Legislature(2001 - 2002)

03/13/2001 10:02 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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.                                                                              
                                                                                                                                

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