Legislature(1993 - 1994)

04/20/1994 09:45 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                             MINUTES                                           
                    SENATE FINANCE COMMITTEE                                   
                         April 20, 1994                                        
                            9:45 a.m.                                          
                                                                               
  TAPES                                                                        
                                                                               
  SFC-94, #73, Side 2 (375-000)                                                
  SFC-94, #75, Side 2 (000-end)                                                
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Senator Steve  Frank,  Co-chair,  convened  the  meeting  at                 
  approximately 9:45 a.m.                                                      
                                                                               
  PRESENT                                                                      
                                                                               
  In addition  to Co-chair Frank,  Senators Rieger,  Kerttula,                 
  and Sharp were  present.  Senator  Kelly joined the  meeting                 
  after it was in progress.  Senator Jacko was absent from the                 
  meeting.                                                                     
                                                                               
  ALSO ATTENDING:    Benjamin Brown,  aide  to  Representative                 
  Toohey,  sponsor  to   HB  327;  Pete  Jeans,   Real  Estate                 
  Investment Officer, Alaska Permanent Fund Corp.; Jim  Kelly,                 
  Research  & Liaison  Officer, Alaska  Permanent Fund  Corp.;                 
  Larry  LaBolle,  aide   to  Representative  Richard  Foster,                 
  sponsor of HB 407; Juanita  Hensley, Chief, Driver Services,                 
  Division  of Motor  Vehicles, Department  of  Public Safety;                 
  Terry  Brenner,  private  citizen;  Mike  Greany,  Director,                 
  Legislative Finance Division; representatives  of the media,                 
  aides  to  committee  members  and   other  members  of  the                 
  legislature.                                                                 
                                                                               
  SUMMARY INFORMATION                                                          
                                                                               
  CSHB 498(FIN): An  Act  providing for  exploration incentive                 
                 credits  for  activities  involving locatable                 
                 and leasable  minerals and  coal deposits  on                 
                 certain  land in the state; and providing for                 
                 an effective date.                                            
                                                                               
                 Withdrawn from the agenda.                                    
                                                                               
  HB 327:        An Act extending the  termination date of the                 
                 Board of Veterinary Examiners;  and providing                 
                 for an effective date.                                        
                                                                               
                 Benjamin   Brown,   aide   to  Representative                 
                 Toohey,  sponsor  to  HB  327,  testified  in                 
                 support of the bill.  HB 327 was REPORTED out                 
                 of committee  with a  "do pass,"  and a  zero                 
                                                                               
                                                                               
                 fiscal note  for the Department of Commerce &                 
                 Economic Development.                                         
                                                                               
  HB 373:        An  Act   relating  to  investments   of  the                 
                 permanent fund involving equity  interests in                 
                 and debt obligations secured  by mortgages on                 
                 real estate;  and providing for  an effective                 
                 date.                                                         
                                                                               
                 Pete Jeans, Real  Estate Investment  Officer,                 
                 and  Jim Kelly,  Research &  Liaison Officer,                 
                 Alaska  Permanent  Fund  Corp., testified  in                 
                 support of  HB 373.   Discussion  was had  by                 
                 Senators Kerttula, Rieger,  Kelly, Sharp  and                 
                 Co-chair   Frank   regarding    real   estate                 
                 investments  and the  Senate  version of  the                 
                 bill.  HB 373 was HELD in committee.                          
                                                                               
  HB 407:        An Act relating  to issuance of commemorative                 
                 gold rush motor vehicle license plates.                       
                                                                               
                 Larry LaBolle, aide to Representative Richard                 
                 Foster,  sponsor  of  HB  407,  testified  in                 
                 support of the bill.  Juanita Hensley, Chief,                 
                 Driver Services, Division of  Motor Vehicles,                 
                 Department   of   Public   Safety,   answered                 
                 questions  and  addressed  the  fiscal  note.                 
                 Terry  Brenner,  private  citizen,  spoke  in                 
                 support of new  plates and suggested  changes                 
                 to  the  small  plates  on  motorcycles   and                 
                 trailers.  A letter of  intent was drafted to                 
                 address those concerns.   SCSHB 407(FIN)  was                 
                 REPORTED out of committee with a "do pass," a                 
                 letter of  intent, and  zero fiscal note  for                 
                 the Department of Public Safety.                              
                                                                               
  CSSB 67(FIN):  An  Act amending  provisions of  ch. 66,  SLA                 
                 1991, that  relate to  reconstitution of  the                 
                 corpus of the mental health  trust and to the                 
                 manner of  enforcement of  the obligation  to                 
                 compensate the  trust; and  providing for  an                 
                 effective date.                                               
                                                                               
                 Scheduled but not heard.                                      
                                                                               
  HB 327:                                                                      
                                                                               
       An Act extending the  termination date of the  Board of                 
       Veterinary Examiners;  and providing  for an  effective                 
       date.                                                                   
                                                                               
                                                                               
  CO-CHAIR   FRANK    invited   Benjamin   Brown,    aide   to                 
  Representative  Toohey,  sponsor  of  HB  327, to  join  the                 
  members at the table.                                                        
                                                                               
  BENJAMIN BROWN said that HB 327 simply extended the Board of                 
  Veterinary  Examiners  for  four  years  and made  no  other                 
  changes to  their statutory  authority or composition  other                 
  than extending their life span to 1997.                                      
                                                                               
  SENATOR RIEGER  said he  had heard  no complaints  regarding                 
  this  Board.   Senator  Kerttula  remarked that  individuals                 
  practiced veterinary services long before they were licensed                 
  by the state.                                                                
                                                                               
  SENATOR KERTTULA MOVED for passage  of the corrected version                 
  of HB  327 from  committee with  individual recommendations.                 
  HB 327 was REPORTED OUT of committee with a "do pass," and a                 
  zero fiscal note  from the Department of Commerce & Economic                 
  Development.  Co-chair  Frank, Senators Kerttula,  Sharp and                 
  Rieger signed "do pass."                                                     
                                                                               
  HOUSE BILL NO. 373:                                                          
                                                                               
       An Act relating  to investments  of the permanent  fund                 
       involving  equity  interests  in and  debt  obligations                 
       secured by mortgages on real  estate; and providing for                 
       an effective date.                                                      
                                                                               
  Co-chair  Frank  announced  that  HB   373  was  before  the                 
  committee.  He  invited Pete  Jeans, Real Estate  Investment                 
  Officer, and Jim Kelly, Research  & Liaison Officer, both of                 
  the Alaska Permanent  Fund Corporation, to join  the members                 
  at the table.                                                                
                                                                               
  JIM KELLY  said the  purpose of  the bill was  to allow  the                 
  Permanent Fund  to purchase  up to  100 percent  interest in                 
  real estate, which was now limited  to 40 percent.  He noted                 
  that the Board of Trustees completely supported this change,                 
  and the bill  had passed  the House with  only one  opposing                 
  vote.    The  bill  also  passed  out  of  Senate  Judiciary                 
  unanimously.    He  said the  Permanent  Fund  had about  $1                 
  billion invested in real estate out of a $15.1 billion fund.                 
  This equated to  a seven percent investment in  real estate.                 
  Fifteen years ago the legislature had  given the fund a real                 
  estate  investment  limit  of  15 percent.    The  Board  of                 
  Trustees had further  limited real estate investments  to 10                 
  percent, give or take  a percent or two.  Passage  of HB 373                 
  would enable the Fund  to achieve the 10 percent  investment                 
  in real estate.                                                              
                                                                               
  Mr. Kelly  gave two reasons  that the  Permanent Fund  chose                 
  real estate  for investments.   One,  to minimize  portfolio                 
                                                                               
                                                                               
  risk, and two, to maximize return  on investments.  The real                 
  estate portfolio  had been  a good  performer over  the long                 
  term with an  8.17 percent return  over the last ten  years.                 
  It was in the top five percent among institutional investors                 
  in the country.   The Permanent Fund  was in the top  ten of                 
  the largest institutional investors and one of the very best                 
  in the country.  In  the last two quarters, real estate  had                 
  been the best performer.  HB  373 would help the Board do  a                 
  better job in real estate investments.                                       
                                                                               
  In  answer  to  Senator  Kerttula,  in  regard  to  overseas                 
  investment loss, Mr. Kelly said that  of March 14, there had                 
  been a  $1.5 billion investment in overseas  stock which was                 
  now worth $1.7  billion putting that investment  $200M above                 
  water in  non-US equities.   Senator  Rieger commented  that                 
  international markets had held  well in the last  few weeks,                 
  and felt it  was one of  the best diversifications the  Fund                 
  had done.                                                                    
                                                                               
  PETE JEANS said that  the 40 percent rule in  regard to real                 
  estate had worked  well for the past  10 years.  But  one of                 
  the problems that had come up in the last few years was that                 
  more pension funds were getting involved in real estate, and                 
  by  only  holding 40  percent, the  Fund  was in  a minority                 
  position in all holdings.   It was an issue of  control.  If                 
  the Fund decided to  sell a property, and the  partners were                 
  not  convinced to sell, the property must  be held.  It tied                 
  the hands of the  Fund in over 200 properties.   He felt the                 
  Fund  needed to be  able to control its  own destiny and had                 
  proved itself with a history of  success.  He said, however,                 
  there was still the intention to co-invest.  Senator  Rieger                 
  agreed that in  a real estate  partnership it was the  worst                 
  position  to not  have the  power to  affect decisions,  and                 
  spoke in support of the Fund receiving this alternative.                     
                                                                               
  In answer to Senator  Kerttula, Mr. Kelly said that  an REIT                 
  was  stock  secured  by real  estate.    He  felt they  were                 
  overpriced and the Fund  had not invested in any.  Mr. Kelly                 
  went  on  to answer  another  question by  Senator Kerttula,                 
  saying  that  there were  three  real estate  investments in                 
  Alaska; the  Frontier Building  in  Anchorage, the  Goldbelt                 
  Building in Juneau, and the Port Plaza in Ketchikan.                         
                                                                               
  In regard to the  Frontier Building, the Fund only  held the                 
  mortgage, did not own the building,  and was not involved in                 
  negotiating  leases.  Mr. Kelly  explained that there was no                 
  limit on the  amount of  investments that could  be done  in                 
  Alaska  but  the Board  felt that  Alaska  did not  have the                 
  opportunity for much institutional real estate.                              
                                                                               
  Senator Kelly requested a  copy of the Senate version  of HB
  373, CSSB 245(STA).                                                          
                                                                               
                          Recess 9:50am                                        
                                                                               
                                                                               
                        Reconvene 10:05am                                      
                                                                               
  Senator Kelly said that  a provision was added to  the State                 
  Affairs  version  that said  the  Board of  Directors  had a                 
  fiduciary  responsibility to  the people  of the state.   It                 
  seemed clear but  Senator Rieger wanted that  language added                 
  to the statute.                                                              
                                                                               
  He went on to say that this version said the Fund  could own                 
  up to two-thirds of a project not to exceed $100M in any one                 
  project.  He cited testimony  in the State Affairs Committee                 
  that said control was the issue not  necessarily 100 percent                 
  ownership.                                                                   
                                                                               
  In answer  to Co-chair  Frank, Mr.  Kelly said  that Tyson's                 
  Corner in Washington  D.C. was  the single, biggest  project                 
  invested in by  the Fund.  It was a shopping center, and the                 
  Fund owned 38 percent with an investment of  $150M.  He said                 
  that  he  could not  imagine  the  Board  of  Trustees  ever                 
  allowing  the  Permanent  Fund to  invest  $500-600M  in one                 
  property.                                                                    
                                                                               
  End SFC-93 #73, Side 2                                                       
  Begin SFC-93 #75, Side 1                                                     
                                                                               
  Mr. Kelly spoke  in opposition of  placing a $100M limit  on                 
  each investment.   He  said the  Fund needed  the option  of                 
  getting out  of a  bad deal when  it was in  a bad  deal and                 
  getting  into  a  good  one  when  it  could.    Instead  of                 
  increasing safety, this limitation added risk.  In answer to                 
  Co-chair Frank,  Mr. Kelly  said the  Board did  not want  a                 
  limit.  Senator Kelly commented that these investors did not                 
  invest those amounts  of money  in their own  lives and  why                 
  should they be given the authority to do it with the Fund's.                 
  To  everyone's   amusement,   Co-chair   Frank   cited   the                 
  legislature that dealt with a billion dollar budget.                         
                                                                               
  Mr. Jeans said  that on every real  estate investment, there                 
  had  been  a  buy-sell  provision,  and  it had  never  been                 
  exercised because of its legality.  He noted that  provision                 
  was used  to pull  partners  to the  table to  talk but  the                 
  partners always knew  the Fund could  not go to 100  percent                 
  which caused a  loss of negotiating  power.  Co-chair  Frank                 
  suggested that language be added to  HB 373 that would allow                 
  the  Fund  to invest  to 100  percent on  a project  for the                 
  purpose of exiting a real estate  investment.  Mr. Jeans was                 
  not  in total  support of  that suggestion  but agreed  that                 
  anything was better than the present situation.                              
                                                                               
  Co-chair  Frank  and  Senator  Kelly  suggested   additional                 
  language be drafted using CSSB  245(L&C) as a base document.                 
  Senator  Rieger  agreed  with   the  concept  of  increasing                 
  holdings in order to exit a real estate investment.                          
                                                                               
                                                                               
  Mr. Kelly  said that  CSSB 245(L&C)  would be acceptable  to                 
  work with except  for one  exemption.  He  said a  provision                 
  regarding fiduciary duties  required a title change  from HB
  373, and asked it be  removed so the title could  remain the                 
  same.  Senator  Rieger said  that a legal  opinion would  be                 
  requested regarding the title.                                               
                                                                               
  In answer to Senator Kelly regarding how large a project the                 
  Fund  could invest,  Mr. Jeans  said  that a  resolution was                 
  presented to the Board once a  year that detailed what could                 
  be done in real estate, including  specific limits.  He said                 
  that process would not change  and limits would continue  to                 
  be put on real estate investments.                                           
                                                                               
  Co-chair  Frank  announced that  HB  373  would be  HELD  in                 
  committee.                                                                   
                                                                               
  CS FOR HOUSE BILL NO. 407(STA):                                              
                                                                               
       An Act relating to issuance  of commemorative gold rush                 
       motor  vehicle  license  plates; and  providing  for an                 
       effective date.                                                         
                                                                               
  Co-chair  Frank  announced  that  HB   407  was  before  the                 
  committee.  He invited Larry LaBolle  to join the members at                 
  the table.                                                                   
                                                                               
  LARRY LABOLLE, aide to Representative  Foster, sponsor of HB
  407, said the bill established a commemorative plate for the                 
  Gold  Rush  Centennial.   In  answer to  Senator  Kelly, Mr.                 
  LaBolle asked Juanita  Hensley to speak  to the cost of  the                 
  plate.                                                                       
                                                                               
  JUANITA HENSLEY, Chief,  Driver Services, Division of  Motor                 
  Vehicles,  Department  of Public  Safety,  said the  $30 fee                 
  would  be the  same as  most vanity  plates.   She  said the                 
  Department did not have  any objection to $30  or $50.   She                 
  cited the hot  rod plate fee  in last year's legislation  by                 
  Senator Kelly was $50.                                                       
                                                                               
  Senator Sharp MOVED amendment 1 which would insert the words                 
  "in consultation with  the Alaska Gold Rush  Centennial Task                 
  Force" on page 1, line 8,  giving some oversight to the Task                 
  Force.  No objection being heard, it was ADOPTED.                            
                                                                               
  In answer to Senator Kelly, Ms. Hensley said that the plates                 
  would  cost  approximately  $15,400  and  revenue  would  be                 
  $30,000.                                                                     
                                                                               
  Senator  Rieger asked if  this bill could be  used to make a                 
  new  design  for regular  Alaskan  license plates.   Senator                 
  Kelly said that  would be  a floor amendment.   Ms.  Hensley                 
  said the  State  Affairs version  in  the House  would  have                 
                                                                               
                                                                               
  allowed the state to design a new  license plate.  The House                 
  Finance Committee later went back to the original bill.                      
                                                                               
  In  answer to  Senator Kelly, Ms.  Hensley said  that Alaska                 
  required two plates per car.                                                 
                                                                               
  Senator Rieger agreed  that might be  a floor amendment  but                 
  felt the Commemorative Gold Rush license plate would  make a                 
  good standard plate for  the next couple of years  and would                 
  relieve boredom.  Mr. LaBolle said Representative Foster had                 
  not  been opposed  to the  State Affairs  version which  did                 
  accomplish that.                                                             
                                                                               
  Discussion followed regarding CSHB 407(STA).  Senator Rieger                 
  MOVED  for  adoption  of  CSHB 407(STA)  "K"  version.    No                 
  objection being heard, it was ADOPTED.                                       
                                                                               
  Co-chair Frank MOVED for adoption of amendment 2 which would                 
  leave  the  words "The  Last Frontier"  on  the plates.   No                 
  objection being heard, it was ADOPTED.                                       
                                                                               
  Ms.  Hensley  pointed out  that  the Department  had already                 
  ordered the plates  for 1995  so the effective  date of  the                 
  bill  would be September 1, 1996.   She offered a new fiscal                 
  note for this version of the bill.  She said the first half-                 
  year would generate revenue of $66.5 and operating  costs of                 
  $45.0.   FY97  showed $135  revenue  and operating  costs of                 
  $90.1 for  the full  year.   She said  operating costs  were                 
  based  on  the  department's  estimate  that 25  percent  of                 
  registered owners would want the new design.                                 
                                                                               
  Senator  Sharp  MOVED  amendment  1  that had  been  ADOPTED                 
  earlier in the  meeting.   Senator Rieger questioned  giving                 
  the Task Force much say considering  this new version of the                 
  bill.   Senator Sharp confirmed  that the  Task Force  would                 
  only provide  suggested designs  and the Commissioner  would                 
  make  a  final   decision.    Senator  Rieger   REMOVED  his                 
  objection.    No  further  objection  being  heard,  it  was                 
  ADOPTED.                                                                     
                                                                               
  Senator Sharp MOVED for passage of CCSHB 407(FIN) as amended                 
  out  of  committee  with  individual  recommendations.    No                 
  objection being heard, it was REPORTED OUT of committee with                 
  a "do  pass" and a  zero fiscal  note for the  Department of                 
  Public Safety.  Co-chairs Frank  and Pearce, Senators Kelly,                 
  Rieger, and Sharp signed "do pass."  A letter  of intent was                 
  ADOPTED after the following testimony  and included with the                 
  bill.                                                                        
                                                                               
  Co-chair Frank apologized to Terry Brenner, private citizen,                 
  who had  wanted to testify on HB 407  and now invited him to                 
  join the members at the table.                                               
                                                                               
  TERRY BRENNER spoke  in support of HB  407.  He  pointed out                 
                                                                               
                                                                               
  that the colors  blue and gold of  the Alaska flag had  been                 
  used since 1948.   There had been two exceptions,  the totem                 
  and the bear, which were both excellent plates.  He felt the                 
  license plate  was an  important symbol  of the  state as  a                 
  person travels.  It  was widely read and should  reflect the                 
  taste of the  state in general.  He wanted  to encourage any                 
  commemorative plate be expanded to  include light trucks and                 
  motorcycles.   He toured  extensively on motorcycles  around                 
  the country  and had  been mistaken for  an Oregon  resident                 
  several times.   He reiterated his support of HB 407 and the                 
  commemorative plate becoming the standard one.                               
                                                                               
  Ms. Hensley returned to the table  and explained that HB 407                 
  would  not  include   the  small  license  plates   used  on                 
  motorcycles, or trailers.   They were so small, it  was hard                 
  to include any  additional information.   In  answer to  Co-                 
  chair  Frank, Ms.  Hensley  said that  the  colors could  be                 
  reversed   so  not  to  be  confused  with  Oregon.    After                 
  consideration, she suggested the department might just use a                 
  different color because the plate  numbers needed to reflect                 
  easily.                                                                      
                                                                               
  Mr.  Brenner  suggested  the  possibility  of  a  change  in                 
  lettering like the  1966 plate.   He agreed that the  design                 
  could not be included on the smaller plates.                                 
                                                                               
  Co-chair Frank asked if a letter of intent could be included                 
  in the  bill  asking  the Department  of  Public  Safety  to                 
  consider  changing  the  colors  of  the smaller  plates  to                 
  distinguish  them from other  states.  Ms.  Hensley said she                 
  saw no problem with that.  She also stated that more designs                 
  were being considered to be offered as vanity plates.                        
                                                                               
  Co-chair Frank MOVED for  adoption of a letter of  intent to                 
  be included with SCSHB 407(FIN).  No objection  being heard,                 
  it was ADOPTED.   (Earlier in the meeting  the bill had been                 
  REPORTED OUT of committee.)                                                  
                                                                               
  SCHEDULED BUT NOT HEARD:                                                     
                                                                               
  CS FOR SENATE BILL NO. 67(FIN):                                              
                                                                               
       An Act  amending provisions of  ch. 66, SLA  1991, that                 
       relate to reconstitution  of the  corpus of the  mental                 
       health trust and  to the manner  of enforcement of  the                 
       obligation to  compensate the trust; and  providing for                 
       an effective date.                                                      
                                                                               
  WITHDRAWN FROM THE AGENDA:                                                   
                                                                               
  CS FOR HOUSE BILL NO. 498(FIN):                                              
                                                                               
                                                                               
       An Act  providing for exploration incentive credits for                 
       activities  involving  locatable and  leasable minerals                 
       and  coal deposits on  certain land  in the  state; and                 
       providing for an effective date.                                        
                                                                               
  ADJOURNMENT                                                                  
                                                                               
  The meeting was adjourned at approximately 10:45 a.m.                        

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