Legislature(2003 - 2004)

05/15/2003 08:45 AM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE JUDICIARY STANDING COMMITTEE                                                                             
                          May 15, 2003                                                                                          
                           8:45 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Ralph Seekins, Chair                                                                                                    
Senator Scott Ogan, Vice Chair                                                                                                  
Senator Gene Therriault                                                                                                         
Senator Hollis French                                                                                                           
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Johnny Ellis                                                                                                            
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE JOINT RESOLUTION NO. 3                                                                                                   
Proposing amendments to  the Constitution of the  State of Alaska                                                               
relating to an appropriation limit and a spending limit.                                                                        
     MOVED CSSJR 3(JUD) OUT OF COMMITTEE                                                                                        
                                                                                                                                
SENATE JOINT RESOLUTION NO. 18                                                                                                  
Proposing amendments to  the Constitution of the  State of Alaska                                                               
relating to  limiting appropriations from  and inflation-proofing                                                               
the Alaska  permanent fund  by establishing  a percent  of market                                                               
value spending limit.                                                                                                           
     HEARD AND HELD                                                                                                             
                                                                                                                                
SENATE BILL NO. 170                                                                                                             
"An Act relating  to the Code of Criminal  Procedure; relating to                                                               
defenses,  affirmative defenses,  and  justifications to  certain                                                               
criminal  acts; relating  to rights  of  prisoners after  arrest;                                                               
relating  to  discovery,  immunity from  prosecution,  notice  of                                                               
defenses,  admissibility  of  certain   evidence,  and  right  to                                                               
representation in  criminal proceedings; relating  to sentencing,                                                               
probation,  and discretionary  parole; amending  Rule 16,  Alaska                                                               
Rules of  Criminal Procedure, and  Rules 404, 412, 609,  and 803,                                                               
Alaska Rules of Evidence; and providing for an effective date."                                                                 
     HEARD AND HELD                                                                                                             
                                                                                                                                
SENATE BILL NO. 171                                                                                                             
"An Act  relating to certain suits  and claims by members  of the                                                               
military  services   or  regarding  acts  or   omissions  of  the                                                               
organized militia;  relating to liability arising  out of certain                                                               
search and rescue, civil defense, homeland security, and fire                                                                   
management and firefighting activities; and providing for an                                                                    
effective date."                                                                                                                
     SCHEDULED BUT NOT HEARD                                                                                                    
                                                                                                                                
CONFIRMATION HEARINGS:                                                                                                        
                                                                                                                                
Marianne Stillner - Select Committee on Legislative Ethics;                                                                     
William Granger - Board of Governors of the Alaska Bar                                                                          
     CONFIRMATIONS ADVANCED                                                                                                     
                                                                                                                                
PREVIOUS ACTION                                                                                                               
                                                                                                                                
SJR 3 - See Judiciary minutes dated 3/19/03 and 5/9/03.                                                                         
SJR 18 - See State Affairs minutes dated 5/1/03 and 5/6/03.                                                                     
SB 170 - See Judiciary minutes dated 4/15/03 and 4/24/03.                                                                       
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Senator Dyson                                                                                                                   
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Sponsor of SJR 3.                                                                                        
                                                                                                                                
Mr. Bob Storer, Executive Director                                                                                              
Alaska Permanent Fund Corporation                                                                                               
Department of Revenue                                                                                                           
PO Box 110400                                                                                                                   
Juneau, AK  99811-0400                                                                                                          
POSITION STATEMENT:  Supported SJR 18.                                                                                        
                                                                                                                                
Mr. Bob Bartholomew, Chief Operating Officer                                                                                    
Alaska Permanent Fund Corporation                                                                                               
Department of Revenue                                                                                                           
PO Box 110400                                                                                                                   
Juneau, AK  99811-0400                                                                                                          
POSITION STATEMENT:  Supported SJR 18.                                                                                        
                                                                                                                                
Mr. Dean Guaneli, Chief Assistant Attorney General                                                                              
Legal Services Section                                                                                                          
Department of Law                                                                                                               
PO Box 110300                                                                                                                   
Juneau, AK  99811-0300                                                                                                          
POSITION STATEMENT:  Commented on SB 170.                                                                                     
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 03-48, SIDE A                                                                                                            
                                                                                                                              
         SJR  3-CONST AM: APPROPRIATION/SPENDING LIMIT                                                                      
                                                                                                                                
CHAIR  RALPH   SEEKINS  called  the  Senate   Judiciary  Standing                                                             
Committee meeting  to order  at 8:50  a.m. Present  were Senators                                                               
Ogan  and French.  Senator  Therriault  arrived momentarily.  The                                                               
first order of business to come before the committee was SJR 3.                                                                 
                                                                                                                                
SENATOR FRENCH moved to adopt CSSJR 3(JUD), version H.                                                                          
                                                                                                                                
SENATOR OGAN objected for purposes of discussion.                                                                               
                                                                                                                                
SENATOR  DYSON, sponsor  of  SJR  3, said  this  version was  the                                                               
result  of  recommendations from  the  Office  of Management  and                                                               
Budget. There  is a  list of  things that  are excluded  and they                                                               
deleted the one  about program receipts. The  escalator would now                                                               
be  the CPI  plus one  quarter of  the change  in population  and                                                               
divides by two for the average.  The growth that would be allowed                                                               
would be  something less than the  CPI. Any growth in  the budget                                                               
above that requires a three quarter vote of the Legislature.                                                                    
                                                                                                                                
One of  his constituents  asked him  what the  penalty was  for a                                                               
government  that   ignored  this.   He  said   he  was   open  to                                                               
suggestions.                                                                                                                    
                                                                                                                                
CHAIR SEEKINS  said both Finance  Committee chairs  consider this                                                               
to be  a very serious matter.  They said their intent,  once they                                                               
receive  the  bill,  would  be  to hold  public  hearings  on  it                                                               
throughout the interim and bring  a constitutional amendment back                                                               
next  session  that would  take  into  consideration all  of  the                                                               
different economic factors, which he thought was a wise plan.                                                                   
                                                                                                                                
SENATOR  OGAN commented  that if  you change  the vote  to a  7/8                                                               
majority, you  essentially empower  two or  three members  of the                                                               
Senate as a mini-minority to hold everyone else hostage.                                                                        
                                                                                                                                
SENATOR DYSON countered  with the argument that it  gives a small                                                               
number of  people the power to  stop more spending and  that is a                                                               
powerful tool.                                                                                                                  
                                                                                                                                
SENATOR   OGAN  responded   that  was   the  philosophy   of  the                                                               
constitutional  budget reserve  (CBR) and  it's had  the opposite                                                               
effect, depending on who the minority is.                                                                                       
                                                                                                                                
SENATOR  DYSON pointed  out that  page 2,  line 21,  said if  the                                                               
expenditures are more than appropriated,  the governor can reduce                                                               
them.  He  assumed,  if  there are  attempts  to  circumvent  the                                                               
spending cap,  that various  public interest  groups would  be in                                                               
court to seek an injunction.                                                                                                    
                                                                                                                                
SENATOR FRENCH  said he was  interested in how this  would impact                                                               
the  state  budget  and  wanted  to look  at  1992  general  fund                                                               
spending  and  apply  this  formula.   The  difficulty  with  any                                                               
mechanical approach  is if you  make it too tight,  you're always                                                               
jumping around  the exceptions and if  you make it too  loose, it                                                               
doesn't work.                                                                                                                   
                                                                                                                                
SENATOR  THERRIAULT said  that the  Finance Committee  could send                                                               
the  bill back  to the  Judiciary  Committee after  they run  the                                                               
spreadsheets.  He  then  motioned   to  pass  CSSJR  3(JUD)  from                                                               
committee   with  individual   recommendations.   There  was   no                                                               
objection and it was so ordered.                                                                                                
                                                                                                                                
9:06 to 9:08   at-ease                                                                                                          
                                                                                                                                
                      CONFIRMATION HEARING                                                                                  
                                                                                                                                
VICE CHAIR OGAN announced that  Marianne Stillner was up next for                                                               
confirmation to the Select Committee on Legislative Ethics.                                                                     
                                                                                                                                
9:11 to 9:15 - at ease                                                                                                          
                                                                                                                                
MS. MARIANNE STILLNER participated  via teleconference and stated                                                               
that she  felt she  had a  responsibility to  donate some  of her                                                               
energy  and  ability  to  a broader  purpose  than  herself.  She                                                               
thought it would be very  interesting and challenging to serve on                                                               
the Select Committee.                                                                                                           
                                                                                                                                
SENATOR OGAN asked her to comment on her nursing education.                                                                     
                                                                                                                                
MS. STILLNER responded  that she got her  undergraduate degree at                                                               
the University  of Detroit  and became a  public health  nurse in                                                               
inner city  areas of Detroit  and Oakland, California and  on the                                                               
Windford  Indian  Reservation.  She  got  her  Masters  in  Child                                                               
Psychiatric   Nursing  at   Boston  University,   working  as   a                                                               
psychiatric  nurse practitioner  for  the Yukon-Kuskokwim  Health                                                               
Corporation. She explained  that she moved around  a lot, because                                                               
of her  husband's career in  the medical field and  public health                                                               
service and advised that she is neutral politically.                                                                            
                                                                                                                                
SENATOR OGAN asked why she thought her name was forwarded.                                                                      
                                                                                                                                
MS.  STILLNER replied  that a  friend, Ellen  Campbell, suggested                                                               
her name  to Judge Carpeneti.  She added that she  was challenged                                                               
by the thought of looking at human behavior in the gray areas.                                                                  
                                                                                                                                
SENATOR  THERRIAULT  asked if  she  had  any thoughts  on  ethics                                                               
statutes in general and their application to the Legislature.                                                                   
                                                                                                                                
MS. STILLNER assumed  he was referring to the  statutes that were                                                               
sent to her on the various codes  of ethics, which she felt was a                                                               
good source for referral in problem solving.                                                                                    
                                                                                                                                
SENATOR  THERRIAULT asked  how she  thought the  codes should  be                                                               
applied within the capitol building  and what kind of filters she                                                               
would run allegations through in her own mind.                                                                                  
                                                                                                                                
MS.  STILLNER replied  that  she imagined  it  would be  somewhat                                                               
similar  to how  she deals  with applicants  and students  at the                                                               
university. There are protocols,  rules and statutes that provide                                                               
the foundation  and the boundaries  and within that there  has to                                                               
be  a   very  objective  approach   to  making   decisions  about                                                               
behaviors.                                                                                                                      
                                                                                                                                
SENATOR THERRIAULT asked if she  could think of an instance, when                                                               
she was a  nurse, that was not anticipated, but  she still had to                                                               
make things work.                                                                                                               
                                                                                                                                
MS. STILLNER replied yes and those things happen frequently.                                                                    
                                                                                                                                
SENATOR THERRIAULT  said that there  was a particular  problem in                                                               
applying ethics  statutes to the  Legislature. He  wanted someone                                                               
who understood  the process that  gets legislators to  a decision                                                               
at the  end of the  day and who could  make a fair  decision when                                                               
passing judgment.                                                                                                               
                                                                                                                                
MS. STILLNER replied  that she could be fair and  didn't have any                                                               
preconceived ideas about any of the legislators.                                                                                
                                                                                                                                
SENATOR FRENCH  asked why she  didn't come  in to see  them today                                                               
since she lives at Auke Bay.                                                                                                    
                                                                                                                                
MS. STILLNER  replied that she  was in yesterday, but  that today                                                               
she  has  two  meetings.  This  is  also  her  last  day  at  the                                                               
university  for  the   summer  and  she  is   leaving  town  this                                                               
afternoon.                                                                                                                      
                                                                                                                                
SENATOR  FRENCH asked  if she  had been  involved in  legislative                                                               
matters at all or worked on a political campaign.                                                                               
                                                                                                                                
MS. STILLNER replied no.                                                                                                        
                                                                                                                                
SENATOR FRENCH asked  if she was comfortable  sitting in judgment                                                               
of people.                                                                                                                      
                                                                                                                                
MS. STILLNER replied that it isn't  a very pleasant task, but she                                                               
has done it. She had served on a grand jury in Bethel Alaska.                                                                   
                                                                                                                                
SENATOR THERRIAULT moved to pass  Ms. Stillner's name to the full                                                               
body for  consideration. There were  no objections and it  was so                                                               
ordered.                                                                                                                        
                                                                                                                                
9:26 - 9:28 a.m. - at ease                                                                                                      
                                                                                                                                
        SJR 18-CONST. AM: PF APPROPS/INFLATION-PROOFING                                                                     
                                                                                                                                
VICE CHAIR OGAN announced SJR 18 to be up for consideration.                                                                    
                                                                                                                                
MR.  BOB  STORER,  Executive   Director,  Alaska  Permanent  Fund                                                               
Corporation, said  they have always felt  that inflation proofing                                                               
was an  important issue in the  Permanent Fund to make  sure that                                                               
all generations  benefit equally from  it. To date, the  fund has                                                               
been  fully   inflation  proofed.   The  board   has  unanimously                                                               
recommended    memorializing    inflation   proofing    in    the                                                               
constitution. They propose  doing that by adjusting  how much can                                                               
be appropriated in  any single year to no more  than five percent                                                               
of the total  fund. That computation is based on  five percent of                                                               
the five-year  moving average of  the market value of  the Alaska                                                               
Permanent  Fund  Corporation.  This formula  is  consistent  with                                                               
about 70 percent  of the foundations and  universities across the                                                               
country. They  believe they can earn  a real rate of  return over                                                               
time of five percent in excess of inflation.                                                                                    
                                                                                                                                
He  explained  that the  status  quo  only inflation  proofs  the                                                               
principal of the  fund and it consists of  royalty mineral money,                                                               
revenues,  special  appropriations  and inflation  proofing.  The                                                               
Legislature has always  inflation proofed the fund  and the three                                                               
components  are almost  all  equal. Right  now  the principal  is                                                               
about $22  billion. They  want to  limit the  amount that  can be                                                               
appropriated from the  real income of the fund  over time. "Under                                                               
the status quo,  the entire earnings reserve  can be appropriated                                                               
and that can vary from year to year."                                                                                           
                                                                                                                                
In  other years,  when the  earnings reserve  comprised about  25                                                               
percent  of the  fund,  a quarter  of the  fund  could have  been                                                               
appropriated, but  if that happened  in the last couple  of years                                                               
when  the  earnings reserve  was  actually  negative, then  there                                                               
would be  nothing available for  appropriation. He said  that the                                                               
earnings  reserve right  now  is  about $2  billion,  which is  a                                                               
product of the last six weeks.                                                                                                  
                                                                                                                                
MR.  STORER explained  that  there is  more  stability with  this                                                               
methodology  than  using a  realized  income  basis for  what  is                                                               
available  for appropriation  and the  dividend is  computed from                                                               
realized income. They  are very comfortable saying  they could do                                                               
this consistently.                                                                                                              
                                                                                                                                
SENATOR  OGAN  said  he  heard  that  the  average  draw  on  the                                                               
Permanent Fund was about four percent.                                                                                          
                                                                                                                                
MR.  STORER   replied  that  on  average,   that's  a  reasonable                                                               
statement, but that it is a volatile number.                                                                                    
                                                                                                                                
MR.  BOB BARTHOLOMEW,  Chief Operating  Officer, Permanent  Fund,                                                               
said the  way the fund has  been invested has changed  a lot over                                                               
the last 20 years.                                                                                                              
                                                                                                                                
     When the  fund was first  invested, it was  100 percent                                                                    
     in bonds  and almost  all of the  earnings of  the fund                                                                    
     was  cash   flow  interest  income.  The   formula  was                                                                    
     designed to  work that way.  Twenty years  later, we're                                                                    
     in  stocks that  have  a lot  of  their return  through                                                                    
     capital  appreciation. We  do  get  dividends, but  the                                                                    
     majority of  the return  comes from  the growth  in the                                                                    
     value of  the stock....So,  early on  when we  say that                                                                    
     the  payout  for  the  dividend  was  roughly  about  4                                                                    
     percent of  the fund, all  our income was coming  in in                                                                    
     cash  and  we  were  paying it  all  out.  Today,  that                                                                    
     percentage  is dropping  because  a lot  of the  growth                                                                    
     comes  from the  appreciation  of assets  and we  don't                                                                    
     sell our assets.  We hold on to real estate  for a long                                                                    
     time; stocks that are in the  index fund - we just hold                                                                    
     the index  fund. We might hold  it for 10 or  12 years.                                                                    
     All  of that  appreciation that's  happening in  assets                                                                    
     does not  go into the  dividend formula today.  So that                                                                    
     dividend formula,  how much  cash income  we have  is a                                                                    
     percentage of  our total income,  is just  dropping. By                                                                    
     switching  to   the  payout  of  market   value,  we're                                                                    
     computing,   and    we   recommend,   that    all   the                                                                    
     distributions  from  the  fund take  into  account  the                                                                    
     entire  fund and  the change  in value,  which is  both                                                                    
     your cash flow and your appreciation.                                                                                      
                                                                                                                                
MR. STORER  added that  the fund  is about 26  years old  and was                                                               
created  after the  bear market  of 1973  - 74.  Very few  public                                                               
funds were invested in the  stock market. Basically, the thinking                                                               
was fixed income and then cobbled  from there to go into equities                                                               
in the early 80s and international  equities in around '88 - '89.                                                               
With  equities  you   can  expect  a  higher   return,  but  more                                                               
volatility from year to year.                                                                                                   
                                                                                                                                
     Using  a smooth  payout  of the  market value  actually                                                                    
     creates  less  volatility   than  the  realized  income                                                                    
     methodology that we  use right now - which  goes to the                                                                    
     fifth  item,  which  is predictability.  What  we  have                                                                    
     learned and  what we think is  advantageous to decision                                                                    
     makers, be  it the  Permanent Fund or  the Legislature,                                                                    
     is  the look  back provision.  We are  stating that  it                                                                    
     should be the  moving average of the five  years of the                                                                    
     five  prior fiscal  years.  The  advantage to  decision                                                                    
     makers in the Legislature [is  that] when you come into                                                                    
     session  in January,  you will  know  exactly how  much                                                                    
     money  is available,  be it  for dividend,  government,                                                                    
     etc. You will have that knowledge right there.                                                                             
                                                                                                                                
     For those  of us at  the fund managing the  assets, one                                                                    
     of the main things you try  to do with the hidden costs                                                                    
     of the  fund is transaction costs.  When you're trading                                                                    
     your portfolio, if you think  of it right now, we won't                                                                    
     know  how much  will be  appropriated for  the dividend                                                                    
     until the  computation is completed  on June  30. Three                                                                    
     weeks  later,  we'll have  to  have  about one  billion                                                                    
     dollars liquidated and moved  over to the Department of                                                                    
     Revenue  for processing  in the  dividend division.  We                                                                    
     strive   very  hard   to   mitigate   the  effects   of                                                                    
     transaction  costs  as much  as  possible.  If we  have                                                                    
     greater predictability  on that fact, we  will have the                                                                    
     knowledge  to be  able to  address  the liquidation  in                                                                    
     some  systematic  way  which will  further  reduce  the                                                                    
     costs  associated  with   liquidating  those  kinds  of                                                                    
     assets....                                                                                                                 
                                                                                                                                
SENATOR OGAN asked  if they go with the five  percent, what would                                                               
last year's dividend be versus what it's projected to be.                                                                       
                                                                                                                                
MR. STORER replied that they looked  at that question and came up                                                               
with two  answers. One is  that there would  be no change  in the                                                               
dividend if  the formula for  computing the dividend  remains the                                                               
same. There  are two formulas,  one based on realized  income and                                                               
then  one  based  on  the   POMV  approach.  They  have  strongly                                                               
encouraged the Legislature to change  the formula of the dividend                                                               
in a  manner consistent  with this  as well,  although he  is not                                                               
advocating that at this time.                                                                                                   
                                                                                                                                
He estimated that by using the  50/50 split the dividend would be                                                               
larger  than  it  is  currently  until 2010  due  to  the  market                                                               
volatility. But, the  $1963 dividend from a couple  of years ago,                                                               
would have been smaller.                                                                                                        
                                                                                                                                
SENATOR  THERRIAULT said  the calculation  of the  dividend is  a                                                               
completely separate issue  than what he is proposing.  He is just                                                               
proposing a smoothing method for the cash that is available.                                                                    
                                                                                                                                
MR. STORER replied that is correct.                                                                                             
                                                                                                                                
SENATOR THERRIAULT said  because of the market valley  we are in,                                                               
if they  switched the dividend  calculation to a  smoother model,                                                               
it would result in higher...                                                                                                    
                                                                                                                                
TAPE 03-48, SIDE B                                                                                                            
                                                                                                                                
...it would not allow the valley to be as deep.                                                                                 
                                                                                                                                
MR.  STORER replied  that is  correct;  it would  smooth out  and                                                               
lines would cross at 2010.                                                                                                      
                                                                                                                                
SENATOR THERRIAULT asked what surety he could give them.                                                                        
                                                                                                                                
MR.  STORER answered  that  they  do a  lot  of  modeling of  the                                                               
probabilities of  achieving a goal.  Every quarter they  take all                                                               
the known  information about the  fund and  look forward 10  - 15                                                               
years.  They  model  it through  326  different  permutations  of                                                               
different  returns,  inflation,  etc.  They also  look  at  a  90                                                               
percent probability  of it occurring at  ten percent probability,                                                               
etc. He is suggesting a median case of all the permutations.                                                                    
                                                                                                                                
MR. BARTHOLOMEW  added that under  current formulas and  with the                                                               
recent  extreme  volatility, the  earnings  reserve  could go  to                                                               
zero. If  that happens, there is  no assurance; there could  be a                                                               
zero distribution. The  POMV, as proposed, would  assure a payout                                                               
every   year.  There   is  actually   more  assurance   and  more                                                               
predictability with the proposed change.                                                                                        
                                                                                                                                
MR. STORER  added that although predictability  is important, one                                                               
of  the key  things  about  this proposal  is  the discipline  it                                                               
brings during the  bull market phases. Imposing the  limit in the                                                               
bull markets  leaves reserves for  the bear market times  and one                                                               
can comfortably distribute a predictable  amount of money however                                                               
the Legislature deems appropriate.                                                                                              
                                                                                                                                
SENATOR FRENCH  asked if they had  adopted the POMV model  at the                                                               
outset of the fund, how big would the fund be today.                                                                            
                                                                                                                                
MR. STORER replied  that the key to the answer  is that there was                                                               
only one year  in which the fund was 100  percent in fixed income                                                               
and they paid out more than  five percent. "The fund would be the                                                               
same size."                                                                                                                     
                                                                                                                                
MR.  BARTHOLOMEW  said  the  main difference  would  be  that  we                                                               
wouldn't have the risk  of going to zero on June  30 that we have                                                               
now. He elaborated  that the fund made $1.1 billion  in April and                                                               
that's why we've  gone from almost no dividend up  to there being                                                               
enough money for  a dividend. "That's the kind  of volatility you                                                               
don't want to have subject to your payout method."                                                                              
                                                                                                                                
MR. STORER  added that  we have  benefited from  an extraordinary                                                               
bull market during  the entire period and the  real earnings have                                                               
been in excess of six percent during that whole period as well.                                                                 
                                                                                                                                
SENATOR  FRENCH  said this  assumes  that  the fund  makes  eight                                                               
percent per  year. In  years that make  less than  eight percent,                                                               
with a five percent payout, he  asked whether that would make the                                                               
fund go down.                                                                                                                   
                                                                                                                                
MR. STORER  answered yes;  they are assuming  that they  can earn                                                               
about  eight percent  over time  and that  historically inflation                                                               
has been  about three percent. That's  how they came up  with the                                                               
figures for demonstration purposes. We  are in a period now where                                                               
our returns are negative and inflation is modestly up he said.                                                                  
                                                                                                                                
SENATOR FRENCH asked  what a period of deflation would  do to the                                                               
model.                                                                                                                          
                                                                                                                                
MR.  STORER  replied  that  there have  been  two  extremes  back                                                               
through  1926:  one   is  deflation  and  the   other  is  higher                                                               
inflation.                                                                                                                      
                                                                                                                                
     Both  would have  an  impact on  the  fund. The  higher                                                                    
     inflation period,  at least  the last  time commodities                                                                    
     rose  and  so there  would  probably  be higher  income                                                                    
     coming  to the  state....One of  the keys  in portfolio                                                                    
     construction  is  diversification.  So, we  have  about                                                                    
     half of the  fund invested in equities  and the balance                                                                    
     is in  primarily high  quality fixed  income securities                                                                    
     and real estate.  If deflation was over  a short period                                                                    
     of  time, then  we would  not  be able  to achieve  our                                                                    
     goal, I believe.   We'd make money in  bonds, but there                                                                    
     would be  an impact on  the stock market. But  then the                                                                    
     assumption is  that we  would come out  of that  and we                                                                    
     would achieve  our goals again.  If you go back  to the                                                                    
     extreme of the depression, then  you're going to have a                                                                    
     5  or  10-year  problem.   We  can't  get  around  that                                                                    
     aspect....                                                                                                                 
                                                                                                                                
MR. BARTHOLOMEW  thought Senator  French's point  was one  of the                                                               
key  policy  decisions  facing  the  Legislature  when  they  are                                                               
looking at this proposal. For  the benefit of assuring there will                                                               
be a payout  every year, the fund  is taking on the  risk that in                                                               
some short  term period  it could  get spent  down a  little bit,                                                               
with the idea that  it would be built back up  in the future. The                                                               
benefit of  that is that you  don't have a $22  billion fund that                                                               
provides nothing  to the state  and what  would that mean  to the                                                               
economy and to the citizens.                                                                                                    
                                                                                                                                
SENATOR FRENCH asked if using  this model would moot the Attorney                                                               
General's pending decision on what earnings are.                                                                                
                                                                                                                                
MR.  BARTHOLOMEW said  that opinion  would have  an affect  until                                                               
November 2004.                                                                                                                  
                                                                                                                                
SENATOR  THERRIAULT asked  them  to comment  on  the proposal  to                                                               
simply freeze the statute that was  first put into place when the                                                               
fund was invested only in bonds.                                                                                                
                                                                                                                                
MR. STORER  responded that  with regard  to the  dividend payout,                                                               
it's   not  really   compatible   with  contemporary   investment                                                               
thinking. It would create a problem longer term.                                                                                
                                                                                                                                
SENATOR  THERRIAULT  asked  him   to  comment  on  the  potential                                                               
scrutiny from the IRS.                                                                                                          
                                                                                                                                
MR. STORER  replied that there were  a lot of discussions  in the                                                               
80s about the taxability of the  fund. To keep a low profile, one                                                               
of the  things they did was  make it distinct that  the Permanent                                                               
Fund  Corporation managed  the assets  of the  fund and  that any                                                               
appropriations would  occur on a  year to year basis  through the                                                               
legislative process. The corporation was  constructed in a way to                                                               
keep  that autonomy  as  well. Legal  opinions  have always  said                                                               
there  is  a  risk  if  the  dividend  was  memorialized  in  the                                                               
constitution so it was not for a government purpose.                                                                            
                                                                                                                                
CHAIR SEEKINS  inserted that he  intended to hold SJR  18 through                                                               
the interim for further work.                                                                                                   
                                                                                                                                
MR. STORER commented  that he didn't think that  SJR 18 increased                                                               
the risk of  the fund being attacked by the  IRS. However, SJR 19                                                               
talks about  placing a dividend commitment  into the constitution                                                               
and would present a question.                                                                                                   
                                                                                                                                
SENATOR THERRIAULT said he understood and agreed with him.                                                                      
                                                                                                                                
CHAIR SEEKINS said they would hold SJR 18 for further work.                                                                     
                                                                                                                                
CHAIR SEEKINS  announced that  the next order  of business  was a                                                               
confirmation hearing for Mr. William Granger.                                                                                   
                                                                                                                                
                      CONFIRMATION HEARING                                                                                  
                                                                                                                              
MR. WILLIAM  GRANGER, nominee for  the Board of Governors  of the                                                               
Alaska Bar  Association, said this  would be his second  term and                                                               
that he currently works for Wells Fargo Bank.                                                                                   
                                                                                                                                
SENATOR THERRIAULT asked what his duties at the bank were.                                                                      
                                                                                                                                
MR. GRANGER  replied that he is  a senior vice president  in loan                                                               
administration.                                                                                                                 
                                                                                                                                
SENATOR  FRENCH  asked   him  to  comment  on   his  interest  in                                                               
continuing  with  the  Board  of Governors  for  the  Alaska  Bar                                                               
Association.                                                                                                                    
                                                                                                                                
MR. GRANGER said  the last three years were  challenging and that                                                               
the body  is charged  with not only  discipline type  matters for                                                               
the bar  at large,  but the continuing  education and  support of                                                               
the group  as a whole  in the area  of rules and  regulations and                                                               
dealing with other groups such  as Alaska Legal Services, the pro                                                               
bono  program  and  the  Catholic  Social  Services  Immigrations                                                               
program.  He  said he  is  also  a  trustee  for the  Alaska  Bar                                                               
Foundation and  that coordinating  and assisting other  groups in                                                               
fulfilling their missions is very interesting.                                                                                  
                                                                                                                                
SENATOR FRENCH  said he used to  be a DA and  he frequently heard                                                               
about the  speed or lack  thereof in adverse bar  actions against                                                               
license  holders  who were  accused  and  sometimes convicted  of                                                               
criminal violations.  He asked him  to comment on the  speed with                                                               
which the Bar Association acts in adverse actions.                                                                              
                                                                                                                                
MR. GRANGER replied that he  has been reasonably pleased with the                                                               
efficiency and  speed of the  bar, but  a couple of  recent cases                                                               
have  dropped through  the  cracks. He  thought  that often  they                                                               
operate through  committees and subcommittees that  are manned by                                                               
volunteers  and that  might need  some tweaking,  but overall  he                                                               
thought they were doing a good job.                                                                                             
                                                                                                                                
SENATOR  FRENCH said  he  thought public  confidence  in the  Bar                                                               
Association  would  be  increased  if adverse  bar  actions  were                                                               
completed   ahead  of   the  appeals   process   of  a   criminal                                                               
prosecution.                                                                                                                    
                                                                                                                                
MR. GRANGER  responded that  maybe it  is easier  for the  bar to                                                               
take action like  that after the conviction rather  than prior to                                                               
it.                                                                                                                             
                                                                                                                                
SENATOR FRENCH  agreed with him,  but said  he didn't know  if it                                                               
was the right thing to do to wait a long time after the trial.                                                                  
                                                                                                                                
MR.  GRANGER  added that  in  those  cases,  the people  are  not                                                               
practicing anyway.                                                                                                              
                                                                                                                                
SENATOR  OGAN moved  to forward  Mr. Granger's  name to  the full                                                               
body for  consideration. There were  no objections and it  was so                                                               
ordered.                                                                                                                        
                                                                                                                                
        SB 170-CRIMINAL LAW/SENTENCING/ PROBATION/PAROLE                                                                    
                                                                                                                                
CHAIR  SEEKINS  announced  SB  170,  version  A,  to  be  up  for                                                               
consideration. He said there were several proposed amendments.                                                                  
                                                                                                                                
MR.  DEAN GUANELI,  Chief Assistant  Attorney  General, said  the                                                               
amendments they have brought forward  are a result of discussions                                                               
they had  with both the Senate  and the House and  offer a number                                                               
of improvements.                                                                                                                
                                                                                                                                
CHAIR  SEEKINS said  that for  them to  take any  action at  this                                                               
time,  they would  have to  delete sections  1, 2,  3, 4,  and 5,                                                               
which are  the most controversial parts  of the bill that  need a                                                               
lot of work.                                                                                                                    
                                                                                                                                
SENATOR FRENCH concurred saying that  any change they make in the                                                               
law of self-defense has to be  made very carefully. Some parts of                                                               
the bill are able to move forward this year.                                                                                    
                                                                                                                                
SENATOR OGAN moved a conceptual  amendment to delete sections 1 -                                                               
5, ending on  page 3, line 6.  There was no objection  and it was                                                               
so ordered.                                                                                                                     
                                                                                                                                
CHAIR  SEEKINS said  he  reviewed  section 6  and  asked about  a                                                               
person being made aware of their rights at the point of booking.                                                                
                                                                                                                                
SENATOR OGAN  said he thought it  was a little bit  of a bullying                                                               
tactic on  the part of law  enforcement to not allow  an attorney                                                               
to  represent  a  person,  especially  if  they  are  under  age,                                                               
inexperienced or mentally incapacitated in some way.                                                                            
                                                                                                                                
SENATOR THERRIAULT  asked Mr. Guaneli  how the system  would work                                                               
for  a minor  or a  person  with diminished  mental capacity  and                                                               
whether there are additional protections.                                                                                       
                                                                                                                                
MR.  GUANELI  explained  that  parents   of  minors  have  to  be                                                               
contacted.  In   the  case  of  a   mentally  diminished  person,                                                               
especially if  it is a  serious crime, the judge  decides whether                                                               
to admit any confession. Our  laws don't give law enforcement the                                                               
obligation of  deciding at  the outset  whether they  have mental                                                               
problems.                                                                                                                       
                                                                                                                                
SENATOR  THERRIAULT said  they  are talking  about  the issue  of                                                               
whether the person has the right  to say they want an attorney or                                                               
that a person outside of the room  has the right to say they want                                                               
their son represented by an attorney.                                                                                           
                                                                                                                                
MR. GUANELI  said they believe  it ought to  be the right  of the                                                               
person,  and  some third  party  should  not  have the  right  to                                                               
interject him or herself into that situation.                                                                                   
                                                                                                                                
SENATOR THERRIAULT  said under  current law, if  a parent  has an                                                               
attorney show  up when his  son or daughter is  being questioned,                                                               
he has to be shown into the room.                                                                                               
                                                                                                                                
MR. GUANELI agreed saying it is  the right of the attorney to see                                                               
the prisoner.                                                                                                                   
                                                                                                                                
CHAIR  SEEKINS asked  if anything  in section  6 eliminated  that                                                               
right.                                                                                                                          
                                                                                                                                
MR. GUANELI replied that section 6  makes all of those rights the                                                               
right of the prisoner to exercise.                                                                                              
                                                                                                                                
CHAIR SEEKINS asked if that came under AS 12.25.150(b).                                                                         
                                                                                                                                
MR.  GUANELI said  that is  correct.  The right  to telephone  or                                                               
otherwise communicate with  an attorney is a  right under current                                                               
law  (page  3, line  8);  the  right  to telephone  or  otherwise                                                               
communicate  with a  relative or  friend is  also a  right. "What                                                               
changes is,  under number 3,  the bill says  you have a  right to                                                               
visit with  an attorney  if you request  it. The  current statute                                                               
says it's the right of the attorney."                                                                                           
                                                                                                                                
TAPE 03-49, SIDE A                                                                                                            
                                                                                                                                
SENATOR OGAN  said he still  has trouble with denying  anyone the                                                               
right to  talk to an  attorney, especially because of  a previous                                                               
remark made  by Mr. Guaneli about  anyone who commits a  crime is                                                               
mentally ill.                                                                                                                   
                                                                                                                                
CHAIR SEEKINS said  they were running out of time  and would hold                                                               
the bill  for further hearings.  There being no  further business                                                               
to come before  the committee, he adjourned the  meeting at 10:35                                                               
a.m.                                                                                                                            

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