size of the vehicle.
Finally, the definition of school bus would be updated to
provide clarity for when school buses are exempt from commercial
motor vehicle regulation requirements.
4:56:18 PM
MR. BINDER offered to provide additional information on the
specific sections. Section 1 primarily would relate to the 150-
mile rule. This would allow farmers operating their vehicles in
support of their farm operations to transport materials anywhere
in the state without being limited to the 150-mile radius of
their farm.
MR. BINDER stated that Section 2 would primarily relate to the
HAZMAT [hazardous materials] portion. Current statute required
that certain placards be posted regardless of the amount;
however, federal regulation relieved that up to certain
quantities, so this would align with federal regulations, he
said. For example, an aircraft operator might wish to deliver a
drum to a village or a remote residence. Under current law, the
operator would need to placard that even though reporting this
amount of substance would not normally be required.
4:57:25 PM
CHAIR KREISS-TOMKINS passed the gavel to Vice Chair LeDoux.
4:57:30 PM
REPRESENTATIVE KNOPP asked whether 110 gallons of aviation gas
would exceed the federal placard amount.
MR. BINDER said that was correct.
REPRESENTATIVE KNOPP asked whether commercial fishermen who use
their pickup to carry three drums of fuel, which would equate to
150 gallons, would be affected by the bill given the definition
of commercial vehicle in SB 163, would need to comply with
weights and measures.
MR. BINDER responded that this bill would relieve the burden
because federal regulations are less than state statute and it
would allow drivers to transport those quantities without being
stopped for commercial purposes.
5:00:23 PM
REPRESENTATIVE KNOPP referred to [page 2, line 24] in Section 2,
"for vehicles used in interstate commerce," and whether that
would affect fishing guides hauling their boats containing
drums, such that the guides would be subject to commercial
vehicle inspections. He asked whether this bill would have any
unintended consequences for these fishing guides.
MR. BYRD answered that this bill does not affect compliance
requirements for intrastate versus interstate commerce. He
explained that currently the federal government has jurisdiction
over HAZMAT [hazardous materials] shipments and if the
regulations require placards then the regulations would apply.
This bill would not change commercial vehicle enforcement or
HAZMAT enforcement.
5:01:51 PM
REPRESENTATIVE KNOPP referred to the definition of school bus
under [proposed AS 19.10.399 (15)]. He asked whether that fell
under the exemption and further how this provision would affect
school buses that have been converted to recreational vehicles
and whether these vehicles would be considered commercial
vehicles.
MR. BYRD answered that school buses or any commercial vehicle
must fit the definition of a commercial vehicle, including gross
vehicle weight, the number of passengers, and whether the
vehicle would be transporting hazardous materials. The
underlying requirement would be that the vehicle must be used in
commerce, so school buses used as recreational vehicles would
not fall under the definition of commercial vehicle.
5:02:53 PM
VICE CHAIR LEDOUX returned the gavel to Chair Kreiss-Tomkins.
5:03:07 PM
REPRESENTATIVE TUCK referred to Section 1, on page 2, lines 4-
which removed a description of the vehicle but added "covered"
farm vehicles. He asked for further clarification on the
meaning of covered farm vehicles and if it meant covered by a
tarp or covered by law.
MR. BYRD answered that it meant vehicles covered by the
regulation.
5:03:54 PM
REPRESENTATIVE TUCK referred to the statutory cite for farm
vehicles that were covered by this provision. He read, that
are controlled and operated by a farmer; used to transport
agricultural products, farm machinery, or farm supplies to or
from that farmer's farm... He wondered if a flat-bed truck
would fall under proposed Section 2 since these vehicles can
travel anywhere in the state. He asked for further
clarification on how to identify the vehicle as "farm vehicles"
from those that are not.
MR. BYRD answered that if the vehicle does not have an
interstate commerce [ICC] number registration on the vehicle,
which typically indicates commerce. He acknowledged that
sometimes the same vehicles are used for farm operations and at
times for commercial operations. The intent by removing the
specificity was to allow farmers to use a variety of vehicles or
implements to conduct their farm business without being overly
restrictive with the type of vehicle.
5:05:20 PM
REPRESENTATIVE TUCK expressed concern about vehicles being
operated by "other than the farmer." He offered to review what
would be included for "covered farm vehicles."
5:05:55 PM
REPRESENTATIVE LEDOUX asked for the rationale used for
distinguishing between commercial vehicles and other vehicles.
She was unsure of the reason to exempt farm vehicles from the
definition of commercial vehicles.
MR. BINDER deferred to Mr. Byrd.
MR. BYRD offered that the rationale used to exempt "covered farm
vehicles" would be to provide relief from regulations through
MAP-21. [The exemption] currently applies to all interstate
vehicles and this bill would add the exemption for intrastate
vehicle traffic. He was unsure of the reason for the exemption
for farmers and farm vehicles, noting he could only speculate,
so he deferred to the Department of Law or someone else to
respond.
5:07:38 PM
REPRESENTATIVE LEDOUX asked Mr. Binder for the rationale for
distinguishing between a commercial vehicle and a non-commercial
vehicle and whether it referred to a vehicle size, danger, or
other criteria. She asked for further clarification on why farm
vehicles would be exempt, which could be used to transport bomb
materials.
5:08:37 PM
MR. BINDER answered that commercial vehicles were larger and
carried cargo, so it would require that drivers have extra
training. In addition, commercial vehicle regulations also
cover vehicle safety, to ensure vehicles are safe, especially if
the drivers are transporting passengers or HAZMAT [hazardous
materials]. He was unsure of the reason to exempt farm
vehicles.
5:09:06 PM
REPRESENTATIVE LEDOUX said she would like to hear the rationale
for exempting farm vehicles.
MR. BINDER responded that farm vehicles currently are exempted
and have been for years. This bill would remove the 150-mile
radius restriction, which was especially important in Alaska
since farmers often need to transport their products for
distances that exceed 150 miles.
5:09:53 PM
REPRESENTATIVE JOHNSON offered her anecdotal response would be
that farm vehicles are used on farms and their primary use is
for off-highway purposes. Farmers may deliver goods or travel
short distances on a highway; however, these vehicles are often
slow-moving and are not equipped with signals.
5:10:43 PM
REPRESENTATIVE LEDOUX related her understanding that
Representative Johnson's description would contain farm vehicles
within 150 miles of their farms, which seemed appropriate. She
expressed concern that farm vehicles would be able to drive
anywhere on the road system without being designated as
commercial vehicles.
5:11:17 PM
REPRESENTATIVE TUCK agreed, noting that was his point with
respect to removing language on page 2, lines 5-10. He wondered
if it would be better to keep the language except for the 150-
mile limit. He expressed concern about removing the conditions
that limit it to a farmer transporting goods from one place to
another and opening it up to anyone. He related a scenario in
which a person could operate a produce and dairy business and
truck produce without having to obtain a commercial driver's
license (CDL). He referred to page 3, lines 6-11, which would
remove that language again. He was unsure if coverage was
somewhere in statute.
5:12:24 PM
REPRESENTATIVE KNOPP offered his belief, since he has commercial
trucks and while he does not like the regulations, some of the
trucks haul 100,000 pounds and should be held to stricter
standards. Thus, he understood the reason for commercial
vehicle regulations. He offered the rationale for commercial
vehicles was these vehicles are being used for commerce every
day whereas farm vehicles and transport was seasonal and
occasional. In response to Representative Tuck's concern, he
mentioned that Section 3 does start to define farm equipment,
reading [AS 19.10.399 (14) "covered farm vehicle" means]
straight or articulated vehicle..." He continued and
paraphrased subparagraph (B), which indicated that it must be
operated by the owner or operator of a farm or ranch or employee
of a farm or ranch. He argued that this language did not
include commerce and characterized it as personal use. He
recalled that a few years ago commercial vehicle enforcement
started having commercial fishing guides pulling their boats
with regular pickups subject to enforcement and requiring them
to hold a commercial driver's license (CDL) until the
legislature passed an exemption.
5:14:04 PM
REPRESENTATIVE JOHNSON offered feedback from farmers, including
that commercial vehicles cannot obtain "farmer's license plates"
since these plates are limited to farmers. She indicated that
farm vehicles were already defined.
MR. BINDER acknowledged that he could have directed members to
Section 3. He directed attention to school buses, since some
buses have been used for commercial operation during the summer
months when school is not in session and the buses were not
being used for school operations.
5:16:04 PM
REPRESENTATIVE TUCK related his understanding that school bus
drivers must have a CDL requirement if they were transporting
students. He asked whether bus drivers who were using school
buses for other types of commerce would be exempt under SB 163.
MR. BYRD answered that the commercial driver's license (CDL)
program was a federal program. He stated that if bus drivers
were hauling 16 or more passengers, they would need CDLs.
5:17:20 PM
MR. BINDER added that would be for commercial purposes. He
asked for further clarification.
MR. BYRD answered that school bus drivers were required to hold
CDLs with a passenger endorsement.
5:17:44 PM
REPRESENTATIVE TUCK referred to page 3, lines 1-2, and read,
"the following vehicles meeting the criteria in (A) and (B) and
either 2 (C)(i) or (ii) [(A) - (C)] of this paragraph are not
commercial motor vehicles:" He said the way he read this
language, school buses were commercial vehicles so it would
require school bus drivers to hold CDLs. He asked for further
clarification on what was being exempted.
MR. BINDER directed attention to page 2, line 25 to current AS
19:10.399(1)(C)(ii), which read, "is designed to transport more
than 15 passengers," noting that even though a school bus was
designed to carry more than 15 passengers it was not being
considered a commercial vehicle while it is being used to
transport students for school purposes.
5:18:52 PM
REPRESENTATIVE TUCK asked for further clarification if school
buses were not commercial vehicles the reason for the
designation and if federal law requires drivers to hold CDLs to
drive school buses.
MR. BINDER responded that additional commercial requirements
pertain to vehicles being used in commerce would start to apply,
including vehicle maintenance, lighting and marking, depending
on the purpose being used in commerce that do not apply while
hauling students.
5:19:28 PM
REPRESENTATIVE TUCK expressed concern since drivers hauling
students to and from school do not need to keep tail lights and
markings operational and up to code. It seemed to him school
bus drivers should have to meet higher standards not a lesser
standard.
5:20:00 PM
MR. BYRD answered that the commercial vehicle requirements would
be the markings, medical certificate, and the name of the
company on the side of the bus. He said that the exemptions in
the bill would exempt the drivers from safety regulations under
federal requirements. He did not believe that drivers were
exempt from CDL requirements, but they would be exempt from
additional requirements that would apply to commercial vehicles;
however, he noted that there was also a school bus inspection
program, which was more stringent, more so than commercial
vehicle inspections. Those inspections were conducted through
the Department of Education and Early Development (DEED). He
related his understanding that DEED requires school buses must
be inspected twice a year to check vehicle safety, such as brake
linings and wiring. He commented that bus drivers were still
required to do a walk around inspection to ensure that the bus
is in safe operating condition each time they leave to conduct a
route.
REPRESENTATIVE TUCK acknowledged that was a policy call.
5:21:46 PM
CHAIR KREISS-TOMKINS announced that SB 163 would be held over.
^ Approval of Introduction of Potential Committee Legislation
Approval of Introduction of Potential Committee Legislation
5:22:12 PM
CHAIR KREISS-TOMKINS announced that the next order of business
would be approval of introduction of potential committee
legislation, relating to a Division of Motor Vehicle (DMV)
indirect expenditure bill. There have been previous
presentations before the committee, and he has circulated with
all members of the committee an outline of this proposed
legislation.
5:22:40 PM
REPRESENTATIVE KNOPP moved that an act relating to the Division
of Motor Vehicles as described in this committee hearing, be
introduced as a House State Affairs Standing Committee bill.
There being no objection, the indirect expenditure bill for the
DMV will be brought before the committee.
5:22:58 PM
CHAIR KREISS-TOMKINS stated that the committee would be
presented with a work draft to consider as a starting point.
HB 83-TEACHERS & PUB EMPLOYEE RETIREMENT PLANS
5:23:07 PM
CHAIR KREISS-TOMKINS announced that the final order of business
would be the CS FOR HOUSE BILL NO. 83(L&C), "An Act relating to
new defined benefit tiers in the public employees' retirement
system and the teachers' retirement system; providing certain
employees an opportunity to choose between the defined benefit
and defined contribution plans of the public employees'
retirement system and the teachers' retirement system; and
providing for an effective date."
5:23:29 PM
EDRIC CARRILLO, Staff, Representative Sam Kito, Alaska State
Legislature, read the changes to HB 83 from a document titled,
"Explanation of Changes, HB 83, PERs/TRS, Version N to Version
T, which read as follows [original punctuation provided]:
Version T includes the following changes to HB 83
version N:
? Broadened the title to refer to more than the new
tiers, use the more precise title "Public Employees'
Retirement System of Alaska."
? Added a new Sec. 1 at the department's request,
making it easier for teachers to return to work after
recovering from a disability. The section will allow
TRS to accept a certification of rehabilitation from
other states' vocational rehabilitation offices.
? Changed Sec. 6 at the department's request to ease
potentially burdensome exams for teachers getting a
disability pension.
? Changed Sec. 7 at the department's request to allow
TRS to accept vocational rehabilitation services in
other states for teachers on a disability pension.
? Adjusted Sec. 9 at the department's request to
clarify which retiree medical plan applies to teachers
who retire in the new DB tier. Also updates the first
risk adjustment to health care premiums to 2024, five
years after the effective date.
? Removed from Sec. 12, at the Department of Law's
request, the requirement that a teacher's spouse agree
to the initial choice between the DB and DC plans.
? Adds a new Sec. 13 at the department's request so
teachers appointed to disability in the DC plan can
receive vocational rehabilitation in other states.
? Conforms Sec. 15 to the new effective date.
5:26:10 PM
MR. CARILLO continued to read the changes to HB 83 from a
document titled, "Explanation of Changes, HB 83, PERs/TRS,
Version N to Version T, which read as follows [original
punctuation provided]:
? Clarified Sec. 18 language covering non-occupational
disability benefits, as requested by the department.
? Changed Sec. 19 at the department's request to allow
PERS to accept vocational rehabilitation services in
other states for those on a disability pension.
? Adjusted Sec. 20 at the department's request to
clarify which retiree medical plan applies to
employees who retire in the new DB tier. Also updates
the first risk adjustment to health care premiums to
2024, five years after the effective date.
? Removed from Sec. 25, at the Department of Law's
request, the requirement that a teacher's spouse agree
to the initial choice between the DB and DC plans.
? Adds a new Sec. 26 at the department's request so
teachers appointed to disability in the DC plan can
receive vocational rehabilitation in other states.
? Sec. 29 has a conforming change to a section number
within the bill.
? Sec. 30 has been changed so it does not alter the
department's existing regulations process for the
retirement systems.
? Section 31 has conforming changes to reflect the
appropriate section numbers in the CS.
? Section 32 changes the effective date to July 1,
2019
MR. CARILLO stated those were all the changes to the bill.
5:27:42 PM
REPRESENTATIVE LEDOUX made a motion to adopt the proposed
committee substitute (CS) for HB 83 labeled as 30-LS0315\T,
Wayne, 3/30/18, as the work draft. There being no objection,
Version T was before the committee.
5:28:09 PM
REPRESENTATIVE BIRCH said he was opposed to anything that would
restore an undefined obligation. He was unsure if there was a
fiscal note for the defined benefits (DB) program. He then
remarked that there was not a fiscal note. He offered his
concern that the state would be "saddled" with liability and
long-term obligations, which he characterized as significant.
He argued that the state currently has a $7 billion to $8
billion unmet obligation. He related his understanding that an
evaluation must be completed to determine the cost of the plan.
He indicated members would be voting on something unknown. He
said he was not supportive of this.
5:29:13 PM
CHAIR KREISS-TOMKINS offered a note on process. He related his
understanding that the fiscal note would be completed when the
bill reached the House Finance Standing Committee. At that
point the Department of Revenue (DOR) would run an actuarial
analysis, he said. He acknowledged that it does put members in
the position of voting on policy issues rather than the fiscal
issues. He acknowledged that Representative Birch's comments
were noted and appreciated.
REPRESENTATIVE BIRCH said he objected to the policy.
5:30:54 PM
CHAIR KREISS-TOMKINS opened public testimony on HB 83.
5:31:23 PM
CHRIS CAIRNS, Staff, Information Technology, Juneau School
District; Representative, Alaska Public Employees Association
(APEA), testified in support of HB 83. He stated that HB 83
represents a balm to the myriad of uncertainties for public
employees. During a bargaining session he reviewed a chart of
the number of employees that occupy each cell of the support
staffs' salary schedule. He noticed many staff had served 1-6
or 15-25 years of service, but very few had 7-14 years of
service. He later confirmed that more than half of all Juneau
education support staff had seven or fewer years of service.
MR. CAIRNS said that he could not definitively state this
resulted from the 2006 switch from the DB to defined
contribution (DC) plan. The timeline certainly fits. He stated
that he and his co-workers have frequently discussed the concept
of DB plan and the peace of mind it provides. He related at
last night's APEA union meeting with the school board, a board
member asked besides wages what the biggest challenge employees
faced. The vice-president confidently identified the biggest
challenge as retention. He stated that the APEA needed to bring
back DB plans. Every head nodded in enthusiastic agreement, he
said.
5:33:14 PM
MR. CAIRNS, having spoken to management and labor organizations,
offered his belief that nearby areas such as Spokane,
Washington, would lure away the best employees. He reported
these areas pay as much or more while the cost of living was
much less than in Juneau. He also testified that these
employers commonly mentioned a DB option as a mitigating
enticement.
MR. CAIRNS offered his belief that retaining staff represents
the key to doing more with less. Currently, many public
employees face this challenge, he said. He predicted that prior
mistakes would be repeated, and training will reduce
efficiencies due to lost institutional knowledge. As an
example, he felt that if he left it would take a new employee
replacing him about two to three years to learn the job. It
takes time to build the necessary relationships and
comprehending the complexities of APEA's mission, process and
role. This would not include time to gain technical
competencies specific to school district information technology
needs or shaping policy and procedures in innovative and
productive ways.
5:34:27 PM
MR. CAIRNS offered that his job was not unique and other public
employees would relate to his point of view. As many perceive
it, since 2006 the Public Employees Retirement System (PERS)
incentivizes five years of service, which coincides with the
timeframe when employees have begun to excel at their jobs. He
lamented that five years was the most inefficient timeframe in
which to lose someone since they have learned their jobs and
they leave. He urged members to support HB 83 for these reasons
and many more that he does not have time to address. He
appreciated committee members' time and thanked them.
5:35:06 PM
REPRESENTATIVE BIRCH asked whether any private sector employees
have a DB program. He recalled previously the sense was that
most private sector employees were moving away from it because
of the uncertainty of the liability.
MR. CAIRNS responded no. He reported from an information
technology perspective that the wage level was less in the
public sphere than in the private sector.
5:36:01 PM
REPRESENTATIVE KNOPP asked for an explanation on the five-year
timeframe in terms of [employee retention].
MR. CAIRNS answered that employees receive a 25 percent vestment
after 2 years of service and an additional 25 percent every
additional year until the fifth year when employees become
vested.
5:36:34 PM
REPRESENTATIVE KNOPP asked whether employees lacked any
incentive to stay after becoming vested at five years.
MR. CAIRNS related that some employees in his department have
left citing this as a specific reason.
5:37:18 PM
ALICIA HUGHES-SKANDIJS, Member, Alaska State Employees
Association (ASEA), urged member to support HB 83. She said she
considers herself a poster child for the kind of state worker
who would benefit from this bill. She identified herself as a
Tier IV employee working for the Department of Health and Social
Services (DHSS). In September she would become fully vested,
she said. She has served as a grants administrator and she
loves her work. She feels the programs she serves make a
difference and benefit the state. She would like to keep doing
this job. She pointed out that the incentive of receiving a
pension would play a large role in her decision-making process.
In the four years since she has worked for the state,
significant turnover has occurred in her office. She reported
that when staff reach vesting and leave, it means she must
continually train people, which she felt was an inefficient use
of staff time. She has experienced trained staff leave. She
offered her belief that staff often left at the five-year mark
after having built up their resumes. Those who leave after five
years or more take institutional knowledge with them which adds
to organizational instability, she said.
5:39:21 PM
MS. HUGHES-SKANDIJS stated that she also serves as a union
steward, so she comes into contact with numerous state workers
in other departments. She speaks not only on behalf of herself
but for many employees who want and support this. She remarked
that the five-year vesting often comes up during conversations.
5:39:52 PM
MS. HUGHES-SKANDIJS stated she grew up in West Virginia before
moving to Alaska. They moved away from the DB to DC plan, which
lead to turnover problems, retention, quality of employees, and
the cost to the state. She reported that West Virginia did not
find it was a cheap way to administer. Not only did they have
an unfunded liability, but it was not working out for the state.
Since then, West Virginia has returned to a DB plan and 79
percent of public employees switched back. The DB plan was not
only better for employees but also better for employers, she
said.
5:40:35 PM
MS. HUGHES-SKANDIJS offered to provide some facts and figures to
the committee. She argued a DB plan has perks when best
practices were followed due to higher returns and risk sharing.
She offered her belief that this reflects the values of this
great state to compensate people who provide a lifetime of
service to Alaska with stability. She felt these people would
continue to participate in the economy when their standard of
living was higher at the end of their careers.
5:41:43 PM
REPRESENTATIVE BIRCH asked whether she had any information of
private sector entities that have moved to a DB program. He
said he was not aware of any. He expressed concern on
unconstrained costs due to actuarial estimates.
5:42:39 PM
REPRESENTATIVE LEDOUX asked for further clarification on how
many of the 49 other states have DC or DB plans.
MS. HUGHES-SKANDIJS offered her belief that Alaska may be the
only state without a DB plan for teachers. She further remarked
that benefits were better for public safety officers than for
educational employees. She was unsure of states that offer DB
plans for all employees. She stated that West Virginia does.
5:43:31 PM
REPRESENTATIVE TUCK asked whether she had social security
benefits in West Virginia.
MS. HUGHES-SKANDIJS said she was unsure. She recalled receiving
a letter from the Social Security Administration that she had
not contributed enough into the system to be eligible to receive
social security benefits upon retirement.
REPRESENTATIVE TUCK thanked the two testifiers.
5:44:18 PM
TIM PARKER, President, NEA-Alaska, stated he was also a former
teacher. He said more than half of the educators in Alaska fall
into the DC retirement system. This bill would allow them to
select a DB plan.
MR. PARKER stated that younger teachers were leaving Alaska in
numbers never seen before and replacing them has become more
difficult. Last year Alaska had 250 open teaching positions.
Last month the job fair that used to attract thousands only had
171 candidates. Over the past 3 years numbers have dropped
about 20 percent per year.
5:45:58 PM
MR. PARKER said that Alaska teachers hired after 2006 have no
access to DB plans or to social security benefits. Due to
penalties any social security benefits teachers have earned in
any previous jobs have been drastically reduced by the
government pension offset. He characterized this as creating a
crisis in education. Educators have referred to Tier III and
Tier IV as the death tiers because they cannot realistically
retire on their wages. Many of them have gone onto other states
websites to calculate how much more money they need to put into
their retirement system monthly in order to retire at age 65.
He reported some have said it was up to $4,000 per month in
additional contributions.
5:46:55 PM
MR. PARKER expressed concern about losing quality educators at
such an accelerated rate. He estimated it may cost the state
$20 million per year.
5:47:11 PM
CHAIR KREISS-TOMKINS announced that some members were receiving
only about 50 percent or less of his comments due to the audio
quality.
5:47:47 PM
MR. PARKER offered to submit his comments in writing to the
committee. He reported that Alaska's teachers were the only
ones without access to a DB contribution system. He further
reported that Alaska was one of only 16 states without access to
social security benefits or supplemental benefits, which he felt
was a critical point.
5:48:31 PM
CHAIR KREISS-TOMKINS, after first determining no one wished to
testify, closed public testimony on HB 83. He announced that HB
83 would come back before the committee at a later hearing.
5:48:53 PM
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at 5:48
p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB407 Sponsor Statement 4.2.18.pdf |
HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 407 |
| HB 407 Sectional Analysis 4.2.18.pdf |
HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 407 |
| HB407 ver D 4.2.18.pdf |
HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 407 |
| HB407 Fiscal Note 4.2.18.pdf |
HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 407 |
| SCR 17 Sponsor Statement.pdf |
HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
SCR 17 |
| SCR017A.PDF |
HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
SCR 17 |
| SCR 17 Fiscal Note.pdf |
HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
SCR 17 |
| SCR 17 Support CDVSA 2015 Victimization Survey.pdf |
HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
SCR 17 |
| SCR 17 Support Ltr Women.pdf |
HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
SCR 17 |
| SCR 17 Support Materials 2018 Theme.pdf |
HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
SCR 17 |
| SCR 17 Support Materials CDC National Intimate Partner and Sexual Violence Survey.pdf |
HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
SCR 17 |
| SCR 17 Support Materials News Article 11.20.2016.pdf |
HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
SCR 17 |
| SB163 Sponsor Statement 3.28.18.pdf |
HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
SB 163 |
| SB163 ver D 3.28.18.pdf |
HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
SB 163 |
| SB163 Fiscal Note DOT-MSCVE 3.28.18.pdf |
HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
SB 163 |
| HB083 Sponsor Statement 2.28.17.pdf |
HSTA 3/20/2018 3:15:00 PM HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 83 |
| HB083 Sectional Analysis 2.28.18.pdf |
HSTA 3/20/2018 3:15:00 PM HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 83 |
| HB083 ver N 2.20.18.pdf |
HSTA 3/20/2018 3:15:00 PM HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM |
HB 83 |
| HB083 Fiscal Note DOA-COM 2.9.18.pdf |
HSTA 3/20/2018 3:15:00 PM HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 83 |
| HB083 Fiscal Note DOA-DRB 2.9.18.pdf |
HSTA 3/20/2018 3:15:00 PM HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 83 |
| HB083 Supporting Document - 401k retirement readiness 4.18.17.pdf |
HSTA 3/20/2018 3:15:00 PM HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 83 |
| HB083 Supporting Document - Alaska Comparable Plans 4.18.17.pdf |
HSTA 3/20/2018 3:15:00 PM HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 83 |
| HB083 Supporting Document - Compare DB to DC access 4.18.17.pdf |
HSTA 3/20/2018 3:15:00 PM HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 83 |
| HB083 Oakley Presentation.pdf |
HSTA 3/20/2018 3:15:00 PM HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 83 |
| HB083 Letters of Support 2.28.18.pdf |
HSTA 3/20/2018 3:15:00 PM HSTA 3/22/2018 3:15:00 PM HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 83 |
| HB 83 ver T 4.2.18.pdf |
HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 83 |
| HB83 Explanation of changes from ver N to ver T 4.3.18.pdf |
HSTA 4/3/2018 3:15:00 PM |
HB 83 |
| HB83 Legal Memorandum on ver T 4.2.18.pdf |
HSTA 4/3/2018 3:15:00 PM HSTA 4/5/2018 3:15:00 PM |
HB 83 |
| Work Draft 30-LS1526 ver D 4.2.18.pdf |
HSTA 4/3/2018 3:15:00 PM |
|
| Work Draft 30-LS1526 ver D Sectional Analysis 4.2.18.pdf |
HSTA 4/3/2018 3:15:00 PM |
|
| Overview of Permanent Fund Proposals Presentation 3.29.18.pdf |
HSTA 4/3/2018 3:15:00 PM |