Legislature(1995 - 1996)
03/19/1996 10:00 AM Senate FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
March 19, 1996
10:00 a.m.
TAPES
SFC-96, #42, Side 1 (000-575)
SFC-96, #42, Side 2 (575-266)
CALL TO ORDER
Senator Rick Halford, Co-chairman, convened the meeting at
approximately 10:00 a.m.
PRESENT
In addition to Co-chairmen Halford and Frank, Senators
Phillips, Rieger, Sharp, and Zharoff were present. Senator
Donley arrived soon after the meeting began.
ALSO ATTENDING: Janine Reep, Assistant Attorney General,
Human Services Section, Civil Division, Dept. of Law; Annie
Carpeneti, Assistant Attorney General, Criminal Division,
Dept. of Law; Don Wanie, Director, Division of Finance,
Dept. of Administration; Joe Thomas, State Accountant,
Division of Finance, Dept. of Administration; Robert Storer,
Chief Investment Officer, Treasury Division, Dept. of
Revenue; Peter Bushre, Chief Financial Officer, Alaska
Permanent Fund Corporation, Dept. of Revenue; Jim Kelly,
Research and Liaison Officer, Alaska Permanent Fund
Corporation, Dept. of Revenue; Donna Schulz, Juvenile
Probation Officer, Division of Family and Youth Services,
Dept. of Health and Social Services; Mike Greany, Director,
Legislative Finance Division; and aides to committee members
and other members of the legislature.
SUMMARY INFORMATION
SB 289 - MISC. LAWS RELATING TO RUNAWAY MINORS
Discussion was had with Janine Reep and Donna
Schultz. The bill was subsequently held in
committee for incorporation of provisions allowing
for placement of runaways in protective custody
should they leave semi-secure care and for review
of penalties for contributing to the delinquency
of a minor.
SB 303 - MANAGEMENT OF CONSTITUTIONAL BUDGET RESERVE FUND
Initial discussion was had with Don Wanie and
Robert Storer. The bill was then held for
continued discussion at the next committee
meeting.
SENATE BILL NO. 289
An Act relating to runaway minors and their
families or legal custodians.
Co-chairman Halford directed that SB 289 be brought on for
discussion. Co-chairman Frank explained that, at a previous
meeting, the committee asked that the Dept. of Law review
case law on the constitutional rights of minors. He
referenced the department's March 18, 1996, memo (copy on
file in the original file for SB 289). He further noted
that the department declined to comply with a committee
request that it draft a findings and purposes section for
the bill. The Division of Legal Services therefore drafted
the requested language per amendment 9-LS1635\M.1,
Lauterbach, 3/19/96.
Co-chairman Frank voiced his belief there is no
constitutional question associated with placement of
juveniles in semi-secure facilities. Co-chairman Halford
noted that advocates of the legislation would only be
"shortly satisfied with a semi-secure environment because it
won't work either." It will make the situation a bit
better, but it will not provide a solution for problem kids.
Co-chairman Halford voiced his belief that the Dept. of Law
is not prepared to take the necessary steps the legislature
is inclined to take because it is the legislature rather
than the department that has heard constituents complain for
many years.
In response to a question from Senator Phillips, Co-chairman
Halford reiterated that one cannot take the right to freedom
away from a status offender without meeting constitutional
guidelines.
JANINE REEP, Assistant Attorney General, Civil Division,
Dept. of Law, came before committee. She advised that she
drafted the March 18, 1996, memo in response to the
committee request for review of case law relating to the
placement of minors. She explained that she did not draft
findings and purposes language since it generally cites
legislative intent and why the legislation is being
promulgated. She said that while she could guess at
reasoning behind the legislation, she is not a legislative
employee and does not know exactly what the legislature
wants set forth. Further, the department does not have
statistics on runaways.
Co-chairman Halford said the legislature needs to know the
source of constitutional challenges and what kinds of
findings strengthen arguments against those challenges. As
an example, he cited both substantial threat to public
health and safety or to the minor. He then suggested that
cases relative thereto be reviewed and court language used
in effecting statutory corrections. Ms. Reep explained that
case law relating to juvenile delinquency and confinement of
minors provides no solutions. The end result is that if the
state is going to confine a minor, protections (notice,
hearing, oversight by the court) must be in place.
Co-chairman Halford asked if it would be possible to provide
security for a short period, such as three days, without
running the gamut of full constitutional protections. Ms.
Reep said she did not know. She acknowledged that other
states have experimented in this area. Co-chairman Frank
suggested that, in the absence of case law in Alaska, the
legislature do its best to structure a system that provides
greater safety and security for juveniles and let the courts
rule on the issue after the fact. Ms. Reep directed
attention to page 2 of her memo and noted provisions that
allow runaways in need of aid to be locked up for 24 hours.
That involves going before the court and obtaining a
probable cause finding that the child is in imminent danger,
and there is no alternative to detention. Ms. Reep stressed
need to ensure due process so that "people aren't put away
without a really good reason." Current protections accorded
delinquents attach to the fact that delinquents face the
possibility of incarceration. They are thus entitled to
counsel. In a delinquency case, young people can be held
for 48 hours before they go to court. Within that time, the
state must prove probable cause.
Co-chairman Frank asked if a minor would have to be
represented by counsel to be placed in a secure environment
until the Division of Family and Youth Services could
provide alternative placement. Ms. Reep said that 24-hour
detention is not often used. However, under current
practice, "Those minors are appointed counsel."
Comments followed regarding cost concerns that have acted as
roadblocks to past legislative action on this issue.
In the course of further discussion, Ms. Reep attested to
cases involving equal protection challenges in other states
for confinement of status offenders or runaways with
juvenile delinquents. Co-chairman Frank asked if a minor
could be placed in protective custody for a status offense.
Ms. Reep said she had not conducted sufficient research to
make a determination. Many states have done many different
things.
Co-chairman Frank referenced the administration's focus on
children and families and specifically noted funding for the
children's trust. He then questioned the department's
unwillingness to develop reasonable methods of addressing
the runaway problem. Ms. Reep made reference to the
conference on juvenile justice, terming it an effort by the
administration to address the problem. Many from the Dept.
of Law are involved. Work is ongoing. The intention is to
develop solutions. Senator Randy Phillips stressed that
additional study is not the answer. A solution lies in
return of authority to parents.
Co-chairman Halford referenced an earlier comment regarding
48-hour detention, prior to a hearing, and asked why that
provision could not be applied to a status offense. The
runaway could then be held in protective custody. The only
way out of that custody would be pick up by a parent or
legal guardian. Ms. Reep explained that for 48-hour
detention to occur, probable cause must be established by
someone, generally a police officer, that the juvenile has
committed a crime. Co-chairman Halford suggested that the
crime be the status crime. That would at least provide a
48-hour cooling off period. Ms. Reep again cautioned that
necessary protections must be in place. Due process is a
constitutional right that must be addressed.
Further comments followed by Co-chairman Frank regarding
protective custody situations. Additional discussion
followed regarding current 48-hour detention of juvenile
delinquents.
Co-chairman Halford suggested that failure of the minor to
remain in a semi-secure facility be backed up by 48-hour
detention. The youth would then have the right to counsel,
and after 48 hours a decision would be made for court-
directed placement. Co-chairman Halford suggested that the
48-hour period would serve as a deterrent to running from a
semi-secure facility. It would further serve as a deterrent
to avoidance of parental authority.
Ms. Reep commented that one of the findings that must be
made by an officer when he or she detains a minor is that
detention is necessary to protect the minor or the
community. Under runaway statutes (child in need of aid
provisions) an individualized finding that the minor is in
danger must also be made.
Ms. Reep attested to overcrowding in juvenile facilities and
noted that the state does not have room to "detain the kids
that need to be detained." That raises a question regarding
where runaways would be placed. That is a significant
problem.
Co-chairman Frank acknowledged that, while provisions for
semi-secure placement and enhanced opportunity to prosecute
those who contribute to the delinquency of a minor are steps
in the right direction, the bill does not go as far as it
should. He suggested that further exploration might uncover
a reasonable next step, within constitutional parameters, to
make the bill truly meaningful in getting families back
together.
Co-chairman Halford asked that staff from the Dept. of Law
review proposed findings. Co-chairman Frank stressed that
the objective is not incarceration of young people. The
intent is to get their attention and get them back with
their families. He suggested that the threat of
incarceration would serve as a deterrent, and 48 hours of
protective custody might be beneficial.
Discussion followed regarding making the act of running away
a crime. Senator Randy Phillips reiterated need to backup
parental authority.
DONNA SCHULZ, Juvenile Probation Officer, Division of Family
and Youth Services, Dept. of Health and Social Services,
came before committee. She cited the following areas as
problematic:
1. Movement from semi-secure to secure placement
would entail loss of $787.0 in federal moneys.
Funding depends upon meeting core
requirements of the Juvenile Justice and
Delinquency Prevention Act. One of those
requirements relates to status offenders and
does not allow for placement in jails or
detention facilities.
2. Where would these young people be detained?
Detention facilities are already overcrowded, and
there are waiting lists for placement of
juvenile offenders. The impact of
bringing runaways into the system would
exacerbate the problem.
3. Does placement of runaways in existing facilities
meet the philosophical aim of the facility?
Ms. Schulz voiced support for semi-secure placement
provisions. She referenced clear delineation between
delinquents and status offenders. Co-chairman Halford
advised of his understanding the state would lose federal
funding if it incarcerates status offenders with
delinquents. He then asked if runaways could be held in
protective custody for 48 hours in separate confinement in
the same facility. Ms. Schulz noted that Alaska law
allowing for a 12-hour hold in protective care is considered
a violation of federal requirements. The state is only
allowed a certain percentage of violations per 100,000
before federal funds are lost.
Discussion of federal law, renewal, and possible changes
followed between Co-chairman Frank and Ms. Schulz. She
acknowledged that abused children were the focus of 1974
federal law.
END: SFC-96, #42, Side 1
BEGIN: SFC-96, #42, Side 2
Senator Rieger stressed need to differentiate between minors
who run away from an abusive home environment and those
fleeing parental authority. He then suggested that focusing
on protective custody for running away from a semi-secure
facility might be a different question than the status crime
of "being on the street in the first place." It would also
help sort out the different classes of minors on the street:
those who are there because they want the freedom and thrill
of street life versus those who are fleeing a dangerous
situation at home.
Ms. Schulz questioned prior comments indicating that only 10
percent of runaways are fleeing abuse or neglect and
suggested that the percentage appears very low. National
statistics evidence 67 to 69%. She stressed need for better
numbers at the state level and voiced her estimate that the
percentage is "at least 50 percent; it could be higher."
Senator Zharoff noted that the problem with runaways is not
unique to one area of the state. Constituents indicate that
those advising minors of their rights do not also speak to
responsibilities and potential liabilities. He cited gang
involvement as an example.
Senator Sharp reiterated need to prosecute adults who
solicit juveniles and provide communal-type living
situations which encourage them to remain away from home.
That is where legal emphasis must be placed rather than on
attempts to incarcerate minors. Co-chairman Frank noted
that the draft Finance version makes prosecution in this
area easier for the state. He agreed to take a second look
at penalties for contributing to the delinquency of a minor.
The bill was held in committee for further review.
SENATE BILL NO. 303
An Act relating to management of the budget
reserve fund; and providing for an effective date.
Co-chairman Frank explained that assigning the
Constitutional Budget Reserve, with substantial balances in
excess of current needs, to the permanent fund for
management would increase the rate of return by "maybe 200
basis points or 2 percent." The Governor's long-range plan
also assumes a greater rate of return on the CBR. The
proposed bill represents one way that could be accomplished.
It is offered as a starting point for discussion. He then
asked that staff from the Dept. of Revenue and the Alaska
Permanent Fund speak to the legislation.
ROBERT STORER, Chief Investment Officer, Treasury Division,
Dept. of Revenue, came before committee to speak to present
management of the fund. He noted that much of the
discussion would relate to cash flow and asked that DON
WANIE, Director, Division of Finance, Dept. of
Administration, join him at the table.
In response to a question from Senator Phillips asking if
the administration supports the bill, Mr. Storer cited the
present construction of the constitutional budget reserve,
significant impact on cash flow, and placement of funds
within the permanent fund as areas of concern giving rise to
opposition.
Mr. Storer explained that the CBR is managed to address cash
flows and shortfalls in the general fund. Two
considerations are paramount:
1. Future expenditures
2. Future income into the general fund
These considerations relate not to a one-year time horizon
but a two, three, four-year, somewhat "non-predictive" time
frame. For that reason, the department manages "with
moderate risk." "Risk" relates to "near-term market
volatility" and the chance of fluctuation of valuations in a
portfolio on a year-to-year basis. Over time, investments
can be made in asset classes with higher rates of return,
but there is more volatility. The investor is rewarded for
accepting that volatility by a higher return. Because of
volatility in the equity market, the CBR is managed with
fixed-income securities. The department will not invest
fund assets in securities with more than a five-year
maturity, because of the short-term nature of the fund.
That allows for "about 95 percent of the fixed-income market
returns and about one-third less risk than a bond market."
The permanent fund, much like the state retirement system,
has the luxury of managing for longer time horizons and can
thus have multi-asset-class portfolios. That allows for
investment in domestic and international equities as well as
real estate.
Speaking to the domestic equity market, Mr. Storer noted
that, over time, it should return "about 10 percent."
History also shows that a preponderance of the time those
returns can fall between a positive 28 percent and a
negative 8 percent. Because of that volatility, the
department has been unwilling to accept the incremental
risk.
The department has done a number of things to add income to
the fund. Those actions apply to the general fund as well
as the CBR. Aggregation of assets has allowed for
investment in securities with a higher rate of return, a
little more volatility, but safety of principal to maintain
the purchasing power and value of the fund. The result was
an additional $50 million at the low end and $75 to $100
million over the last few years.
Mr. Storer noted that in the last calendar year, the CBR
returned 10-1/4 percent. Given the nature of the fund, that
is a good return. He referenced FY 93 when the bond market
lost "almost 1-1/2 percent . . . and we managed to earn a
positive 3-1/2 percent"
Mr. Storer reiterated that multi-asset-class portfolios that
should produce a higher rate of return involve near-term
volatility. In considering the proposed legislation, one
must also consider the potential for incurring some losses
in a portfolio that is essentially a cash flow account.
Mr. Wanie next distributed materials (copy on file in the
original Senate Finance Committee file for SB 303),
referenced analysis language indicating Dept. of
Administration opposition to the bill, and explained that
opposition relates to cash flow concerns. The front section
of the operating budget has historically contained language
appropriating moneys from the CBR to the general fund for
the purpose of balancing revenues and expenditures.
Language says that if revenues are not sufficient, the state
can go to the CBR when it needs cash. The state spending
pattern during the first four to five months of the fiscal
year is such that expenditures will exceed revenues
"anywhere from $250 million on the low end to over $350
million on the high end." That creates cash flow problems
for the Dept. of Administration. To meet cash shortfalls
and avoid shutting down payments to vendors, municipalities,
the University, school districts, etc., the department
borrows from the CBR and continues to make payments.
Mr. Wanie asked if the department would continue to have
access to cash from the CBR if custody is turned over to the
permanent fund corporation. If access remains available,
the next question is, "How quickly can the permanent fund
corporation respond?" At the present time, when the state
runs into a cash crisis, the department "can kind of predict
it, but all of a sudden we're at a situation where we're at
a threshold and we need to borrow cash . . . ." If that
opportunity is not preserved when the CBR moves to the
permanent fund corporation, what would the alternatives be?
Co-chairman Frank voiced his intent that the state would
retain ability to manage cash flow through loans from the
CBR to the general fund. There should be no policy problem.
In response to a question from Co-chairman Frank, Mr. Wanie
explained that state revenues are "generally somewhat even."
However, the first three or four months of the fiscal year
are peak periods for all agencies. That is when employment
is at its highest, construction projects are undertaken, and
there is "an awful lot of activity." Much more cash goes
out the door than comes in. The state attempts to spread
disbursements to municipalities across the year to preserve
cash.
Co-chairman Frank acknowledged that the Dept. of
Administration raised good questions. He then asked that
staff from the permanent fund corporation respond.
Senator Rieger inquired regarding the asset allocation of
the CBR at the present time. Mr. Storer said it is entirely
in fixed income securities--predominantly treasury and high-
grade corporate bonds. The risk profile has been expanded
by investment in "some intermediate securities."
Approximately 30 percent of that portfolio has maturities in
a three-to-five-year time horizon. That is the area that
provides a 95 percent incremental return without the risk.
There are currently no equities in the portfolio. Senator
Rieger asked if the remaining 70 percent is in fixed-income
investments of less than three years. Mr. Storer concurred.
Senator Rieger asked if the department would invest in
equities if the time frame was eight to ten years. Mr.
Storer responded, "Unequivocally." He voiced his opinion
that to successfully invest in equities, a five-year time
horizon is needed. That allows opportunity to smooth out
market volatility. If the department knew some element of
the portfolio could not be touched for eight years, more
risk could be taken. Senator Rieger referenced projections
which show a substantial balance ten years hence, depending
upon the type of investment. Mr. Storer agreed, saying that
could be done if there is "some sort of explicit guarantee
that we can eliminate this non-predictive event . . . ."
Senator Rieger acknowledged the fiduciary relationship of
the department to the fund and further acknowledged that it
would be uncomfortable for staff to undertake additional
risk investments without "some kind of release from the
Legislature." He then suggested that Legislative assumption
of risk should be a sufficient directive. Mr. Storer
agreed.
Co-chairman Frank voiced his assumption that a good portion
of the 10 percent return resulted from an increase in the
price of bonds and securities held by the state. Mr. Storer
concurred. He added that by creating a pool--"almost a
mutual fund environment"--the department was able to incur
more risk (longer-dated securities) which provided potential
for greater capital gains. Department evaluation of the
market and price increases also helped. Co-chairman Frank
then suggested that should the market turn, the state could
experience no return or a loss with the same risk profile.
Mr. Storer agreed that for near-term investments that is
potentially correct. With a three to four-year time
horizon, there is an emphasis toward safety of principal.
There would be an income flow. Mr. Storer emphasized that
the nature of the single-asset-class portfolio allows the
state to become more conservative if the market dictates.
Co-chairman Frank asked if a greater return could be
achieved if $1.8 of the $2.2 billion CBRF was placed within
the substantially larger permanent fund and $400 million
left to deal with cash flow. Mr. Storer explained that
since the department manages 18 different portfolios, it has
the capability to construct a portfolio to fit the
requirements of a large fund. The problem is the non-
predictive element. If continuity of the fund could be
predicted over a longer time horizon, assets could be
differently invested. Co-chairman Frank acknowledged that
should the price of oil significantly decrease, the state
might have to substantially draw upon the CBRF. That might
mean that securities would have to be liquidated at an
inopportune time. Because the permanent fund is
substantially larger, it would be in a better position to
liquidate short-term securities that would naturally be
turning over. It appears as though that would be of
benefit.
Co-chairman Halford advised of need for members to attend
the Senate floor session and suggested that discussion of SB
303 continue at the next meeting.
ADJOURNMENT
The meeting was adjourned at approximately 11:10 a.m.
| Document Name | Date/Time | Subjects |
|---|