03/04/2004 03:30 PM Senate STA
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ALASKA STATE LEGISLATURE
SENATE STATE AFFAIRS STANDING COMMITTEE
March 4, 2004
3:30 p.m.
TAPE (S) 04-15
MEMBERS PRESENT
Senator Gary Stevens, Chair
Senator John Cowdery, Vice Chair
Senator Bert Stedman
MEMBERS ABSENT
Senator Gretchen Guess
Senator Lyman Hoffman
COMMITTEE CALENDAR
SENATE BILL NO. 255
"An Act relating to traffic preemption devices."
MOVED CSSB 255(STA) OUT OF COMMITTEE
SENATE BILL NO. 326
"An Act relating to investments of Alaska permanent fund assets;
and providing for an effective date."
MOVED CSSB 326(STA) OUT OF COMMITTEE
SENATE BILL NO. 309
"An Act relating to testing the blood of prisoners and those in
custody for bloodborne pathogens."
MOVED SB 309 OUT OF COMMITTEE
SENATE BILL NO. 351
"An Act requiring the Alaska Public Offices Commission to accept
documents by nonelectronic means."
SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: SB 255
SHORT TITLE: ILLEGAL USE TRAFFIC PREEMPTION DEVICE
SPONSOR(s): SENATOR(s) THERRIAULT
01/12/04 (S) PREFILE RELEASED 1/9/04
01/12/04 (S) READ THE FIRST TIME - REFERRALS
01/12/04 (S) STA, JUD, FIN
02/12/04 (S) STA AT 3:30 PM BELTZ 211
02/12/04 (S) Heard & Held
02/12/04 (S) MINUTE(STA)
03/02/04 (S) STA AT 3:30 PM BELTZ 211
03/02/04 (S) Heard & Held
03/02/04 (S) MINUTE(STA)
03/04/04 (S) STA AT 3:30 PM BELTZ 211
BILL: SB 326
SHORT TITLE: PERMANENT FUND INVESTMENTS
SPONSOR(s): RULES BY REQUEST OF LEG BUDGET & AUDIT
02/13/04 (S) READ THE FIRST TIME - REFERRALS
02/13/04 (S) STA, FIN
02/24/04 (S) STA AT 3:30 PM BELTZ 211
02/24/04 (S) Heard & Held
02/24/04 (S) MINUTE(STA)
03/04/04 (S) STA AT 3:30 PM BELTZ 211
BILL: SB 309
SHORT TITLE: BLOOD PATHOGENS TESTING OF PRISONERS
SPONSOR(s): SENATOR(s) WAGONER
02/09/04 (S) READ THE FIRST TIME - REFERRALS
02/09/04 (S) STA, JUD
03/04/04 (S) STA AT 3:30 PM BELTZ 211
WITNESS REGISTER
Dennis Michel
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Responded to questions on SB 255 for the
sponsor, Senator Gene Therriault
Bob Storer
Executive Director
Alaska Permanent Fund Corporation
PO Box 25500
Juneau, AK 99802-5500
POSITION STATEMENT: Presented information on SB 326
Kurt Olson
Staff to Senator Thomas Wagoner
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Introduced SB 309 for the sponsor, Senator
Wagoner
Commissioner Marc Antrim
Department of Corrections
431 N. Franklin, Suite 400
Juneau, AK 99801
POSITION STATEMENT: Stated departmental support to SB 309
Richard Beeler
Corrections Officer
Kenai, AK 99611
POSITION STATEMENT: Supported SB 309
ACTION NARRATIVE
TAPE 04-15, SIDE A
CHAIR GARY STEVENS called the Senate State Affairs Standing
Committee meeting to order at 3:30 p.m. Present were Senators
Cowdery, Stedman and Chair Gary Stevens.
SB 255-ILLEGAL USE TRAFFIC PREEMPTION DEVICE
CHAIR GARY STEVENS announced SB 255 to be up for consideration
and asked for a motion to adopt the committee substitute as the
working document.
SENATOR JOHN COWDERY made a motion to adopt the \I version of SB
255 for discussion purposes. There being no objection, it was so
ordered.
CHAIR GARY STEVENS asked Mr. Michel to explain the changes.
DENNIS MICHEL, staff to Senator Gene Therriault, said the change
occurs on page 1, lines 14 & 15 so that "motor vehicles involved
in highway maintenance or public transit ...can either be
authorized by Department of Transportation [and Public
Facilities] or the local municipality that they are operating
within." He said this change was made to accommodate the
situation in Anchorage in which the municipality controls all
state roads within its borders. "To have the state involved and
the municipality makes sense so all bases are covered," he said.
There were no questions.
SENATOR COWDERY made a motion to move CSSB 255(STA), \I version
from committee with individual recommendations and zero fiscal
note. There being no objection, it was so ordered.
SB 326-PERMANENT FUND INVESTMENTS
CHAIR GARY STEVENS announced SB 326 to be up for consideration
and asked Mr. Storer to identify himself for the record.
ROBERT STORER, executive director, Alaska Permanent Fund
Corporation, introduced himself and advised members that Ron
Lorenson, outside counsel, was on line to answer questions.
To address the discussion about how the corporation would use
the increased investment flexibility, he distributed a chart
outlining how they would use the basket clause over the next
several years. He said:
We are in the late stages of implementing a private
equity program ... and that takes several years to get
it up to the 3 percent target. Then we're also
recommending a pilot program that will be - we call it
alternative investments - that's the sort of
contemporary term - many people call it hedge funds.
Hedge funds have some notoriety in the sense that they
use a lot of leverage and when they don't work they
get a lot of headlines. This proposal that we are
suggesting will not be that kind of hedge fund. We're
suggesting a pilot program to learn with no more than
1 percent. It will expire within 3 years, but I think
the key is that it is not going to be risky. We're
going to have a targeted, expected risk of equal to or
less than the fixed income market - a bond market.
It's not going to be leveraged up to get excess
returns over the equity market. It'll be structured in
a very conservative manner and we hope to learn from
this program, but it will not be designed as a risky
investment.
One of the problems with where we are right now is
that we are close to our statutory limitations. We
hope we have a wonderful problem, which is what
happens if it all works. If it all works, the fund
will increase - these target allocations will
increase, but we're also going to have a problem,
which means statutes not the markets will define when
we must liquidate the assets.
That, Mr. Chair, is why we're asking for increased
flexibility in the basket clause.
CHAIR GARY STEVENS referred to the new chart and asked for
verification that the traditional asset class [gray bar] is not
part of the basket clause.
MR. STORER said, the blue bar represents the unused portion in
the '03 bar chart. He then pointed out that as the 5 percent is
implemented there would be a 1 percent target to hedge funds and
1.5 to 2 percent in private equities. Moving out to '05, there
will be 3 percent private equity investment and over that time,
the basket clause will essentially be used up on a cost basis so
with appreciation there will be problems.
SENATOR BERT STEDMAN asked Mr. Storer to go over the effects of
the leverage when it moves from 5 to 15 percent.
MR. STORER said he would answer the question at the extreme, but
because they are driven by diversification, the probability of
placing all the eggs in one basket is extremely unlikely. He
continued to say that if they increased risk for dramatically
higher returns they could only use the full 15 percent. He said
he wasn't prepared to suggest they do that, but even that is low
versus some real estate portfolios that are leveraged to 50
percent. "That would probably be the most volatile scenario that
I could think of in terms of using all the investment."
SENATOR STEDMAN used the example of putting $100 down to control
$1,000 of some entity and said, "I assume then that you're
looking at the weighting effect of the $1,000; you're not
counting the $100."
MR. STORER replied that is correct. In that example, they would
use the basket clause and count the leverage and not just the
$100 investment.
SENATOR STEDMAN asked if there is a diversification gain by
targeting a return that would be about equal to the bond market
return.
MR. STORER said that's true, but you can gain diversification in
far more ways than just more equities or more return. The
corporation is working to develop a conservative instrument such
as the targeted risk of a bond market or less as opposed to the
more volatile equity market.
At present the corporation is looking for alternatives to fixed
income, not increasing their equity exposure so the 1 percent
target would reduce the fixed income exposure. They expect to
get some additional incremental return greater than the fixed
income market.
SENATOR STEDMAN asked Mr. Storer to explain the effect that
interest rates have on their bond portfolio.
MR. STORER explained:
The major component of a fixed income security is the
yield of the security and when you buy it, you will
buy that security to yield X. That's a snapshot in
time, but during that whole period you will earn that
yield. Let's just say that the environment is 5
percent so that means that if you earn that security
for life, you get a 5 percent yield. But every time
interest rates change, the price of that security
changes to reflect the changing interest rate
environment. So what will happen in a rising interest
rate environment is we will continue to get that 5
percent yield, but that security that we paid $100 for
will become worth $99 become worth $98 so that
diminishes the value of the investment. Of those two
components, historically the yield has been the
largest contributor of return, but in a lower interest
rate environment you get greater profits from the
principal and in a rising interest rate environment
you will end up losing some principal.
SENATOR STEDMAN opined that the concept is important because
"the impression I'm getting is that you want to broaden out this
asset class and you want to target that bond - roughly the
return you would get in a normal bond environment - and there
probably will not be a normal bond environment coming at you -
and you want to have some diversification for that area to
hopefully give you an incremental, if not a positive rate of
return, at least pushing in that direction."
MR. STORER agreed with the assessment. If interest rates stay
stable or rise they would expect the 1 percent allocation to
have a higher return plus some diversification from a volatility
factor, but part of our goal is to have a higher return than the
bond option.
SENATOR STEDMAN noted that historically returns are yield rate
averaged over the years. He then brought up a previous
discussion regarding reducing the request from 15 percent to 10
percent. If that change were made, he questioned how long it
might be before the corporation would return to the Legislature
and ask for a review of the basket clause limit.
MR. STORER said it would depend on need and the financial
markets, but he estimated that they would be back within two
years.
SENATOR COWDERY asked about the reason for the request.
MR. STORER replied there are two basic reasons for the request.
The immediate one is to address that there are arbitrary
constraints on the successful management of the fund. The
corporation could be forced to liquidate assets because of
statutory constraints rather than due to market conditions. The
other more long-range reason is to create flexibility to meet
the ever-changing financial markets.
CHAIR GARY STEVENS asked Mr. Lorenson whether he had anything to
add.
MR. LORENSON told him that he was listening and available to
answer questions from a legal standpoint.
SENATOR STEDMAN offered an amendment to change the request from
15 percent to 10 percent [page 2, line 3].
CHAIR GARY STEVENS asked if there was any objection to the
amendment and there was none.
He asked for a motion to pass the bill from committee.
SENATOR COWDERY made a motion to move CSSB 326(STA) from
committee with individual recommendations and the attached
fiscal note. There being no objection, it was so ordered.
SB 309-BLOOD PATHOGENS TESTING OF PRISONERS
CHAIR GARY STEVENS announced SB 309 to be up for consideration
and asked Kurt Olson to introduce the bill.
KURT OLSON, staff to Senator Thomas Wagoner, bill sponsor,
introduced himself and read the following into the record:
Currently our state allows testing of prisoners for
bloodborne pathogens at the request of rape victims.
This bill would allow correctional officers who have
been exposed to blood and other bodily fluids to
request testing of a prisoner responsible for the
exposure.
AS 18.15 would be amended to include five new
sections:
· AS 18.50.400 addresses the process of the testing
· AS 18.15.410 provides consent provisions
· AS 18.15.420 addresses testing without consent
· AS 18.15.440 addresses confidentiality issues and
provides penalty for disclosure
· AS 18.15.450 defines the new terms included in
this section
Last year 41 protection officers were potentially
exposed to bloodborne pathogens in the workplace.
In most cases the exposure was intentional and is
one of the few weapons readily available to
inmates. Current treatment to unknown pathogens
consists of a daily treatment of what is known in
the correctional industry as the cocktails -
large dose of several broad-spectrum medications.
The side effects can include nausea, missing work
for up to two weeks, and additionally it disrupts
their home life.
CHAIR GARY STEVENS asked if the corrections officers had to
undergo treatment in all 41 instances.
MR. OLSON replied some officers opted not to undergo
treatment.
SENATOR JOHN COWDERY noted the fiscal note is zero and he
wondered who would pay for the testing.
MR. OLSON said the correctional officers are tested under
workers' compensation and under state law the state can't
test inmates without their consent.
SENATOR COWDERY clarified that his point is that there is
cost associated with the test.
MR. OLSON replied there is a cost for the test, but he
thought there would be an offset as well. Commissioner
Antrim could probably answer more definitively, he said.
CHAIR GARY STEVENS asked what the procedure would be under
SB 309 when a prisoner refuses to provide a blood sample.
MR. OLSON replied there would be two choices. The prisoner
could be asked to submit a blood sample voluntarily and if
they refuse, a court order is obtained and medical
personnel would take the sample. He added, "I believe there
are OSHA guidelines on taking that. The federal penal
system has coverage similar to this for their federal
correctional officers."
SENATOR BERT STEDMAN admitted he didn't have much
background in this area, but he assumes it would cost the
state money if an inmate refuses to give a sample for
testing. He then added that he believes it's a good bill.
COMMISSIONER MARC ANTRIM, Department of Corrections,
reported that the department supports SB 309 and thanked
the sponsors for recognizing the hazards that face the men
and women that serve in the correctional facilities. One of
the hazards certainly is bloodborne pathogens.
Although there is a process for obtaining a blood sample
from an inmate, SB 309 establishes a clear series of steps
to follow and will ensure that the process is followed
every time and won't depend on whether or not the parties
involved are familiar with the procedure.
CHAIR GARY STEVENS asked if the corrections officer would
have a choice regarding their own treatment and whether the
inmate is tested.
COMMISSIONER ANTRIM replied the affected officer may seek
information regarding the prisoner's medical records and
ask that the inmate be tested, but the officer decides
whether or not to undergo personal treatment.
RICHARD BEELER, correctional officer at Wildwood Pretrial,
testified via teleconference in support of the legislation.
He said he was exposed to bloodborne pathogens and
underwent treatment twice, which was very expensive and
harsh on his system. He and his family were traumatized by
the experience.
CHAIR GARY STEVENS asked for verification that he had
little choice but to undergo treatment.
MR. BEELER replied, "If I would have had a test come back
saying that there wasn't a high percentage of me getting
it, I would not have taken the medications. It was not a
fun deal."
CHAIR GARY STEVENS noted that no one else signed up to
testify. He recognized Senator Cowdery.
SENATOR COWDERY made a motion to move SB 309 from committee
with the attached zero fiscal note and asked for unanimous
consent. There being no objection, it was so ordered.
CHAIR GARY STEVENS adjourned the meeting at 4:05 pm.
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