Legislature(2001 - 2002)
03/13/2001 10:02 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE BILL NO. 93 "An Act relating to the Arctic Winter Games Team Alaska trust; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Senator Phillips, sponsor, noted that the Department of Revenue had technical suggestions. He spoke to the bill, giving the 30-year history of the Arctic Winter Games, established by the Commissioners of the Yukon and Northwest Territories of Canada, and Governor Hickel of Alaska. Senator Phillips shared that funding for Alaska's participation in the Games must be secured annually, and that there have sometimes been difficulties. He said he therefore introduced this legislation, which establishes a trust similar to the Alaska Children's Fund and would be called The Arctic Winter Games Team Alaska endowment. He assured that once the endowment is established, there would be no further annual requests for funding the Games. He explained that the interest from the endowment would fund Team Alaska and the Games themselves when hosted in Alaska. He noted that the Games are next scheduled for Alaska in 2006. DAN SULLIVAN, Development Director, Arctic Winter Games Team Alaska testified via teleconference from Anchorage about his involvement, both as an athlete and as an organizer and board member. He relayed past difficulties in receiving funding. He stated that the goal of this legislation is to provide a manner in which the group could remain viable long into the future without continuous state funding. He gave the history and participation of Alaska in the games. He thought that establishing the trust account, similar to the Alaska Children's Fund, would benefit the Games. Mr. Sullivan spoke to the importance of preserving the cultural aspect of the many sports included in the games. He stated that this one-time investment would allow state funding in the future to be allocated to other uses. Mr. Sullivan asserted that sports are an effective deterrent against teen smoking. He suggested that the legislature consider allocating approximately one-percent of the tobacco settlement funds to the Games, which keep young people involved in athletics. He also noted that the athletes represent Alaska and the entire United States as well, as Alaska is the only state that participates. Unlike other countries, he stressed that Alaska's athletes themselves pay approximately one-third of the cost of participating in the bi-annual games. He noted that each athlete would be charged approximately $1000 to participate in the upcoming Games held in Greenland if the current funding level remains unchanged. He surmised that many rural athletes would be unable to participate due to the cost. Senator Leman referred the $5 million appropriation from the state. However, he noted large financial participation from business and individuals for the Special Olympic Games. He asked if the witness thought the Arctic Winter Games could generate similar enthusiasm and if the $5 million could come from private and corporate donations. Mr. Sullivan replied that while there would be some private input, it would not equal the amount obtained by the Special Olympics World Games, held in Alaska during the current year. This he said is due to the lower profile of the Arctic Winter Games. He pointed out that the Special Olympics involved 80 countries, obtained approximately $8 million in federal funding, and had large exposure from US Senator Ted Stevens. He qualified that when the Arctic Winter Games are held in Alaska, their profile does increase, but when the Games are held elsewhere, corporations do not see the publicity benefits. Senator Olson asked the sponsor how many athletes and personnel are involved in the Games. Senator Phillips replied that approximately 2,000 athletes and 1,500 to 2,000 personnel are expected to participate in the upcoming Greenland Games. He noted that Alaska has the largest contingency, with 328 athletes. He stressed that the Games are the 2nd largest winter sporting event in the world. Mr. Sullivan reiterated that Alaska has approximately 330 athletes, plus 30 to 40 coaches and support staff, from 40 to 50 communities, travel to the Games. Senator Phillips added that the prior Games, held in Eagle River, Alaska cost approximately $2 million of which 60 percent were privately raised funds. Mr. Sullivan affirmed. Senator Phillips noted that when the Games were held in Chugiak in 1996, the Municipality of Anchorage donation of $100,000 was paid back. Senator Austerman asked for an explanation of how the trust would operate. He wanted assurance that only the interest earnings of the trust would be used. He also wanted to know when and where the $5 million is accounted since it is not included in the fiscal note. LEE LIVERMORE, Chief Investment Officer, Department of Revenue, Treasury Division, Department of Revenue, explained that the trust is set up with a $5 million endowment. He said that the funds would be invested with long-term goals. He clarified that the interest payments are not actually used to annually fund the Games, but rather the market value is calculated, and the trust has the ability to pay out up to five percent of that value each year. He noted that the trust would hopefully grow enough to allow a larger pay out in the years the Games are held in Alaska. Mr. Livermore described two ways to handle the trust, one that focuses on short-term goals, such as income. However, he recommended that because of the long-term needs of the Games, the trust should be managed so that the market value grows. He explained that by establishing this trust to focus on market value, more funds would be invested in the stock market and with a focus to appreciate over time. This, he said, protects the trust from inflation as well as providing an annual appropriation. Ms. Livermore expressed that the funds would be invested similarly to how pension funds are invested. He stated that if the goal were to achieve a 5.25 percent real rate of return, the same as the pension fund, the trust would invest 50 percent in US stock, 20 percent in international stock, with the remainder invested in the bond market. Senator Austerman referred to a Department of Revenue spreadsheet with an assumed 8.495 percent each year in total returns, with five percent used to fund the Games. [Copy on file.] He asked if the projected earnings were based on an average rate of return and what would happen if the annual rate dropped below 8.495 percent. Mr. Livermore replied that the figures are based on a three-year average on the market value of the fund. He explained that this takes into account volatility in the return, particularly in the stock market. He pointed out that while the previous year was poor, it followed five high years and therefore the average was not affected as dramatically. Co-Chair Kelly asked if the proposed changes from the Department of Revenue were included in the committee substitute. Senator Phillips replied they were not. Co-Chair Kelly requested that a new committee substitute be drafted to address the changes. Senator Austerman repeated his question as to the source and date of the $5 million appropriation. Senator Phillips responded that a special appropriation would be necessary to establish the fund. He reiterated that this trust would employ the same method as the establishment of the Alaska Children's Fund. Senator Green read from page 1, of the bill, starting on line 12, "The commissioner of revenue shall manage the trust as an endowment, with the goal of ensuring that the purchasing power of the trust will not diminish over time without regard to additional contributions that may be made to the trust." She wanted to know if this is standard language. NEIL SLOTNIC, Deputy Commissioner, Department of Revenue, replied, "that is consistent with modern endowment theory - how endowments for universities, for hospitals, for large institutions are managed." He explained that the intent is to manage for "real rate of return," or adjusting for inflation, and to protect the purchasing power of the endowment itself so it does not diminish over time. He stated that this is to let the beneficiaries of the endowment know the consistent payout would be from year to year. Senator Green commented if she were an Arctic Winter Games' proponent, she would not want the state closely tied to the management of the trust as proposed in the legislation. She noted the Department of Revenue would collect a four or five percent administration fee and suggested that the fund could be managed privately. Mr. Sullivan responded that because the state founded the Games, "maintaining that tie was probably appropriate." He stressed that the governments of the different regions all participate, with Lieutenant Governor Fran Ulmer serving as Alaska's representative to the Games. He added that the international committee that governs the Games, work closely with all pertinent government entities. Mr. Sullivan shared that it was initially considered whether the trust should be independently managed, but it was decided that, given the 30-year history, the state should continue to be involved. He stated that the trust could be managed either way, but warned that if the trust were managed privately, there would be similar management fees from the private manager as well. Senator Green understood Mr. Sullivan's explanation but questioned why the state should be involved when the organization could establish its own board of trustees, charter and other measures to ensure independence from the state. Co-Chair Kelly ordered the bill HELD in Committee.