Legislature(2009 - 2010)BELTZ 211

04/09/2009 09:00 AM Senate STATE AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSSB 37(STA) Out of Committee
Moved HB 170 Out of Committee
Moved HB 139 Out of Committee
Bills Previously Heard/Scheduled
               SB  37-DIVEST INVESTMENTS IN SUDAN                                                                           
9:02:07 AM                                                                                                                    
CHAIR MENARD announced the consideration of SB 37.                                                                              
SENATOR MEYER  moved to adopt  the proposed  committee substitute                                                               
(CS) to SB 37, labeled  26-LS0240\R, as a working document. There                                                               
being no objection, Version R was before the committee.                                                                         
9:03:10 AM                                                                                                                    
SENATOR FRENCH  said the  idea of divesting  from Sudan  has been                                                               
around  since 1997  when the  U.S.  government imposed  sanctions                                                               
against Sudan. Many states and  public entities have decided they                                                               
can no longer,  in good conscience, invest in  companies who work                                                               
in Sudan. Investing  money in these companies  helps the Sudanese                                                               
government wage war  against its own people. SB  37 gets Alaska's                                                               
permanent fund  out of companies  that do business in  Sudan that                                                               
help  enable  and  finance   that  government  in  systematically                                                               
killing thousands  and thousands of  their own people.  There was                                                               
resistance to this bill last year,  mainly based on the idea that                                                               
the  investment world  should  be in  the  investment world,  and                                                               
social efforts to  change the world should be  separate. He feels                                                               
that  there has  been progress  in convincing  the administration                                                               
that  "you can  do  both." Genocide  is  different from  tobacco,                                                               
alcohol, and other  social ills. There is concern  for a slippery                                                               
slope of  divesting from "a nation  you don't like, like  Iraq or                                                               
North Korea." But a bright line  can be drawn around the topic of                                                               
genocide.   This  CS   adopts   the  administration's   preferred                                                               
mechanism for achieving this goal.  He appreciates the efforts by                                                               
the administration.                                                                                                             
9:05:53 AM                                                                                                                    
SENATOR MEYER said  he is concerned that the state  is going down                                                               
a  slippery slope.  How is  this different  from being  concerned                                                               
about pharmaceutical  companies that sell the  morning-after pill                                                               
or tobacco  companies that kill  thousands of people  every year?                                                               
"You almost get into a value judgment."                                                                                         
SENATOR FRENCH  said the systematic  killing of a group  of human                                                               
beings by  a government is  clearly distinct from issues  that we                                                               
may disagree  on, such  as selling alcohol  to minors  or selling                                                               
tainted  pharmaceutical products  in third  world countries.  The                                                               
United  Nations, former  President  Bush, and  the U.S.  Congress                                                               
have  declared this  as genocide,  and so  "we're in  a different                                                               
moral realm here." The world  is nothing but slippery slopes, and                                                               
every day  people make judgments  and draw lines. This  is unique                                                               
and is the right thing to do.                                                                                                   
9:08:12 AM                                                                                                                    
SENATOR  MEYER said  he appreciates  that  explanation. The  bill                                                               
becomes effective  in 90  days, and  the board  has said  it will                                                               
stop  investing   in  these  companies.  Alaska   may  be  losing                                                               
thousands of  dollars by giving  the board a timeline.  A gradual                                                               
process, which seems to be happening anyway, might work better.                                                                 
PAT GALVIN,  Commissioner, Department of Revenue  (DOR), said the                                                               
administration is  in favor of  SB 37. It opposes  the activities                                                               
in Sudan,  and it is important  for the state to  join the chorus                                                               
of  those  who  recognize  the   moral  imperative  to  stop  the                                                               
genocide. One  thing the state  can do  is stop investing  in the                                                               
companies that support  those activities. Last year,  in the same                                                               
committee,  he  spoke  on  Sudan  for  the  first  time  for  the                                                               
governor.  "We  were  very  clear   that  the  governor  and  the                                                               
administration supports  the concept of divestiture."  There were                                                               
some issues with  that bill, and he had asked  for an opportunity                                                               
to work  on them. During  the interim the  administration crafted                                                               
this CS  that divests in a  way that avoids the  unintended costs                                                               
of a broad brush approach.  He said the administration looked for                                                               
the things the state could  do within its existing authority. The                                                               
bill also applies to investments  under the Department of Revenue                                                               
and the Alaska  Retirement Management (ARM) board.  He found that                                                               
this could not  happen with current statute. Even  if those three                                                               
entities wanted to  implement a divestiture policy  similar to SB
37,  "we do  not  currently have  the authority  to  do so."  All                                                               
decisions had to be based on investment value, hence the bill.                                                                  
9:12:05 AM                                                                                                                    
COMMISSIONER GALVIN said  the question of the  slippery slope has                                                               
come up.  The administration  attempted to  isolate the  issue of                                                               
genocide  from  other  types  of social  investing.  This  is  an                                                               
unprecedented  situation  where  the United  Nations,  the  State                                                               
Department, and Congress have labeled  the genocide. It is not an                                                               
issue that is subject to  debate. There is unified agreement. The                                                               
bill focuses divestiture on those  investments that the boards or                                                               
the commissioner  of DOR have  control over. "The things  that we                                                               
can  mandate  are  divested  from  certain  companies."  Previous                                                               
versions  had  a broad  brush  into  investments that  "we  don't                                                               
control that  closely in terms  of the individual  companies that                                                               
may  be  invested." That  would  have  left  them unable  to  use                                                               
investment  vehicles the  state  couldn't  control, whether  they                                                               
invested in Sudan or not.                                                                                                       
9:14:25 AM                                                                                                                    
COMMISSIONER  GALVIN  said  the  bill  exempts  those  investment                                                               
vehicles that the state can't  control, but he doesn't anticipate                                                               
that  those will  have Sudanese-related  investments. The  CS has                                                               
support  from the  permanent  fund and  ARM  boards. Both  passed                                                               
resolutions supporting  divestiture in  a manner  consistent with                                                               
the bill introduced by the  governor, which is consistent with SB
37.  The  requirement  for  divestiture within  90  days  can  be                                                               
complied with.  The structure of  the bill is  to allow it  to be                                                               
done in a  fairly routine manner by the accounting  staff. It can                                                               
be incorporated  into normal daily compliance  implementation. It                                                               
can just work into their routines.                                                                                              
SENATOR MEYER said markets are  down worldwide, and the state may                                                               
suffer a loss if it has to be  out of these companies in 90 days.                                                               
He suggested  changing the 90-day  period to a year.  "Would that                                                               
meet the same purpose of trying  to get out of these investments,                                                               
but yet do  it over a gradual period of  time so that, hopefully,                                                               
we don't lose quite as much money?"                                                                                             
9:17:27 AM                                                                                                                    
COMMISSIONER GALVIN  said he doesn't  anticipate that  the amount                                                               
divested will be significant. "Generally  we don't participate in                                                               
a timing  issue with regard  to individual holdings."  They don't                                                               
hold something  with an anticipation  of it going up.  The 90-day                                                               
term will not result in a significant risk of a loss.                                                                           
SENATOR MEYER said  the bulk of the state investments  will be in                                                               
the permanent fund. What companies are doing business in Sudan?                                                                 
COMMISSIONER GALVIN said  it is a small number. He  has a list of                                                               
four  companies with  about  $3.5 million  in  investments as  of                                                               
December. He is  referring only to the ARM board  in the DOR, and                                                               
that is out  of $20 billion in investment.  The administration is                                                               
attempting   to  have   the  accounting   system  implement   the                                                               
divestments, not  the managers. "The  decision to insure  that we                                                               
don't have any money invested in  a particular stock would be one                                                               
that would  become automatic  as opposed to  one where  you would                                                               
just be  saying, 'Well, let's sell  this one next week  because I                                                               
hear something or other.'"                                                                                                      
9:21:19 AM                                                                                                                    
MICHAEL   BURNS,  Executive   Director,  Alaska   Permanent  Fund                                                               
Corporation, Juneau,  said this  has been  a difficult  issue for                                                               
the board  for a  number of  years. "We have  a history  of being                                                               
against social  investing." The situation  in Darfur  rises above                                                               
that in everybody's mind. The other  side has always has been the                                                               
slippery slope, and  where it may stop. This  bill gives friction                                                               
to  that  slope with  its  very  tight  definition. It  has  been                                                               
defined by  the U.S. government and  international organizations,                                                               
and it is  a specific geography. The bill takes  the board out of                                                               
the decision of which companies  should be on the divesting list.                                                               
His  board's tasks  are investment  policy, risk  management, and                                                               
asset allocation. The  legislature's job is to  create the public                                                               
policy.  If this  is public  policy and  a list  is given  to the                                                               
board, it is absolutely fine.  He doesn't want the board meetings                                                               
taken up  with trying  to decide  what company  should be  on the                                                               
list.  The  commissioner will  be  responsible  for creating  the                                                               
list, and  his job  will be  to enforce it.  He doesn't  know how                                                               
much will be divested because there  is not yet a list. Different                                                               
organizations have  different lists,  but it  will not  involve a                                                               
lot of money.  He retracted that and  said it is a  lot of money,                                                               
but not in  the scale of the portfolio. It  is probably less than                                                               
$20 million depending on what companies are on the list.                                                                        
9:24:45 AM                                                                                                                    
SENATOR  MEYER  said  he  is  surprised  because  Mr.  Burns  was                                                               
adamantly against this  bill last year. Mr.  Burns mentioned some                                                               
changes in the bill. What are those changes?                                                                                    
MR. BURNS said the language  change includes the tight definition                                                               
and the defined  geography. Most importantly, his  board will not                                                               
be making  the decision. The  accounting or compliance  staff can                                                               
do  the work.  The  department will  come up  with  the list  and                                                               
notify those  on the list to  allow them to rebut  the claims. It                                                               
will just  be a matter of  compliance. The board has  many tasks,                                                               
and an emotional debate is not a good use of its time.                                                                          
9:26:47 AM                                                                                                                    
SENATOR MEYER  said the  legislature has  intervened in  the past                                                               
regarding investing in futures,  commodities, and other high-risk                                                               
items.  "It just  seems like  it makes  your job  that much  more                                                               
difficult when we  go out there and say, 'Maximize  the return to                                                               
our shareholders  ... but only  invest here, here, and  here." If                                                               
Mr. Burns doesn't  think this bill is tying his  hands, "then I'm                                                               
fine with  it." If  the goal is  to get out  of Sudan,  maybe the                                                               
state could do it gradually to save a few thousand dollars.                                                                     
MR. BURNS  noted the issue  of market  timing. It could  cost the                                                               
state money, but it could actually  be the very best day to sell.                                                               
He thanked the legislature for  untying the board's hands in 2005                                                               
regarding  the statutory  investment list.  "We think  we've been                                                               
able to  make some  progress." The market  has moved  against it,                                                               
but there is  a better structure. "We still have  a lot of things                                                               
we don't do by policy."  He noted bond ratings and concentrations                                                               
in any  stock. This  is another compliance  issue that  the staff                                                               
can do, but the board is  not creating the threshold for being in                                                               
or out. That  takes time and is where the  costs would be buried.                                                               
Enforcing a rule is not expensive, but being the decider is.                                                                    
9:29:41 AM                                                                                                                    
SENATOR  FRENCH thanked  Mr.  Burns for  bringing  his skills  to                                                               
this. With his help something can be done.                                                                                      
SENATOR  PASKVAN  said  this  comes   down  to  state  policy  on                                                               
genocide.  Over 10  years ago  the federal  government determined                                                               
that genocide was  occurring. The state has not  taken any action                                                               
in those 10 years. "I am willing  for the state of Alaska to lose                                                               
money  to make  clear  its opposition  to  proven genocide."  The                                                               
market  timing  issues are  irrelevant.  He  said he  would  even                                                               
cleanse the funds of the 10 years profit from the genocide.                                                                     
CHAIR MENARD said this bill intends to send a strong message.                                                                   
9:31:34 AM                                                                                                                    
AMY  KEARNS, Member,  Save Darfur  Anchorage,  Wasilla, said  her                                                               
group  has been  working with  the legislature  to get  this bill                                                               
passed. She thanked the legislators  for introducing the bill and                                                               
for the  CS that eliminates a  fiscal note. Passing this  is more                                                               
critical now with  recent events in Sudan with  aid workers being                                                               
ousted from the country. The people  of Darfur now have even less                                                               
protection. There  are people  living in  Alaska from  Darfur who                                                               
fled because  of the genocide.  Some of the atrocities  are truly                                                               
horrific.  She suggested  taking a  moment to  think about  those                                                               
events. Women in refugee camps have  to make a decision to go get                                                               
firewood knowing that men are waiting  to rape them. Men would be                                                               
killed if they were  to go get the firewood. This  is so far from                                                               
our personal  experiences. The United  States turned its  back on                                                               
the  Rwanda genocide  of  1994.  George Bush  said,  "Not on  our                                                               
watch." "We have an obligation to fulfill that promise."                                                                        
9:35:11 AM                                                                                                                    
DEBORAH BOCK, Member, Save Darfur  Anchorage, Anchorage, said her                                                               
group has  spoken with  hundreds of  Alaskans about  the genocide                                                               
and  have yet  to  meet a  single private  citizen  who does  not                                                               
support immediate  divestment from  Sudan. Two dozen  people from                                                               
Darfur have been resettled in  Anchorage by the state department.                                                               
They are  strong advocates for  divestment. Those few  members of                                                               
the  legislature   who  are  opposed   are  out  of   touch  with                                                               
BILL  LEIGHTY, Business  Owner,  Juneau, said  he  would like  to                                                               
speak  to  Senator  Meyer's  concerns.  About  20  years  ago  he                                                               
listened to  a prosecutor from  the Nuremburg trials  speak about                                                               
the  quandary of  what  kind of  punishment  was appropriate  for                                                               
people who were  responsible for the murder of  millions. He came                                                               
to the conclusion that the only  thing humans could do was to ask                                                               
that  international law  be so  firm  and so  powerful that  this                                                               
behavior is prevented  in the future. It has  been inadequate; we                                                               
still  have  genocide in  several  places  in  the world.  It  is                                                               
impractical to  go to Sudan or  to prevent China from  buying oil                                                               
from Sudan. It seems like SB 37  is all that Alaskans can do. The                                                               
root causes  for markets being down  is the lack of  attention to                                                               
the larger  context in which  these markets operate.  We thought,                                                               
in our splendid isolation, that  everything was under control. So                                                               
we are suffering  in international matters like  the genocide. In                                                               
lacking any  other punishment,  pass this  bill. It  is financial                                                               
tokenism, but it is an important matter of principle.                                                                           
9:39:32 AM                                                                                                                    
STEVE WOLF,  Juneau, said he  is a retired teacher.  He applauded                                                               
Senator  French's  testimony.   He  appreciates  Senator  Meyer's                                                               
concerns.  When  his high-minded  teenaged  son  comes home  from                                                               
college, he would like to tell him Alaska divested from Darfur.                                                                 
SENATOR  FRENCH moved  to report  the CS  to SB  37, labeled  26-                                                               
LS0240\R,  from  committee  with individual  recommendations  and                                                               
attached fiscal  note(s). There being no  objection, CSSB 37(STA)                                                               
moved out of committee.                                                                                                         

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