Legislature(2003 - 2004)

04/05/2004 08:00 AM Senate JUD

Audio Topic
* first hearing in first committee of referral
+ 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                                                               
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                                                               
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                                                               
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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