Legislature(1993 - 1994)

03/08/1994 01:40 PM Senate L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
               SENATE LABOR AND COMMERCE COMMITTEE                             
                         March 8, 1994                                         
                           1:40 P.M.                                           
                                                                               
   MEMBERS PRESENT                                                             
                                                                               
 Senator Steve Rieger, Vice Chairman                                           
 Senator Bert Sharp                                                            
                                                                               
  MEMBERS ABSENT                                                               
                                                                               
 Senator Tim Kelly                                                             
 Senator Georgianna Lincoln                                                    
 Senator Judith Salo                                                           
                                                                               
  COMMITTEE CALENDAR                                                           
                                                                               
 HOUSE BILL NO. 327                                                            
 "An Act extending the termination date of the Board of Veterinary             
 Examiners; and providing for an effective date."                              
                                                                               
 CS FOR SENATE BILL NO. 245(STA)                                               
 "An Act relating to investments of the permanent fund involving               
 equity interests in and debt obligations secured by mortgages on              
 real estate; and providing for an effective date."                            
                                                                               
 SB 213 (APUC EXTENSION AND REGULATORY COST CHARGE) WAS SCHEDULED,             
 BUT NOT HEARD THIS DATE.                                                      
                                                                               
  PREVIOUS ACTION                                                              
                                                                               
 HB 327 - No previous action to record.                                        
                                                                               
 SB 245 - See State Affairs minutes dated 1/28/94 and 2/4/94.                  
                                                                               
 SB 213 - See Labor & Commerce minutes dated 9/28/93, 2/8/94,                  
          and 2/24/94.                                                         
                                                                               
  WITNESS REGISTER                                                             
                                                                               
 Benjamin Brown, Legislative Aide                                              
 c/o Representative Cynthia Toohey                                             
 State Capitol                                                                 
 Juneau, Ak. 99801-1182                                                        
  POSITION STATEMENT:   Commented on HB 327.                                   
                                                                               
 Jim Kelly, Research Liaison Officer                                           
 Permanent Fund Corporation                                                    
 P.O. Box 25500                                                                
 Juneau, Ak. 99802                                                             
  POSITION STATEMENT:   Supported SB 245.                                      
                                                                               
 Llewellyn Lutchansky, Assistant Real Estate Investment Officer                
 Permanent Fund Corporation                                                    
 P.O. Box 25500                                                                
 Juneau, Ak. 99802                                                             
  POSITION STATEMENT:   Supported SB 245.                                      
  ACTION NARRATIVE                                                             
                                                                               
   TAPE 94-14, SIDE A                                                          
 Number 001                                                                    
  VICE CHAIRMAN RIEGER called the Senate Labor and Commerce meeting            
 to order at 1:40 p.m. and announced  HB 327  (EXTEND BOARD OF                 
 VETERINARY EXAMINERS) to be up for consideration.                             
                                                                               
 BENJAMIN BROWN, Legislative Aide for Senator Toohey, sponsor, said            
 it extends the sunset date of the state's Board of Veterinary                 
 Examiners which has been in existence continuously since 1963.  If            
 this bill doesn't pass, it will cease to exist at the end of the              
 current fiscal year.                                                          
                                                                               
 SENATOR RIEGER thanked him for his testimony and said they would              
 move the bill out today if they had a quorum.                                 
 SENATOR RIEGER announced  SB 245  (PERMANENT FUND INVESTMENTS IN REAL    AL   
 ESTATE) to be up for consideration.                                           
                                                                               
 JIM KELLY, Research Liaison Officer, Permanent Fund Corporation,              
 introduced Llewellyn Lutchansky, Assistant Real Estate Investment             
 Officer, who testified with him.                                              
                                                                               
 MR. KELLY explained that they have run into the situation with                
 their real estate portfolio where they have more risk than they               
 need and certainly more risk than they want.                                  
                                                                               
 He explained that SB 245 removes a restriction on how much of a               
 particular investment the Permanent Fund Corporation can buy.  They           
 would like it possible to buy 100% of an investment instead of the            
 40% they are held to now.  They need more control over the                    
 disposition of the properties and in order to be able to operate in           
 the future, they need to be in the position where they are not                
 always in the minority interest.                                              
                                                                               
 MR. KELLY explained they are losing many opportunities that would             
 give them a good rate of return with relatively low levels of risk.           
 They are not available to them, because other investors comes are             
 able to buy them at 100% - and they do.                                       
                                                                               
 He said the legislature set a limit of 15% of the portfolio to be             
 invested in real estate and they haven't even come close to that,             
 yet.  They are at about 7%.  For them to reach the target the Board           
 has set which is 10% they would need the flexibility to own more              
 than 40% of properties.                                                       
                                                                               
 Number 108                                                                    
                                                                               
 LLEWELLYN LUTCHANSKY explained when laws were first passed                    
 governing the Permanent Fund, it was new, the managers were                   
 inexperienced, and they didn't have much money to invest in real              
 estate which is why the 40% rule was put into law.  Now they have             
 over $1 billion in real estate, about 6% of the fund.                         
                                                                               
 Last year they spent $145 million on 8 new deals, Ms. Lutchansky              
 said.  That's about $18 million per deal.  At this rate it would              
 take 31 more deals this year to reach their asset allocation of               
 10%.                                                                          
                                                                               
 SENATOR SHARP asked on page 1, section 1 if up to $50 million they            
 can own 100% and over $50 million they can own up to 60%.  MR.                
 KELLY said that was the CS from the Labor and Commerce Committee              
 and they would rather go with the original bill which would allow             
 100% with no cap.                                                             
                                                                               
 MS. LUTCHANSKY said she has asked some of the fund managers who are           
 partners with the Permanent Fund Corporation if they have                     
 coinvestment limitations and no one else has.                                 
                                                                               
 SENATOR SHARP asked if they had experienced difficulty in getting             
 out of deals because they were a minority partner.  MS. LUTCHANSKY            
 said they have definitely had real problems with that.                        
                                                                               
 SENATOR RIEGER said he was in favor of loosening the real estate              
 investment restrictions.  He also thought they should change the              
 percentage of portfolio restriction over all.                                 
                                                                               
 MR. KELLY said the Fund will never reach their limit no matter what           
 it is if they have the 40% coinvestment restriction.                          
                                                                               
 MS. LUTCHANSKY said they do not intend to stop coinvesting,                   
 especially on large deals, but they would like to be a majority               
 holder and would like the flexibility to purchase more of the asset           
 later if they need to.                                                        
                                                                               
 Number 274                                                                    
                                                                               
 SENATOR RIEGER said he was in favor of loosening some of the                  
 investment restrictions if it's accompanied by a really strong                
 fiduciary duty by the trustees, which he was sure they practiced,             
 but weren't mandated statutorily.                                             
                                                                               
 MS. LUTCHANSKY said she knew the statute included a lot of                    
 discussion about prudent and intelligent investments.                         
 SENATOR RIEGER said he would also like to delete the restriction on           
 investing in the U.S. only.                                                   
                                                                               
 MR. KELLY noted that the 40% provision was the most important to be           
 removed.                                                                      
                                                                               
 SENATOR RIEGER thanked everyone for their participation and said              
 they would hold the bill for a future meeting.  He adjourned the              
 meeting at 2:03 p.m.                                                          
                                                                               

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