Legislature(2003 - 2004)

10/28/2003 07:00 PM Senate JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
        SJR 18-CONST. AM: PF APPROPS/INFLATION-PROOFING                                                                     
            SJR 19-CONST. AM: PERMANENT FUND INCOME                                                                         
                                                                                                                              
CHAIR  RALPH   SEEKINS  called  the  Senate   Judiciary  Standing                                                             
Committee  meeting  to  order  at 7:00  p.m.  Senators  Ogan  and                                                               
Seekins   were  present.   Chair  Seekins   noted  that   Senator                                                               
Therriault was  out of state  and Senators French and  Ellis were                                                               
participating  via   teleconference.  He   asked  Representatives                                                               
Chenault  and  Wolf  to  join  the committee  at  the  table.  He                                                               
informed members that  Senator Lincoln introduced SJR  19 and she                                                               
was  invited to  participate. He  then asked  Mr. Bartholomew  to                                                               
address the committee  and noted that members'  packets contain a                                                               
copy of Mr. Bartholomew's PowerPoint presentation.                                                                              
                                                                                                                                
MR.  BOB  BARTHOLOMEW,  Chief Operating  Officer  of  the  Alaska                                                               
Permanent Fund Corporation (APFC),  told members he would provide                                                               
an overview of  what the permanent fund looks like  today and how                                                               
the rules  governing the  permanent fund  work, and  describe the                                                               
proposal recommended by the APFC Board of Trustees.                                                                             
                                                                                                                                
MR.   BARTHOLOMEW  told   members  the   current  statutory   and                                                               
constitutional  authority of  the  permanent fund  says the  fund                                                               
should be a means of conserving  a portion of the state's revenue                                                               
from its  resources to benefit  all generations of  Alaskans. The                                                               
APFC believes  the current  system has worked  very well  for the                                                               
last  27 years,  but that  some  weaknesses need  to be  improved                                                               
upon.  He said  the proposal  before the  committee will  help do                                                               
exactly  what  the purpose  statement  purports:  to benefit  all                                                               
generations, both current and future.                                                                                           
                                                                                                                                
MR. BARTHOLOMEW  said the  permanent fund, as  of June  30, 2003,                                                               
contained  roughly $24  billion. Over  the last  four years,  the                                                               
amount has  ranged from $22  billion to  $26 billion, with  a $24                                                               
billion average.  The fund  has had  earnings and  a distribution                                                               
each year.                                                                                                                      
                                                                                                                                
The $24 billion fund is made  up of two components: the principal                                                               
and the earnings  reserve account.  The  earnings reserve account                                                               
is the portion  of the fund that is available  to the Legislature                                                               
for  appropriation.  On  June  30,  2000,  the  earnings  reserve                                                               
account contained $3  billion. That amount was  the balance after                                                               
dividends were paid  and the fund was inflation  proofed. On June                                                               
30, 2003,  the earnings reserve  account contained  $100 million.                                                               
He pointed out  the difference shows the volatility  of the stock                                                               
market over the  last few years. He noted in  the last few months                                                               
the stock market has gone up,  so the earnings reserve account is                                                               
now  worth close  to $400  million. The  Permanent Fund  Board of                                                               
Trustees  is  concerned about  the  amount  of movement  in  that                                                               
account,  and believes  that changes  to stabilize  it should  be                                                               
reviewed.                                                                                                                       
                                                                                                                                
MR. BARTHOLOMEW said  in 1978, 100 percent of  the permanent fund                                                               
was invested in bonds. The  original permanent fund statutes were                                                               
written  in 1978  and 1980.  Since then,  the permanent  fund has                                                               
become a very  mature, institutional fund with  large assets. Its                                                               
current investments  include stocks,  bonds and real  estate. The                                                               
original bonds  paid interest on  a regular basis;  that interest                                                               
was received monthly,  accounted for, and was  deposited into the                                                               
earnings  reserve  account.  Only  35 percent  of  the  fund  was                                                               
invested  in bonds  in  2002,  10 percent  was  invested in  real                                                               
estate and the remainder was  invested in U.S. and foreign stocks                                                               
and fixed income  from other countries, The  permanent fund grows                                                               
differently today. Based on the  rules written over 20 years ago,                                                               
one investment might be a  shopping mall in Washington, D.C. and,                                                               
although that property has increased  substantially in value over                                                               
15 years,  that increase  will not be  reflected in  the earnings                                                               
reserve  account  until  the  building is  sold.    The  trustees                                                               
propose  that  when  the  assets   are  increasing  in  value,  a                                                               
different  formula  should  be  used to  determine  how  much  is                                                               
available  from the  permanent  fund. The  fund  has matured  and                                                               
evolved  over  25 years,  and  the  trustees and  their  advisors                                                               
believe  the rules  governing  the fund  must  mature and  evolve                                                               
also.                                                                                                                           
                                                                                                                                
MR. BARTHOLOMEW said  the trustees have proposed  using a percent                                                               
of market value, known as the  POMV. The POMV would establish a 5                                                               
percent spending  limit on the  amount that  can be taken  out of                                                               
the permanent fund each year.  He said the proposal actually says                                                               
"up to 5  percent." That amount was determined  after reviewing a                                                               
study  of  over  650  college   and  university  foundations  and                                                               
endowments  throughout  the country.  Over  84  percent of  those                                                               
foundations and endowments  use some form of a  percent of market                                                               
value. The  percent ten years  ago was 50  percent.  He  said the                                                               
trustees came  to recognize 5  percent as the  appropriate amount                                                               
because its  policy goal  with permanent  fund investments  is to                                                               
earn a total return from all  assets of 8 percent. He pointed out                                                               
that the permanent  fund has earned as much as  12 percent in one                                                               
year but  also lost  money in 2001  and 2002. The  5 and  10 year                                                               
averages over the last 20 years show about a 9 percent return.                                                                  
                                                                                                                                
MR. BARTHOLOMEW repeated the Permanent  Fund Board of Trustees is                                                               
shooting  for an  8 percent  return. The  current projection  for                                                               
inflation is  3 percent, so the  objective of the proposal  is to                                                               
retain enough  money in the  permanent fund to cover  the effects                                                               
of  inflation.  Today,  that  amount  is  appropriated  from  the                                                               
earnings reserve account by the  Legislature each year. Under the                                                               
new proposal, 3 percent of the  8 percent return will be used for                                                               
inflation  proofing, leaving  5  percent. The  board of  trustees                                                               
believes 5  percent is  the sustainable amount  that can  be paid                                                               
out from the  permanent fund each year. Inflation  will vary, but                                                               
what tends  to happen  to the capital  markets when  inflation is                                                               
high is  that the total return  of investments goes up  also. The                                                               
Board of Trustees still would expect  the bottom line of what the                                                               
permanent  fund  will earn,  on  average,  to  be 5  percent,  in                                                               
addition  to  inflation, which  is  why  it is  recommending  the                                                               
spending limit  be set at  5 percent.  The fund will  continue to                                                               
grow for two reasons: enough  earnings will be retained to offset                                                               
inflation;  and oil  money  will continue  to  be deposited  each                                                               
year.                                                                                                                           
                                                                                                                                
MR. BARTHOLOMEW  said the  permanent fund  has earned  on average                                                               
7.8  percent per  year during  the last  10 years.  Inflation has                                                               
averaged 2.5  percent, giving  an overall  average growth  of 5.3                                                               
percent. The  fund has  earned over  6 percent  over the  last 20                                                               
years after  inflation. The  board believes  this proposal  is an                                                               
improvement. It will  protect the fund for  the future generation                                                               
and make  sure the benefits  reach the current generation.  It is                                                               
an improvement  because today the principal  and earnings reserve                                                               
are  accounted  for  separately,  although  the  entire  fund  is                                                               
invested in  the same  way. The board  proposes to  eliminate the                                                               
distinction between  the principal  account and  earnings reserve                                                               
account and create  one account that is protected by  a 5 percent                                                               
spending  limit. He  said the  first  major policy  call for  the                                                               
Legislature and  the public  is whether 5  percent should  be the                                                               
amount  of  the   limit.  The  second  policy   call  is  whether                                                               
"principal"  should be  eliminated from  the Alaska  Constitution                                                               
and replaced with a 5 percent spending limit.                                                                                   
                                                                                                                                
MR. BARTHOLOMEW said, regarding the  second policy call, the POMV                                                               
method would be  more protective of the fund  because the current                                                               
rules  allow the  Legislature to  appropriate the  amount in  the                                                               
earnings reserve. Therefore, when  the earnings reserve contained                                                               
$3  billion   in  2000,  the   entire  amount  could   have  been                                                               
appropriated. The  Trustees believes during the  good years, more                                                               
money should  be retained  in the  fund, not  spent. That  way, a                                                               
distribution  will still  be available  in the  "down" years.  He                                                               
said  it  would also  protect  the  option  of having  an  annual                                                               
payout. The primary use of  that payout historically has been for                                                               
dividends and  inflation proofing. Allowing spending  in the near                                                               
term would spend  into the fund during the "down"  years, but the                                                               
economy would be  negatively affected by no  distribution and the                                                               
amount spent could be made up  over time. In addition, a lot more                                                               
would be retained in the permanent  fund over time, more than the                                                               
amount to  cover. The  board feels  it is  important to  not only                                                               
have a spending limit during the  good years, but also not to let                                                               
it go  to zero  in the  bad years. The  board believes  that will                                                               
provide  better protection  for the  future because  the spending                                                               
limit will not  allow the Legislature to spend  more now, leaving                                                               
some for future generations.                                                                                                    
                                                                                                                                
MR. BARTHOLOMEW referred  to PowerPoint slide 5,  which shows how                                                               
the permanent fund  works and a four-year history  of the amounts                                                               
made  available for  the dividend.  Those amounts  have increased                                                               
from $800  million in  1998 to  $1.1 billion  in 2000.  This past                                                               
year, $691  million was  made available.  The projection  for two                                                               
years from now  is $490 million. He said the  board would like to                                                               
get away from  that much fluctuation because it  is difficult for                                                               
the fund  to manage that large  of a change in  the distribution.                                                               
The proposed payout would stay right in the middle. He stated:                                                                  
                                                                                                                                
     When  the   stock  market  was  booming   in  2000,  we                                                                    
     shouldn't have  paid out  as much money  as we  did. If                                                                    
     the stock market has gone  down for three years like it                                                                    
     has, we  shouldn't take a  big dive where  the economy,                                                                    
     whether you're  using the money for  dividends, whether                                                                    
     you're  using some  of the  money for  public services,                                                                    
     you don't want  to have a dramatic change  from year to                                                                    
     year  as part  of  the plan  for -  it's  hard for  the                                                                    
     economy to  absorb that change. So,  we would recommend                                                                    
     that  by basing  the payout  on the  full value  of the                                                                    
     fund,  the volatility  of that  payment  skews out.  It                                                                    
     doesn't go up  a lot in the good years,  and it doesn't                                                                    
     go down  a lot in  the bad  years. When we  look around                                                                    
     the country at  the other funds, that's  what they need                                                                    
     for their planning purposes.  They want their governing                                                                    
     boards,  whether  it's the  board  of  trustees of  the                                                                    
     legislature, to be  able to say on  a reasonable level,                                                                    
     how much money is available.                                                                                               
                                                                                                                                
     And to put it in  perspective, I explained how much was                                                                    
     spent out of the fund  for dividends over the last four                                                                    
     years and it  varies from $1.2 billion  three years ago                                                                    
     to  two  years  from   now  $490  million.  Under  this                                                                    
     proposal,  how much  would be  available in  total from                                                                    
     the permanent fund  on an average year  is between $1.2                                                                    
     billion  and  $1.3 billion.  That's  5  percent of  $24                                                                    
     billion. That number  would vary - if it  varies by $50                                                                    
     million in  any one year, that  would be a lot  so it's                                                                    
     much more stable than the current formula.                                                                                 
                                                                                                                                
     And I  think, in  closing, the  board of  trustees does                                                                    
     support SJR 18.  There's a similar version  of the bill                                                                    
     that  has been  introduced in  the House  and that,  as                                                                    
     it's  written today,  it  accomplishes  what the  board                                                                    
     believes  is  the best  way  to  protect the  permanent                                                                    
     fund.  The Governor  said  at his  first  state of  the                                                                    
     budget speech  that he  was going  to evaluate  and ask                                                                    
     the  board to  look at  it again.  They spent  three or                                                                    
     four months reviewing it and  the Governor has recently                                                                    
     come  out in  support of  the percent  of market  value                                                                    
     again as a way to protect the permanent fund.                                                                              
                                                                                                                                
SENATOR  OGAN  commented  that  when most  people  think  of  the                                                               
permanent fund,  they think of  their dividend check.  They don't                                                               
see  the check  as a  product of  the earnings  of the  permanent                                                               
fund. He  asked what to  say to  people with the  perception that                                                               
legislators  just want  to steal  their  money to  spend more  on                                                               
government. He  said the APFC  has an uphill battle  ahead trying                                                               
to explain  its proposal to  people. He asked Mr.  Bartholomew to                                                               
explain how the dividend is paid  and how this change will affect                                                               
the dividend check.                                                                                                             
                                                                                                                                
MR.  BARTHOLOMEW said  the simplest  way  to explain  that is  to                                                               
explain  how it  works  today and  how it  would  work under  the                                                               
proposal. He said  today, a statutory formula is  used that bases                                                               
the  amount on  the cash  earnings, not  the total  value of  the                                                               
fund; therefore it would not reflect  an increase in the value of                                                               
stocks.  Every  year,  the  APFC calculates  how  much  money  is                                                               
available from the  permanent fund and each  year the Legislature                                                               
decides how that  money should be spent. The  Legislature has put                                                               
in statute how  it wants to spend  it this year. It  wants to pay                                                               
an  amount of  the  earnings  to the  dividend  and  it wants  to                                                               
account  for  inflation. The  weakness  in  the formula  used  to                                                               
determine  how much  is  available  is that  it  is volatile.  It                                                               
chases the  market up  and down. Each  year, the  Legislature has                                                               
decided whether or not  to pay a dividend and it  has.  Under the                                                               
proposal, the decision  on how the earnings are  used will remain                                                               
with the Legislature  each year. What will change is  how much is                                                               
available;  that  would  be  calculated   by  simply  saying  the                                                               
Legislature can only spend up  to 5 percent. He stated, regarding                                                               
how it will affect the dividend:                                                                                                
                                                                                                                                
     There  [are]   two  things  I  would   say.  We're  not                                                                    
     proposing  to change  how much  goes  to the  dividend.                                                                    
     That  is  a  decision  that  has  to  be  made  by  the                                                                    
     Legislature.  But what  we  think it  does  do for  the                                                                    
     dividend  is  it  assures  that  there  will  be  money                                                                    
     available  each  year  from the  permanent  fund.    So                                                                    
     currently, if we have another  short term sharp drop in                                                                    
     the market, and  that sharp drop only has  to happen on                                                                    
            thth                                                                                                                
     June 30   because June 30  is the one  day - we look at                                                                    
     the permanent fund one day a  year and that is when the                                                                    
     calculation is  made for what's  available. So,  if for                                                                    
     the month of  June the stock market took  a dive, under                                                                    
                                                  th                                                                            
     the current  formula we would get  to June 30   and the                                                                    
     formula  would say  sorry,  there's nothing  available.                                                                    
     Under the proposal,  we would look at the  value of the                                                                    
     fund and  say 5 percent  is available. So,  in essence,                                                                    
     it  protects the  ability to  make a  payout so  it can                                                                    
     improve  the  chances  that  there's  money  available.                                                                    
     Without change,  it doesn't affect  how much  should go                                                                    
     to  the  dividend;  it's  limited to  no  more  than  5                                                                    
     percent.                                                                                                                   
                                                                                                                                
SENATOR  OGAN said  he  believes  many people  feel  they have  a                                                               
constitutional  right  to  a  dividend.   It  is  important  they                                                               
understand that whether people receive  a dividend is at the whim                                                               
of  the  Legislature.  He  noted  the  will  of  the  people  has                                                               
generally been  honored with  the exception of  trying to  make a                                                               
run on  it several years ago  when 83 percent of  the voters said                                                               
no.  He said  he foresees  a huge  uphill battle  to explain  and                                                               
answer to that 83 percent. He  asked if this proposal will simply                                                               
change the amount that is available  to spend, but not change the                                                               
dividend program.                                                                                                               
                                                                                                                                
MR. BARTHOLOMEW  said that is  correct. This proposal  will limit                                                               
how  much  can  be  taken  each year  but  it  also  changes  the                                                               
Constitution to  make sure that  money is still available  in the                                                               
bad years.                                                                                                                      
                                                                                                                                
CHAIR SEEKINS pointed out that he  was a member of the APFC Board                                                               
of Trustees  in the  1990s and  during that  period of  time, the                                                               
board encouraged  the Legislature to  deposit some of  the excess                                                               
earnings reserve fund  into the principal of  the permanent fund,                                                               
which the  Legislature did.  He asked if  about one-third  of the                                                               
principal of the  fund today is made up of  additional funds from                                                               
the  earnings  reserve  account  that  were  deposited  into  the                                                               
principal  by the  Legislature,  over and  above  the amount  for                                                               
inflation proofing and deposits from the oil fields.                                                                            
                                                                                                                                
MR. BARTHOLOMEW said that is  correct. He added since 1980, under                                                               
the current  formula used to  calculate the amount  available, in                                                               
addition  to   the  Legislature   appropriating  money   for  the                                                               
dividend,  it  also appropriated  $7  billion  from the  earnings                                                               
reserve and deposited it into the restricted account.                                                                           
                                                                                                                                
CHAIR  SEEKINS maintained  the Legislature  acted responsibly  to                                                               
make sure  it did not have  a big pot  of money to use  for "wild                                                               
haired projects."                                                                                                               
                                                                                                                                
MR. BARTHOLOMEW said when he looks  back at the testimony and the                                                               
bills  that were  passed, the  Legislature was  looking toward  a                                                               
time in the future when the  state would need the money more than                                                               
it  did at  the  time. He  said  when one  looks  at whether  the                                                               
Legislature  was  looking  to  benefit  the  current  and  future                                                               
generations,  it decided  that it  wanted to  benefit the  future                                                               
generation more because it had enough  money at the time. That is                                                               
how the permanent fund got to be worth $24 billion.                                                                             
                                                                                                                                
CHAIR  SEEKINS  referred to  page  6  of the  document,  Realized                                                             
Income  vs. Market  Value, that  Mr. Bartholomew  distributed and                                                             
said one  thing he learned when  he was on the  Board of Trustees                                                               
is that  a trustee  could actually  play God  with the  amount of                                                               
money that  became realized income.  When something was  sold, it                                                               
became  realized income  and  went into  the  profit formula  for                                                               
distribution.  He  asked if  he  is  correct  that the  Board  of                                                               
Trustees can  instruct the  managers regarding  what and  when to                                                               
sell in order to accomplish the realized income.                                                                                
                                                                                                                                
MR. BARTHOLOMEW  said that  is correct. He  said the  chart shows                                                               
the volatility  of the income  versus the  size of the  fund over                                                               
time,  and that  the income  has been  much more  volatile. There                                                               
have  been situations  in the  past where  the Board  of Trustees                                                               
felt the  best thing  to do  for the permanent  fund was  to sell                                                               
certain assets for  various reasons. Those sales  have a dramatic                                                               
effect on  the formula. The  Board feels  that should not  be the                                                               
case; it does not want to  make decisions about what is right for                                                               
the fund that  then have a dramatic effect on  the amount that is                                                               
paid out. The Board would  rather make the decisions based purely                                                               
on what the  best investment is and keep the  formula for what is                                                               
available separate.                                                                                                             
                                                                                                                                
CHAIR SEEKINS asked:                                                                                                            
                                                                                                                                
      Let's say that all of the fund managers, or a large                                                                       
     portion of them, came to the Board of Trustees, or the                                                                     
     internal  management did,  and said  look, we've  got a                                                                    
     lot  of money  in unrealized  income out  there in  the                                                                    
     fund and we  think that, you know, that  we're going to                                                                    
     have  another Black  October and  the  stock market  is                                                                    
     gonna crash.  We think  we should  sell now  and profit                                                                    
     take  now   and  put  our   money  in  a   more  stable                                                                    
     investment. If  they did that, took  that profit, under                                                                    
     the  current  scenario because  it's  a  wise move  for                                                                    
     investment on  the fund, it goes  into the distribution                                                                    
     process. Is that correct?                                                                                                  
                                                                                                                                
MR. BARTHOLOMEW said  that is correct but a different  way to say                                                               
that is when  the stock market was rallying and  it only happened                                                               
one time,  the permanent  fund managers  generally should  not be                                                               
involved in trying  to time whether the markets are  good or bad.                                                               
The permanent  fund is  invested for  the long  term. He  said in                                                               
1996 or 1997, the Trustees looked  at the unrealized gains in the                                                               
stock portfolio and decided to  sell after three or four meetings                                                               
so  that  the  current  generation  would  receive  some  of  the                                                               
distribution. About $300 million in  gains were realized from the                                                               
stock portfolio.  The Board, however,  repurchased that  stock in                                                               
the next  few months. The  Board incurred some  transaction costs                                                               
but  it felt  they struck  the best  balance. He  said the  Board                                                               
would have  never made that  decision under the new  proposal. It                                                               
would not have had to because  part of that asset growth would be                                                               
shared  with  the  current generation  because  they  would  have                                                               
received 5 percent of the total  fund. He pointed out that is why                                                               
he said  the investing  strategy has changed  but the  rules have                                                               
not. The Board feels it is  prudent to change those rules to make                                                               
them match the change in investment strategy.                                                                                   
                                                                                                                                
CHAIR SEEKINS said,  according to statute, the  trustees serve at                                                               
the  pleasure of  the Governor.  They  are not  confirmed by  the                                                               
Legislature and  can be removed  for any  purpose at any  time as                                                               
long  as they  are notified  in  writing. He  said he  personally                                                               
believes  that is  a dangerous  situation for  a trustee  who has                                                               
investment responsibility and  can tell the managers  to sell, as                                                               
happened in  1996, to put  money into the distribution  system to                                                               
pump  up  the permanent  fund  dividend.  He said  virtually  one                                                               
person  could control,  under the  current formula,  what becomes                                                               
realized  earnings, that  being  the Governor.  He said  Governor                                                               
Murkowski  broke the  cycle of  replacing board  members when  he                                                               
took  office. He  retained the  board members  for their  term of                                                               
office,  regardless of  their political  affiliation. He  said he                                                               
sees the volatility shown in  the chart as politically driven, as                                                               
well as  market driven.  He asked  if it  would be  beneficial to                                                               
limit the political volatility of the permanent fund.                                                                           
                                                                                                                                
MR. BARTHOLOMEW  said yes but the  Board of Trustees looks  at it                                                               
from  an  investment perspective  and  believes  [the POMV]  will                                                               
limit   the  investment   volatility.  He   said  the   political                                                               
volatility is  an issue that  the Board has dealt  with. Changing                                                               
the formula could reduce the political volatility.                                                                              
                                                                                                                                
CHAIR  SEEKINS  commented that  the  statutory  formula could  be                                                               
changed by the Legislature at any time with a 51 percent vote.                                                                  
                                                                                                                                
MR. BARTHOLOMEW agreed and said  the Constitution requires a vote                                                               
of the  public. The statutes  that describe how to  determine the                                                               
amount available can be changed by the Legislature.                                                                             
                                                                                                                                
SENATOR  OGAN  said  to  his recollection,  the  only  thing  the                                                               
Legislature  used permanent  fund  earnings for,  with some  very                                                               
minor exceptions, was to give  funds to the Department of Natural                                                               
Resources to help get more oil developed.                                                                                       
                                                                                                                                
MR. BARTHOLOMEW  repeated the calculation  of how much  should be                                                               
spent on  the dividend  is set  in statute.  Once that  amount is                                                               
calculated,  the   APFC  makes  two  transfers.   A  transfer  of                                                               
approximately $35 million goes to  two or three state agencies to                                                               
cover  adverse effects  of the  dividend. Certain  social service                                                               
programs are  based on  income. The  Legislature decided  to hold                                                               
people  harmless.   That  amount   comes  out  of   the  dividend                                                               
calculation and is  paid directly to people who  lost some income                                                               
because of the dividend. Then,  100 percent of all other spending                                                               
out of  the permanent fund has  been on the dividend  program. He                                                               
said he believes  the historical track record  of the Legislature                                                               
has been  very good. He pointed  out the Board is  trying to look                                                               
ahead  five or  ten years.  The Board  believes this  proposal is                                                               
important because  the pressures  on the  finances and  budget of                                                               
the  state  are   going  to  change.  The  state   has  used  its                                                               
constitutional  budget  reserve  (CBR)   fund  to  cover  revenue                                                               
shortfalls. That  fund may be empty  in four or five  years. When                                                               
the pressure  comes, the Board  is concerned that the  funds used                                                               
to  inflation proof  the permanent  fund  could be  at risk.  The                                                               
board believes that  when pressure comes to bear and  there is no                                                               
other reserve  money to  cover the  budget, the  Legislature will                                                               
have to decide  whether to inflation-proof the  permanent fund or                                                               
pay  for  education.  The  board   wants  a  spending  limit  and                                                               
inflation proofing before the  Legislature determines what amount                                                               
is to be spent to ensure  that the fund is protected. He repeated                                                               
this proposal is aimed at that future pressure.                                                                                 
                                                                                                                                
CHAIR  SEEKINS  said  the Senate  Judiciary  Committee  passed  a                                                               
resolution  supporting  a  constitutional  spending  limit.  That                                                               
resolution  is   now  in  the   Senate  Finance   Committee.  The                                                               
legislature  would also  like to  see some  sort of  restraint on                                                               
expanding  the  budget.  He said,  regarding  the  hold  harmless                                                               
clause, he is surprised that  very few people understand that the                                                               
dividend  knocks some  people off  of the  welfare roles  because                                                               
their income  has increased. The  Legislature sends  three months                                                               
of welfare  payments to  the federal government  so that  it will                                                               
continue to send the welfare checks to recipients.                                                                              
                                                                                                                                
MR. BARTHOLOMEW said he believes  those guidelines are in statute                                                               
and under the purview of the Legislature.                                                                                       
                                                                                                                                
SENATOR ELLIS,  testifying via  teleconference, asked  the number                                                               
of participants in the audience.                                                                                                
                                                                                                                                
CHAIR SEEKINS estimated around 50 people.                                                                                       
                                                                                                                                
SENATOR  FRENCH,  testifying  via teleconference,  asked  if  the                                                               
return on the  investments of the fund was zero  percent for five                                                               
years in a row, and five  percent was paid out to the Legislature                                                               
every  year,  whether  the  fund's value  would  decrease  by  25                                                               
percent.                                                                                                                        
                                                                                                                                
MR. BARTHOLOMEW  said that is  correct. He said if  this proposal                                                               
is adopted by a vote of  the public and the investment return was                                                               
zero percent for the next  five years, the Legislature would have                                                               
to  decide annually  how  much it  wanted to  spend,  up to  five                                                               
percent. If  the Legislature  spent five  percent each  year, the                                                               
fund would decline.                                                                                                             
                                                                                                                                
SENATOR  FRENCH said  if  5  percent is  paid  out for  inflation                                                               
proofing  and dividends,  the  fund would  decrease  by about  25                                                               
percent; therefore,  in today's dollars the  permanent fund would                                                               
contain $18 billion.                                                                                                            
                                                                                                                                
TAPE 03-56, SIDE B                                                                                                            
                                                                                                                                
CHAIR SEEKINS  clarified the  language on line  4 on  page 2                                                                    
says  the  amount may  not  exceed  5  percent. He  said  if                                                                    
Senator  French  saw  that  kind  of  trend  and  wanted  to                                                                    
continue to  spend five percent,  he would have a  hard time                                                                    
getting anyone to join him.                                                                                                     
                                                                                                                                
MR. BARTHOLOMEW said Senator French was pointing out that                                                                       
is one of the biggest public policy decisions to be made on                                                                     
this  proposal. The  Legislature will  have to  compare this                                                                    
proposal to the alternative, which  is the status quo. Under                                                                    
today's  method,  if,  as   Senator  French  described,  the                                                                    
permanent fund  earns nothing for  the next five  years, not                                                                    
one penny  would be paid  out of  the permanent fund  and it                                                                    
would still amount  to $24 billion. He  said the Legislature                                                                    
could still have  the POMV proposal, with the  caveat of not                                                                    
removing the  word "principal"  from the  Constitution. That                                                                    
would create the  5 percent spending limit on  the upside so                                                                    
that the Legislature would not  overspend in the good years,                                                                    
but  there  would  be  no  benefit in  the  down  years.  He                                                                    
explained:                                                                                                                      
                                                                                                                                
     You  would  hit the  zero  mark,  you'd have  zero                                                                         
     earnings, and  there would be no  payment from the                                                                         
     permanent fund  and if  that was  the will  of the                                                                         
     people,  that's how  the economy  of Alaska  would                                                                         
     run. It  would go  good in the  good years  and it                                                                         
     would be  really bad  in the bad  years -  and the                                                                         
     Board  struggled   with  that.  When   they  first                                                                         
     adopted  this proposal  four years  ago, the  word                                                                         
     'principal'  was left  in  the Constitution.  They                                                                         
     studied it for  two more years and it  was the bad                                                                         
     markets  that  changed  their  minds.  They  first                                                                         
     adopted the  proposal in the heydays,  in the good                                                                         
     years. They wanted a spending  limit and that made                                                                         
     sense  but  they  didn't want  to  deal  with  the                                                                         
     downside because  'principal' has become  known as                                                                         
     a  very important  thing for  people -  protecting                                                                         
     the  principal of  the  permanent  fund. But  they                                                                         
     studied it for two more  years, and they also felt                                                                         
     that they  looked around the  country and  how the                                                                         
     big  funds  operate  and having  large  endowments                                                                         
     that  don't  pay  out  any  money  also  has  some                                                                         
     negative  consequences.  They   believe  that  the                                                                         
     benefit of  having the opportunity to  spend money                                                                         
     in the bad  years, so that you didn't  go to zero,                                                                         
     outweighed that  you could spend into  the fund in                                                                         
     the  short term.  They took  a long-term  view and                                                                         
     believe two things.                                                                                                        
                                                                                                                                
     One, as we  said, over the last 20  years, we have                                                                         
     reinvested over $7 billion of  earnings so we have                                                                         
     not overspent  in the good  years. We've  kept it.                                                                         
     If it goes down the  next three, four, five years,                                                                         
     should we dip  into the fund that  we've saved for                                                                         
     the last 20 years? That's an important policy                                                                              
     call.                                                                                                                      
                                                                                                                                
CHAIR SEEKINS interjected, "Or, we  could cherry pick the fund in                                                               
the bad  years and  still have  realized income  that's available                                                               
for distribution. That's very easy to  do." He said if the market                                                               
was flat, the  investments that have an unrealized  gain could be                                                               
cherry picked. That, in effect, would  take money out of the fund                                                               
by converting  good investments into  realized gains  and holding                                                               
those that have not been good investments.                                                                                      
                                                                                                                                
MR.  BARTHOLOMEW  said  that is  correct.  Under  today's  rules,                                                               
selling assets could  create income. The Board feels  that is not                                                               
a good position to be in.                                                                                                       
                                                                                                                                
CHAIR SEEKINS  thanked Mr. Bartholomew  for his  presentation and                                                               
took public testimony.                                                                                                          
                                                                                                                                
MR.  PRESTON WILLIAMS,  testifying on  his own  behalf, commented                                                               
that  he sees  some benefit  to imposing  the 5  percent spending                                                               
limit.  He expressed  concern that  no portion  of the  5 percent                                                               
will be  required to be set  aside for the payment  of dividends,                                                               
such as  2 percent. He  maintained that he  would be more  apt to                                                               
support  the proposal  if  it contained  a  fixed percentage  for                                                               
dividends.  He noted,  "Again, if  you're in  zero budgeting  and                                                               
you're  losing  money,  then  it  would be  zero  that  would  be                                                               
invested. I think the people  realize if the permanent fund's not                                                               
making money,  they won't  get a dividend."   He  again expressed                                                               
concern that the  proposal contains no guidelines  to protect the                                                               
dividend.                                                                                                                       
                                                                                                                                
MR. WILLIAMS  also noted that  the Legislature will no  longer be                                                               
putting 50 percent [of royalty  revenue] into the permanent fund.                                                               
It will  be depositing 25 percent,  so the principal will  not be                                                               
growing as  fast as  it has  since 1980. He  asked how  much that                                                               
difference will be.                                                                                                             
                                                                                                                                
CHAIR SEEKINS said about $40 million.                                                                                           
                                                                                                                                
MR. WILLIAMS  said his guess is  that 3 percent of  the 5 percent                                                               
will be used to address  budget constraints, along with the extra                                                               
$40 million.  He said  his second concern  is that  the permanent                                                               
fund was  originally created as  a rainy  day account and  that a                                                               
catastrophic event  could occur,  such as another  earthquake. If                                                               
this change  is made in  the Constitution, the  Legislature could                                                               
only spend  up to 5 percent  without another vote of  the people.                                                               
He cautioned that might not be wise.                                                                                            
                                                                                                                                
MR.  C.A. SHORT,  a resident  of Nikiski,  testifying on  his own                                                               
behalf, said the argument in  support of the proposal sounds good                                                               
but he  would like  more time  to consider it.  He said  he would                                                               
send the committee a letter with his position.                                                                                  
                                                                                                                                
SENATOR  OGAN  told  members  he  is probably  one  of  the  most                                                               
mistrustful  people  when it  comes  to  giving legislators  more                                                               
access to  the permanent fund. He  said the jury is  still out in                                                               
his mind  on this  proposal. Although  the proposal  makes sense,                                                               
one has to consider the law  of unintended consequences.  He said                                                               
legislators have had  a history of wanting to get  their hands on                                                               
the excess earnings  to fund more government.  This proposal does                                                               
not change the  fact that the dividend will still  be at the whim                                                               
of the legislature.                                                                                                             
                                                                                                                                
MS.  RUBY KIME,  a resident  of Ninilchik  testifying on  her own                                                               
behalf, said  the legislators  and media have  put a  message out                                                               
that the  State of Alaska is  short of money. She  disagrees.  As                                                               
of  2001, according  to  the  U.S. Census  Bureau,  the State  of                                                               
Alaska  spent   $14,270.27  per   person.  The  State   takes  in                                                               
$9,756.97, leaving a  difference of about $5,000  per person. She                                                               
said elected  officials never want  to discuss  that information.                                                               
She  noted the  Census Bureau  provides the  same statistics  for                                                               
every state. The  State of Alaska spends three times  as much per                                                               
person  than the  State of  New York.  She said  the only  way to                                                               
reign in  politicians is  to take away  their money.  She further                                                               
submitted  that the  State had  its first  budget in  1961. Roads                                                               
were cleared, children  learned in school, the state  had a legal                                                               
system. If  one extrapolates that budget  adjusted for inflation,                                                               
$257 spent  in 1960 per  person per  person would equal  $1579 in                                                               
2003. She  said the  State is  spending 10  times that  amount of                                                               
money now.  She does  not trust that  the POMV is  the way  to go                                                               
without  requiring that  the dividend  and inflation  proofing be                                                               
paid. She  suggested passing  SJR 19 instead  of SJR  18, because                                                               
SJR 19 contains those requirements.                                                                                             
                                                                                                                                
MS. KIME referred to pages 81  through 83 of a document entitled,                                                               
2001 Consolidated  Annual Financial Statement, and  said it shows                                                             
116 programs have  cash in the bank. Of the  116 accounts, 39 are                                                               
in the  general fund. She said  the remaining 67 other  funds are                                                               
never discussed.  They all  have money and  that money  should be                                                               
used for  state operations, it  should not be  "squirreled" away.                                                               
Government is not a for-profit enterprise.                                                                                      
                                                                                                                                
SENATOR OGAN commented,  "God help us when Senator  Stevens is no                                                               
longer  in the  Senate  because  we're going  to  have a  serious                                                               
recession."                                                                                                                     
                                                                                                                                
MS. KIME agreed  that Senator Stevens brings a lot  of money into                                                               
the state  but those  funds always  have strings  attached. Those                                                               
funds also create programs that never end.                                                                                      
                                                                                                                                
CHAIR SEEKINS  stated that  $5,000 per  person equals  $3 billion                                                               
per  year and  the  state does  not have  a  $3 billion  deficit,                                                               
partly because federal  funds are not accounted for  in the state                                                               
budget. He  said the  people of  the state  are not  incurring an                                                               
additional  $5,000 per  person  debt.  He said  the  draw on  the                                                               
[constitutional budget  reserve] account  last year was  a little                                                               
more  than $300  million. He  said  the question  will always  be                                                               
where to make the budget cuts.                                                                                                  
                                                                                                                                
MR.  JAMES PRICE,  a resident  of Nikiski  testifying on  his own                                                               
behalf, said  he believes the  POMV plan  may work very  well for                                                               
universities and  companies that rely  on their investments  as a                                                               
funding mechanism. That  is what he finds  most frightening about                                                               
a POMV  plan for the permanent  fund. He believes it  will invite                                                               
more legislative appropriation. He said  he thinks the first year                                                               
this plan  is put into  effect, the Legislature  will immediately                                                               
appropriate funds directly  from the permanent fund.  He does not                                                               
believe  that  will   ever  cease  or  diminish.   He  has  heard                                                               
candidates say during every election  campaign they would cut the                                                               
budget and have  a long-range budget plan. That  has not happened                                                               
in any meaningful  way. He said the POMV plan  would be wonderful                                                               
if  it contained  constitutional  protection against  legislative                                                               
spending.  He said  he has  no problem  with the  current program                                                               
because the  principal is  inflation proofed  first. He  said the                                                               
dividend is  currently calculated  on a five-year  average, which                                                               
has removed some  of the volatility. He sees the  problem as more                                                               
pressure on the  Legislature from special interests,  a result of                                                               
legislation last  session that allowed campaign  contributions to                                                               
double and changed  the definition of lobbyist  so that lobbyists                                                               
can  contribute  to  legislators.  He said  that  has  created  a                                                               
meaningful threat  to getting  any budget  reductions or  a long-                                                               
range budget plan  because of more influence  by special interest                                                               
groups. He  said the POMV  plan would be  the death knell  to the                                                               
permanent  fund and  the  dividend.  He commended  Representative                                                               
Chenault  for  sponsoring  HJR 3,  which  would  constitutionally                                                               
protect  the permanent  fund from  legislative appropriation.  He                                                               
encouraged  the   Legislature  to  let  Alaskans   vote  on  both                                                               
constitutional protection and the POMV plan.                                                                                    
                                                                                                                                
REPRESENTATIVE CHENAULT pointed out  that lobbyists cannot donate                                                               
to any legislator outside of their districts.                                                                                   
                                                                                                                                
MR.  PRICE said  the new  definition of  lobbyist is  someone who                                                               
lobbied for 10 hours in one month, a change from 30 hours.                                                                      
                                                                                                                                
[The  committee discussed  the changes  to the  lobbyist law  and                                                               
noted that Mr. Price was incorrect.]                                                                                            
                                                                                                                                
REPRESENTATIVE  CHENAULT said  everyone  talks  about wanting  to                                                               
protect the  permanent fund and  he has not  made his mind  up on                                                               
the POMV proposal.  He sees some advantages to  it simply because                                                               
it will  prevent the ups  and downs and  level out the  amount of                                                               
the dividend. He noted the  Legislature decides right now whether                                                               
to inflation  proof the  permanent fund every  year. He  said his                                                               
concern is  that at some point  in time, if the  Legislature does                                                               
not  look at  a  spending  limit, does  not  institute any  other                                                               
revenue source,  such as  an income  tax, the  only pot  of money                                                               
that will be  available is the permanent fund  dividend money. He                                                               
hopes that  does not happen  but fears  it will if  government is                                                               
not curtailed or another revenue source is not established.                                                                     
                                                                                                                                
MR.  JACK DEAN,  a resident  of  Sterling testifying  on his  own                                                               
behalf,  thanked Mr.  Bartholomew for  his fine  presentation. He                                                               
said he was alarmed when  Mr. Bartholomew said Governor Murkowski                                                               
supports  the  POMV  proposal.  He  said  if  Governor  Murkowski                                                               
supports this resolution, there  is probably something wrong with                                                               
it. He said he prefers to leave the permanent fund alone.                                                                       
                                                                                                                                
MS.  VICKI PATE,  a resident  of  Nikiski testifying  on her  own                                                               
behalf, said in  the year 2000, she  opened up a Roth  IRA in the                                                               
S&P stock index  fund and quickly lost money. She  said her point                                                               
is that she  believes it is a good thing  that the permanent fund                                                               
value fluctuates up  and down. She said a steady  5 percent would                                                               
create  a disconnect  from the  permanent fund:  people would  no                                                               
longer  worry about  how well  the  fund is  being invested.  She                                                               
agreed with  Mr. Price  that both  the POMV  proposal and  SJR 19                                                               
should  be put  before the  voters. That  would give  Alaskans an                                                               
actual choice and foster good discussion.                                                                                       
                                                                                                                                
MR. MALCOLM  MCBRIDE, a resident  of Kenai testifying on  his own                                                               
behalf, said he  believes SJR 19 contains  much better provisions                                                               
than SJR 18.  He recommends that members support SJR  19, not SJR
18.  He said  if  the  concern is  the  volatility  of the  stock                                                               
market, the  Board of Trustees  might consider returning  to less                                                               
volatile investments.  He said  the permanent  fund has  not been                                                               
broken, but if it is going to be fixed, he prefers SJR 19.                                                                      
                                                                                                                                
MR. FRED  STURMAN, a resident  of Soldotna testifying on  his own                                                               
behalf, said  in his  experience as a  stockholder, he  has never                                                               
seen  anyone make  a  profit until  a  stock was  sold  so the  5                                                               
percent market  value will  not be a  true representation  of the                                                               
profits made. He said he is  opposed to the POMV proposal. If the                                                               
permanent  fund is  not making  any money,  he does  not think  a                                                               
dividend  should  be  paid.  He  said  although  the  Legislature                                                               
deposited an additional $7 billion  into the permanent fund, that                                                               
amount should have  been closer to $15 or $20  billion. He said a                                                               
lot  of  money  is  being  wasted  in  Juneau  and  that  he  has                                                               
suggestions about budget cuts.                                                                                                  
                                                                                                                                
SENATOR OGAN  asked Mr. Sturman  to forward those  suggestions to                                                               
his office staff.                                                                                                               
                                                                                                                                
MR. STURMAN  said about 10  to 15  people spent almost  400 hours                                                               
devising a  list of budget  cuts that  they sent to  the Governor                                                               
and Lt.  Governor. He was  dismayed by the  fact that no  one has                                                               
acknowledged receipt of that list.                                                                                              
                                                                                                                                
CHAIR  SEEKINS said  he agrees  with  Mr. Sturman  that a  profit                                                               
cannot  be realized  until an  investment is  sold. He  asked Mr.                                                               
Sturman if he is  willing to let the six members  of the Board of                                                               
Trustees of the permanent fund  decide when to sell an investment                                                               
to realize a profit.                                                                                                            
                                                                                                                                
MR. STURMAN said that is the only choice available. He added:                                                                   
                                                                                                                                
     I hate  to see six  men taking care of  26 or 25  or 28                                                                    
     billion bucks. I  would rather see six  men taking care                                                                    
     of 5  or 6 billion,  maybe a  group taking care  of the                                                                    
     real estate, you know?                                                                                                     
                                                                                                                                
CHAIR SEEKINS  said portions of  that the money are  parceled out                                                               
to  management  firms  and  they  report back  to  the  Board  of                                                               
Trustees. He  said he was a  member of the Board  of Trustees and                                                               
knows  that  the board  can  decide  when  to sell  to  determine                                                               
whether  a profit  is  realized. Using  the  POMV proposal,  they                                                               
would still  have to  sell something  to pay  out that  money. He                                                               
said  his  concern is  that  he  wants  to remove  the  political                                                               
volatility  out  of when  the  board  converts something  into  a                                                               
realized gain. He asked Mr. Sturman  to get back to him with some                                                               
comments on that problem.                                                                                                       
                                                                                                                                
REPRESENTATIVE WOLF asked Mr. Sturman  to provide him with a copy                                                               
of the list of budget cuts also.                                                                                                
                                                                                                                                
MR. STURMAN  told members  how to  get a copy  and said  the list                                                               
also contained suggestions to increase revenue.                                                                                 
                                                                                                                                
CHAIR SEEKINS  noted as a car  salesman, he knows that  one can't                                                               
make a profit until a sale is made.                                                                                             
                                                                                                                                
MR. STURMAN  said that is why  he cannot see how  Mr. Bartholomew                                                               
can  say that  the  payout could  be  5 percent  if  there is  no                                                               
profit.                                                                                                                         
                                                                                                                                
CHAIR SEEKINS said the proposal assumes an 8 percent profit.                                                                    
                                                                                                                                
MR. BARTHOLOMEW said  that is food for thought but  said he would                                                               
like to  use Ms. Pate's  situation as  an example. He  noted that                                                               
she  invested  in an  S&P  index  fund  with  the hope  that  her                                                               
investment would grow  over time. Some of that  growth would come                                                               
from dividends and some would come  from an increase in the value                                                               
of the stocks. He said most  people normally buy an index fund to                                                               
hold. If Ms.  Pate just held that investment for  30 years and it                                                               
increased in value  to $10,000, under the rules  of the permanent                                                               
fund today,  she could not take  a penny of that.  She might then                                                               
be  75 years  old  and  need $200  per  month  to supplement  her                                                               
income.  However, the  rule says  she  must sell  her index  fund                                                               
before  she can  take any  money  from it.  Therefore, she  keeps                                                               
saving it until she's 100.                                                                                                      
                                                                                                                                
MR. BARTHOLOMEW  said his point  is that dividends could  be kept                                                               
in cash or reinvested and the  value of the asset would increase.                                                               
The Board is trying to find  a formula that allows a benefit from                                                               
both. In  other words, Ms. Pate  would be able to  sell a portion                                                               
of her  index fund to  generate cash.  Whether that one  year the                                                               
index fund  went up or down  should not matter in  the long term.                                                               
He  said  the  permanent  fund managers  are  always  buying  and                                                               
selling, and  have made money  overall. However, the Board  has a                                                               
long-term philosophy  of holding  assets so it  does not  want to                                                               
have to always sell long-term  investments. It might want to sell                                                               
the poor performing investments to  pay the dividend. He said the                                                               
Board  is  looking  for  a  formula  that  works  not  only  when                                                               
investments are  sold. He agreed  that if  money is not  made, it                                                               
should  not  be paid  out  but  that  is why  the  constitutional                                                               
amendment  limits the  amount  to  5 percent.  He  said he  truly                                                               
believes that if the permanent fund  lost money for 5 to 10 years                                                               
in a row,  legislators who voted to spend 5  percent during those                                                               
years would be voted out of office.                                                                                             
                                                                                                                                
TAPE 03-57, SIDE A                                                                                                            
                                                                                                                                
CHAIR SEEKINS  explained that  a good  deal of  the money  in the                                                               
permanent fund  now came as the  result of being invested  in the                                                               
equity  market.  He  said the  Legislature  was  responsible  for                                                               
telling the  Board of Trustees  what the asset allocation  of the                                                               
permanent  fund board  could be.  He  said he  was frustrated  at                                                               
times as a trustee because  without any appreciable greater risk,                                                               
the fund could  have gotten a greater return  but the Legislature                                                               
has  imposed a  rather conservative  investment philosophy.  Over                                                               
the years, the Legislature has  allowed a larger percentage to be                                                               
invested in the equities market. He  noted that when the fund was                                                               
invested only  in government securities,  there was  virtually no                                                               
growth.                                                                                                                         
                                                                                                                                
MR.  STURMAN asked  if that  will change  if the  Constitution is                                                               
amended.                                                                                                                        
                                                                                                                                
CHAIR  SEEKINS  said   the  Board  of  Trustees   will  still  be                                                               
constrained by the policy set  by the Legislature. The bonds must                                                               
be of a certain rating.                                                                                                         
                                                                                                                                
MR. BARTHOLOMEW  said only  55 percent of  the permanent  fund is                                                               
invested in  stocks, which is less  than most funds. He  said the                                                               
difference  between  investing  100  percent  in  bonds  with  an                                                               
assured cash flow, is that the fund would get a lower return.                                                                   
                                                                                                                                
SENATOR OGAN  noted that he  voted against increasing  the equity                                                               
allocation to  55 percent  when the Board  of Trustees  made that                                                               
request to the Legislature.                                                                                                     
                                                                                                                                
REPRESENTATIVE WOLF  told members he  has not made a  decision on                                                               
the  POMV proposal  yet and  attended  the meeting  to listen  to                                                               
others' comments.                                                                                                               
                                                                                                                                
REPRESENTATIVE  CHENAULT  told  participants that  he  takes  all                                                               
comments seriously and appreciated their attendance.                                                                            
                                                                                                                                
SENATOR FRENCH also thanked participants.                                                                                       
                                                                                                                                
CHAIR SEEKINS also thanked participants.  He said his intent as a                                                               
legislator is exactly  the same as it was when  he was a trustee,                                                               
that being  to return the  greatest amount of profit  to Alaskans                                                               
through the investments  that the permanent fund  board makes. He                                                               
said it  is inherent  within that  system, through  the political                                                               
process, that legislators know how  [the people] want that income                                                               
to  be distributed.  He said  the biggest  responsibility of  the                                                               
trustees  is to  return the  greatest  amount of  profit and  the                                                               
responsibility  of   the  Legislature  is  to   make  the  fiscal                                                               
decisions. He  said although the  Legislature was tempted  to use                                                               
the earnings from the fund in  the past, it acted responsibly but                                                               
he expressed concern that the  situation will be different in the                                                               
future. He then adjourned the meeting at 8:49 p.m.                                                                              

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