Legislature(2003 - 2004)
04/05/2004 08:00 AM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 379-PERM FUND BOARD PUBLIC MEMBER REMOVAL
MR. MIKE BARNHILL, Assistant Attorney General with the
Commercial Section of the Department of Law (DOL), presented SB
379 and explained that this bill would authorize the dismissal
of Alaska Permanent Fund Corporation (APFC) board members only
for cause and lists the kinds of causes as inefficiency, neglect
of duty, misconduct in office, or conviction of a misdemeanor or
felony involving moral turpitude. SB 379 provides for due
process for board members, which includes a hearing before the
governor or a governor's designee, after which the governor of
designee will prepare a statement.
MR. BARNHILL pointed out that SB 379 is modeled after AS
16.05.280, which pertains to the Board of Game. The bill will
provide insulation for board members from partisan politics
during a change of administration and provide for continuity in
the board, especially important when managing a $28 billion
fund. He deferred to Mr. Storer for a more detailed analysis of
the policy reasons for this change.
MR. ROBERT STORER, Executive Director of the APFC, informed
members the APFC board is comprised of six members: two cabinet
members, one of which must be the commissioner of revenue; and
four appointed members. Board members serve staggered four-year
terms, so that one member's term expires every June 30. He
estimated that 19 boards in Alaska have protection for board
members from removal for cause, including the Alaska State
Pension Investment Board. At least on two occasions, governors
have replaced five of the six board members upon taking office.
APFC believes continuity among the board is important and does
not want to run the risk of such a turnover again. He believes
it takes at least a few years for a board member to get "their
hands around" all of the asset management issues involved in
managing a large institutional fund. APFC is looking at
sophisticated management approaches that require one to two
years of study. He has found that continuity during transition
enables new board members to learn more quickly because they are
able to leverage the experience of the existing board members.
He noted that with a new governor [under SB 379], the board has
the potential for two new members immediately, and then a third
replacement six months later when that member's term expires.
The APFC believes SB 379 is necessary for the long term success
of the fund so that continuity and institutional memory are
available and so that new board members can leverage that
experience.
SENATOR OGAN referred to the language on page 1, line 8, and
asked if either the misdemeanor or felony must involve moral
turpitude or whether any misdemeanor conviction would be cause
for removal.
MR. BARNHILL said both must involve moral turpitude.
SENATOR FRENCH asked if anyone has ever been removed from any
state board for conviction of a felony or misdemeanor.
MR. BARNHILL said he anticipated that question and asked anyone
with institutional memory but no one could recall any board
member ever being dismissed for cause for any reason. He noted
that Mr. Storer thought one board member was dismissed for cause
but did not know whether that was for committing a crime.
MR. STORER said his recollection was from a discussion he had
some years ago with Jim Baldwin, Assistant Attorney General, and
the board member discussed was clearly not related to the APFC
or the Alaska State Pension Investment Board.
SENATOR FRENCH asked the reason behind restricting the crimes to
those of moral turpitude and opined that most crimes involve
questions of moral turpitude. He recounted that a dispute
recently occurred in Anchorage over whether a teacher who had
been found with narcotics in his home should be removed from the
classroom, which the teacher eventually was.
CHAIR SEEKINS pointed out that language is standard contract
language among large business corporations.
MR. BARNHILL reminded members that language came from the Board
of Fisheries statute, which has been on the books since 1992.
CHAIR SEEKINS said he does not have a problem with that language
and believes the bill is a great step forward. He complimented
Governor Murkowski for his efforts with the legislation and for
not replacing the APFC board. Having been an APFC board member,
he agreed that continuity is very important and that members
should be of high moral character. He believes SB 379 reflects
the practice of the current governor.
SENATOR OGAN maintained that the people elect a governor who
reflects the political philosophy of the majority of the people.
The governor routinely appoints cabinet members whose
philosophies parallel his own. And, while the governor is the
CEO of the state, he shudders to think that a corporation would
wipe the slate clean every four or eight years, but that
opportunity is his prerogative and perhaps there is a good
reason for the change. He hypothesized that the governor might
decide that the state should invest in a pipeline using a
portion of the permanent fund and that board members who support
that philosophy need to be appointed. He said this legislation
could tie a future governor's hands and he is not convinced the
legislation is necessary.
CHAIR SEEKINS pointed out that commissioners and Board of
Fisheries members are confirmed by the legislature. He then
asked if an investment in the pipeline using the permanent fund
would not be allowed without legislative approval because the
legislature controls the asset allocation formula.
MR. STORER said the legislature controls the limits that can be
applied to equities and other types of investments, either
through statutory limitations of certain asset classes or by
changing the statutory list of the types of investments. He
noted, in response to Senator Ogan's hypothetical example, the
permanent fund board would still be driven by the prudent expert
list - fiduciaries must follow a process to make an informed
decision. He added:
What I was speaking to was the types of sophisticated
investments when you look at now that require years of
investments. If I can take that hypothetical question,
investing in a pipeline may or may not be within the
fiduciary ability of the board in the decision making
process so, let's say the board determines that it is
outside their fiduciary responsibility, absent
legislative direction, and the governor says thou
shall invest in a pipeline and the board says no, we
can't, we've looked at it and here are the reasons
why. Under the current system the governor could
replace the board members and put in a board that's
less sensitive or has less experience in the magnitude
of what it takes to be a fiduciary of a large public
fund. I was speaking earlier towards more of the
sophisticated investments that we are looking at but
there are political implications on both sides of that
fence in the hypothetical question.
SENATOR FRENCH asked Mr. Barnhill to explain whether the
language on lines 10-13, about the opportunity to be heard at a
public hearing, is standard language.
MR. BARNHILL said that language also comes from the Board of
Fisheries language.
SENATOR FRENCH asked if a board member would have the right to
appeal a decision.
MR. BARNHILL said there is no right of appeal but, presumably,
once the governor or his designee issues a written decision, the
decision could be the basis of a lawsuit.
SENATOR OGAN asked if the lawsuit would be for defamation of
character.
MR. BARNHILL replied that anything can be the basis of a
lawsuit. He noted the aggrieved board member could seek
reinstatement if the member could demonstrate a violation of due
process. The court would fashion the remedy.
CHAIR SEEKINS commented, "When I look at it, the history of it
until now, on a change of governor there's just been a wholesale
change. I don't think that's a good policy."
SENATOR FRENCH felt the governor should have the option of
removing any board member that has been convicted of a
misdemeanor or a felony without having to consider whether that
crime involved moral turpitude, even if the crime is
shoplifting. He proposed amending the bill to remove the words
involving moral turpitude.
In response to Senator French's concern, MR. BARNHILL gave with
a few examples of felonies involving moral turpitude:
· Murder in the first degree
· Murder in the second degree
· Manslaughter
· Assault in the first degree
· Assault in the second degree
· Kidnapping
· Sexual assault in the first, second, or third degree
· Incest
· Unlawful exploitation of a minor
· Robbery in the first or second degree
· Extortion
· Coercion
· Theft in the first or second degree
· Burglary in the first or second degree
· Arson in the first or second degree
· Criminal mischief
· Forgery
· Falsifying business records
· Receiving a bribe
· Perjury
· Escape
· Promoting contraband
He felt finding a crime that does not involve moral turpitude
would be challenging.
SENATOR FRENCH asked if assault in the third degree is on the
list.
MR. BARNHILL said it is not.
CHAIR SEEKINS asked the will of the committee.
SENATOR THERRIAULT said he would like more time to look at the
list of crimes.
CHAIR SEEKINS announced that he would hold SB 379 in committee.
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