Legislature(2023 - 2024)ADAMS 519
05/04/2023 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Adjourn | |
| Start | |
| SB98 | |
| SB25 | |
| HB125 | |
| HB38 | |
| HB81 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 25 | TELECONFERENCED | |
| += | HB 125 | TELECONFERENCED | |
| + | HB 81 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 98 | TELECONFERENCED | |
| += | HB 38 | TELECONFERENCED | |
SENATE BILL NO. 98
"An Act relating to state ownership of submerged land
underlying navigable water within the boundaries of
and adjacent to federal areas; and providing for an
effective date."
1:45:40 PM
Co-Chair Foster discussed the agenda. He began the meeting
with a continuation of SB 98 from the morning meeting. He
noted that the committee would continue hearing the SB 98
fiscal note from the Department of Revenue (DNR). He
explained that the department could lose $1.179 million if
the bill was adopted. The department wanted to backfill the
loss with Undesignated General Funds (UGF). He relayed that
he had discussed the situation with the bills sponsor and
determined that there were two options. There was a
possibility to zero out the fiscal note or keep the fiscal
note as is with a one year transition period to offer the
department time to figure out ways to backfill the funding
or request and justify the full amount again in the FY 2025
budget. He preferred the one year transition option.
1:47:14 PM
PAM LEARY, DIRECTOR, TREASURY DIVISION, DEPARTMENT OF
REVENUE, explained the basis for the fiscal note. She
delineated that the division managed $48 billion in
investments and had a budget of roughly $11.7 million for
FY 24. The cost allocation plan divided all costs that
equated to its total budget among all the funds it managed.
She elaborated that around 80 percent of the funds the
treasury managed were the Alaska Retirement Management
Board (ARMB) funds and the remaining funds were treasury
funds like the Power Cost Equalization Fund (PCE), Public
School Funds and a whole host of other funds that were
funded through UGF. The fiscal note was an estimate and was
based on the $1.178 million that was calculated to manage
the fund based on the cycle. However, with the current
lower value of the fund the amount was approximately $900
thousand. She informed the committee that treasury charged
endowment type funds a maximum floor of 10 basis points.
She shared that it was an efficient way to manage many
funds. When a fund was removed, the costs needed to be
reallocated amongst the other funds. Because the funds were
funded by UGF, she merely changed the funding source in the
fiscal note. She elucidated that every year the division
calculated its cost allocation plan and reallocated funds
based on the assets under its management. Therefore, each
year management costs vary and PCE typically amounted to 2
percent of all the assets treasury managed, the two percent
would be reallocated among all the other funds it managed,
and they would be charged accordingly.
1:50:31 PM
Representative Josephson asked why the ARMB fund would be
charged more if the fiscal note was adopted. Ms. Leary
responded that in the future, the treasury would charge all
of the management costs out to all of the funds it managed
on a pro rata share, the retirement funds would have a
greater share of all the assets. She reminded the committee
that the divisions process was very efficient which kept
its costs very low when compared to other funds managed
elsewhere.
1:51:29 PM
Representative Hannan understood that the fiscal note
overestimated the costs in FY 2025 and in the outgoing
years the costs would be zeroed out. Ms. Leary responded in
the negative and explained that the treasury would still
need the $1.179 million to manage all of the funds that the
treasury managed. If one fund was taken away, there would
be fewer dollars in total to cover costs. Representative
Hannan asked for confirmation that there would still be a
need for additional UGF of an uncertain amount in the
future if there was a transitionary year to figure a way to
recover the costs. Ms. Leary responded in the affirmative
and reiterated that treasury refigured its cost allocation
plan each year. She maintained that each year was always a
guessing game. She exemplified the Constitutional Budget
Reserve (CBR) and noted that when the balance was large
there was more charges to all the underlying funds and in
particular UGF, which funded the CBR. She reported that as
the CBR diminished, more costs were charged to the
retirement funds. She reiterated that treasurys process
was efficient because they could manage hundreds of funds
with one team.
Co-Chair Foster understood that the fund source on the
fiscal note would switch from Designated General Funds
(DGF) to UGF. The revenue treasury gained from charging PCE
become DGF. He asked if all the other revenue from
investment charges would be UGF. Ms. Leary responded in the
negative. She explicated that that the retirement funds
were the source of funds for 80 percent of treasurys work,
which was not necessarily UGF, but the majority of the
costs would be UGF funded for the first year. She
characterized it as a simple approach since the treasury
budget was built on professional estimates. Typically,
treasury requested slightly more than estimated, factoring
in the amount the investments were expected to grow.
1:55:45 PM
Co-Chair Edgmon asked if she had a sense of when the PCE
fund would be transferred to the Permanent Fund if the bill
were to pass. Ms. Leary responded that it would occur
quickly after the bill took effect. She referenced the $200
million in losses suffered by the fund, and reminded the
committee that $50 million was in spending, totaling losses
of 15 percent. She communicated that as of the end of April
2023, PCE experienced about 7.5 percent in returns. She
reminded the committee of the volatility of the market and
that the funds were subject to market fluctuations. Co-
Chair Edgmon understood that the management team for all of
treasurys funds worked on a fixed cost basis and was not a
fee based third party contract oriented management. He
ascertained that treasury operated as a fixed cost in-house
management team. Ms. Leary responded that the majority of
the costs were fixed costs especially for PCE types of
funds. She expounded that there was a small amount paid in
management fees to companies such as SMP 500 for equities
and SCI for international equities, which were embedded in
the costs. The fees were based on the assets that were
managed but were very small and were spread across all
assets. She concluded that primarily all the divisions
costs were fixed.
Co-Chair Edgmon presumed that the cost allocation plan
happened at the beginning of the calendar year and not the
fiscal year. He deduced that if that were the case and the
fund was already transferred in July 2024, he wondered
whether the costs could be allocated amongst the other
funds and not require any UGF. Ms. Leary answered that the
division did the cost allocation plan just before the new
year and were currently engaged in the process. She
furthered that the majority of the transferred costs would
be UGF because they transferred costs to funds that were
being managed and supported by UGF. Some costs would be
allocated to the ARMB and other funds, but all costs would
be allocated out and PCE accounted for 2 percent of
management costs, therefore, the division would need a
funding source and some part of that would be UGF.
1:59:45 PM
Representative Josephson recalled Ms. Learys statement
that $978 million was the correct figure versus the $1.179
million. Ms. Leary answered in the affirmative and
indicated that 10 basis points of the current value would
be the amount that was spread among other costs.
Co-Chair Foster asked what the will of the committee
regarding the fiscal note was.
2:00:44 PM
AT EASE
2:02:02 PM
RECONVENED
2:02:14 PM
Co-Chair Edgmon asked if there was a way to take an
alternative approach to the fiscal note. Ms. Leary
responded that in terms of managing all the divisions
funds they needed the full amount of its budgetary request,
it was a question of how the costs were going to get
allocated. She furthered that for PCE and other endowment
funds, the division switched to charging a minimum floor of
10 basis points, which resulted in needing less UGF because
UGF did not support the bulk of the costs since other funds
were paying 10 basis points. She disclosed that the average
of all the treasury funds was 4 to 5 basis points of total
costs. She had been able to decrease reliance on UGF by
charging a minimum floor of 10 basis points. Removing one
of the funds caused all of the costs to return and would
primarily rely on UGF and in future years the costs would
be reallocated to all of the funds that the treasury
managed, which was also supported by UGF. She determined
that treasury needed its requested funding in order to
manage all of its funds, even if there was a reduction of
one or two funds to manage. Co-Chair Edgmon asked if there
was a scenario where the fiscal note could be zeroed out
and the department could request supplemental funding to
recoup costs. Ms. Leary responded that she did not see a
way to zero out the fiscal note unless she started firing
people. She thought the treasury was doing a good and
efficient job with the amount of funding it received and
zeroing out the fiscal note would harm its ability to
manage the rest of the funds.
Co-Chair Edgmon determined that he supported the fiscal
note and the benefits that could be derived from having the
Alaska Permanent Fund Corporation (APFC) manage the PCE
portfolio. He also supported the bill.
2:06:09 PM
Co-Chair Foster asked if Representative Galvin still wanted
to offer an amendment.
Representative Galvin responded that she was contemplating
offering the amount of $978 thousand for the fiscal note.
However, she did not want to slow the process down and the
amount might seem insignificant in the future. She
supported the fiscal note and the bill.
2:07:08 PM
Representative Stapp agreed with Co-Chair Edgmon and
Representative Galvin. He agreed that the value of
incorporating the fund into the Permanent Fund overrode the
fiscal note concerns. He commented that the APFC took up to
25 basis points to manage a fund versus DORs 10 basis
points. He wondered why DOR did not take higher basis
points off to cover management costs instead of requesting
GF. Ms. Leary responded that moving forward the treasury
was taking higher basis points in total for each fund
because there was less money in total that would be under
management. Representative Stapp commented that the basis
point number did not matter to him. He asked why she would
increase basis points and still need UGF at the same time.
He wondered why she would not merely increase the basis
points to the amount necessary to administer the funds and
not request UGF. Ms. Leary responded that the divisions
costs were fixed, and the basis points calculation occurred
after the costs were determined. She reiterated her answer
that by removing a fund the ten basis points charged
endowment funds needed to get funded through some other
fund and the remaining funds would have a higher basis
point calculation because they would be paying more for
treasury management then they had been. Representative
Stapp understood that removing $1 billion in assets under
management meant the division had to spread its
administrative costs to other funds due to less basis
points. He repeated his question regarding why she needed
to request increased basis points and increased UGF. He did
not understand and hoped for a concise answer for why both
were needed instead of just one. Ms. Leary responded that
she was not asking for additional basis points or more UGF
other than to fill the void in the budget created by
removing the management of PCE. Representative Stapp asked
why not take 13 basis points off the other funds to make up
the loss of assets under management. He asked if it was
possible. He reiterated that he did not understand why she
needed to increase both UGF and basis points. Ms. Leary
answered that it was because a large percentage of the
funds were supported by UGF. She maintained that most of
the funds were UGF funded therefore, UGF was needed to
manage a UGF funded fund.
2:12:18 PM
Representative Ortiz agreed with Co-Chair Edgmon's
sentiments and supported the bill. He asked how much of UGF
went to supporting the treasury annually. Ms. Leary
responded that the amount in FY 22 was nearly $1.8 million
of the total amount. She added that for FY 2024, the amount
decreased to $1 million, which included the PCE fund.
Representative Ortiz was confused by the answer. He
understood her answer as all the UGF used to support
treasury was the amount used to manage PCE. He asked
whether all the money was encapsulated in the $1.8 million
figure. Ms. Leary replied that the retirement plans
accounted for $8 million which was about 80 percent of the
divisions budget. The remainder was through UGF totaling
$1 million, PCE totaling $1.2 million, and the other funds
accounted for around $1.5 million from the Higher Education
Fund, Airport Systems, and the Public Schools Trust fund.
2:14:39 PM
Representative Galvin pondered if the fiscal note were to
be maintained as is in the out years, whether the cost
allocation plan was inclusive of the fiscal note. She
thought it might act as a disincentive to increase the
basis points. She asked why basis points would be increased
if the offset funding was included in the fiscal note. Ms.
Leary replied that the cost allocation plan allocated all
treasurys costs. The amount budgeted was the limit of what
the treasury could spend and as funds grew the divisions
expenses grew as well. She asked Representative Galvin to
repeat part of the question regarding incentives.
Representative Galvin asked what the incentive was to
increase the basis points so that UGF would not be
necessary. The cost impact over the loss of one fund made
sense for the current year. However, she wondered why it
was necessary in the oncoming years. If the fiscal note
stayed in place for the outyears, it would make it more
difficult to make changes that needed to be made to cover
the costs.
Co-Chair Foster interjected that fiscal notes were only
incorporated into the budget for the fiscal years budget
they were written to. In the current case, the amount would
be included in the FY 2024 budget during conference
committee. In subsequent years, the departments would come
before the legislature to request their budgets. He
detailed that DOR would still need to come before the
legislature and ask for funds for future years. The request
could be revisited every year.
2:18:41 PM
Co-Chair Foster thought that SB 98 was an example of a so
called simple bill proving that they were not always
simple.
Co-Chair Edgmon moved to was REPORTED out CSSB 98 (FIN) out
of committee with individual recommendations and the
accompanying fiscal note.
There being NO OBJECTION, it was so ordered.
CSSB 98 (FIN) was REPORTED out of committee with ten "do
pass" recommendations and one amend recommendation and with
three previously published fiscal impact fiscal notes: FN1
(REV), FN2 (REV), and FN3 (REV).
2:19:44 PM
AT EASE
2:21:28 PM
RECONVENED
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 81 Sectional Analysis .pdf |
HFIN 5/4/2023 1:30:00 PM STRA 3/21/2024 1:30:00 PM |
HB 81 |
| HB 81 Supporting Documents.pdf |
HFIN 5/4/2023 1:30:00 PM |
HB 81 |
| HB 81 Sponsor Statement.pdf |
HFIN 5/4/2023 1:30:00 PM STRA 3/21/2024 1:30:00 PM |
HB 81 |
| SB25 Fund Backup Information - LFD Presentation extract 050423.pdf |
HFIN 5/4/2023 1:30:00 PM |
SB 25 |
| HB 125 Public Testimony Rec'd by 050423.pdf |
HFIN 5/4/2023 1:30:00 PM |
HB 125 |