Legislature(2003 - 2004)

04/27/2004 09:02 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     CS FOR SENATE BILL NO. 379(JUD)                                                                                            
     "An Act providing that public members of the Board of Trustees                                                             
     of the Alaska Permanent Fund Corporation may be removed only                                                               
     for cause; and providing for an effective date."                                                                           
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair Wilken explained  that this legislation, which is sponsored                                                            
by the  Senate Rules  Committee by  Request of  the Governor,  would                                                            
provide  the  process   through  which  an  Alaska  Permanent   Fund                                                            
Corporation Board  of Trustees public board member  could be removed                                                            
for cause.                                                                                                                      
MIKE BARNHILL, Assistant  Attorney General, Commercial/Fair Business                                                            
Section,  Civil Division  (Juneau), Department  of Law, stated  that                                                            
under  current law,  a public  Board member  could  be removed  from                                                            
their position  on the Board for any  reason provided the  reason is                                                            
presented  in written  format. This  bill would  change the  current                                                            
scenario in that  a Board member trustee could only  be removed "for                                                            
cause."  He stated  that the  bill defines  "for cause"  to be  such                                                            
things as "inefficiency,  misconduct  in office, neglect  of duties,                                                            
and  conviction   while   in  office  of   crimes  involving   moral                                                            
turpitude." The current  process is detrimental to the effectiveness                                                            
of  the  Board  as  there  is value  in  maintaining  institutional                                                             
knowledge and continuity of management of the $28 billion fund.                                                                 
Co-Chair  Wilken  asked  for  clarification  that  Mr.  Barnhill  is                                                            
speaking of language  in the Judiciary version of  the bill, Version                                                            
Mr. Barnhill concurred.                                                                                                         
Mr. Barnhill  stated that the bill  would allow the aggrieved  Board                                                            
member, through  a hearing  process, to present  witnesses  on their                                                            
behalf,  with the  final hearing  decision regarding  their  removal                                                            
being filed with the Lieutenant  Governor. He also noted that during                                                            
the  bill's   progression  through   various  committees,   numerous                                                            
questions  regarding  the  hearing  process arose.  In  response,  a                                                            
forthcoming  committee  substitute,  Version  23-GS2142\H  has  been                                                            
developed  that would  streamline the  process by  aligning it  with                                                            
other current  "removal for  cause" statutes  that do not require  a                                                            
hearing process,  as detailed  in the "Other  Alaskan Statutes  'For                                                            
Cause' Removal Provisions"  handout [copy on file] that was compiled                                                            
by the Department  of Law. The streamlined  process would,  were the                                                            
Member  to challenge  the  reason for  removal, involve  the  Alaska                                                            
Court System in the final determination process.                                                                                
Co-Chair  Green moved  to adopt  the Version  23-GS2142\H  committee                                                            
substitute as the working document                                                                                              
There being no  objection, the Version "H" committee  substitute was                                                            
adopted as the working document.                                                                                                
ROBERT  STORER,  Executive  Director,  Permanent  Fund Corporation,                                                             
Department   of  Revenue,   explained   that  typically   it   takes                                                            
approximately  two years  for a  Board member  to become  thoroughly                                                            
educated  on Board  matters. The  six-member Board  consists of  two                                                            
Cabinet members  one of whom is the  Commissioner of the  Department                                                            
of Revenue, and  four members who are appointed by  the Governor and                                                            
who serve four-year, staggered  terms with one Board member position                                                            
expiring  on June  30th  of each  year.  The Alaska  Permanent  Fund                                                            
Corporation  has not  been afforded  the protection  of removal  for                                                            
cause, as have other Boards.                                                                                                    
Mr. Storer shared  that on two different occasions,  five of the six                                                            
Board  Members have  been replaced  when a new  Administration  took                                                            
office. He could  not say that this has disadvantaged  the Permanent                                                            
Fund Corporation;  however,  due to the maturity  level of  the Fund                                                            
and  the  length  of  time  that  is  spent  regarding  the  various                                                            
investment approaches,  adoption of this policy would be beneficial.                                                            
The Corporation  believes  that "it  is very  important" that  Board                                                            
continuity  occurs in order  for the education  and knowledge  to be                                                            
gained in  some systemic  manner. He noted  that the Governor  Frank                                                            
Murkowski Administration  retained  two Board members and  appointed                                                            
others who had  a previous or related experience with  the Permanent                                                            
Fund Corporation.  This provided a very smooth transition  to occur.                                                            
Any  new  Administration  would  have the  ability  to  replace  two                                                            
members immediately,  one being the  Commissioner of the  Department                                                            
of Revenue  and the other  being the Cabinet  member. An  additional                                                            
replacement would be possible on June 30th of that year.                                                                        
Mr. Storer  also  observed that  new Board  members  learn far  more                                                            
quickly  when  allowed  to  gleam  knowledge   from  existing  Board                                                            
members. While  numerous State boards  operate with the removal  for                                                            
cause component, he urged the Committee to support the bill.                                                                    
Senator Hoffman,  noting that the  Version "D" committee  substitute                                                            
incorporated the  definition of "for cause" but the  Version "H" did                                                            
not,  asked whether  the definition  of  "for cause"  exists  within                                                            
State statute.                                                                                                                  
Mr. Barnhill  responded that were  a lawsuit filed by the  aggrieved                                                            
Board  member,  the  Alaska  Court  System  would apply  a  test  to                                                            
determine whether the reason  was capricious, arbitrary, or illegal.                                                            
If the  determination  were that  none  of those  applied, then  the                                                            
determination  would be  that it was  valid. This  is a "common  law                                                            
defined term."                                                                                                                  
Senator  Bunde spoke  in support  of the  bill as  should there  "be                                                            
mischief at foot"  and were a Governor to replace  all Board members                                                            
with people  he could control, there  might be a way to "manipulate                                                             
the dividend to the detriment…of  the overall investment goal of the                                                            
Permanent Fund."                                                                                                                
Senator  Bunde  moved  to  report  the  bill   from  Committee  with                                                            
individual recommendations and accompanying fiscal notes.                                                                       
There  being  no  objection,  CS  SB  379(FIN)   was  REPORTED  from                                                            
Committee with zero fiscal  note #2, dated February 4, 2004 from the                                                            
Department  of Law and zero fiscal  note #3, dated February  6, 2004                                                            
from the Department of Revenue.                                                                                                 

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