Legislature(2001 - 2002)
03/01/2001 03:40 PM Senate STA
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* first hearing in first committee of referral
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ALASKA STATE LEGISLATURE
SENATE STATE AFFAIRS COMMITTEE
March 1, 2001
3:40 p.m.
MEMBERS PRESENT
Senator Gene Therriault, Chair
Senator Randy Phillips, Vice Chair
Senator Rick Halford
Senator Bettye Davis
MEMBERS ABSENT
Senator Drue Pearce
COMMITTEE CALENDAR
CS FOR SENATE BILL NO. 82(STA)
"An Act making corrective amendments to the Alaska Statutes as
recommended by the revisor of statutes; and providing for an
effective date."
MOVED CS SB 82 (STA) OUT OF COMMITTEE
SENATE BILL NO. 92
"An Act relating to removal of members of the board of trustees of
the Alaska Permanent Fund Corporation; and providing for an
effective date."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
SB 82 - See State Affairs minutes dated 2/20/01.
SB 92 - No previous action recorded.
WITNESS REGISTER
Bob Storer
Executive Officer, Alaska Permanent Fund Corporation
P.O. Box 25500
Juneau, AK 99802-5500
POSITION STATEMENT: Testified on SB 92
Ron Lorensen
Counsel to the Alaska Permanent Fund Corporation
One Sealaska Place Suite 300
Juneau, AK 99801
POSITION STATEMENT: Answered questions about SB 92.
Clark Gruening
Chairman of the Board of Trustees
Alaska Permanent Fund Corporation
217 Second Street Suite 604
Juneau, AK 99801
ACTION NARRATIVE: Supports SB 92.
TAPE 01-10, SIDE A
Number 001
CHAIRMAN GENE THERRIAULT called the Senate State Affairs Committee
meeting to order at 3:40 p.m. Present were Senators Phillips, Davis
and Chairman Therriault.
The first order of business was SB 82.
SENATOR HALFORD arrived at the meeting.
SB 82-2001 REVISOR'S BILL
CHAIRMAN THERRIAULT said that changes were made to the original
Revisor's Bill that raised concerns expressed by Senator Halford.
He asked Senator Halford whether his questions had been answered
and said that the revisor was present and ready to testify if
necessary.
SENATOR HALFORD said it wasn't necessary for her to testify.
CHAIRMAN THERRIAULT said that the State Affairs CS was before the
committee and he asked committee members for any amendments. There
were none. He asked for the will of the committee.
SENATOR DAVIS made a motion to move CS SB 92 (STA) with zero fiscal
note from committee with individual recommendations. There was no
objection.
SB 92-REMOVAL OF MEMBERS OF THE PF BOARD
CHAIRMAN THERRIAULT called Mr. Storer forward to testify.
MR. BOB STORER, executive officer of the Alaska Permanent Fund
Corporation, said that the purpose of this legislation is to insert
language to AS 37.13.070 (a) to allow public members of the board
to be removed from office and only for cause. Currently, public
members are appointed to serve staggered four-year terms and they
may be removed simply with a letter from the governor. The board
feels that it is important that the removal for cause language is
included in statute because it is in keeping with the state managed
Alaska State Pension and Investment Board (ASPIB).
MR. STORER has been involved with managing institutional funds in
the state for 18 years and, from an investment perspective,
continuity is imperative in successfully managing large sums of
money such as the Permanent Fund. It is a mature fund that has
grown to about $27 billion and has very sophisticated asset
classes. From the investment perspective, "It is important that
that institutional memory be carried through in the evolution of
changes in board members."
Number 319
Recently the board spent a year looking at the very sophisticated
private equity asset class and decided they wouldn't make the
investment primarily because the gubernatorial election is in two
years and board members could be replaced, at the pleasure of the
next governor, with new members who, most probably, won't be
educated about this asset class. This decision was made even though
current board members know that, over time, this type of investment
performs better than the broad market.
CHAIRMAN THERRIAULT said he voted for this language last year as a
proposed constitutional amendment but now, after much study, he
feels that a discussion is in order about the constitutionality of
making this requirement under Article 3, section 25 and 26. Last
year, there was significant testimony supporting a constitutional
amendment as the appropriate method for this change. Without this,
there is a question of whether the legislature has the authority to
make this requirement. Also, SB 89 passed in 1996 was vetoed, at
least in part, because of this same language.
He said he wants to support the bill because he believes it's the
right thing to do but doesn't want to create a constitutional
problem.
MR. STORER said that it is his understanding that the veto wasn't
due to the constitutional question. He said that clause was
included when the Alaska State Pension and Investment Board was
created and it hasn't been challenged.
MR. RON LORENSEN, outside counsel for the Permanent Fund from
Simpson Tillinghast & Longenbaugh, said that the constitutionality
of the issue is debatable with no clear answer either way.
Generally, the executive branch has applied a strict interpretation
that this would be unconstitutional because it limits the
appointment and removal power of the governor. It is arguable
because there are specific situations where the attorney general's
office has chosen "step back" from the issue.
CHAIRMAN THERRIAULT asked for discussion on the Bradner versus
Hammond decision.
MR. LORENSEN said he would put it in the context of the ASPIB
legislation passed in the early 1990s. Removal for cause was
specifically addressed and Governor Hickel vetoed the legislation,
largely because it limited his appointment and removal powers. The
following year, the legislative and executive branches negotiated
their differences and ASPIB was passed rather than form a separate
corporation, as initially envisioned. The cause provision remained
in the legislation and the attorney general didn't address the
provision even though he took a very strong position in the initial
legislation.
CHAIRMAN THERRIAULT said that a member that was removed could also
raise the question of constitutionality.
MR. LORENSEN thought it most likely that just the governor would
raise the constitutionality issue if he or she couldn't remove for
cause because an individual removed for cause wouldn't have a
constitutional basis for challenging the action.
CHAIRMAN THERRIAULT asked whether he had had discussions with the
department of law concerning this issue.
MR. LORENSEN said he has and that, during drafting, he discussed
this legislation with Jim Baldwin from the attorney general's
office. He thought Mr. Baldwin was ready to let the legislative
process take its course.
SENATOR HALFORD thought it was advisable to hear from Mr. Baldwin
directly.
CHAIRMAN THERRIAULT said that the Governor's previous statements
were quite explicit, that it needed to be in the constitution.
Although the Chair believes this is the correct course of action,
he wants to know whether they are facing a sure veto.
SENATOR HALFORD said either "that or selective enforcement."
CHAIRMAN THERRIAULT said the 1996 letter suggesting veto of SB 89
indicated that removal for cause may "constitute usurpation of the
executive power of appointment." Findings of the court in Bradner
versus Hammond discussed the power of confirmation and appears to
use the same argument as imposing removal for cause.
MR. LORENSEN said the arguments begin in the same place but "where
I'm sitting, I would head in a different direction as I was making
the argument."
CHAIRMAN THERRIAULT asked why.
MR. LORENSEN said the legislature never gets directly involved; it
passes a general law and then has nothing further to do with the
appointment or removal process. Setting out a general rule is very
different from the legislature reinserting itself later in the
confirmation process.
CHAIRMAN THERRIAULT asked whether this isn't "a matter of degrees.
Instead of the legislature stepping in and turning down an
appointment, which I would agree, would be a higher level of
legislative involvement, the removal for cause is still a
diminishment of the governor's overall power."
MR. LORENSEN said it is a matter of degree but that's what makes
the difference important. That's also why he can't say that the
issue is constitutional and Mr. Baldwin can't say it is not.
Number 112
SENATOR DAVIS asked about the veto last year.
CHAIRMAN THERRIAULT said the bill last year proposed a
constitutional amendment, covering a number of corporations, and it
was defeated. For himself, he believes this is a protection that is
needed for the Permanent Fund Board of Trustees so incoming
governors can't make a total change of members, thereby breaking
the continuity of investment expertise of board members.
SENATOR DAVIS asked whether fear that a new governor would clear
the slate prompted this legislation.
CLARK GRUENING, Chairman of the Board of Trustees for the Alaska
Permanent Fund Corporation, said that language currently in statute
requires that the Governor give a written reason for removal from
the board. The fund has been in existence for 25 years and the
corporation was formed in 1980. In that time, there have been 38
trustees, none of which were removed using the written requirement
until 1990 when then Governor Hickel removed three public trustees.
Again in 1994, Governor Knowles removed three trustees. Because of
this action, the board is concerned that a pattern for removal is
becoming established.
He stressed that this isn't a tenure bill, it is for continuity of
institutional investment knowledge. This is apparent when you
consider that a new governor is immediately able to appoint two new
commissioner members followed within six months by the appointment
of one public member. Public members serve staggered four-year
terms.
CHAIRMAN THERRIAULT asked which trustee members have cabinet
positions.
MR. GRUENING replied that it is set forth in statute that the
commissioner of revenue and one other cabinet member will be
appointed to serve on the board of trustees.
CHAIRMAN THERRIAULT clarified that this is why language
specifically talks about public members.
He announced that the bill would be held in committee for
discussion with Mr. Baldwin from the Department of Law.
The meeting was adjourned at 4:00 p.m.
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