Legislature(2017 - 2018)HOUSE FINANCE 519
01/30/2018 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB287 | |
| HB213 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 287 | TELECONFERENCED | |
| += | HB 213 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 213
"An Act relating to the investment, appropriation, and
administration of the public school trust fund."
10:25:37 AM
Co-Chair Foster noted the committee had heard a brief
introduction on the bill on January 25.
Co-Chair Seaton MOVED to ADOPT the proposed committee
substitute for HB 213, Work Draft 30-LS0765\R (Glover,
1/26/18).
Co-Chair Foster OBJECTED for discussion. He asked the
sponsor to address the changes in the work draft.
REPRESENTATIVE JUSTIN PARISH, SPONSOR, provided a brief
introduction of the bill. The bill changed the way the
state managed the Public School Trust Fund and would allow
it to realize capital gains as income where appropriate,
always preserving the principal of the fund and allowing
for growth into the future. Moving to a more modern
management system would mean continued growth in the fund,
realize higher dividends, and a higher rate of earning. The
CS had several changes - one practical and a couple of
substantive changes. He deferred to his staff to address
the details.
LISA WORL, STAFF, REPRESENTATIVE JUSTIN PARISH, addressed
the summary of changes:
Page 2, line 10:
Delete "previous 10 fiscal years" and add "five fiscal
years preceding he previous fiscal year."
Page 2, line 31:
Add "Section 6. This Act Takes effect immediately
under AS 01.10.070(c).
Ms. Worl addressed the bill in its entirety by providing a
sectional analysis:
Section 1 (page 1, line 4): Amends AS 37.14.110 (c)
to state the commissioner of revenue shall determine
the net income of the fund in accordance with
accounting principles and that the principal shall be
perpetually retained in the fund for investment
purposes. The distinction between principal and
income and defining and maintaining the difference
between the funds is deleted.
Section 2. (page 2, line 9): AS 37.14.160 adds
section (5) to the duties to direct the commissioner
to determine the average monthly balance for the
public school trust fund based on the monthly average
market value of the fund for the previous 10 fiscal
years.
Ms. Worl elaborated that Section 2 added a lag-year with
the word preceding. She continued to review the sectional
analysis:
Section 3. (page 2, line 11 16): Adds new section,
AS 37.14.165 relates to the use of the public trust
fund allowing the legislature to appropriate 4.75
percent of the amount determined by the commissioner.
Section 4. (page 2, line 19 and line 23): AS
37.14.170 further defines investment of the trust fund
management.
Section 5. (page 2, line 30): AS 37.14.140 is
repealed. This section had stated that the net income
of the fund could not be appropriated or expended.
This section was repealed as it did not allow for fund
to be managed with the POMV method.
Section 6. (page 2, line 31): Adds section 6 for Act
to take effect immediately.
Ms. Worl communicated she was available for questions and
listed others available in the room and online.
10:31:01 AM
Representative Guttenberg relayed that he had previously
asked for the history of the fund. He requested to hear
from the Legislative Finance Division (LFD).
ALEXEI PAINTER, ANALYST, LEGISLATIVE FINANCE DIVISION,
asked if Representative Guttenberg would like information
on the history of the fund.
Representative Guttenberg answered in the affirmative.
Mr. Painter obliged. He relayed that the fund had been
established in 1913 as a land trust from a congressional
grant to the territory of Alaska for public schools. In the
1970s the land trust had been converted into a cash trust,
creating the fund as it is at present. At that point, all
the public school trust lands were merged into general
state lands. A cash trust had been created that was
invested and 0.5 percent of royalties from minerals were to
be deposited into the trust in an attempt to make the trust
whole. Since then, the fund had initially been used for
capital projects, but was now mainly used in the formula.
Given investment strategies in the 1970s at the time the
statute was written, there was deleted language in Section
1, such that the only spendable amount coming from the fund
was dividends and other income. He stated that capital
gains could not be spent.
Mr. Painter explained that dividends and capital gains
(gains from selling stocks) went into the Permanent Fund
Earnings Reserve Account (ERA). The Public School Trust
Fund did not allow capital gains to be spent. As a result,
less was spendable every year and the Department of Revenue
(DOR) managed the fund in a way that perhaps did not
maximize the total return of the fund since stocks tended
to be where much of the value resided at present. Changing
the management of the fund to a percent of market value
(POMV) would likely increase the expected returns of the
fund because the management could be shifted away from some
of the dividend earning investments that may not be as
strong. Additionally, the change would allow more to be
spent every year because the state could not spend the
dividends but could spend a more stable market value of the
fund. He noted there were also several lawsuits.
10:34:13 AM
Representative Neuman referenced Mr. Painter's testimony
that the fund had changed from a land trust to a cash fund.
He asked about the process.
Mr. Painter answered that at the time in the 1970s the
lands were managed as school trust lands and when the sales
happened the revenue was spent by schools. At that point
the new sales from land were deposited into a new fund. The
land trust had been liquidated and the lands had been added
to general state land. There was no distinction between
school and other state lands, except for some post-1980
that were transferred. The royalty deposit was intended to
take the place of trust lands that no longer belong to the
trust. He explained it had been the subject of part of the
Kasayulie law suit. At the time as part of the court's
ruling (which had been preempted by a consent decree later
on), the judge had determined that it was not possible to
determine whether the trust had been made whole by putting
the royalties instead of the lands unless the value of the
lands was known. The value of the lands was not known - it
was impractical to survey hundreds of thousands of acres in
small parcels across the state. The trust would remain in
perpetuity as long as the value of the lands was not known,
but if the state could spend in a sustainable way on the
correct things, it seemed to be fulfilling the trust's
purpose. He remarked that the Department of Law (DOL) could
provide further detail on the legal aspects.
Representative Neuman referenced the first paragraph in
section changes that read: "language that was removed in a
manner that preserves the distinction between principal and
income and excludes capital gains." He believed it was a
major change in the way management had been done. He
requested to hear from DOL. He stated the change allowed
the principal to be used for management purposes. He asked
for more detail.
10:37:02 AM
Representative Parish deferred to DOL.
BRIAN BJORKQUIST, SENIOR ASSISTANT ATTORNEY GENERAL,
DEPARTMENT OF LAW (via teleconference), responded there
were several mischaracterizations of the Public School
Trust, which he intended to clarify. He addressed Co-Chair
Neuman's question about what happened with eliminating the
capital gains in Section 1 of the bill. He explained that
the section still had the DOR commissioner determine the
net income and still preserved the principal of the fund,
which was perpetually retained for investment purposes. The
section changed that the capital gains or losses were
retained as part of the principal of the fund - the capital
gains would add to what could be spend or losses could
detract from what could be spent.
Representative Neuman stated that the change would allow
access to the principal for management of the fund. He
reasoned if there was a downturn for several consecutive
years of -4.75, it could be taken out of the fund
principal. He believed it went against the original intent
of the language.
Mr. Bjorkquist disagreed. He explained that the bill
specified that the principal of the fund shall be retained
for investment purposes. The principal of the fund could
not be spent for any purpose including administrative costs
of the fund.
Representative Neuman suggested that the state would have
to use part of the fund principal to fund the change in the
bill if the fund had negative investment years. He
questioned whether it was a change the legislature wanted
to make.
10:39:47 AM
Representative Pruitt was trying to understand how the fund
was currently managed and how the change would be made. He
referenced a handout in members' packets provided by DOR
dated January 23, 2018 (copy on file). The handout showed a
table of projected payouts from FY 19 to FY 25. He looked
at a column labeled "status quo" and observed that the
amount in [FY 25] would be $825 million. Alternatively, the
5-year endowment proposed in the CS, the fund amount would
be $776 million [in FY 25]. He noted there was a change of
about $10 million per year in the amount available for
spending. He asked how the money was currently managed. He
wanted to understand how DOR was currently limited in its
ability to manage the fund and how the bill would allow the
fund to make more money.
Representative Parish deferred to DOR.
MIKE BARNHILL, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
provided a background on the evolving law and theory on the
management of trust funds and endowments. He believed it
was fair to say that the approach to managing trust funds
and endowments had changed substantially over the past 50
years. The state's statutes governing the Permanent Fund
and the Public School Trust Fund reflected a theory and
common law of managing trust funds that had been in place
quite some time ago. Since that time numerous things had
taken place. First, was the recognition that the overall
objective of managing a trust fund or endowment was to
preserve the inflation adjusted value of the fund
indefinitely. Previously, the idea had been to preserve the
notional value of principal indefinitely. The approach had
been modernized to make sure the principal adjusts with the
value of inflation. Preserving the value of principal alone
did not accomplish the objective.
Mr. Barnhill elaborated that over time the investment
theory regarding investment of trusts and endowments had
evolved from the notion that there should be relatively
risk-free securities, meaning the investment portfolio
would be heavily dominated with fixed income instruments,
had given way to a more aggressively invested portfolio
more weighted towards equities and growth in value. The
idea of what could be appropriated or spent from a trust
had evolved from the concept of income (cash in the case at
hand) delivered through dividends from equity instruments
and coupons from fixed income instruments, had given way to
the idea of delivering some distribution percentage from
the fund (in some cases 5 percent, or 4.75 percent in HB
213). The idea was to produce an inflation adjusted income
stream for the trust's beneficiaries. Over time there was a
stream of income that was relatively consistent and did not
erode the inflation adjusted value of the trust.
Mr. Barnhill expounded that much of the conversation about
the Permanent Fund had been focused on how to evolve the
management and the law governing the fund to a more modern
theory of endowments, which was equally applicable in the
case of HB 213. The statute regarding the exclusion of
capital gains in the public trust fund was also similar to
the Permanent Fund context. In 1981 or 1982, instead of
retaining net capital gains in the principal, the gains
were allowed to flow to the income fund. At that time, the
Permanent Fund had adopted inflation proofing. He spoke to
Representative Neuman's point about eroding the inflation
adjusted value of the trust. The way endowments avoid
eroding the inflation adjusted value of the trusts was to
set a distribution percentage in a way that ensured the
payment to beneficiaries was sufficient without eroding the
inflation adjusted value of the trust.
Mr. Barnhill addressed how the fund was managed currently.
In general, the asset allocation was heavily weighted to
fixed income compared to other trust funds administered by
DOR (55 percent equity/45 percent fixed income). Over the
past couple of years the allocation had been adjusted to
add in a real estate investment trust (REIT). He explained
that a REIT is a cash generating instrument that looked
like equities but delivered cash like fixed income. The
department had also added in a bit of high yield. He
detailed that if the bill passed, the department would
shift the asset allocation to be more heavily equity
weighted in order to generate a higher return profile over
time. The numbers on the DOR table mentioned by
Representative Pruitt reflected the idea that DOR would
shift closer to a 70/30 asset allocation (70 percent
equity/30 percent fixed income) with some adjustments to
have continued exposure to REITs and high yield.
10:47:30 AM
Representative Pruitt spoke to the bill's intent to
maintain the trust principal at an inflationary amount and
to allow for the amount to be spent to also increase at the
inflationary amount. The CS made a change from a 10-year
POMV to a 5-year POMV. He asked Mr. Barnhill for his
opinion on the change.
Mr. Barnhill answered that one of the challenges in the
midterm investment environment (the next ten years) was the
current long running bull market in equities. The
department's advisors, Callan Associates, and many other
advisors were concerned the market may be entering some
period of correction. He noted it was not possible to know
the timing - it could be any day or in three years. It
seemed plausible that at some point over the next 10 years,
the frothy returns the equity market had enjoyed over the
past several years would come to an end at least
temporarily. The department was being cautioned against
being optimistic about continuing to see the double-digit
equity return over the next 10 years.
Mr. Barnhill explained that the 10-year averaging made it
easier for the department to hit the objective of
preserving the inflation adjusted value of the trust over
that period. The 5-year averaging made it more challenging
if there was a period of market correction in the next 10
years. He added that Callan Associates and others present
their capital market assumptions on a 10-year basis (they
were more optimistic on a 30-year basis). While there was
some pessimism over the next 10 years about whether they
could hit their numbers with a 5-year averaging, over a
longer period it should be doable assuming basic elements
and performance of the equity markets persist over time.
Mr. Barnhill clarified that as drafted, the bill did not go
all the way to the legal structure of what was considered
to be the modern way to manage endowments and trusts. The
reason was because it continued to preserve the distinction
between principal and income. The objective of an endowment
is to preserve the inflation adjusted value of the trust
over time. The technical application of principal and
income may not succeed in that objective, which was the
reason laws had been updated to eliminate the distinction
between principal and income so the manager understood it
was not their job to preserve principal, but to preserve
the inflation adjusted value of the trust. He cited a 2010
law passed by the legislature as an example. The law was
called the Uniform Prudent Management of Institutional
Funds Act under AS 13.65. He detailed it was a model law
drafted by a professor with expertise in the legal rules
governing the administration of endowments and trusts. He
stated that AS 13.65 made the transition completely. He
read from statute:
If a trust is created with the distinction of
principal and income for purposes of this law, its
interpreted to mean a trust fund of indefinite
duration.
Mr. Barnhill explained that the distinction was eliminated
in the modern law of trusts.
10:52:20 AM
Representative Pruitt stated asked where to put weight in
terms of a long-term goal if the objective was to receive
more money at present or preserve the value of the fund.
Mr. Barnhill answered that the policy embedded in laws like
the Uniform Prudent Management of Institutional Funds Act
was the concept of balancing the interests of beneficiaries
today with the interest of beneficiaries in the future
(preserving intergenerational equities). He explained that
it preserved the inflation adjusted value of the trust
while maximizing a stream of income to current
beneficiaries. He explained that the numbers [on the DOR
table] reflected the view that by investing more
aggressively the fund would grow faster, the inflation
adjusted value of the trust would be preserved, and the
stream of revenue to beneficiaries would be maximized.
Vice-Chair Gara referenced the DOR handout. He observed
that it did not look like an either/or scenario where
either principal or rate of return were protected. He
referred to the 10-year endowment model and noted the value
of the fund went from $697 million in FY 19 to $808 million
[in FY 25]. He asked if his understanding was accurate.
Mr. Barnhill answered in the affirmative.
Vice-Chair Gara stated that the other goal of the sponsor
was to increase the amount of funding that went to public
education. While the fund value increased, by FY 24 the
annual payout under the 10-year endowment portion of the
bill would mean $31.5 million compared to the status quo
payout of $23.9 million per year. He asked for verification
that it would mean approximately $7.5 million per year in
additional funds for education.
Mr. Barnhill answered in the affirmative.
Vice-Chair Gara stated that a $100 increase in the Base
Student Allocation (BSA) was about $30 million and an extra
$7.5 million was an increase to the BSA of about $25. He
stated that in endowments if a certain amount was taken out
annually, there may be some years where money had to be
taken from the principal, but over the long-term the
principal and payout grew. He asked why there would be a
limitation that prevented dipping into the principal in a
bad year.
10:56:54 AM
Mr. Barnhill referenced the table provided by DOR and
replied that 10-year endowment was the department's way of
reflecting the averaging or lookback. The bill had
initially included a 10-year lookback, which had been
changed to a 5-year lookback in the CS. He explained that
the 3-year was the lookback for multiple trust funds
administered by the department. Modern endowment theory did
not ask whether the value of the principal was being
invaded, but whether the inflation adjusted value of the
trust was being preserved. He pointed to the 10-year
endowment column with a starting balance of $697 million.
He spoke to the inflation adjusted value preserved
indefinitely through time. He detailed that Callan
Associates had a 10-year inflation projection of 2.25
percent, which had recently been increased to 2.26 percent.
He explained that the 10-year endowment approach preserved
the $697 million on an inflation adjusted basis for the 5-
year timeline and indefinitely.
Mr. Barnhill reported that it was plausible there would be
a down market in the future. He noted there would be points
in time when the inflation adjusted value was not
preserved. The overall objective of endowment law was to
preserve the inflation adjusted value indefinitely. He
stated there were multiple ways to correct for a period of
time where there was a drawdown or a correction in the
markets and the inflation adjusted value of the trust
decreases. Options included staying the course with the
understanding that the market may come back, which it often
did, or the distribution percentage could be adjusted
temporarily from 4.75 percent downward for a couple of
years to see if the inflation adjusted value corrected. It
was not fatal. There were other ways of correcting for the
issue. The fact there was a period where the current value
was less than the inflation adjusted value. He explained
the situation was not fatal.
11:00:16 AM
Vice-Chair Gara shared that he was in favor of the bill. He
asked Mr. Barnhill to provide a written document specifying
the impact of doing a traditional endowment model seeking
long-term gains and where there was not significant concern
over one or two years of a decline in principal.
Mr. Barnhill answered that if it was a legal question he
preferred to defer to DOL. He stated if it was a trust
question...
Vice-Chair Gara interjected that it was a trust
administration question.
Mr. Barnhill responded the easiest thing was to refer
members to AS 13.65, which set out the factors to consider
in distributing from an endowment. The model statute said
that evaluating the prudency of how the factors were
evaluated and applied in a given year depended on what was
known to the manager at the time.
Vice-Chair Gara asked whether it would cause DOR concern if
he were to propose an amendment that removed the provision
specifying that the principal could never be dipped into,
meaning the fund would just be run as an endowment.
Mr. Barnhill answered that the committee could delete
Section 1, which would mean converting from a principal and
income fund to an endowment fund, which he believed would
be appropriate.
Representative Parish pointed to the language on page 2,
lines 12 and 13: "Each year, the legislature may
appropriate 4.75 percent..." He stated that if there were
ever a concern that the growth of the fund was hindered, it
would be the legislature's prerogative to allocate funds
from other sources. Given the high rate of returns enabled
by the legislation and the conservative 4.75 percent
proposed POMV draw over a 5-year lookback, he did not
anticipate any erosion of value except in exceptional
market circumstances. He reiterated that in those
circumstances the legislature had the option of drawing
less.
11:03:23 AM
Representative Neuman stated he was having difficulty
because land was a real property asset with a value that
increased and decreased. He recalled losing money on a
property in the 1980s because the value had gone down
considerably. He had no idea when looking at the forecasts
what the prior performance had been. He asked how the fund
had performed in the past 10 years - he did not know how to
make the comparison without the numbers. He wondered
whether the change would put more money in the fund or not.
He spoke to the value of the land and understood the
concept of going to cash, but the committee had heard from
LFD that the state did not know the value of the property
when it had been changed from a land trust to a cash fund.
He wondered if it could be a potential lawsuit. He asked
how the funds currently went into the system. He questioned
whether the funds came in as unrestricted general funds
(UGF). He reasoned that it would be difficult to see what
the funds were if they came in as UGF and were converted to
designated general funds (DGF).
Representative Parish relayed that the Public School Trust
Fund was a dedicated fund; it was a pre-statehood fund that
was a federal program. He deferred to Mr. Painter to answer
any concerns about the transition from a land trust to a
cash trust. He asked Mr. Barnhill to respond to the
question about long-term earnings.
11:06:13 AM
Mr. Barnhill answered that as indicated by Mr. Painter, the
fund had started out in 1913 as a land trust. In 1978 the
land trust element was extinguished by the legislature and
it was converted entirely to a cash asset portfolio.
Currently there was no land in the trust fund - the fund
was roughly allocated between 55 percent equity and 45
percent fixed income. The fund was also invested in REIT
securities (which was not land) and high yield. He
discussed unaudited returns as of December 31, 2017. The 1-
year return was 13.79 percent, the 3-year return was 6.74
percent, the 5-year return was 7.36 percent, and the 10-
year return was 6.23 percent. He offered to compare the
returns to the Power Cost Equalization (PCE) Fund, which
DOR administered more on an endowment approach. As of
December 31, 2017, the 1-year PCE return was 16.02 percent,
the 3-year return was 7.7 percent, the 5-year return was
10.3 percent, and the 10-year return was 7.04 percent. He
offered to provide a copy to the Co-Chair Foster for
distribution.
Representative Neuman requested the past performance in
writing. He remarked on the difference between investing
the $1 billion PCE Fund compared to the $22 million Public
School Trust Fund.
Mr. Barnhill clarified that the Public School Trust Fund
was a $670 million fund. He recognized the fund was smaller
than the PCE Fund, but not that much smaller.
11:08:46 AM
Mr. Painter responded to Representative Neuman's question
about how funding appeared in the budget. He explained that
the 0.5 percent of royalties dedicated to the fund were
appropriated but did not appear in the budget just as the
royalties going to the Permanent Fund did not show up. The
spending from the fund as a dedicated fund showed up as
"other," which would not change in the bill. Both the Mount
Edgecumbe and K-12 formula components showed up as other
funds. There was no UGF because of the pre-statehood
dedication.
Co-Chair Neuman asked if the [indecipherable] used UGF of
DGF.
Mr. Painter answered "other."
Co-Chair Seaton referenced Mr. Barnhill's testimony that
the 10-year endowment model preserved the inflation
adjusted value over a 10-year period. He asked if the 5-
year lookback that was used by the Permanent Fund also
preserve the inflation adjusted value over the same amount
of time.
Mr. Barnhill answered that for the 10-year lookback the
inflation adjusted value at current Callan Associates
capital market assumptions was preserved for all periods of
time. For the 5-year approach and 10-year window using
current Callan capital market assumptions, the inflation
adjusted value of the trust fund narrowly missed. Inflation
adjusted value was restored in Callan's 30-year projection
for capital markets was closer to 8 percent as opposed to
6.5 percent. The pessimism embedded into Callan's 10-year
projections created the issue for the 5-year approach. He
added that the issue was also true for the 3-year approach.
11:11:19 AM
Representative Guttenberg considered the interest earned in
a year over the payout plus inflation proofing. He noted
that Mr. Barnhill had discussed that in some of the years
it was considerably higher. He asked if the interest that
went back into the fund was considered principal.
Mr. Barnhill replied there were two paradigms he was trying
to distinguish. He referred to the principal income
paradigm as the legacy paradigm. In the Permanent Fund
context there was familiarity and comfort with the concept
of inflation proofing because the legislature had decided
to explicitly inflation proof through an appropriation back
from the ERA to principal. In the Public School Trust Fund
the legacy approach did not do that explicitly because the
statutory definition of principal included capital gains.
He speculated that the drafters of the approach believed
the retention of capital gains was some form of inflation
proofing. In other words, in the legacy approach for the
Public School Trust Fund, there was not any explicit
inflation proofing because capital gains and principal were
retained, which was different than the Permanent Fund.
Mr. Barnhill addressed the modern paradigm the bill tried
to move towards and explained that the inflation adjustment
was implied through the distribution percentage of 4.75
percent. The notion was to balance the payouts in a way
that preserved the inflation adjusted value of the trust
over periods of time.
Representative Guttenberg asked what Callan Associates and
two of their competitors would recommend on the 5-year or
10-year endowment concepts.
Mr. Barnhill did not want to put words in Callan's mouth.
He speculated that Callan would observe that that the
principal and income structure to trust funds was long
outdated and the majority (if not all) endowment funds
operate on an endowment methodology or POMV approach. He
referenced the 10-year, 5-year, and 3-year lookback periods
and ventured that Callan would observe that with their
current capital market assumptions for the next 10 years
that the 10-year averaging approach worked, and the 5-year
approach narrowly missed, but over longer periods of time
would restore inflation adjusted value and the same was
true for the 3-year approach.
Representative Guttenberg surmised that Callan would say it
was up to the client.
11:15:07 AM
Co-Chair Foster WITHDREW his OBJECTION to the adoption of
the work draft.
Representative Neuman asked why the approach had been
changed from 10 to 5 years.
Representative Parish answered that he had originally
proposed the 10-year lookback. On advice by Mr. Painter he
had included a lag-year to provide greater predictability
to know what level of funding was coming. He recognized
going to a 5-year lookback was a more aggressive option,
but it was familiar to the bulk of the Alaskan population
through the Permanent Fund program and it was more in line
with what the other body [Senate] may be supportive of. He
stated that for the past 20 years the Public School Trust
Fund had tripled in nominal value. He believed it was
fantastic and that robust growth in the state's funds was
valuable; however, he thought that it fundamentally
departed from the purpose of a trust, which was to preserve
the inflation adjusted value, while maximizing dividends to
beneficiaries. He believed either the 5-year or the 10-year
lookback achieved the objective. There was a strong
argument to be made that the 5-year lookback did a superior
job, if at the expense at limiting the rate that inflation
adjusted value was beat.
11:18:00 AM
Representative Neuman requested to see the numbers behind
the reasoning the change had been made to 5 years. He
mentioned perhaps a 7-year or 8-year approach should be
considered. He noted there was a reason the sponsor had
changed to the 5-year approach and he assumed it was
because the numbers looked better.
Representative Parish was sensitive to the concern, which
was the reason he had originally proposed a 10-year
lookback. He would provide the requested information in
writing.
Co-Chair Foster wanted to make sure there was time for
public testimony. He noted that no one was signed up
online.
Vice-Chair Gara referenced discussion about going back to
the Callan model with POMV and no ban on going into the
principal in one year or another. He asked if it would mean
deleting Section 1 of the bill.
Mr. Barnhill replied that if the legislature wanted to
convert the trust from a principal and income fund to a
modern endowment fund, it would mean deleting Section 1 of
the bill.
Vice-Chair Gara requested the information asked for by
Representative Neuman. He was interested in the numbers for
a 7-year and 8-year approach.
Representative Parish replied that he would provide the
information.
11:20:21 AM
Representative Pruitt remarked that the CS also made the
changes effective immediately. He asked if it would enable
DOR to shift the asset allocation immediately.
Mr. Barnhill believed the intention was two-fold. First,
DOR would shift the asset allocation as soon as prudently
possible from a 55 percent [equities]/45 percent [fixed
income] to a 70 percent [equities]/30 percent [fixed
income] allocation. There could be difficulties in making
the shift immediately depending on the market conditions;
the shift should not be done at the wrong time. He believed
the other intention was to appropriate for purposes of FY
19 pursuant to the distribution percentage as opposed to
the current method.
Representative Parish added that the primary objective was
realizing a high rate of return from its assets. The
state's asset managers had communicated that higher returns
could be achieved on the $670 million fund if they were
provided more management discretion. He believed it was
better done sooner rather than later. The difference in
earnings would be in the thousands of dollars per day if
the market behaved as was expected. The difference between
an immediate effective date versus 90 days after passage
would be measured in the hundreds of thousands of dollars,
which he believed merited consideration by the legislature.
He thanked the committee.
11:22:53 AM
Co-Chair Foster WITHDREW his OBJECTION to the adoption of
the work draft.
There being NO further OBJECTION, Work Draft 30-LS0765\R
(Glover, 1/26/18) was ADOPTED.
Co-Chair Foster OPENED and CLOSED public testimony. He
relayed that amendments were due on Friday.
HB 213 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster addressed the schedule for the following
meeting.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 213HFIN CS WORKDRAFT V.R.pdf |
HFIN 1/30/2018 9:00:00 AM |
HB 213 |
| HB 287 Anchorage School District - Bishop. Deena - Public Testimony 012518.pdf |
HFIN 1/30/2018 9:00:00 AM |
HB 287 |
| HB 213 Summary of Changes Ver. U to Ver. R.pdf |
HFIN 1/30/2018 9:00:00 AM |
HB 213 |
| Sectional Analysis HB 213 - version 30-LS0765-R.pdf |
HFIN 1/30/2018 9:00:00 AM |
HB 213 |
| HB 287 PublicTestimonyPiazza20180125.pdf |
HFIN 1/30/2018 9:00:00 AM |
HB 287 |
| HB 287 NEA-Alaska letter of support HB287.pdf |
HFIN 1/30/2018 9:00:00 AM |
HB 287 |
| HB 213 Response Qs HFIN-DOR re HB 213 2-3-2018.pdf |
HFIN 1/30/2018 9:00:00 AM |
HB 213 |