Legislature(2019 - 2020)ADAMS ROOM 519
01/31/2020 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB205 || HB206 | |
| Overview: Alaska Permanent Fund | |
| Fy 21 Department Budget Overview: Judiciary | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 205 | TELECONFERENCED | |
| += | HB 206 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 205
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; making
appropriations under art. IX, sec. 17(c), Constitution
of the State of Alaska, from the constitutional budget
reserve fund; and providing for an effective date."
HOUSE BILL NO. 206
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing for
an effective date."
1:33:25 PM
^OVERVIEW: ALASKA PERMANENT FUND
1:33:36 PM
ANGELA RODELL, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND
CORPORATION, introduced herself. She stated that there were
a couple of additional people available for questions. She
explained their roles in the corporation.
Ms. Rodell discussed the presentation, "Senate Finance
Committee; APFC and The Alaska Permanent Fund" (copy on
file). She looked at slide 2, "1969":
Alaska receives $900 million in Prudhoe lease sale
bonuses.
FY70 state budget: $173 million.
Ms. Rodell discussed slide 3, "The Alaska Permanent Fund":
1976 Alaska voters approve a Constitutional Amendment
establishing the Permanent Fund.
1977 Permanent Fund receives its first deposit of
constitutionally dedicated oil revenues, $734,000.
1980 The Alaska Permanent Fund Corporation is
established to manage and invest the Fund.
2020 The Fund now has over $66 billion in assets under
management.
Ms. Rodell highlighted slide 4, "APFC 40 Years":
Forty years ago, on April 8, 1980
.notdef Governor Jay Hammond signed SB 161 into law,
establishing the Alaska Permanent Fund
Corporation as an independent state entity tasked
with the management and investment of the Alaska
Permanent Fund.
Today
.notdef APFC is a talented, award-winning, investment
firm that embodies the resiliency, integrity, and
pioneer spirit of Alaska.
.notdef The influence of our dynamic, Alaskan
corporation extends around the world based on
APFC's practices of good governance,
transparency, and a long-term investment horizon.
Co-Chair Johnston recalled a testifier from the week prior,
which addressed awards received by the fund management. She
asked which awards were granted to those in the
corporation.
Ms. Rodell mentioned that there was a slide in the
presentation acknowledging the awards.
Ms. Rodell highlighted slide 5, "Generating Revenue for
AK":
As stewards of the Alaska Permanent Fund, our team
possesses the skill and efficiency to ensure that
Alaskans benefit from this resource for generations to
come.
APFC's Mission
To manage and invest the assets of the permanent
fund and other funds designated by law.
APFC's Vision
To deliver sustained, compelling investment
returns as the United States' leading sovereign
endowment manager, benefitting all current and
future generations of Alaskans.
APFC's Values
Integrity Stewardship Passion
Ms. Rodell discussed slide 6, "Number 1 Source of Revenue."
She remarked that the slide was from the Fall Revenue
Forecasts from FY 15 to FY 19, and it showed that the
Permanent Fund was the number one source of revenue for the
state.
Ms. Rodell looked at slide 7, "POMV AS 37.13.140 (b)":
Percent of Market Value (POMV)
Draw of the average market value of the Fund for
the first five of the preceding six fiscal years,
subject to annual appropriation by the
Legislature.
5.25 percent - Effective July 1, 2018 (FY19)
.notdef FY19 5.25 percent POMV = $2.7 billion
.notdef FY20 5.25 percent POMV = $2.9 billion
.notdef FY21 5.25 percent POMV = $3.1 billion
5.0 percent - Effective July 1, 2021 (FY22)
.notdef FY22 5.0 percent POMV = $3.1 billion
.notdef FY23 5.0 percent POMV = $3.3 billion
.notdef FY24 5.0 percent POMV = $3.4 billion
1:40:26 PM
Vice-Chair Ortiz asked for the effective draw of the fund.
Ms. Rodell would get back to the committee.
Ms. Rodell highlighted slide 9, "Investment
Responsibilities AS 37.13.120":
.notdef When adopting regulations or managing and investing
fund assets, the prudent-investor rule shall be
applied by the corporation. The corporation shall
exercise the judgment and care that an institutional
investor of ordinary prudence, discretion, and
intelligence exercises in the designation and
management of large investments entrusted to it, not
in regard to speculation, but in regard to the
permanent disposition of funds, considering
preservation of the purchasing power of the fund over
time while maximizing the expected total return from
both income and the appreciation of capital.
.notdef The corporation may not borrow money or guarantee
from principal of the fund the obligations of others.
Except the corporation may, either directly or through
an entity in which the investment is made, borrow
money if the borrowing is nonrecourse to the
corporation and the fund.
.notdef The board shall maintain a reasonable
diversification among investments unless, under the
circumstances, it is clearly prudent not to do so. The
board shall invest the assets of the fund in in-state
investments to the extent that in-state investments
are available and if the in-state investment provides
the same risk-reward benefit as other investment
opportunities.
Ms. Rodell addressed slide 10, "Historical Asset Allocation
based on actuals." She explained that the asset allocation
had changed due to many different factors. She noted that
it showed that the corporation was responding to many
different economies, and bring those returns back to the
state. She remarked that the state had one of the most
diverse sets of economies of any state. She felt that there
was a resilient asset allocation that could withstand many
volatilities within the market.
Ms. Rodell displayed slide 11, "Allocation Structure":
.notdef The asset allocation structure is organized by
growth and income strategies, as well as liquidity
objectives.
.notdef This strategic categorization provides a framework
for ensuring that investment return targets are
commensurate with the risks undertaken.
.notdef The Board of Trustees reviews the Asset Allocation
annually.
Ms. Rodell looked at slide 12, "Management of the Fund":
The Board of Trustees continues to work towards an
optimal mix of in-house versus external management
capabilities based on resources and opportunities.
In-House Management Allows for:
.notdef Alignment of investment goals and mandates
.notdef Increased flexibility in timing/tactical
decisions
.notdef Lower fees with investment benefit of active
management
Co-Chair Johnston mentioned the presentation by the
Department of Revenue (DOR) in the previous day. She
wondered about the results of in-house investments and
management fees. She asked for a breakdown of those
investments and fees.
Ms. Rodell responded that the decrement was a result of the
discontinuation of a program that was initiated ten years
prior. She explained that the Board determined that program
was no longer useful. The staff did a review of the
program, and determined that there would be better returns
in other assets.
1:45:17 PM
Representative Carpenter was curious about the asset
allocation of the corpus versus the earning reserve account
(ERA).
Ms. Rodell responded that they were the same. She provided
an example to demonstrate the allocations.
1:46:15 PM
Representative Sullivan-Leonard mentioned discussion about
a group managing within Alaska versus from a global
perspective.
Ms. Rodell did not have information regarding the asset
allocation. She elaborate that the Board allocated $200
million out of its private equity special opportunities to
the creation of an instate program. She furthered that $100
million was allocated to McKinley Capital, which had great
experience with the opportunities in Alaska. The other $100
million was awarded to Barings on the East Coast. They had
a reputation for developing instate programs for other
states. She felt that there would be a good cross-section
of ideas. She explained that, currently, there had not been
yet been a draw, but when they were ready to fund the
investment there would be a request to draw from the
account.
Representative Sullivan-Leonard asked if there was a
location online for additional information at the APFC
website.
Ms. Rodell responded that the information was available on
the APFC website.
Representative Knopp recalled that some funds were
eliminated that were no longer a part of the investment
portfolio. He understood that the decision only saved
approximately $2.5 million in management fees, but DOR
showed a savings of $25 million. He asked for more
information about inhouse managers.
Ms. Rodell reported that APFC had two decrements. The first
was a decrement for the discontinued external program of
approximately $17 million total. She explained that the
$2.5 million was a request to manage more of the real
estate portfolio in house. The request created an
increment to the operating budget of approximately
$100,000. She stated that the request was expected to save
$2.5 million in net of fee arrangements. She explained that
using an outside firm to manage real estate deducted all
fees and expenses before remitting the income off of the
properties.
1:50:52 PM
Ms. Rodell addressed slide 13, "Management of the Fund by
Asset Class":
Internal Management
Public Markets -APFC investment staff directly
buys and sells the publicly traded securities.
Private Markets -APFC investment staff directly
conduct the investment and legal due diligence
for the fund or investment and make the decision
to invest.
Ms. Rodell looked at slide 14, "Awards and
Accomplishments":
? Angela Rodell, CEO ranked in the Top 5 of Sovereign
Wealth Quarterly's 100 Most Significant and Impactful
Asset Owner and Public Executives of 2019.
? Marcus Frampton, CIO named one of Private Equity
International's 40 under 40 Future Leaders of Private
Equity and Trusted Insight's Sovereign Wealth Fund CIO
of the Year for 2019. Recognized amongst CIO
Magazines' Power 100 of 2019 and for their 2019
Industry Innovation Awards.
? PEI's Private Debt Magazine recognized APFC in their
inaugural 30 Most Influential Investors in Private
Credit for our internal management team's pioneering
contributions in this asset class.
? Chad Brown, Human Resources Manager was accepted
into Forbes Human Resource Council.
? Tom O'Day, Portfolio Manager Fixed Income,
selected by Chief Investment Officer Magazine for
their Class of 2019 NextGen Award.
? Steve Moseley, Director of Alternative Assets was
recognized as one of the 2018 Top 30 Private Equity,
Venture Capital Investors by Trusted Insight.
? The Alaska Permanent Fund selected as North American
Limited Partner of the Year for 2018 by Private Equity
International for the second year in a row.
? APFC received dual nominations for 2018 Partnership
of the Year for Institutional Investor's Allocators'
Choice Awards and won the award for our Capital
Constellation Partnership.
Ms. Rodell looked at slide 15, "Global Diversification as
of June 30, 2019." She noted that the map showed the
locations of investments around the world. She stressed the
importance of the work outside of Alaska, and that the
money was brought back to the state.
Ms. Rodell discussed slide 17, "Fiscal Year 2019
Performance as of June 30, 2019." She stated that many of
the strategies were not designed to be daily strategies,
but rather were intended for success over a period of time.
She noted the difference in return between the one-year and
three-year terms. She stated that the first benchmark was
the Passive Index Benchmark.
1:55:46 PM
Co-Chair Foster wondered whether the passive or performance
benchmarks would be most commonly used in the discussions.
Ms. Rodell responded that when Callan reported to the Board
each quarter, there was a measurement against the pool of
peers in fund performance. The report leaned more toward
the performance benchmark, because of the recognition of
the different strategies. She noted that the measurement
against peers became challenging at times, because there
might be 38 percent to public equities and someone else may
have 60 percent to public equities. She stressed that there
would be determination of recognizing that difference.
Ms. Rodell highlighted slide 18, "Fund Value and Returns in
millions."
1977 Initial Legislation permitted an investment list
that included only fixed income securities such as
treasury bonds.
1983 Following changes to the statutory investment
list, the Fund makes its first investment in the stock
market, and later that year, indirectly held real
estate.
1990 After the Legislature expands the statutory
investment list, the Fund begins to invest in stock
and bond markets outside the United States.
2005 The Legislature makes a significant change in how
Permanent Fund investments are determined, by removing
the allowed investment list from state law. The
Trustees will make investment decisions under the
guidelines of the prudent investor rule.
Representative LeBon surmised that the relationship in the
companies would allow them to invest the dollars, but the
APFC was not part of the decision making process. He
wondered whether there was oversight of the approval or any
role in the evaluation of the investment. He asserted that
there was trust in the outcome of the third party
partnership decision.
Ms. Rodell agreed. She explained that there was an
agreement for the external managers to return expectations,
so they made the investment decisions.
Representative LeBon wondered how much money was involved
in each company.
Ms. Rodell replied that each company had $100 million each
for a total of $200 million.
Representative LeBon asked if the companies were aware of
their expected terms.
Ms. Rodell replied in the affirmative. It was clear that
they had to fit into the mandate for private equity, so
there were certain expectations of return objectives. The
terms were clearly outlined, but the external investors
could pick and choose the type of investment such as
mariculture, telecom, alternative energy, etc.
Representative LeBon wondered whether the timeline on the
investment could be very long.
Ms. Rodell responded in the affirmative.
2:00:54 PM
Ms. Rodell addressed slide 20, "Future Growth of the Fund -
10 Year Capital Markets Forecast":
.notdef For planning purposes, APFC references both a
current fiscal year and a 10-year forecast for the
projected return of the Fund that is provided by our
performance consultant, Callan Associates.
.notdef It is understood that there will be a wide range of
returns delivered by each asset class to the total
Fund performance over any given time.
.notdef Callan Associates projects a total return of 7
percent over the next 10-year period for the portfolio
that APFC has constructed for the Fund.
.notdef They also project an inflation rate of 2.25 percent
over that same period, which brings the real return
for the portfolio to 4.75 percent over the 10-year
period from FY21- FY29.
Co-Chair Johnston asked about the Callan projection.
Ms. Rodell highlighted slide 21, "Callan's Capital Markets
Forecast." She noted that no single asset class was
expected to return double digits over the next ten-year
period. She explained that the annualized standard
deviation showed the difference around the returns. She
looked at the cash equivalence, which was only expected to
vary plus or minus 0.9 percent.
Co-Chair Johnston stated that she had a "pie-in-the-sky
question." She asked for the number of years for the state
to go from its current balance to $100 billion.
Ms. Rodell responded that several caveats would have to be
in place. She noted several other assumptions.
2:05:57 PM
Ms. Rodell pointed to slide 22, "Projections FY 20 excerpt
from APFC's History and Projections as of December 31,
2019." She announced the low expected return of negative
0.52 percent. She explained that adding the effective
inflation would result in a total return of negative 0.52
percent. She shared that there was a tendency to use the
mid, which was 6.61 percent, with inflation would be
slightly above 5 percent. She shared that it was only a
coincidence that both the total return and the statutory
return were the same.
Ms. Rodell discussed slide 23, "History and Projections
Dec 31, 2019":
The Fund is projected to have a balance of $84.6
Billion at the end of FY29.
.notdef This projection assumes the 7 percent total return
over ten years, and
.notdef Adherence to rules-based deposits into and
withdrawals from the Fund.
Royalty Deposits - AS 37.13.010 (a) (1) and (a)
(2)
.notdef Constitutional minimum of 25 percent
.notdef Statutory 50 percent for leases after 1979
Inflation Proofing -AS 37.13.145 (c)
.notdef Annual CPI calculated on the Principal
Amount
POMV - AS 37.13.140 (b) and AS 37.13.145 (e) and
(f)
.notdef (e) The legislature may not appropriate
from the earnings reserve account to the
general fund a total amount that exceeds the
amount available for appropriation under AS
37.13.140(b) in a fiscal year.
.notdef (f) The combined total of the transfer
under (b) of this section and an
appropriation under (e) of this section may
not exceed the amount available for
appropriation under AS 37.13.140(b).
Ms. Rodell looked at slide 24. She stated that the slide
included the actual POMV calculations for both FY 20 and FY
21. She noted the yellow highlighted bars on slide 24. She
explained that it showed the low, mid, and high cases,
which were the rates of returns from the previous slide.
She explained that the mid case expected that by the end of
the fiscal year there would be a balance in the principal
of the fund of approximately $53.4 billion.
Ms. Rodell discussed slide 26, "The Alaska Constitution":
In 1976, Alaskans voted, 75,588 to 38,518, in favor to
amend the Constitution of the State of Alaska and
created the Alaska Permanent Fund.
Alaska Constitution Article IX, Section 15
Section 15. Alaska Permanent Fund
At least twenty-five percent of all mineral lease
rentals, royalties, royalty sale proceeds,
federal mineral revenue sharing payments and
bonuses received by the state shall be placed in
a permanent fund, the principal of which shall be
used only for those income-producing investments
specifically designated by law as eligible for
permanent fund investments. All income from the
permanent fund shall be deposited in the general
fund unless otherwise provided by law.
Ms. Rodell addressed slide 27, "Renewable Resource." She
shared that every year there was an attempt to create a
graphic to show how the funds were interacting and how the
money was moving through the fund. She noted that money
came in, was invested, there were unrealized gains
associated with the principal, money moves into the ERA
from gains, expenses were paid, percent of market value was
paid, and then reinvest whatever is left behind.
Representative Carpenter asked if inflation proofing was
reflected in the renewable resources chart.
Ms. Rodell replied that it all happened subject to
appropriation, which it was under "Available for
Appropriation."
Representative Carpenter asked if the POMV was an automatic
draw.
Ms. Rodell responded in the negative. She relayed that the
POMV was an appropriation. She reviewed some of the
legislative actions from the prior year.
Representative Carpenter wondered whether it was in the
legislature's purview to appropriate the funds for
inflation proofing.
Ms. Rodell replied in the affirmative.
Ms. Rodell highlighted slide 28, "Contributions to
Principal in millions." She stated that it was the largest
deposit in the history of the fund. She noted the influx of
the royalties and the contributions by inflation proofing.
She noted that in 2010, inflation was flat, so there was no
inflation proofing. She remarked that in 2016, 2017, and
2018 there was no appropriation for inflation proofing. She
thanked the legislature and governor for that contribution.
2:11:01 PM
Ms. Rodell discussed slide 29, "Values in billions - as of
December 31, FY20 Q2." She announced that the ERA had $7.5
billion in realized earnings, which was available for
appropriation. She furthered that there was an unrealized
gain of an additional $2.7 billion. She shared that $3.1
billion was set aside for the FY 21 POMV. She announced
that the $4 billion principal contribution was set aside,
and it was required to come at the end of the fiscal year.
She stated that inflation proofing was marked based on
actual inflation.
Representative Josephson surmised that the entire money
would not be deposited, because the inflation did not match
the number.
Ms. Rodell responded in the affirmative, because the
language in the budget bill required that APFC give an
estimated number in that they move actual inflation. She
noted that any money that was not moved over, stayed in the
ERA.
Ms. Rodell looked at slide 30, "Return on Investment":
FY 19
Revenues: $3,907,500,000
Operating/Investment Expenses: $,600,000
Value Generated Per Day (based on 251 active trading
days through FY19)
Total Fund: $3.91 B / 251 = $15.6 M per day
Statutory Net Income: $3.3 B / 251 = $13.1 M per
day
Revenue Generation for the State of Alaska
ERA POMV Draw -
42 percent of total General Fund revenues in
the FY 19 budget
47 percent of total General Fund revenues in
the FY 20 budget.
52 percent of total General Fund revenues in
the FY21 proposed budget.
Ms. Rodell addressed slide 31, "Reliance on Corporate
Activity":
.notdef SB 26, CH 16 SLA 18 established a POMV rules based
structure for Fund withdrawals a percentage of the
average market value of the Fund for the first five of
the preceding six fiscal years.
.notdef Inflation Proofing AS 37.13.145 (c) protects the
future value of the Principal by transferring a
portion of the earnings to the Principal to maintain
the long term sustainability of the Fund.
.notdef APFC's operations and investment management of the
Fund's assets are supported by the ERA.
.notdef Agencies working on the collection of royalties also
receive appropriations from the ERA.
Ms. Rodell discussed slide 33, "Board of Trustees":
Board of Trustees
As the fiduciaries, the Trustees have a duty to
Alaskans in assuring that the Permanent Fund is
managed and invested in a manner consistent with
legislative findings in AS 37.13.020
• The Fund should provide a means of conserving a
portion of the state's revenue from mineral
resources to benefit all generations of Alaskans.
• The Fund's goal should be to maintain safety of
principal while maximizing total return.
• The Fund should be used as a savings device
managed to allow the maximum use of disposable
income from the Fund for the purposes designated
by law.
2:15:26 PM
Ms. Rodell addressed slide 34, "Resolution 18-04":
Sustainable Rules- Based Legal Framework For Fund
Transfers
In providing guidance on rules-based withdrawals for
the Fund and to help ensure the long-term
sustainability of using Fund earnings for the benefit
of all generations of Alaskans, the Board passed
Resolution 18-04 at a special meeting on October 17,
2018.
This resolution affirms the importance of formulaic
management of transfers into and out of the ERA to
ensure sustainability and long-term growth of the
Fund, by identifying four key principles:
Adherence - Sustainability - Inflation Proofing -
Real Growth
Ms. Rodell looked at slide 35, "Evolving Role of the Fund":
Successful SWFs operate within a rules-based system
that allows them to perform a combination of saving,
stabilization, and income generation functions. In
Alaska, the latter function has come into sharper
focus, as the Fund income supports the State budget in
an era of lower oil revenues.
Alaska has a robust system of constitutionally
mandated savings, a long history of preserving and
growing the real value of the fund, and a strong track
record in investment management.
This paper proposes a number of reforms that will
strengthen the stability and sustainability of
Alaska's Permanent Fund:
.notdef LESSON 1: MISSION CLARITY
.notdef LESSON 2: THE IMPORTANCE OF RULES
.notdef LESSON 3: SUCCESSFUL ENFORCEMENT OF SAVING
RULES
.notdef LESSON 4: DESIGNING A POMV SPENDING RULE
.notdef LESSON 5: REFORMING THE ERA
Ms. Rodell discussed slide 36, "APFC's Strategic 5 Year
Plan":
Priorities for FY 20-FY25:
1. Position the organization and Fund for
implementation of annual POMV draw
2. Develop and implement comprehensive risk management
for the organization
3. Integrate best-in-class investment management
capabilities to maximize investment returns
4. Enhance talent and staff across APFC
Ms. Rodell looked at slide 38, "FY21 Budget":
APFC recognizes this evolution in the Fund's role to
generate revenue to support state services and
programs; as such, APFC looks to the State to ensure
that resources are available to support APFC's
investment and management needs for ongoing success in
generating long-term returns.
Operating Budget FY21
Merit and Retention Adjustments $720.6
Real Estate Manager Position $257.5
Operational Reductions ($1097.9)
Investment Management Fees ($21,098.1)
2:19:03 PM
Representative Josephson mentioned the international
conference on sovereign wealth funds in Juneau. He queried
details on the visitors to that conference, and wondered
what was learned during the conference.
Ms. Rodell confirmed that Juneau hosted more than 200
entities from around the world, representing sovereign
wealth funds from Australia to Kuwait to Abu Dhabi; and
some of the Lower 48 peers like New Mexico and Wyoming.
The lessons that she took away from the conference was that
there was a tremendous amount of interest in sovereign
wealth funds. One of the largest questions had to do with
how Alaska kept the fund intact.
2:21:35 PM
Co-Chair Johnston first wanted to build on what Ms. Rodell
had stated. She mentioned the current year's budget that
had more than a $3 bill gap in the budget. The Department
of Revenue (DOR) could not tell the committee how much was
needed in a reserve account. She wondered how the state's
capital market would change.
Ms. Rodell confirmed that there was a significant amount
being asked of the Permanent Fund, and it caused investors
to rethink investments. The DOR was tasked with cash
management of the state. They could draw down the account
as fast as they wanted. In the previous year, the
department withdrew slowly. In the present year, the money
was being drawn down much more quickly. She thought the
question should be presented to the Department of Law and
Legislative Legal Services.
Co-Chair Johnston noted that in the budget, there was a
deficit of $1.5 billion that would come out of the CBR. She
remarked that there was a presentation from DOR that did
not provide the cash amount needed
Representative Sullivan-Leonard called for a point of
order. She suggested that Co-Chair Johnston was asking a
policy question.
Co-Chair Johnston wondered whether Ms. Rodell would feel
comfortable saying to the Board, "we maintain our current
investment strategy." She remarked that, in 15 years, the
fund could possibly grow to $100 billion.
Ms. Rodell responded, "That is correct." For the past 2
years the legislature had placed restraints on itself.
Therefore, there was not a recommendation for a different
allocation for the ERA.
Co-Chair Johnston referred to the current year's budget and
to slide 38. She stated that the money came out of the fund
itself.
Ms. Rodell responded that the APFC was funded from the ERA.
2:30:06 PM
Co-Chair Foster surmised that Ms. Rodell did not want to
violate the POMV. He also noted the mention of faster
draws. He remarked that there were differing opinions of
the minimum that could be used from the CBR, ranging from
$1.4 billion to $100 million. He felt that the current $2
billion already showed impacts, because draws needed to be
made sooner. Therefore, the impacts would be felt more
significantly.
Ms. Rodell thought the question was good for the Treasury
Division to understand the differences between FY 19 and FY
20, and why the speed may be different. She remarked that
it was a new operational paradigm.
Co-Chair Foster noted the award for APFC.
2:33:05 PM
Representative Knopp thanked Co-Chair Foster for
highlighting the accomplishment of the corporation. He
looked at slide 31, and wondered whether the operations
fund was all for internal operations managers.
Ms. Rodell responded that it was for everything operating
out of Juneau. She shared that the investment management
fees were fees paid to external managers outside of Juneau.
Representative Knopp wondered whether the appropriations
were line items every year.
Ms. Rodell replied in the affirmative.
Representative LeBon spoke of the juggling of all of the
pertinent accounts. He had the perception of the ERA was
pretty well spread out evenly. He suggested that the CBR
was used in an aggressive measure in recent years.
Ms. Rodell responded that he was correct. The CBR had a
very specific investment expectation.
Representative LeBon felt that the CBR should be as large
as possible to enhance the ERA.
Ms. Rodell suggested that it was one way to look at it.
Representative Knopp wondered whether the scenario with the
goal of reaching $100 billion in 15 years accounted for the
market projection within 10 years.
Ms. Rodell responded that the APFC did not take into
consideration individual years, but that it would be
smoothed over time. she noted that there was some stressing
of understanding of when actions might hit, and the impact
of those actions. She explained that the 7 percent was a
forecasted amount, and there were standard deviations
around all the different asset classes.
Vice-Chair Ortiz referred to slide 20. He wanted to talk
more about inflation and real rates of return. It appeared
the rate of inflation was 2.5 percent expected, and he saw
some things that might bump up inflation. He asked Ms.
Rodell to comment.
Ms. Rodell turned to slide 17 which showed the calculation
with actual inflation plus the 5 percent real target. She
stated that the CPI plus 5 in FY 19 was 6.65 percent,
subtracting the real return of 5 percent shows that
inflation was 1.65 percent for FY 19. She noted that the
inflation in the 43 years since inception showed 2.65
percent. She shared that the 2.25 percent was reasonable
given the historical experience.
2:41:35 PM
Representative Josephson pointed to slide 20. He wondered
whether the 4.75 percent was net of an expectation of
inflation proofing by the state.
Ms. Rodell replied that the calculation of 2.25 percent for
inflation 4.75 percent was how the entire pool would grow,
so there was not a recognition in the number of what would
move between accounts. She explained that the reason there
was a request for an appropriation for inflation proofing
was because the principal did not get any value back that
may have been generated through inflation.
Representative Josephson felt that that the argument was a
justification for PFD reform. He remarked that the PFD
received the benefit of the separation. He stated that the
corpus did not see a benefit from inflation.
Ms. Rodell agreed.
Representative Carpenter asked why the target was only 5
percent.
Ms. Rodell explained that the 5 percent was a real growth
number that the board had had in place for over 15 years.
2:46:03 PM
Representative Carpenter noted the corporation's vision to
deliver sustainable returns. He queried the risk of the
legislature's action or inaction that would make it
difficult to achieve the vision to deliver sustained
returned.
Ms. Rodell responded that the legislature should keep its
expectation a 5 percent return of the POMV. She felt that
keeping the certainty of liability management was crucial
to the ongoing success. She stressed the continuing support
of resources, because the authority was needed to ensure
that the money could be in the best place to get the
sustained returns.
2:47:49 PM
Co-Chair Johnston asked about a slide reflecting the annual
growth of the fund.
Ms. Rodell turned to slide 18 to the growth of the fund bar
chart.
Representative Tilton asked about the language for
inflation proofing was included in the previous year's
budget.
Ms. Rodell responded in the affirmative. The legislative
intent language was to forward fund inflation of 8 years,
but expectation was about half of the amount of time. The
board encouraged the legislature to continue the practice
of inflation proofing the fund.
Representative Tilton asked a clarifying question.
Co-Chair Foster asked Ms. Rodell if she considered the $4
billion to be inflation proofing.
Ms. Rodell reiterated that the position of the trustees
that it was not forward funding inflation.
Representative Josephson tended to differ to the trustees.
He suggested that there was no difference in the treatment
of the funding. He asked how to measure inflation proofing.
Ms. Rodell responded that the concern of the trustees was
that in 4 years no one would remember the reason for
inflation proofing, so would be difficult to get new
legislature to do inflation proofing in the future.
Representative Carpenter clarified that the legislature had
the responsibility to inflation proof the fund, because
there was not automatic inflation proofing.
Ms. Rodell responded that Representative Carpenter was
correct. She added that the board had recommended
constitutionalizing inflation proofing.
Representative Carpenter had asked Ms. Rodell what the
legislature needed to do in order for the corporation to do
its job. He suggested a trust-worthy mechanism for
inflation to occur each year.
Ms. Rodell agreed.
2:55:24 PM
Co-Chair Johnston stressed that the discussion of inflation
proofing was really a discussion of a transfer the ERA to
the corpus.
Ms. Rodell agreed.
Co-Chair Johnston stated that the corpus was protected by
the constitution.
Ms. Rodell agreed.
Co-Chair Johnston stated that the ERA was not protected by
the constitution.
Ms. Rodell responded, "That is correct."
Vice-Chair Ortiz asked if the board had ever weighed in on
simply combining the funds, and limiting the use to the
POMV of one fund.
Ms. Rodell reported that the board had weighed in on it but
had only recommended a constitutional amendment.
Vice-Chair Ortiz queried Ms. Rodell's personal view on
combining the two accounts.
Ms. Rodell responded that no matter the structure, there
must be an accounting of the nominal amount that must be
spent. She felt that combining both would still result in
all of the income of the fund being subject to
appropriation.
Co-Chair Foster thought it was time to move to the
presentation to Judiciary. He asked if Ms. Rodell had any
closing comments.
Ms. Rodell reiterated that there was a great amount if
information available on the website. She thanked members
for the opportunity to present.
^FY 21 DEPARTMENT BUDGET OVERVIEW: JUDICIARY
2:59:15 PM
DOUG WOOLIVER, DEPUTY ADMINISTRATIVE DIRECTOR, ALASKA COURT
SYSTEM, was before the committee to review its budget. He
discussed the presentation, "House Finance Committee
Alaska Court System Overview" (copy on file).
Mr. Wooliver turned to slide 1, " Mission Statement":
The mission of the Alaska Court System is to provide
an accessible and impartial forum for the just
resolution of all cases that come before it, and to
decide such cases in accordance with the law,
expeditiously and with integrity. which noted the
people the court system served.
Mr. Wooliver highlighted slide 2. "Alaskans Served in
2019":
? 120,239 new cases filed (trial and appellate)
? 6,562 contacts through the Family Law Self Help
Center
? 24,888 jurors reported for service
? 9,896 law library patrons
? 633,393 citizens passed through security screening
? 6,397,763 visits to the court's website
? 1,767,105 Court View searches
? 20,401 online payments made
? 425 therapeutic court participants
? Thousands of on-line court forms accessed or
downloaded
Mr. Wooliver turned to slide 3 reflecting the court
system's total share of the State of Alaska's government
spending. He noted that there was a change from 2.2 percent
to 2.36 percent.
Mr. Wooliver moved to slide 4 showing that Judiciary's
funding primarily came via general fund dollars. He
remarked the commissions and councils.
Mr. Wooliver turned to slide 5. He noted Therapeutic Court
appropriation, which was a separate appropriation. He
explained that the legislature created that appropriation,
so there could be a total line to keep the funding within
the Therapeutic Court.
3:04:02 PM
Mr. Wooliver explained slide 6, "GF Budget Changes FY16
FY20":
FY16 ($3,430,400) (3.1 percent)*
FY17 ($3,805,000) (3.5 percent)
FY18 ($3,671,800) (3.5 percent)**
FY19 $606,300 .6 percent
FY20 $2,932,200 2.8 percent
* The FY16 cut was offset by a 2.5 percent salary
increase resulting in a net reduction of
$1,427,600.
** The FY18 cut was offset by increased healthcare
costs resulting in a net reduction of $1,821,400.
Mr. Wooliver looked at slide 7, "Examples of Cost-Savings
Measures":
Between FY16 and FY19, Deleted 44 PFT, 14 PPT, and 2
Temporary Positions for a total of 60 Deleted
Positions
Salary Schedules Capped at "R" Step .notdefHolding Positions
Vacant to Generate Savings
Friday Afternoon Closures
E-Distribution Project
Expanded Use of Videoconferencing
3:06:51 PM
Representative Sullivan-Leonard mentioned previous
discussions about Friday afternoon closures. She also
mentioned that employees were currently mandated to work 40
hours.
Mr. Wooliver clarified that the court system was not
subject to a 40 hour work week.
Co-Chair Johnston asked if the Court System vacancy rate
had changed much.
Mr. Wooliver indicated the vacancy rate was about 7
percent.
Co-Chair Johnston asked if the holding open of positions
was a new practice.
Mr. Wooliver responded that the Court System had every
Judicial position filled. He explained that In order not to
run out of money, the Court System had begun the practice
of holding the positions open for 45 days rather than 30
days.
Co-Chair Johnston wondered about the expanded use of video
conferencing. She asked if the Court System was monitoring
the effectiveness of video conferencing.
Mr. Wooliver responded that teleconferencing primarily
benefited other agencies such as Department of Public
Safety. He provided an example. He was not sure of a total
cost savings as a result of video conferencing. He also
explained that under the American Disabilities Act the
Court was required to provide sign language interpretation,
which could be done with little notice using video
conferencing.
Co-Chair Johnston thought the legislature had expanded the
Court System's video conferencing abilities in the previous
year's budget.
Mr. Wooliver replied in the affirmative. He concurred that
it was a great benefit.
3:14:02 PM
Vice-Chair Ortiz referred to the first line of the cost-
savings measures on slide 7. He queried the opportunity
costs to the public and the workforce, related to losing 60
positions within the system.
Mr. Wooliver replied that "it hurts. There was always a
downside to being short-staff. He suggested, however, when
running lean, made for more efficiencies.
Representative Carpenter was curious to know how many of
the court hearing for pre-trials were occurring via video
conferencing.
Mr. Wooliver asked for clarification.
Representative Carpenter clarified.
Mr. Wooliver agreed to provide that information.
Mr. Wooliver moved to slide 8, " Operating Budget Outcomes
(GF)":
$1,674,600 3 percent Salary Increase
$393,800 Facility O and M Increases
$(334,700) Appellate Court Budget Veto
$1,733,700 FY20 Operating Budget Change
Representative Josephson asked about the veto for
Therapeutic Courts.
Mr. Wooliver responded that the increment requests were
also vetoed by the governor. He included the veto to show
the net difference from the year prior.
3:19:41 PM
Mr. Wooliver turned to slide 9 showing the FY 21 operating
budget increases in general funds funding. He read the
items on the slide and provided background information for
each item:
FY21 Operating Budget Increases (GF)
$ 578,700 1 percent Salary Increase
$ 334,700 Restore Appellate Court Budget
$ 364,500 Appellate Court Resources
$ 250,000 Court Business on Friday PM
$ 220,500 Facility O and M Increases
$ 130,000 Deputy Therapeutic Courts Coordinator
$ 290,000 GF Funding for Mat-Su Therapeutic
Courts
$ 113,900 Executive Branch Services $2,282,300
Total FY21 Alaska Court System GF Request
Mr. Wooliver continued to explain the items on slide 9,
"FY21 Operating Budget Increases (GF)":
$578,700 1 percent Salary Increase
$334,700 Restore Appellate Court Budget
$364,500 Appellate Court Resources
$250,000 Court Business on Friday PM
$220,500 Facility O and M Increases
$130,000 Deputy Therapeutic Courts Coordinator
$290,000 GF Funding for Mat-Su Therapeutic Courts
$113,900 Executive Branch Services
$2,282,300 Total FY21 Alaska Court System GF Request
3:23:48 PM
Mr. Wooliver stated that the other part of the request was
tied to legislation - $230,000 for pro tem judges to work
through the backlog. The first choice was SB 55 introduced
by Senator David Wilson for a fourth judge - if the bill
passed the request would go away. He highlighted an
increment for court business on Friday afternoons -
$250,000. There had always been some vacancies and the
court had been able to do some things on Friday afternoons
that it would like to continue. He provided examples
including grand juries, arraignments, and other. The courts
would like to include the money in its base budget to
continue the work. There were numerous benefits to being
closed on Friday afternoons.
Mr. Wooliver continued to review increments on slide 9. He
highlighted the facility increases. He also noted the
executive branch services costs and the costs to the Alaska
State Museum Achieves for the storage of court documents.
3:30:33 PM
Representative Carpenter asked who decided whether a case
was ready to be briefed.
Mr. Wooliver explained that the cases were not ready for
the court, because the attorney had not yet prepared the
brief. He stressed that the period could be up to two
years.
Representative Carpenter felt that the delay was a problem,
but commented that it was a conversation for another day.
Mr. Wooliver agreed that the delay was a huge problem.
Representative Sullivan-Leonard returned to the issue of
Friday afternoon closures. She wondered about the overtime
hours. She wondered whether those employees were required
to work 37.5 hours or 40 hours per week employees.
Mr. Wooliver replied that those employees worked 36 hours
per week. noted that when the court moved to the closures
of Friday afternoon, they received a 4 percent reduction in
hours and a 4 percent reduction in pay. He agreed to
provide information about the total overtime costs.
Representative Sullivan-Leonard commended Judiciary for its
ability to adjust to the reductions with efficiency.
Mr. Wooliver mentioned the FY 20 supplemental request,
which were increased fees from FY 20.
Mr. Wooliver moved to slide 11, "Criminal Case Filing
Increases":
FY17 Felonies 6,198
FY19 Felonies 7,321 (Up 18.1 percent)
FY17 Misdemeanors 19,030
FY19 Misdemeanors 25,288 (Up 32.9 percent)
3:34:33 PM
Mr. Wooliver included slide 12 reflecting a useful summary
of the current finances of the Alaska Court System.
Co-Chair Foster reviewed the schedule for the following
Monday.
HB 205 was HEARD and HELD in committee for further
consideration.
HB 206 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| APFC Overview 13120 HFIN.pdf |
HFIN 1/31/2020 1:30:00 PM |
|
| 2020JAN_APFC_Newspaper-Insert.pdf |
HFIN 1/31/2020 1:30:00 PM |
APFC Overview Document HFIN |
| 2020_APFC Trustees' Paper Volume 9_S.pdf |
HFIN 1/31/2020 1:30:00 PM |
APFC Overview Document HFIN |
| FY 21 JUD Overview HFIN 013120.pdf |
HFIN 1/31/2020 1:30:00 PM |
|
| 2019-APFC-Annual-Report.pdf |
HFIN 1/31/2020 1:30:00 PM SFIN 1/31/2020 9:00:00 AM |
|
| FY 21 Judiciary Overview Answers to Questions.pdf |
HFIN 1/31/2020 1:30:00 PM |
JUD Responses to HFIN |