Legislature(2001 - 2002)

03/01/2001 03:40 PM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                     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                                                            
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                                                            
             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                                                             
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                                                            
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                                                            
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                                                            
CHAIRMAN  THERRIAULT  asked  which  trustee   members  have  cabinet                                                            
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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