Legislature(2021 - 2022)BUTROVICH 205

08/30/2021 10:00 AM JUDICIARY

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Audio Topic
10:29:27 AM Start
10:30:27 AM SB53
12:05:19 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Time Change --
+= SB 53 PERM FUND; ADVISORY VOTE TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
               SENATE JUDICIARY STANDING COMMITTEE                                                                            
                         August 30, 2021                                                                                        
                           10:29 a.m.                                                                                           
                                                                                                                                
                                                                                                                                
 MEMBERS PRESENT                                                                                                              
                                                                                                                                
 Senator Roger Holland, Chair                                                                                                   
 Senator Mike Shower, Vice Chair (via teleconference)                                                                           
 Senator Shelley Hughes                                                                                                         
 Senator Robert Myers                                                                                                           
 Senator Jesse Kiehl                                                                                                            
                                                                                                                                
 MEMBERS ABSENT                                                                                                               
                                                                                                                                
 All members present                                                                                                            
                                                                                                                                
 COMMITTEE CALENDAR                                                                                                           
                                                                                                                                
 SENATE BILL NO. 53                                                                                                             
 "An Act relating to use  of income of the  Alaska permanent fund;                                                              
 relating to the amount  of the permanent fund  dividend; relating                                                              
 to the  duties of  the commissioner  of revenue;  relating to  an                                                              
 advisory vote on the  permanent fund; providing for  an effective                                                              
 date by  repealing the  effective  date of  sec. 8,  ch. 16,  SLA                                                              
 2018; and providing for an effective date."                                                                                    
                                                                                                                                
      - HEARD & HELD                                                                                                            
                                                                                                                                
 PREVIOUS COMMITTEE ACTION                                                                                                    
                                                                                                                                
 BILL: SB 53                                                                                                                  
 SHORT TITLE: PERM FUND; ADVISORY VOTE                                                                                          
 SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                   
                                                                                                                                
 01/25/21       (S)       READ THE FIRST TIME - REFERRALS                                                                       
 01/25/21       (S)       STA, JUD, FIN                                                                                         
 02/04/21       (S)       STA AT 3:30 PM BUTROVICH 205                                                                          
 02/04/21       (S)       Scheduled but Not Heard                                                                               
 02/09/21       (S)       STA AT 3:30 PM BUTROVICH 205                                                                          
 02/09/21       (S)       Heard & Held                                                                                          
 02/09/21       (S)       MINUTE(STA)                                                                                           
 02/11/21       (S)       STA AT 3:30 PM BUTROVICH 205                                                                          
 02/11/21       (S)       Scheduled but Not Heard                                                                               
 02/23/21       (S)       STA AT 3:30 PM BUTROVICH 205                                                                          
 02/23/21       (S)       Moved SB 53 Out of Committee                                                                          
 02/23/21       (S)       MINUTE(STA)                                                                                           
 02/24/21       (S)       STA RPT 3NR 1AM                                                                                       
 02/24/21       (S)       NR: SHOWER, HOLLAND, COSTELLO                                                                         
 02/24/21       (S)       AM: KAWASAKI                                                                                          
 04/21/21       (S)       JUD AT 1:30 PM BUTROVICH 205                                                                          
 04/21/21       (S)       Heard & Held                                                                                          
 04/21/21       (S)       MINUTE(JUD)                                                                                           
 04/26/21       (S)       JUD AT 1:30 PM BUTROVICH 205                                                                          
 04/26/21       (S)       Heard & Held                                                                                          
 04/26/21       (S)       MINUTE(JUD)                                                                                           
 04/30/21       (S)       JUD AT 1:30 PM BUTROVICH 205                                                                          
 04/30/21       (S)       <Bill Hearing Canceled>                                                                               
 08/27/21       (S)       JUD AT 1:30 PM BUTROVICH 205                                                                          
 08/27/21       (S)       Heard & Held                                                                                          
 08/27/21       (S)       MINUTE(JUD)                                                                                           
 08/30/21       (S)       JUD AT 10:00 AM BUTROVICH 205                                                                         
                                                                                                                                
 WITNESS REGISTER                                                                                                             
                                                                                                                                
 MILAN REITVELD, PhD;                                                                                                           
 International Sovereign Wealth Fund Advisor                                                                                    
 The Center for International Development at                                                                                    
 Harvard University Kennedy School                                                                                              
 Cambridge, Massachusetts                                                                                                       
 POSITION  STATEMENT: Provided  a  PowerPoint:  Fiscal  Rules  for                                                            
 Permanent Funds: Global Trends and Practices.                                                                                  
                                                                                                                                
                                                                                                                                
 ACTION NARRATIVE                                                                                                             
                                                                                                                                
 10:29:27 AM                                                                                                                  
 CHAIR  ROGER  HOLLAND   called  the  Senate   Judiciary  Standing                                                            
 Committee meeting to order at 10:29 a.m.   Present at the call to                                                              
 order  were   Senators   Hughes,   Myers,  Kiehl,   Shower   (via                                                              
 teleconference) and Chair Holland.                                                                                             
                                                                                                                                
                 SB 53-PERM FUND; ADVISORY VOTE                                                                             
                                                                                                                                
 10:30:27 AM                                                                                                                  
 CHAIR HOLLAND announced the  consideration of SENATE  BILL NO. 53                                                              
 "An Act relating to use  of income of the  Alaska permanent fund;                                                              
 relating to the amount  of the permanent fund  dividend; relating                                                              
 to the  duties of  the commissioner  of revenue;  relating to  an                                                              
 advisory vote on the  permanent fund; providing for  an effective                                                              
 date by  repealing the  effective  date of  sec. 8,  ch. 16,  SLA                                                              
 2018; and providing for an effective date."                                                                                    
                                                                                                                                
 [SB 53  was previously  heard on 4/21/21,  4/26/21, and  8/27/21.                                                              
 Public testimony was open and closed on 4/26/21.                                                                               
                                                                                                                                
 10:30:30 AM                                                                                                                  
 CHAIR HOLLAND advised the committee would  hear a PowerPoint from                                                              
 Malan Rietveld,  PhD.,  an  international sovereign  wealth  fund                                                              
 (SWF) advisor.                                                                                                                 
                                                                                                                                
 10:31:44 AM                                                                                                                  
 At ease                                                                                                                        
                                                                                                                                
 10:32:08 AM                                                                                                                  
 CHAIR HOLLAND reconvened the meeting.                                                                                          
                                                                                                                                
 10:33:03 AM                                                                                                                  
 MILAN  REITVELD,   PhD;  International   Sovereign  Wealth   Fund                                                              
 Advisor, The  Center  for  International Development  at  Harvard                                                              
 University, Kennedy  School,  Cambridge, Massachusetts,  provided                                                              
 introductory comments.  He  said he  previously  worked with  the                                                              
 Alaska legislature and  Governor Walker's administration  in 2015                                                              
 and 2016  on  issues  related  to transitioning  to  an  historic                                                              
 first-time draw  on  the permanent  fund  income  to support  the                                                              
 state's budget.                                                                                                                
                                                                                                                                
 10:34:10 AM                                                                                                                  
 DR. RIETVELD  began a  PowerPoint on  Fiscal Rules for  Permanent                                                              
 Funds: Global Trends  and Practices. He reviewed  his credentials                                                              
 outlined on slide  1, including that he  worked with a  number of                                                              
 governments and the public sector on  fiscal reform and sovereign                                                              
 wealth  funds  (SWFs).   He  has  worked  in   diverse  countries                                                              
 including Botswana  and Mongolia  and in  Alaska and  Wyoming. He                                                              
 currently serves  as  a senior  expert  consultant  to the  Asian                                                              
 Development Bank. In addition, he has worked on pension funds.                                                                 
                                                                                                                                
 CHAIR HOLLAND advised that the presentation is posted on BASIS.                                                                
                                                                                                                                
 10:35:14 AM                                                                                                                  
 DR. RIETVELD continued  to review his  background on slide  2. He                                                              
 related  that he  has  also  worked  at  Harvard  University  and                                                              
 Columbia University producing publications on SWFs.                                                                            
                                                                                                                                
 10:35:40 AM                                                                                                                  
 DR. RIETVELD reviewed the growth of SWFs on  slide 3. He directed                                                              
 attention to the map that identified  commodity-based SWFs, which                                                              
 are established to  invest a share  of the proceeds  from natural                                                              
 resources rather than  to spend them  immediately in  a budgetary                                                              
 process. In recent years, there has been  a proliferation of SWFs                                                              
 funded by other forms of public sector  revenue and windfall. For                                                              
 example, privatization proceeds  in a number of  Asian economies,                                                              
 foreign exchange  reserves and new  funds since  the turn  of the                                                              
 century. The total  aggregate in assets  under management  by all                                                              
 SWFs in at least 15 countries is $8-10  trillion. It is difficult                                                              
 to assess the size of the very large Middle Eastern portfolios.                                                                
                                                                                                                                
 10:36:56 AM                                                                                                                  
 DR. RIETVELD said  the Alaska  Permanent Fund Corporation  (APFC)                                                              
 is a major player in global SWFs and  its investment team is very                                                              
 highly  regarded.  Other funds  seek  to  learn  more  about  how                                                              
 Alaska's permanent fund  was established, its iterations  and its                                                              
 investment team's track record.                                                                                                
                                                                                                                                
 10:37:31 AM                                                                                                                  
 DR. RIETVELD emphasized  that the  current discussions  in Alaska                                                              
 are ones he hears in countries throughout  the world. He provided                                                              
 three  examples  of  commodity-producing   countries  with  large                                                              
 sovereign wealth  funds: Abu  Dhabi Investment Authority  (ADIA),                                                              
 Kuwait  Investment   Authority,   and  Norway.   The  Abu   Dhabi                                                              
 Investment Authority  (ADIA) owned  by the  Emirate of  Abu Dhabi                                                              
 has a fund estimated  at $800 billion in assets  under management                                                              
 primarily funded by  commodity and oil revenues.  Currently, ADIA                                                              
 is engaged in  multi-year discussion  on transitioning  towards a                                                              
 spending rule  that would  allow  them to  not only  rely on  oil                                                              
 revenues while saving  a significant  portion of its  revenue but                                                              
 on its earning potential.  Abu Dhabi's configuration  is somewhat                                                              
 different since it  has a number  of SWFs,  of which the  ADIA is                                                              
 the most significant.  He characterized ADIA  as being on  a very                                                              
 similar process as Alaska.                                                                                                     
                                                                                                                                
 10:39:05 AM                                                                                                                  
 DR. RIETVELD related  that the Kuwait Investment  Authority (KIA)                                                              
 is a less positive  example. KIA's fund is estimated  at $650-700                                                              
 billion. In 2020,  KIA saw significant draw  downs on one  of its                                                              
 two funds, its general  fund (GF) during COVID-19  which affected                                                              
 its second fund, the future generations fund  (FGF). What came to                                                              
 light was that KIA had no formal  rule-based framework but relied                                                              
 on custom, consensus  and negotiation. That framework  has broken                                                              
 down with a  standoff between the  minister, the  legislature and                                                              
 the KIA Board. In the past three months or  so there has not been                                                              
 a sitting board,  which is just  now being resolved.  However, it                                                              
 is an example of what can happen  absent having appropriate rules                                                              
 in place that are understood by all the stakeholders.                                                                          
                                                                                                                                
 10:40:19 AM                                                                                                                  
 DR. RIETVELD turned to  Norway, which has the largest  SWF in the                                                              
 world at $1.4 trillion.  In addition its SWF provides  75 percent                                                              
 of its revenues  from other sources,  including sales  and income                                                              
 taxes. Although Norway has  rarely made draws on  its earnings or                                                              
 income from its SWF, in  recent years that is  starting to shift,                                                              
 he said.                                                                                                                       
                                                                                                                                
 10:41:14 AM                                                                                                                  
 DR. RIETVELD turned  to slide 5. In  2016, Norway made  the first                                                              
 historic draw from its SWF. It subsequently  made record draws in                                                              
 2020 and 2021  for relief during  the pandemic. Norway  forms its                                                              
 budget exclusive of oil revenues, then  allows its budget deficit                                                              
 to  grow   to  the   estimated  earnings   of  its  SWF.   Norway                                                              
 conservatively  estimates  its  SWF  earnings  at  3  percent  or                                                              
 approximately $50 billion in  current terms. It then  withdraws 3                                                              
 percent to cover the non-oil deficit. He  pointed out that Norway                                                              
 invests  more  conservatively  than  the  Alaska  Permanent  Fund                                                              
 (APF).  Since  this  year's  draw  has   been  above  3  percent,                                                              
 something must give in  the coming years. He said  he wouldn't be                                                              
 surprised  if  Norway  formalizes  their  rules,  especially  the                                                              
 spending rule.                                                                                                                 
                                                                                                                                
 10:42:58 AM                                                                                                                  
 SENATOR MYERS  asked  for  the size  of  the three  wealth  funds                                                              
 mentioned compared to the size of their economies.                                                                             
                                                                                                                                
 DR. RIETVELD answered  that he would need  to guess on  the first                                                              
 two  since Abu  Dhabi  Investment  Authority  (ADIA)  and  Kuwait                                                              
 Investment Authority (KIA) keep their  portfolio figures private.                                                              
 But using  an  estimated  $850 billion  for  Abu  Dubai and  $650                                                              
 billion  for  Kuwait  and  considering  pure  assets  versus  the                                                              
 average  size of  their  budget  in  recent  years,  most  Middle                                                              
 Eastern funds  have  3-5 years  of budget  cover  from their  SWF                                                              
 assets. He contrasted that Norway has 7-8  times budget cover. He                                                              
 estimated that Alaska would be 10-15 times  budget cover from the                                                              
 APF. He pointed out that  solely based on the size  of the budget                                                              
 versus the size  of the sovereign  wealth fund (SWF),  Alaska has                                                              
 the largest SWF  relative to the  size of spending.  That doesn't                                                              
 speak to the fund's  structure or accessing the  fund through the                                                              
 spending rule but rather it  is a pure "rule of  thumb" about the                                                              
 fund.                                                                                                                          
                                                                                                                                
 10:45:38 AM                                                                                                                  
 DR. RIETVELD turned to a comparison with endowments on slide 6.                                                                
                                                                                                                                
 10:46:00 AM                                                                                                                  
 SENATOR HUGHES  asked him to  repeat the  number of  budget years                                                              
 the permanent fund could cover.                                                                                                
                                                                                                                                
 DR. RIETVELD responded  that it would depend  on the size  of the                                                              
 annual budget,  noting that  Alaska's budget  has increased  over                                                              
 time. He acknowledged  that Alaska has  cut its budget  in recent                                                              
 years. He  estimated  the  budget  range  is 10-15  times  budget                                                              
 cover.  He  added  he  worked  with  the  Alaska  Permanent  Fund                                                              
 Corporation Board  of Trustees  on the  publication of  a trustee                                                              
 paper in 2020.  At that time,  a comparison  of the size  of SWFs                                                              
 relative to spending needs  showed Alaska came out  favorably. He                                                              
 cautioned against  using his  exact projection  of the  number of                                                              
 budget years as a certainty since it is merely an indication.                                                                  
                                                                                                                                
 10:47:15 AM                                                                                                                  
 CHAIR HOLLAND recalled that  he referred to the  Alaska Permanent                                                              
 Fund as the largest SWF per capita.                                                                                            
                                                                                                                                
 DR. RIETVELD answered  that it could  be scaled through  the size                                                              
 of the gross  domestic product (GDP),  population or  the average                                                              
 spending outlay of government.  In all those  comparisons, Alaska                                                              
 has  a  healthy  endowment  of  savings.   However,  using  other                                                              
 metrics, Alaska  has  vulnerabilities,  he said.  He  highlighted                                                              
 that Alaska has  a more certain  near-term outlook  for commodity                                                              
 production but uncertainty around the timing  or magnitude of the                                                              
 state's oil production. Some  other funds do not have  to draw on                                                              
 the fund  and preserve  the fund  into perpetuity  to the  extent                                                              
 Alaska does.                                                                                                                   
                                                                                                                                
 10:48:30 AM                                                                                                                  
 SENATOR HUGHES said  the rough comparison  is helpful to  see how                                                              
 Alaska compares to other SWFs.                                                                                                 
                                                                                                                                
 10:49:00 AM                                                                                                                  
 SENATOR  SHOWER acknowledged  that  members  who  served  on  the                                                              
 Fiscal  Policy  Working  Group  (FPWG)  were  grappling  to  find                                                              
 solutions, such  as  considering using  some  of  funds from  the                                                              
 permanent fund to bridge  the fiscal gap. He said  he was curious                                                              
 if Norway and  other countries were using  some of their  SWFs to                                                              
 help get through the pandemic.                                                                                                 
                                                                                                                                
 10:50:00 AM                                                                                                                  
 DR. RIETVELD answered that the overwhelming  majority of SWFs are                                                              
 used to  provide fiscal  support or  direct economic support.  He                                                              
 opined that the current structure is  correct and appropriate for                                                              
 Alaska. One way SWFs have helped during the  pandemic is to shore                                                              
 up private and public financial markets. In  Norway, the last two                                                              
 years have  seen  the  largest draw  from  their  SWF for  direct                                                              
 budget support but also  the highest POMV draw in  the history of                                                              
 its fund. The answer is most certainly yes, he said.                                                                           
                                                                                                                                
 10:51:28 AM                                                                                                                  
 SENATOR SHOWER  remarked  that he  wanted  to  highlight that  it                                                              
 would not be not  unusual or unreasonable for Alaska  to consider                                                              
 using available funds.                                                                                                         
                                                                                                                                
 10:51:52 AM                                                                                                                  
 DR. RIETVELD offered  to create a  side-by-side analysis  of SWFs                                                              
 based  on  the  size  of  the  GDP,  budget  and  population,  if                                                              
 requested. He suggested that could be helpful.                                                                                 
                                                                                                                                
 10:52:32 AM                                                                                                                  
 DR. RIETVELD  said it  was  useful to  not only  compare what  is                                                              
 happening with SWFs, but also to consider a  close peer, which is                                                              
 university endowments,  particularly U.S. university  endowments.                                                              
 He directed attention  to the  chart on slide  6. He  said income                                                              
 spending rules vary widely. One major  feature is realized income                                                              
 on fixed  income and  dividends paid  on equities.  Historically,                                                              
 the majority of  endowments have had  such spending  policies. He                                                              
 directed  attention  to total  investments  shown  in  the  first                                                              
 column. Roughly three-fourths  of university endowments  make use                                                              
 of  a  POMV  approach  to  spending,  which  is  considered  best                                                              
 practice and  suitable for  the Alaska  Permanent Fund (APF).  He                                                              
 said he was  pleased to see that  concept has been  adopted since                                                              
 it makes more sense than focusing on realized income.                                                                          
                                                                                                                                
 10:54:37 AM                                                                                                                  
 SENATOR KIEHL  asked  for  the  difference between  the  "average                                                              
 percentage"  and the  "Average  pre-specified  percentage"  lines                                                              
 shown on slide 6.                                                                                                              
                                                                                                                                
 DR. RIETVELD answered  that the  pre-specified percentage  has to                                                              
 do with the timing. He explained the  importance of the timeframe                                                              
 being used in POMV calculations. He  acknowledged that Alaska has                                                              
 emphasized a five-year lag  average, which is more  common and by                                                              
 far the best  for use with a  permanent fund. In  universities it                                                              
 is a little trickier  because the administration argues  that the                                                              
 departments need longer lead times for  financial planning due to                                                              
 the leads  and  lags in  university  outlays. Thus,  universities                                                              
 often pre-specify a POMV based on a historic  value, which can be                                                              
 difficult.  If the  portfolio  fluctuates  dramatically,  it  can                                                              
 appear as though  there is a  massive overspend because  the pre-                                                              
 specified amount is being compared to a smaller portfolio.                                                                     
                                                                                                                                
 10:56:25 AM                                                                                                                  
 SENATOR KIEHL  pointed  out  that  the only  pre-specified  spend                                                              
 amount  that exceeded  the  average  percentage  funds  were  the                                                              
 smallest endowments  funds under  $25 million.  He asked  if this                                                              
 was due to their size.                                                                                                         
                                                                                                                                
 DR. RIETVELD said  he thought Senator  Kiehl was correct  that it                                                              
 is related  to  smaller schools.  He  suggested  that in  typical                                                              
 American universities, the endowment will be  a small fraction of                                                              
 their income. He  noted that Harvard  has the  largest university                                                              
 endowment  in  the  world.  The  endowment  income  and  earnings                                                              
 potential is  a significant  contributor to  the overall  revenue                                                              
 sources of the university  in terms of operational  purposes. The                                                              
 short answer is that a  rule like that is  probably a peculiarity                                                              
 of the small endowment  which isn't a significant  contributor to                                                              
 revenue.                                                                                                                       
                                                                                                                                
 10:57:54 AM                                                                                                                  
 SENATOR HUGHES  recalled  he mentioned  that  using  the lag  was                                                              
 particularly valuable  for Alaska  and others  are moving  to it.                                                              
 She asked  if any  endowments base  their POMV  draws on  current                                                              
 balance or if these endowments use some type of lag model.                                                                     
                                                                                                                                
 10:58:18 AM                                                                                                                  
 DR. RIETVELD answered that  there are endowment POMV  models that                                                              
 work on current  value, including  Harvard. The  POMV calculation                                                              
 is not the  motivating factor for  determining how much  money to                                                              
 draw from  the  endowment  in any  given  year.  Harvard is  more                                                              
 focused on a  stable spending plan  for the university.  If other                                                              
 sources of  revenue student  enrollment fees,  gifts, and  grants                                                              
 are down in a particular year, the objective  of the endowment is                                                              
 to fill  the gap.  The universities  will look  back at  the POMV                                                              
 size to provide a backward  look to provide a  sense of spending.                                                              
 Instead  of   considering  the   POMV  a   driving  factor,   the                                                              
 universities will  use  it  as one  of  a  number of  factors  to                                                              
 determine whether the university has overspent  or underspent. In                                                              
 the event that  Harvard has overspent,  the university  will pull                                                              
 back in subsequent years  and likewise, if it has  underspent, it                                                              
 will recognize there is room to increase  the spending rate. That                                                              
 model has more discretion  and it places  more of an onus  on the                                                              
 corporations  that  run  the  university.  He  said  some  fairly                                                              
 controversial things happened at Harvard, which he will discuss.                                                               
                                                                                                                                
 11:00:00 AM                                                                                                                  
 SENATOR HUGHES  asked if  during the  pandemic these  percentages                                                              
 average 4-5 percent or if some SWFs were  taking above the amount                                                              
 listed on the chart.                                                                                                           
                                                                                                                                
 11:00:14 AM                                                                                                                  
 DR. RIETVELD answered that  the survey data he  reviewed suggests                                                              
 that spending rates have gone up, but there  is variance. In some                                                              
 cases endowments have  pulled back  because market losses  led to                                                              
 some panic. He pointed out the study cited  on slide 6, which was                                                              
 done  by the  National  Association  of  College  and  University                                                              
 Business  Officers'  (NACUBO)  Commonfund   Study  of  Endowments                                                              
 (NCSE), which  is  considered  the  gold standard  for  endowment                                                              
 studies. It showed an increase  in the average spend  rate of 4-5                                                              
 percent for  endowments but the  trend is  upward in  response to                                                              
 COVID-19.                                                                                                                      
                                                                                                                                
 11:01:21 AM                                                                                                                  
 DR. RIETVELD  turned to slide  7 and  discussed what  happened at                                                              
 Harvard.  He  said  Harvard's  endowment  consists  of  over  $40                                                              
 billion in assets under  management so it is the  most famous and                                                              
 largest endowment in the world.                                                                                                
                                                                                                                                
 DR. RIETVELD  said  Harvard's spending  rule  leaves some  wiggle                                                              
 room.  Harvard's  balance  of  "spending   stability"  is  highly                                                              
 influenced  by  non-endowment  revenue,   which  fluctuates.  The                                                              
 second goal  is preservation  for the  university as  a whole  as                                                              
 people gift the university.                                                                                                    
                                                                                                                                
 11:02:19 AM                                                                                                                  
 DR. RIETVELD highlighted  the general  target of  5.0-5.5 percent                                                              
 POMV. Although the  POMV rate is  not binding, it  represents the                                                              
 long-term  consideration  and  real  earnings  potential  of  the                                                              
 Harvard endowment. He  explained that  if the  long-term earnings                                                              
 are not  exceeded, the  fund  is not  drawn down.  He noted  that                                                              
 Harvard POMV draws have ranged  as low as 4.2 percent  in 2006 to                                                              
 a pre-COVID high  of 6.1 percent in  2010. This year's  POMV rate                                                              
 is not yet finalized as Harvard must figure  out the value of the                                                              
 portfolio and  the  size  of the  draw.  He  said he  could  well                                                              
 imagine that  the  2021 POMV  will exceed  6.2  percent. It  will                                                              
 likely be its biggest draw.                                                                                                    
                                                                                                                                
 DR. RIETVELD  highlighted that  two things  happened in  the last                                                              
 two fiscal years. In 2020,  Harvard had a highly  unusual draw on                                                              
 restricted funds inside the  endowment. He noted that  80 percent                                                              
 of Harvard's endowment  is earmarked  or restricted  for specific                                                              
 purposes.                                                                                                                      
                                                                                                                                
 11:04:11 AM                                                                                                                  
 DR. RIETVELD  turned  to  slide 8.  The  first  bar provides  the                                                              
 revenue sources  for Harvard  for 2020.  He pointed  out that  37                                                              
 percent was endowment income or transfers  from the endowment. As                                                              
 the other bars show,  different parts of the  university received                                                              
 bigger shares of the endowment income  since some benefactors and                                                              
 donors of the university  specify funds for specific  purposes or                                                              
 colleges.                                                                                                                      
                                                                                                                                
 11:05:29 AM                                                                                                                  
 DR. RIETVELD reverted back to slide 7, on Harvard, which read:                                                                 
                                                                                                                                
      • Most famous and largest endowment in the world                                                                          
      • Spending rule leaves some wiggle room                                                                                   
        • Balance   of   "spending    stability"    (highly                                                                     
           influenced   by    non-endowment   revenue)    and                                                                   
           endowment growth/preservation                                                                                        
        • "Generally targets" 5.0% to 5.5% POMV  but not                                                                        
           binding, and not how the Harvard Corp decides                                                                        
        • Low of 4.2% in 2006 and pre-Covid high of 6.1% in                                                                     
           2010                                                                                                                 
      • In 2020: highly unusual draw on restricted funds                                                                        
        inside the Endowment                                                                                                    
    • In 2021: growth of dollar value of draw on Endowment                                                                      
        originally capped at 1%; but later increased to 2.5%                                                                    
        (note: dollar-value spend, not POMV)                                                                                    
    •  POMV calculation is tricky at Harvard, given timing                                                                      
        of financial-planning process and no 5-year                                                                             
        averaging                                                                                                               
     •  Harvard has a diversified pool of revenue sources                                                                       
        (and access to CARES and PPP funds); with none                                                                          
        subject to expectations of structural decline                                                                           
                                                                                                                                
 11:05:31 AM                                                                                                                  
 DR.  RIETVELD  said  in  2020,  the  Harvard  Corporation,  which                                                              
 essentially serves as the legislature for  Harvard, agreed to use                                                              
 some of its  restricted funds in  consultation with  donors. This                                                              
 was the first innovation  and tweaking of the  framework inducted                                                              
 in  2020 to  meet  the  COVID-19  challenges.  In  2021,  Harvard                                                              
 planned on a smaller  POMV draw but later adjusted  their figures                                                              
 because the  donations and student  fees did  not recover  to the                                                              
 expected level.  It then  planned  to increase  the dollar  spend                                                              
 from  the endowment  at  1  percent,  but  ultimately  agreed  to                                                              
 increase it to 2.5 percent.  Although that is not a  jump in POMV                                                              
 from 5 to 7.5 percent POMV, it represents  the 2.5 percent growth                                                              
 in the  dollar-value drawn.  He predicted  that this  would be  a                                                              
 record POMV depending on the timeframe for  assessing the size of                                                              
 the portfolio. The portfolio  has changed due to  market collapse                                                              
 during COVID-19,  but it  was experiencing  a strong  recovery in                                                              
 recent months.                                                                                                                 
                                                                                                                                
 11:06:45 AM                                                                                                                  
 SENATOR HUGHES referred to the bullet on slide 7, which read:                                                                  
                                                                                                                                
        • POMV calculation is tricky at Harvard, given                                                                          
           timing of financial-planning process and no 5-                                                                       
           year averaging                                                                                                       
                                                                                                                                
 SENATOR HUGHES  asked  if the  POMV calculation  is  done on  the                                                              
 current balance.                                                                                                               
                                                                                                                                
 11:06:58 AM                                                                                                                  
 DR. RIETVELD responded that  the POMV is more of  a communication                                                              
 tool than  a  binding rule.  The  rule is  intended  to ensure  a                                                              
 stable spending  plan without  drawing down  on the endowment  in                                                              
 the long run. Although Harvard reports the  POMV in its financial                                                              
 reports, it is  done in a backward-looking  sense to show  in the                                                              
 final analysis, how  big was the draw  related to the  asset size                                                              
 by taking the  average value  of the  endowment over  that fiscal                                                              
 year. It's more  of a communication  tool, he said.  For example,                                                              
 if sharp fluctuations occurred  in the portfolio, the  POMV might                                                              
 need to be applied over a longer period, he said.                                                                              
                                                                                                                                
 11:07:51 AM                                                                                                                  
 SENATOR HUGHES pointed  out that in  2010, the 6.1  percent would                                                              
 reflect the  effective rate since  it was  on the  balance sheet.                                                              
 She explained  that doing  the calculation  for the five  percent                                                              
 POMV draw in Alaska on  3.069 billion, the effective  rate on the                                                              
 current balance would be 3.7 percent. She  asked if Harvard's 6.1                                                              
 percent would be similar  to Alaska's 3.7 percent  effective rate                                                              
 draw.                                                                                                                          
                                                                                                                                
 11:08:30 AM                                                                                                                  
 DR. RIETVELD responded  that the right way  to consider it  is as                                                              
 an effective  draw.  He  said  he  was not  entirely  sure  about                                                              
 whether it  is calculated at  the end  of the  fiscal year  or if                                                              
 some type of weighted average is done during  the fiscal year. He                                                              
 offered to  clarify it, but  reiterated that  it is  an effective                                                              
 draw based on the most recent fiscal year.                                                                                     
                                                                                                                                
 SENATOR HUGHES indicated she  would specifically like  to know if                                                              
 there is some type of  weighted average during the year  or if it                                                              
 is done on the end balance.                                                                                                    
                                                                                                                                
 11:09:10 AM                                                                                                                  
 SENATOR KIEHL  asked if  the Harvard  Corporation made  similarly                                                              
 high draws after its historic high draw.                                                                                       
                                                                                                                                
 11:09:33 AM                                                                                                                  
 DR. RIETVELD replied that  what drives the amount of  draw on the                                                              
 Harvard  endowment  is how  the  other  sources  of  revenue  are                                                              
 performing. He explained  that if the corporation  determined the                                                              
 draw was too high in a particular fiscal  year (FY) because other                                                              
 revenue sources were  down, it would  look for recovery  in other                                                              
 revenue sources in subsequent years which  would make it possible                                                              
 for them to lower  the POMV. He  offered to provide the  data for                                                              
 the backward-looking POMVs.                                                                                                    
                                                                                                                                
 11:10:26 AM                                                                                                                  
 SENATOR KIEHL  said the  information  would be  helpful. He  also                                                              
 asked if  the  Harvard  Corporation  generally is  in  structural                                                              
 deficit or  if revenue  and expenditures  are balanced  annually.                                                              
 Finally,  he asked  how  the  decision-makers  are  appointed  or                                                              
 selected.                                                                                                                      
                                                                                                                                
 11:11:01 AM                                                                                                                  
 DR. RIETVELD replied  that the  decision-making authority  is the                                                              
 Harvard  Corporation,  which  is  independent  from  the  Harvard                                                              
 Investment Management Company (HIMC). The  Harvard Corporation is                                                              
 an elected  body  with  stakeholders  from the  donor  community,                                                              
 faculty and  student  representatives. He  offered  to follow  up                                                              
 with  particulars  on  the  stakeholder  composition.  The  Chief                                                              
 Financial Officer (CFO) and the Chief  Executive Officer (CEO) of                                                              
 the HIMC deliberate on the feasible amount to  draw and report it                                                              
 to the  Harvard  Corporation,  which  ultimately approves  it  or                                                              
 requests amendments.                                                                                                           
                                                                                                                                
 11:12:07 AM                                                                                                                  
 CHAIR  HOLLAND  related   his  understanding  that   the  Harvard                                                              
 Corporation reviews the amount needed based  on recent gifts from                                                              
 supporters, then  draws from  the endowment  and the  POMV amount                                                              
 drawn is reported after the fact.                                                                                              
                                                                                                                                
 DR. RIETVELD answered  yes. The best way  to describe it  is that                                                              
 the POMV is  not really the  equation being solved.  Instead, the                                                              
 Harvard Corporation  is solving for  spending stability  with the                                                              
 constraint that the  endowment cannot  be depleted in  real terms                                                              
 over a two-to-three year  period. The Harvard Corporation  uses a                                                              
 backward look to ensure that it is not overspending.                                                                           
                                                                                                                                
 11:13:53 AM                                                                                                                  
 CHAIR HOLLAND said he  didn't want to be misunderstood  by saying                                                              
 it was  a good  method.  He recalled  earlier  remarks that  some                                                              
 endowments rely  on  consensus  and  negotiation, which  is  what                                                              
 Alaska has  relied on  for  years. The  legislature is  currently                                                              
 negotiating a  resolution to  the impasse.  He expressed  concern                                                              
 that  the PFD  payout  to  Alaskans  bounced  around  from  4-4.5                                                              
 percent in  the first  20 years  and it  gradually declined  such                                                              
 that a  $1,000 PFD  is a  1  percent payout  of the  POMV of  the                                                              
 permanent fund. He argued that the PFD should be more than that.                                                               
                                                                                                                                
 11:15:12 AM                                                                                                                  
 DR. RIETVELD  said he  had two  final thoughts  about Harvard  to                                                              
 cover on slide  8. He explained  that Harvard  Corporation framed                                                              
 its decision to sign off on a 2.5 percent  excess draw in 2021 by                                                              
 explicitly  citing  exceptionally  high   investment  returns  it                                                              
 received in the  past six months.  He commented that  the Harvard                                                              
 Corporation's CFO and CEO were comfortable with the decision.                                                                  
                                                                                                                                
 11:16:07 AM                                                                                                                  
 SENATOR HUGHES  recalled  he mentioned  that  the  draw from  the                                                              
 Harvard endowment fund provides  the bulk of the  revenue for its                                                              
 operations. She  asked if he  could provide  the percentage  in a                                                              
 typical year.                                                                                                                  
                                                                                                                                
 11:16:39 AM                                                                                                                  
 DR. RIETVELD directed attention  to the bar chart on  slide 8. In                                                              
 FY 2020,  37 percent  of  the university's  operating budget  was                                                              
 derived from  its  endowment fund.  This  was  a relatively  high                                                              
 share given that other contributors were likely  down in 2020. He                                                              
 said the  projected range  would  likely be  from 25-37  percent.                                                              
 Thus, it is a significant amount but it is not a dominant one.                                                                 
                                                                                                                                
 11:17:06 AM                                                                                                                  
 DR. RIETVELD  related his  final point  was about Harvard  versus                                                              
 Alaska or any country whose economy with  a permanent fund funded                                                              
 by   commodity    revenues.    Harvard    has   volatility    and                                                              
 unpredictability in its  other sources  of income outside  of the                                                              
 endowment but it is nowhere near the  volatility of revenues from                                                              
 oil and gas, copper  or gold. There  is no reason to  expect that                                                              
 Harvard's donations  in 20,  30 to  100 years  should decline  in                                                              
 real terms. Although it  could decrease, it might  also increase.                                                              
 Harvard is not confronted  with the possibility that  one day its                                                              
 source of income  will completely dry  up and the  endowment must                                                              
 provide the revenue  source. He viewed  it as useful  to consider                                                              
 how Harvard contemplates its spending rate  and justifies changes                                                              
 to it.                                                                                                                         
                                                                                                                                
 11:18:14 AM                                                                                                                  
 DR. RIETVELD turned to  slide 9, Alaska in Context  and discussed                                                              
 how Alaska sits in terms of global SWFs.                                                                                       
                                                                                                                                
        • Functions: savings, income and stabilization                                                                          
        • The savings function is firmly established                                                                            
           (constitutional certainty); although large share                                                                     
           in ERA is a risk                                                                                                     
           • The income-producing has come into sharper                                                                         
             focus with the POMV                                                                                                
           • However, it currently rests on less solid                                                                          
             institutional foundations than savings                                                                             
        • Can be undermined fairly easily                                                                                       
           • The POMV rule also promotes the stabilization                                                                      
             function                                                                                                           
           • Could be enhanced through a rule to transfer                                                                       
             surplus revenues to APF (spending cap; oil                                                                         
             price ceiling, etc.). Increases the size of the                                                                    
             APF and revenue it generates                                                                                       
                                                                                                                                
 11:18:40 AM                                                                                                                  
 DR.  RIETVELD  stated   that  SWFs  perform   in  commodity-based                                                              
 economies in some  combination of  three functions.  One function                                                              
 is to operate  as a  recipient in  savings so future  generations                                                              
 can enjoy proceeds from  natural resource extraction.  The second                                                              
 function is to  produce income with  one form of  asset replacing                                                              
 another asset and  one revenue  stream replacing  another revenue                                                              
 stream. The third  function of SWFs  provide fiscal  and economic                                                              
 stability.                                                                                                                     
                                                                                                                                
 11:19:21 AM                                                                                                                  
 DR. RIETVELD  related that  the  savings function  in the  Alaska                                                              
 Permanent  Fund   occurs   with  the   constitutional   provision                                                              
 requiring 25 percent  of Alaska's mineral royalties  be deposited                                                              
 to the fund,  which is  somewhat undermined  by the  structure of                                                              
 the  permanent fund.  In  particular,  this  is  because  of  the                                                              
 existence of the earnings  reserve account (ERA) within  the fund                                                              
 and the ease in accessing  those funds. In fact,  it isn't really                                                              
 a savings account since  25 percent of the fund  is available for                                                              
 appropriation by a simple majority vote  in the legislature. Even                                                              
 though Alaska has  a history  of periodically  inflation proofing                                                              
 the fund by transferring  funds from the ERA, as  it stands right                                                              
 now, roughly 25 percent of  the fund sits in a  structure that is                                                              
 not really a permanent fund in the true sense of the word.                                                                     
                                                                                                                                
 11:20:33 AM                                                                                                                  
 DR. RIETVELD  said what  has come  into focus  since 2014  is the                                                              
 role of  the  permanent  fund  as  an income  source  and  fiscal                                                              
 stabilizer. On the  one hand, the  income producing  potential of                                                              
 the permanent fund has  become well understood and  accepted by a                                                              
 majority of  the citizens  and the  legislature through  the POMV                                                              
 process. On the  other hand, the permanent  fund still sits  on a                                                              
 less solid institutional  foundation since its  spending policies                                                              
 lie outside  the Alaska  Constitution. Since  the POMV model  and                                                              
 the amount of the POMV draw can easily be  changed up or down, it                                                              
 is not  ideal  for  a  long-term  framework to  ensure  that  one                                                              
 function does  not  undermine  another. Specifically  in  Alaska,                                                              
 this relates to  ensuring that  the income-producing  function of                                                              
 the SWF  does not  undermine  the savings  that has  historically                                                              
 occurred.                                                                                                                      
                                                                                                                                
 11:21:40 AM                                                                                                                  
 DR. RIETVELD directed attention to the bubble  chart on the right                                                              
 of slide 9,  which provides a visual  sense of Alaska's  place in                                                              
 the world.  The horizontal  axis shows  that Alaska  sits with  a                                                              
 group of  countries and  economies that  are highly dependent  on                                                              
 commodity  revenues,  such  that  80-90   percent  and  sometimes                                                              
 upwards of 90  percent of their revenue  is derived from  oil and                                                              
 gas. This puts Alaska in the company  of Middle Eastern economies                                                              
 of United Arab Emirates  (UAE), Kuwait, Saudi Arabia,  Qatar, and                                                              
 Bahrain. The countries of  Bahrain and Saudi Arabia  in the green                                                              
 bubble are in trouble if oil prices are  below $80 per barrel. He                                                              
 characterized it as the "break even" price  needed to balance the                                                              
 budget. Alaska was  in the  same position given  the size  of the                                                              
 budget in recent  years. However, with  the use of  the permanent                                                              
 fund it  moves  Alaska into  the blue  bubble.  Although the  $50                                                              
 range shown can't be  considered the true "break  even" point, it                                                              
 is indicative that  is the rate at  which the state  could likely                                                              
 meet its obligations.  That puts Alaska in  a group with  UAE and                                                              
 Kuwait, he said.                                                                                                               
                                                                                                                                
 11:23:24 AM                                                                                                                  
 DR.  RIETVELD  stated  that  Norway  is  less  dependent  on  oil                                                              
 revenues with its budget at 33 percent or  lower dependent on oil                                                              
 so it can get by with lower oil prices.                                                                                        
                                                                                                                                
 11:23:43 AM                                                                                                                  
 DR.  RIETVELD  turned to  the  role  of  the  permanent  fund  in                                                              
 providing  fiscal   stability.  The   use  of   the  POMV   rule,                                                              
 specifically  using   the  five-year   moving  average   provides                                                              
 significant stability  to  the state's  finances.  It provides  a                                                              
 stable source of income to help avoid  fiscal cliffs and crashes.                                                              
 It should help the legislature avoid overspending.                                                                             
                                                                                                                                
 11:24:14 AM                                                                                                                  
 DR. RIETVELD  emphasized  that  the legislature  should  consider                                                              
 supplementary measures.  If another  commodity boom occurred,  75                                                              
 percent of  this revenue  automatically is  not deposited  to the                                                              
 permanent fund. This raises  the question of to how  to allow the                                                              
 majority of the  surplus revenue flow  to the permanent  fund and                                                              
 avoid increasing the budget three-fold during  a boom. One option                                                              
 would be to  create a spending cap  and deposit the  remaining of                                                              
 the windfall  revenues  to the  permanent  fund  or to  replenish                                                              
 other fiscal buffers.  Another option would  be to adopt  a rule,                                                              
 which is  discussed  in the  APFC Trustees  paper,  Volume 9,  in                                                              
 which any revenues that exceed $80 per  barrel would be deposited                                                              
 to the permanent  fund. Further, on  the savings side,  the state                                                              
 could have a more dynamic  rule and spending caps are  one way to                                                              
 get there.                                                                                                                     
                                                                                                                                
 11:25:43 AM                                                                                                                  
 SENATOR SHOWER commented  that Dr. Rietveld highlighted  a number                                                              
 of  issues  the  FPWG  recommended  solving   to  provide  fiscal                                                              
 stability, including the spending  cap. He related that  a Senate                                                              
 Finance Co-Chair recently  stated that  the state doesn't  have a                                                              
 spending problem  but a cash-flow  problem so  a spending  cap is                                                              
 not needed. Several members  have been working tirelessly  on the                                                              
 FPWG  to  find  a  solution.  He  emphasized  that  Alaska  needs                                                              
 structural  certainties  moving  forward  and   the  state  needs                                                              
 constitutional changes to provide certainty.                                                                                   
                                                                                                                                
 11:27:23 AM                                                                                                                  
 SENATOR HUGHES agreed with  Senator Shower. She stated  that some                                                              
 have proposed that the POMV draw itself is  a spending cap but as                                                              
 Dr. Rietveld pointed out,  the POMV does not serve  as a spending                                                              
 cap during periods of economic booms.  However, when there aren't                                                              
 booms, the POMV can  function this way, she said.  She emphasized                                                              
 the importance of avoiding  the fiscal problems that  occurred in                                                              
 the 2000s during an uptick in revenue.                                                                                         
                                                                                                                                
 11:28:10 AM                                                                                                                  
 DR. RIETVELD responded  that the POMV acts  as a spending  cap on                                                              
 what might be spent  on the permanent fund, but  three-fourths of                                                              
 Alaska's windfall revenues  will continue  go elsewhere  unless a                                                              
 mechanism is in place.  He suggested placing language  in statute                                                              
 or in the  Alaska Constitution to  state that above  a percentage                                                              
 that a significant  share of  the excess  should be  deposited to                                                              
 the permanent  fund.  This  would  allow  the state  to  increase                                                              
 spending but at a much more gradual rate.  In fact, it would help                                                              
 the legislature increase  the level  of spending  permanently but                                                              
 sustainably rather  than moving  up and  down with the  commodity                                                              
 cycle. He pointed  out that this is  not solely an  Alaskan issue                                                              
 but is an  ailment that  afflicts most commodity-based  economies                                                              
 and SWFs. A fiscal rule  for the SWF is one way  to address that,                                                              
 he said.                                                                                                                       
                                                                                                                                
 11:29:43 AM                                                                                                                  
 DR. RIETVELD reviewed slide 10, Alaska in Context.                                                                             
                                                                                                                                
      • Alaska has considerable advantages over peers                                                                           
        • Constitutional clarity and history of savings                                                                         
        • Very large asset pool                                                                                                 
        • World-class  investment   capacity    and   asset                                                                     
           allocation                                                                                                           
      • But also weaknesses and vulnerabilities                                                                                 
        • High oil revenue dependence & uncertain long-term                                                                     
           production outlook                                                                                                   
        • Spending rule lacks constitutional certainty: ERA                                                                     
           balances are really exposed (in downturn and a                                                                       
           boom)                                                                                                                
        • More can be done to save windfalls and break                                                                          
           boom-bust link between oil revenues/prices and                                                                       
           spending                                                                                                             
                                                                                                                                
 DR. RIETVELD  acknowledged that  he  just discussed  some of  the                                                              
 items on this  slide but it may  be worth repeating.  He directed                                                              
 attention to  the table  on  the right  hand side  of the  slide,                                                              
 which consists  of a  summary  that compares  the advantages  and                                                              
 weaknesses of Alaska, Wyoming, Norway, Alberta  and Saudi Arabia.                                                              
 He reviewed  the  advantages and  the  vulnerabilities of  Alaska                                                              
 compared to other countries with SWFs.                                                                                         
                                                                                                                                
 11:30:41 AM                                                                                                                  
 DR. RIETVELD  highlighted  one  advantage is  the  constitutional                                                              
 clarity that Alaska must save 25 percent of  its oil royalties in                                                              
 the permanent fund. Further,  the legislature has done  the right                                                              
 things like inflation  proofing the corpus  of the fund  from the                                                              
 ERA. Many countries  with SWFs struggle  to adhere to  their best                                                              
 intentions to save. He applauded the management  team at the APFC                                                              
 for their efforts,  including the APFC  Board of  Trustees' asset                                                              
 allocation.                                                                                                                    
                                                                                                                                
 11:32:18 AM                                                                                                                  
 DR. RIETVELD  elaborated on  the weaknesses and  vulnerabilities,                                                              
 noting that Wyoming is  also dependent but to a  lesser magnitude                                                              
 given that a sales tax provides another  source of income. Norway                                                              
 is a large oil producer but it has  other sources of income [such                                                              
 as fish, forests, hydropower, and minerals].                                                                                   
                                                                                                                                
 11:33:04 AM                                                                                                                  
 DR. RIETVELD pointed out  that Alaska has an  uncertain long-term                                                              
 production outlook. He  clarified that he  was not trying  to say                                                              
 it was the end  of oil and gas  era in Alaska, but the  timing of                                                              
 those potentials is  uncertain. Further,  in the long-term  it is                                                              
 difficult to assess  the effects of  climate change  and policies                                                              
 may affect the viability of all producers of fossil fuels.                                                                     
                                                                                                                                
 11:33:35 AM                                                                                                                  
 DR. RIETVELD related he just discussed the  lack of continuity on                                                              
 the spending rule.  Although the POMV  was adopted in  the Alaska                                                              
 statutes in  the last  few years,  the intention  to put  it into                                                              
 constitutional language is very valuable. He  emphasized that the                                                              
 ERA  is  a  legacy  of  a  model  framed  in  terms  of  realized                                                              
 investment income, related to how the PFD was  funded and the old                                                              
 formula. By moving to a POMV model and  adopting the mindset that                                                              
 the permanent  fund  is  a  permanent  source of  income  to  the                                                              
 budget, the  ERA is really  a piece  of legacy  architecture that                                                              
 creates not  only political  risk but  also financial risks.  The                                                              
 APFC Trustee Paper, Volume 9, also outlined  what the state could                                                              
 do if the ERA was  depleted through a series  of financial market                                                              
 events and ways  to ensure  that money is  available to  fund the                                                              
 POMV draw.                                                                                                                     
                                                                                                                                
 11:34:53 AM                                                                                                                  
 DR.  RIETVELD emphasized  that  rolling  the  ERA  into  one  SWF                                                              
 portfolio and trying to find a way to finance  the POMV is a much                                                              
 more suitable set of arrangements.                                                                                             
                                                                                                                                
 11:35:15 AM                                                                                                                  
 DR. RIETVELD spoke  to the last bullet  point on slide  10, which                                                              
 encourages the state to save a large portion  of any windfalls to                                                              
 raise the  level of  spending on  a more  permanent basis  and to                                                              
 break  the  boom-bust  cycle  between  oil   revenue  prices  and                                                              
 spending.                                                                                                                      
                                                                                                                                
 11:35:49 AM                                                                                                                  
 DR. RIETVELD turned to slide 11, building on reforms.                                                                          
                                                                                                                                
      • APFC Trustee Paper 2020 Vol. 09                                                                                         
        • The Role of  Sovereign  Wealth Funds  in  Saving,                                                                     
           Stabilization and Generating Income                                                                                  
      • Considered what has worked and what has failed in                                                                       
        past amongst comparable peers                                                                                           
     • SWFs and Permanent Funds in accountable, commodity-                                                                      
        based democracies                                                                                                       
        • Alberta, Wyoming, New Mexico,  Texas, Norway  and                                                                     
           Chile                                                                                                                
                                                                                                                                
 11:35:54 AM                                                                                                                  
 DR. RIETVELD read the first bullet point on  slide 11. He pointed                                                              
 out that  he  keeps  coming back  to  the three  points:  saving,                                                              
 stabilization, and generating income. The APFC  study on the role                                                              
 of SWFs in savings  and stabilization considered what  worked and                                                              
 failed in  the  past  for  comparable  peers. The  focus  was  on                                                              
 commodity-based  democracies of  Alberta,  Wyoming,  New  Mexico,                                                              
 Texas, Norway and Chile.                                                                                                       
                                                                                                                                
 11:36:43 AM                                                                                                                  
 DR.  RIETVELD  turned to  slides  12  and  13  listing  five  key                                                              
 messages.                                                                                                                      
                                                                                                                                
 Slide 12:                                                                                                                      
                                                                                                                                
      • Lesson #1: Mission clarity                                                                                              
        • There has been  a  shift  in the  APF's  mission:                                                                     
           income    generation    and    fiscal    stability                                                                   
           increasingly important                                                                                               
        • This is  now  well  understood,   and  should  be                                                                     
           supported by constitutional language                                                                                 
      • Lesson #2: Rules matter                                                                                                 
        • Very clear that  reliance  on custom,  discretion                                                                     
           and negotiation leads to inferior long-term                                                                          
           outcomes                                                                                                             
        • Rules de-escalate  tough  decisions  and  promote                                                                     
           consistency                                                                                                          
      • Lesson #3: Enforcing rules                                                                                              
        • Alaska (and other US Permanent Funds)  have saved                                                                     
           because it is Constitutionally mandated                                                                              
        • Same  is   rarely   true   where    it   is   not                                                                     
           Constitutionally    mandated    (many    examples:                                                                   
           Alberta, Middle Eastern funds, US permanent                                                                          
           funds)                                                                                                               
                                                                                                                                
 11:37:07 AM                                                                                                                  
 DR. RIETVELD reviewed Lesson  1, mission clarity on  slide 12. He                                                              
 noted that there  is often no consensus  on the purpose  of SWFs.                                                              
 Some people  think it  is  there to  save while  others think  it                                                              
 should support the budget in times of crisis.  Some think the SWF                                                              
 is available to invest in the economy and  help diversity it. The                                                              
 mission has  clarity in  Alaska but  it has  shifted from  purely                                                              
 savings to a  multitude of  functions, including  savings, income                                                              
 generation and fiscal stability. He emphasized  the need to shore                                                              
 up  the   Alaska  Permanent   Fund  by  adopting   constitutional                                                              
 language.                                                                                                                      
                                                                                                                                
 11:38:30 AM                                                                                                                  
 DR.  RIETVELD  reviewed  Lesson  2  relating   to  rules.  It  is                                                              
 difficult to  adhere to  savings policies  during boom times  and                                                              
 hard not  to draw  down  on SWFs  during tough  times. Rules  de-                                                              
 escalate tough  decisions.  Thus, it's  a  good  idea to  develop                                                              
 rules  for   spending  the   permanent  fund  in   constitutional                                                              
 language.                                                                                                                      
                                                                                                                                
 11:39:37 AM                                                                                                                  
 DR. RIETVELD  reviewed enforcing  rules in  Lesson 3. He  related                                                              
 that the study  reviewed permanent  funds in  the US.  Often, the                                                              
 rules relied on statutory  provisions, but there  were departures                                                              
 from the  rules. He  acknowledged  that Alaska  and Wyoming  have                                                              
 rules  enshrined   in  their   constitutions.  He   characterized                                                              
 constitutional language as important. He pointed  out that Norway                                                              
 has always relied on a consensus model. However,  he would not be                                                              
 surprised if Norway does constitutionalize their rules.                                                                        
                                                                                                                                
 11:40:29 AM                                                                                                                  
 DR. RIETVELD turned to slide 13, building on reforms.                                                                          
                                                                                                                                
      • Lesson #4: Getting a POMV rule right                                                                                    
        • Focus on total returns rather than realized                                                                           
           earnings: mindset shift                                                                                              
        • Moving averaging is essential                                                                                         
        • Long-term  POMV   rate   must   match   long-term                                                                     
          portfolio returns, minus inflation and costs                                                                          
    • Lesson #5: Mechanics of the draw and the ERA problem                                                                      
        • The ERA/principal split creates unnecessary                                                                           
           risks: political and financial                                                                                       
        • Having the POMV and the appropriate risk                                                                              
           allocation is more important that the Fund's                                                                         
           mechanics                                                                                                            
       • Trustee Paper 2020-09 considered reform options                                                                        
        • But no compelling reasons to have the ERA, if one                                                                     
           move away from earnings-based spending rule                                                                          
                                                                                                                                
 11:40:31 AM                                                                                                                  
 DR. RIETVELD explained  that the APFC  Trustee paper  was written                                                              
 during the  time  Alaska's  POMV  concept  was taking  shape.  He                                                              
 emphasized  that  the POMV  rule  is  best  practice  that  is  a                                                              
 technical means  to  formulate a  rule for  Alaska.  It brings  a                                                              
 shift in focus from realized earnings to  a total return concept.                                                              
 Moving averaging  is  essential  in  an  economy as  volatile  as                                                              
 Alaska's economy.  Thus, a  five-year moving  average lag  is the                                                              
 best way to smooth some of the volatility  in a portfolio that is                                                              
 risk orientated and will have significant fluctuations.                                                                        
                                                                                                                                
 11:41:29 AM                                                                                                                  
 DR. RIETVELD related  that as discussed  about Harvard,  the POMV                                                              
 provides a sense check about its overall  spending. The POMV rate                                                              
 must match the long-term  portfolio returns, minus  inflation and                                                              
 costs of  managing  the  portfolio.  Otherwise, the  state  risks                                                              
 eating into  its portfolio  in the  long run.  Essentially, if  a                                                              
 mistake is  made by  overspending the  POMV by  .5 percent  for a                                                              
 decade, it is  much more devastating on  a compound basis  to the                                                              
 real  value  of  the  portfolio  than   short  term  overspending                                                              
 followed  by  a  commitment  to  a   more  sustainable  level  of                                                              
 spending. He maintained  that the constitutional language  is the                                                              
 best way to ensure the POMV rate  matches the long-term portfolio                                                              
 returns.                                                                                                                       
                                                                                                                                
 11:42:49 AM                                                                                                                  
 DR. RIETVELD turned to  the bullet point on Lesson  5, related to                                                              
 the concerns about  the split between the  ERA and the  corpus of                                                              
 the  fund.  The  ERA  and  principal  split  creates  unnecessary                                                              
 political and  financial  risks. It  results  in frequent  annual                                                              
 standoffs about how  much money to spend  from the ERA.  In fact,                                                              
 all of the ERA could be appropriated,  which would be detrimental                                                              
 to the long-term sustainability  of the permanent  fund. Further,                                                              
 it  creates financial  risks.  Given  a  certain  set  of  market                                                              
 circumstances, it would be  possible to draw down the  ERA to the                                                              
 extent that it  would be difficult  to fund  the POMV on  a cash-                                                              
 flow basis. Although the  legislature might be reluctant  to move                                                              
 funds from  the ERA to  the corpus  of the  fund, which  would be                                                              
 prudent. It might  raise concerns whether  there is  enough funds                                                              
 to provide coverage. However, it is  important that the portfolio                                                              
 is allocated to risk rather than maintaining the ERA.                                                                          
                                                                                                                                
 11:44:24 AM                                                                                                                  
 DR. RIETVELD said the APFC Trustee Paper,  Volume 9, considered a                                                              
 number of  ways  to retain  the  ERA by  developing  a number  of                                                              
 supplementary rules like  a coverage  ratio for the  ERA relative                                                              
 to the last  two or three years  of budget spending.  However, if                                                              
 the option is to roll the ERA into one  SWF portfolio, it is much                                                              
 more desirable  than trying  to retrofit  "legacy plumbing"  like                                                              
 the ERA, which  is not  required or suitable  to a  POMV spending                                                              
 rule.                                                                                                                          
                                                                                                                                
 11:45:12 AM                                                                                                                  
 SENATOR HUGHES  referred to  his recommendation  to roll  the ERA                                                              
 into the corpus  of the  permanent fund as  one means  to protect                                                              
 the permanent fund.  The state currently requires  voter approval                                                              
 for constitutional  changes. She  related her  desire to  provide                                                              
 residents with a  fair and reasonable  dividend. If so,  it would                                                              
 encourage voters  to approve  the  constitutional amendment,  she                                                              
 said.  However,  doing  so  would  require  an  additional  1-1.5                                                              
 percent draw above the five-percent POMV  draw. This would result                                                              
 in a five-percent effective rate draw on the current balance.                                                                  
                                                                                                                                
 11:46:20 AM                                                                                                                  
 SENATOR HUGHES  expressed  concerned that  if the  constitutional                                                              
 amendment fails, it may set a precedent of  going above the five-                                                              
 percent POMV. One  option could be to  place a caveat  in statute                                                              
 to reduce the  draw to 4-4.5  percent to  build up the  fund. She                                                              
 highlighted that  due to  the  Alaska Supreme  Court decision  in                                                              
 Wielechowski  v.   State,  the   PFD   statutes  are   considered                                                              
 guidelines. She  asked  if the  tradeoff to  draw  more funds  to                                                              
 provide a better dividend is too risky.                                                                                        
                                                                                                                                
 11:47:29 AM                                                                                                                  
 DR.  RIETVELD deferred  commenting  on  political  judgement.  He                                                              
 acknowledged that people are hurting due  to the COVID-19 crisis.                                                              
 The additional dividend  amount could  be considered  an economic                                                              
 stimulus so there is an economic logic to  it. In addition, there                                                              
 is a  need  for  people  to feel  they  are  part of  the  reform                                                              
 process. The constitutional language  for a 50:50 split  could be                                                              
 a way to assure  people that they  are still stakeholders  in how                                                              
 the permanent fund performs. The  goal is to get the  system on a                                                              
 sustainable five-percent  POMV. In terms  of a  course correction                                                              
 in  the  event  the   constitutional  amendment  did   fail,  the                                                              
 legislature would  need  to  ensure  that  there was  a  stronger                                                              
 reaction toward sustainability  in subsequent years.  He compared                                                              
 it to  Harvard's  course corrections.  The  state  would need  to                                                              
 review  its non-permanent  revenues  and  the  need  to  maintain                                                              
 fiscal stability. It  means not  suddenly withdrawing  the amount                                                              
 of activity that government puts into the economy.                                                                             
                                                                                                                                
 11:49:43 AM                                                                                                                  
 DR. RIETVELD characterized it as a very  tricky balancing act. He                                                              
 opined that  the  policies in  the  constitutional amendment  are                                                              
 sound.                                                                                                                         
                                                                                                                                
 11:50:13 AM                                                                                                                  
 SENATOR KIEHL  asked  if his  response is  why  the APFC  Trustee                                                              
 Paper, Volume  9,  was  limited  to accountable  democracies.  He                                                              
 pointed out that the Harvard overseers are  elected by the alumni                                                              
 so they are not accountable to the staff  and faculty or students                                                              
 paying tuition. It is limited to the donor  class. Thus, there is                                                              
 a reasonable likelihood the  Harvard Corporation is not  going to                                                              
 substantially diminish the  endowment, which contrasts  with what                                                              
 Senator Hughes aptly described.                                                                                                
                                                                                                                                
 11:51:12 AM                                                                                                                  
 DR. RIETVELD  answered  that  is  part  of the  reason  the  APFC                                                              
 Trustee  Paper  did  not  consider  non-democratic  authoritarian                                                              
 systems.  Another reason  is  that  non-democratic  authoritarian                                                              
 systems are not predictable.  For example, the Saudi  Arabia fund                                                              
 has gone through  massive fluctuations.  It is  not clear  to him                                                              
 whether  the   Saudi   Arabia   fund   is  primarily   a   fiscal                                                              
 stabilization fund,  a  savings fund  or  a domestic  development                                                              
 bank. One practical point  is that the democratic  systems have a                                                              
 documented history,  which cannot  be done  in systems  that lack                                                              
 transparency. He acknowledged that it is  clear that passing good                                                              
 reforms is not  easy. Certainly,  legislators have  thought about                                                              
 ways  to   garner   support   for   good  long-range   ideas   to                                                              
 constituents, but  it  is important  to find  ways  to frame  the                                                              
 proposed changes for  stakeholders. He recalled that  the history                                                              
 of the  PFD was  a means  to  garner public  stakeholders in  the                                                              
 process.                                                                                                                       
                                                                                                                                
 11:53:21 AM                                                                                                                  
 SENATOR KIEHL noted  that since the  overseers of Harvard  have a                                                              
 fiduciary responsibility, they could be sued if  they did not get                                                              
 their endowment  back on track.  However, it  is not  possible to                                                              
 sue legislators or princes.                                                                                                    
                                                                                                                                
 11:53:49 AM                                                                                                                  
 SENATOR SHOWER  reiterated  that many  points  Dr. Rietveld  made                                                              
 today are  in line  with what  the FPWG came  up with,  including                                                              
 similar conclusions. The FPWG recognized  that multiple solutions                                                              
 were needed.  He  asked for  his insights  on  the potential  for                                                              
 other revenue streams, such  as instituting a sales  or other tax                                                              
 in addition to the constitutional amendment.                                                                                   
                                                                                                                                
 11:55:56 AM                                                                                                                  
 DR. RIETVELD  responded that he  did not  do a  deep look  at the                                                              
 numbers but he  has some  sense. It is  clear the  permanent fund                                                              
 earnings and  POMV alone can't  solve the  problem, he  said. The                                                              
 legislature must  develop a  comprehensive package  that includes                                                              
 new revenues and  cuts, not just  the earnings. If  the permanent                                                              
 fund was $150 billion,  perhaps it could solve the  issue, but it                                                              
 is not. He acknowledged  that there are many  considerations when                                                              
 deciding between a sales tax versus an income  tax or a corporate                                                              
 tax. However,  he is  not an  expert on  Alaska's overall  fiscal                                                              
 situation.                                                                                                                     
                                                                                                                                
 11:58:13 AM                                                                                                                  
 SENATOR MYERS said the  presentation discussed stability,  but it                                                              
 appeared to focus  on a narrow  area of stability  for government                                                              
 revenues  and  hence,  government  spending.   He  solicited  his                                                              
 comments on  how  SWFs  create  stability  for  the rest  of  the                                                              
 economy. He expressed concern  that the state would be  on a path                                                              
 moving forward  with a  stable  government and  revenues, with  a                                                              
 volatile and anemic economy for the rest of the state.                                                                         
                                                                                                                                
 11:59:20 AM                                                                                                                  
 DR. RIETVELD  stated that there  is an  innate volatility  in the                                                              
 Alaska economy. First,  fiscal policy and government  spending in                                                              
 Alaska has exacerbated volatility. Thus, spending  has risen when                                                              
 revenue has risen due to rising oil prices.  It has been cut when                                                              
 oil prices  drop, revenues  collapse and  jobs drop. The  initial                                                              
 principal is to do no  harm with fiscal policy.  The second point                                                              
 is  that  for  lower-income  Alaskans,  the   permanent  fund  is                                                              
 important to their wellbeing. He emphasized  that having a stable                                                              
 and more predictable dividend, which  the proposed constitutional                                                              
 amendment would achieve  will be helpful.  Again, it is  like the                                                              
 contribution the permanent fund  can make to the  fiscal problem.                                                              
 The contribution that the permanent fund can  make to the overall                                                              
 volatility is  limited, but  must ensure  that the fiscal  policy                                                              
 doesn't contribute to the volatility that  the Alaskan economy is                                                              
 inherently exposed to. This is quite important, he said.                                                                       
                                                                                                                                
 12:01:26 PM                                                                                                                  
CHAIR  HOLLAND remarked  that no  one thought  the permanent  fund                                                              
would rise to $82 billion at this  point. He acknowledged that the                                                              
state borrowed $14.5  billion from the CBR several  years ago that                                                              
it  decided  not  to  repay. Many  people  would  argue  that  the                                                              
legislature  has not  followed the  five percent  POMV 50:50  plan                                                              
which could  have brought  in another $7  billion. He  offered his                                                              
view that it is important to appropriately address the spending                                                                 
limit. He suggested that this resolution is in the right range.                                                                 
                                                                                                                                
 12:02:20 PM                                                                                                                  
 DR. RIETVELD  noted  that the  summary on  slide  14 was  already                                                              
 discussed.                                                                                                                     
                                                                                                                                
 CHAIR HOLLAND  asked if  there was  any value  to make a  partial                                                              
 repayment to the constitutional  budget reserve (CBR)  to provide                                                              
 some liquidity,  especially  if  the  state  does away  with  the                                                              
 earnings reserve account (ERA).                                                                                                
                                                                                                                                
 DR. RIETVELD  responded  that  he  would  need to  consider  that                                                              
 aspect. He said  he was not  sure if it  would be better  to have                                                              
 funds in the  CBR versus  the ERA.  He related  his understanding                                                              
 that it was  considered a  rainy day fund  that was  depleted. He                                                              
 said he discussed putting  some percentage of any  windfalls back                                                              
 into the permanent fund  if revenues recover, which  is his first                                                              
 option. Another option  could be to  replenish the CBR  and other                                                              
 rainy day funds to  avoid an unsustainable draw  on the permanent                                                              
 fund in  future  years.  There  are  merits to  replenishing  the                                                              
 buffer funds, he said.                                                                                                         
                                                                                                                                
 12:02:45 PM                                                                                                                  
 SENATOR HUGHES  directed attention  to the  last bullet  point on                                                              
 slide 14, which read:                                                                                                          
                                                                                                                                
        • Alaska enjoys a number of critical structural                                                                         
        advantages                                                                                                              
     • Big reforms    have   been   made:    income-   and                                                                      
        stabilization functions established                                                                                     
      • Time to invest in infrastructure, mechanisms and                                                                        
        institutions that ensure this transition  which is                                                                      
        permanent  enjoys Constitutional certainty                                                                              
     • The ERA created unnecessary political and financial                                                                      
        risks under POMV                                                                                                        
        • No compelling reasons to have the ERA, if one                                                                         
           move away from earnings-based spending rule                                                                          
    • Ensure unanticipated future revenue windfalls aren't                                                                      
        immediately spent, but rather grow the APF or                                                                           
        replenish other fiscal buffers                                                                                          
        • For example, spending caps, oil-price trigger,                                                                        
           supplementary windfall savings rule                                                                                  
    • A bridge period is needed as Alaska transitions to a                                                                      
        system with Constitutionally protected savings and                                                                      
        spending                                                                                                                
        • The bridge should be comprehensive, with all                                                                          
           available options on the table                                                                                       
        • One-time higher draws do happen,                                                                                      
        • Key is having a credible commitment mechanism to                                                                      
           sustainability and rule-based constraint                                                                             
                                                                                                                                
 SENATOR HUGHES related  that the committee  is working on  SB 53,                                                              
 which  would   make  statutory   changes  to   link  up   with  a                                                              
 constitutional amendment.  She  reviewed  the bullet  points  and                                                              
 said she believes this  is what the committee is  working towards                                                              
 in SB 53.                                                                                                                      
                                                                                                                                
 [SB 53 was held in committee.]                                                                                                 
                                                                                                                                
 12:05:19 PM                                                                                                                  
 There being no further business to come before the committee,                                                                  
 Chair Holland adjourned the Senate Judiciary Standing Committee                                                                
 meeting at 12:05 p.m.                                                                                                          
                                                                                                                                

Document Name Date/Time Subjects
Presentation_SJC_Alaska_30 Aug.pdf SJUD 8/30/2021 10:00:00 AM
SB 53