Legislature(2021 - 2022)
01/17/2022 01:34 PM House BUD
| Audio | Topic |
|---|---|
| Start | |
| Approval of Minutes | |
| Executive Session | |
| Final Release of Audits | |
| Request Proposals Legislative | |
| Invited Testimony: Alaska Permanent Fund Corporation Board of Trustees | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
LEGISLATIVE BUDGET AND AUDIT COMMITTEE
January 17, 2022
2:01 p.m.
MEMBERS PRESENT
Senator Natasha von Imhof, Chair
Senator Peter Micciche
Senator Lora Reinbold
Senator Bert Stedman
Senator Click Bishop (alternate)
Representative Chris Tuck, Vice Chair
Representative Ivy Spohnholz
Representative Andy Josephson
Representative Neal Foster
Representative James Kaufman
Representative Dan Ortiz (alternate)
MEMBERS ABSENT
Senator Lyman Hoffman
COMMITTEE CALENDAR
APPROVAL OF MINUTES
EXECUTIVE SESSION
FINAL RELEASE OF AUDITS
REVISED PROGRAM LEGISLATIVE
INVITED TESTIMONY: ALASKA PERMANENT FUND CORPORATION BOARD OF
TRUSTEES
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
ALEXEI PAINTER, Director
Division of Legislative Finance
Legislative Agencies and Offices
Juneau, Alaska
POSITION STATEMENT: Addressed the RPLs before the committee.
CRAIG RICHARDS, Chair
Alaska Permanent Fund Corporation Board of Trustees
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Gave a PowerPoint presentation and answered
questions during invited testimony from the Alaska Permanent
Fund Corporation Board of Trustees.
CHRISTOPHER POAG, General Council
Alaska Permanent Fund Corporation
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions during the invited
testimony from the Alaska Permanent Fund Corporation Board of
Trustees.
ACTION NARRATIVE
2:01:55 PM
CHAIR NATASHA VON IMHOF called the Legislative Budget and Audit
Committee meeting to order at 2:01 p.m. Representatives Tuck,
Foster, Spohnholz, Josephson, Kaufman, and Ortiz (alternate) and
Senators Stedman, Reinbold, Bishop (alternate), and von Imhof
were present at the call to order. Also present were
Representatives Stutes, LeBon, Merrick, Edgmon, and Claman and
Senators Stevens, Begich, and Olson.
^APPROVAL OF MINUTES
APPROVAL OF MINUTES
2:03:20 PM
SENATOR VON IMHOF announced that the first order of business
would be the approval of minutes.
SENATOR VON IMHOF requested a correction be made to the minutes
from the November 9, 2021, Legislative Budget and Audit
Committee meeting, on page 9, third paragraph, to change the
name of the speaker from that of Representative Spohnholz to
that of Kris Curtis.
2:03:41 PM
REPRESENTATIVE TUCK moved that the Legislative Budget and Audit
Committee approve the minutes from the November 9, 2021, and
December 15, 2021, meetings, "as noted." There being no
objection, the minutes were approved.
^EXECUTIVE SESSION
EXECUTIVE SESSION
2:04:04 PM
SENATOR VON IMHOF announced that the next order of business
would be an executive session.
2:04:17 PM
REPRESENTATIVE TUCK moved that the Legislative Budget and Audit
Committee go into executive session under Uniform Rule 22(b)(3),
for the discussion of matters that may, by law, be required to
be confidential. He asked that the following members remain in
the room or on line: the legislative auditor and necessary
staff for the auditor; any legislators not on the committee; and
staff for legislators who are on the committee. There being no
objection, it was so ordered.
2:04:50 PM
The committee took an at-ease from 2:05 p.m. to 2:35 p.m. for
the purpose of executive session.
2:34:53 PM
SENATOR VON IMHOF called the Legislative Budget and Audit
Committee back to order at [2:35] p.m. Present at the call back
to order were Representatives Tuck, Foster, Spohnholz,
Josephson, Kaufman, Ortiz (alternate) and Senators Stedman,
Micciche, Reinbold, Bishop (alternate), and von Imhof. Also
present were Representatives Stutes, LeBon, Merrick, Edgmon,
Hopkins, and Claman and Senators Stevens, Begich, and Olson.
^FINAL RELEASE OF AUDITS
FINAL RELEASE OF AUDITS
2:35:32 PM
SENATOR VON IMHOF announced that the next order business would
be a final audit release.
2:35:42 PM
REPRESENTATIVE TUCK moved that the Legislative Budget and Audit
Committee release the Board of Pharmacy audit as the final audit
report. There being no objection, it was so ordered.
^REQUEST PROPOSALS LEGISLATIVE
REVISED PROGRAM LEGISLATIVE
2:36:03 PM
SENATOR VON IMHOF announced that the next order of business
would be Revised Programs Legislative (RPLs).
2:36:27 PM
ALEXEI PAINTER, Director, Division of Legislative Finance,
Legislative Agencies and Offices, addressed the two RPLs before
the committee. The first was RPL 10-2022-5091, Department of
Natural Resources, Division of Parks and Outdoor Recreation,
appropriation parks management and access allocation, $200,000
in statutory designated program receipts in the fiscal year 2022
(FY 22) operating budget. He paraphrased the "purpose" section
of the RPL, which read as follows [original punctuation
provided]:
Unanticipated Statutory Designated Program Receipts
(SDPR) provided by Friends of Eagle River Nature
Center are available to the Division of Parks and
Outdoor Recreation for the completion of improvements
to the salmon viewing deck at the Eagle River Nature
Center within Chugach State Park. The state-owned
structure has outlived its serviceable life and needs
to be repaired and upgraded. A portion of the deck was
damaged during the 2018 earthquake and the Federal
Emergency Management Agency (FEMA) approved funding to
repair the earthquake damage and make improvements to
the impacted section only. The Friends of Eagle River
Nature Center, a private non-profit group, has secured
private monies to fund improvements to the remaining
sections of the structure.
MR. PAINTER explained the $200,000 represents those private
funds, and if receipt authority is granted, DNR could do that
portion of the work, along with the earthquake repair, this
spring. Without the authority, DNR would have to split it up
into two seasons.
MR. PAINTER advised that this request is for operating funds;
however, the activity described better fits the description of a
capital project, which in statute is defined as something that
is an asset with anticipated life exceeding one year and a cost
exceeding $25,000, including things like construction and
structural improvement. He explained that generally when trying
to keep the operating and capital budgets separate, the biggest
hazard is having operating budget items in the capital budget,
because the capital budget has more generous lapsing rules that
can last for five years versus the single year of the operating
budget. He said the committee could weigh that potential
technical issue against the potential legal issue; although,
having spoken with Legislative Legal Services, he said it is
hard to imagine it would become a problem and is "probably a
pretty minor risk."
2:39:05 PM
REPRESENTATIVE TUCK asked whether the administration had been
contacted to inquire whether it could fix the technical error.
MR. PAINTER answered that the Division of Legislative Finance
received the RPL on Friday afternoon [1/14/22] and contacted the
administration, which did not correct the RPL. He said there is
not really a capital budget to which this RPL could be attached;
therefore, "going the capital route" would probably not be a
good option. He indicated that the administration is aware of
the issue and prepared to speak to it, if asked by the
committee.
2:40:01 PM
SENATOR VON IMHOF proffered that one could argue the amount of
funds is not high and is for construction that should begin this
spring and be finished by fall. She stated her assumption that
even though it is capital money, it would be consumed by 2022.
She asked if that was a fair assessment.
MR. PAINTER confirmed the funds would be consumed before the end
of FY 22.
2:40:46 PM
MR. PAINTER turned attention to RPL 45-2022-1056, University of
Alaska, Fairbanks campus, for $60 million in federal receipts in
the FY 22 operating budget. He said this RPL is for an increase
to the Geophysical Institute due to a contract with the U.S.
Department of Defense (DoD). He noted that the governor's
operating budget includes a $50 million federal authority
increase. He said this RPL is "a mirror item to that
increment." He stated that the Division of Legislative Finance
has no technical issues with this RPL.
2:41:38 PM
REPRESENTATIVE JOSEPHSON asked for confirmation that the FY 23
parallel dollars are also federal dollars.
MR. PAINTER confirmed that is correct.
2:42:04 PM
REPRESENTATIVE TUCK moved that the Legislative Budget and Audit
Committee approve the following RPLs as presented to the
committee: RPL 10-2022-5091, Department of Natural Resources,
for $200,000; and RPL 45-2022-1046, University of Alaska,
University Affiliated Research Center, for $60 million.
REPRESENTATIVE TUCK stated an objection for the purpose of
discussion. Addressing the confusion related to capital and
operating budgets, he stated for the record that "the fact that
we're going to approve this does not set precedent." He then
removed his objection.
2:43:01 PM
REPRESENTATIVE JOSEPHSON noted that Mr. Painter had indicated
concern regarding putting capital money in the operating budget,
and he asked whether Mr. Painter has similar concerns "relative
to the geophysical dollars."
MR. PAINTER answered, "No, that's an ongoing contract; it's not
really constructing a capital asset. As I understand it, it's
monitoring potential thermo-nuclear tests and things like that."
He added that it is an ongoing activity; therefore, he thinks it
would fit in the operating budget.
2:43:44 PM
SENATOR STEDMAN suggested that one way to address this issue may
be to "pick up cleanup language in the capital budget coming at
us in the next few months" to ensure the project sits where it
should.
2:44:17 PM
SENATOR VON IMHOF announced there being no further objection,
the RPLs were adopted.
2:44:27 PM
The committee took an at-ease from 2:44 p.m. to 2:47 p.m.
^INVITED TESTIMONY: ALASKA PERMANENT FUND CORPORATION BOARD OF
TRUSTEES
INVITED TESTIMONY: ALASKA PERMANENT FUND CORPORATION BOARD OF
TRUSTEES
2:47:47 PM
SENATOR VON IMHOF announced the final item of business would be
invited testimony from the Alaska Permanent Fund Corporation
Board of Trustees.
SENATOR VON IMHOF offered an opening statement as follows:
At our previous meeting on December fifteenth, this
committee met and discussed the Alaska Permanent Fund
Corporation Trustee actions on December Ninth, in
which the board terminated ... Executive Director
Angela Rodell. At that time very little was known
regarding the circumstances of this decision; so,
after some consideration, this committee invited the
[Alaska Permanent Fund Corporation] (APFC) Board [of
Trustees] to present the process and procedures of how
they evaluate the executive director, and
specifically, which factors led to Ms. Rodell's
dismissal.
I would like to point out this is not an investigation
at this time, but rather this committee is on a fact-
finding mission, and it's important for all of us to
keep an open mind, and to listen, and to ask questions
so that we may fully understand what happened last
month.
The Legislative Budget and Audit Committee does have
statutory authority and responsibility to look into
matters of any state agency or department that
contributes to the fiscal, economic, and social well-
being of the state and its citizens. The Alaska
Permanent Fund Corporation falls under this umbrella.
In addition, members of this committee, and other
legislators, have received many emails from the public
inquiring what happened regarding Ms. Rodell's
termination. This committee is doing its due
diligence by looking into the matter.
The objectives for this meeting are: First, to learn
more about the process by which the Alaska Permanent
Fund Board [of Trustees] evaluates, supports, and as
the case may be - potentially terminates the executive
director of the fund. Specifically, we would like to
learn the circumstances behind why Ms. Rodell was
terminated so abruptly, ... without explanation, and
without a clear plan for a professional and timely
leadership transition. ... Second, this committee's
goal is to ensure that the fund stays politically
independent from both legislative and executive
influence and political agendas.
CHAIR VON IMHOF noted that available to speak were the following
from the Alaska Permanent Fund Corporation: Chair Craig
Richards, Acting Executive Director Valerie Mertz, and
Communications Director Paulyn Swanson. From the Department of
Law, Attorney at Law Chris Poag was also available. She said
Mr. Richards would give a PowerPoint presentation, during which
she would allow committee questions between slides.
2:51:20 PM
CRAIG RICHARDS, Chair, Alaska Permanent Fund Corporation Board
of Trustees, Department of Revenue, noted that Marcus Frampton,
Chief Executive Officer of the Permanent Fund Corporation, is
available to speak on "performancing," benchmarking, and risk.
Mr. Richards explained that because the executive session in
which Ms. Rodell's removal was discussed was confidential and
there is a threat of pending litigation, and after consulting
with legal counsel, he must advise the committee that it is not
appropriate for him to discuss the specific facts related to Ms.
Rodell's removal.
MR. RICHARDS said Ms. Rodell's personnel file, which is public
record, demonstrates that her relationship with the board and
much of the investment staff has been strained for some time and
was deteriorating. Further, he asked the committee to review
the annual board meeting that was held in Kodiak, Alaska, in
late September. This record further demonstrates the "visible
tension between the director and the board." He deferred to
Chris Poag to impart further detail.
2:53:50 PM
CHRISTOPHER POAG, General Council, Alaska Permanent Fund
Corporation, Department of Revenue, stated his understanding
that the Legislative Budget and Audit Committee, through
information available in the news, is aware that Ms. Rodell has
hired an attorney and is contemplating litigation. He said care
needs to be taken not to allow the questions and comments made
at this meeting impact the outcome of that litigation;
therefore, he explained, Chair Richards is prepared to discuss
three topics: one, the process and procedure the board followed
in evaluating Ms. Rodell's performance; two, the records of Ms.
Rodell's prior performance evaluations - including her own
evaluations - which have been provided to the committee and
members of the press; and three, how the board intends to select
a new executive director. He said should Ms. Rodell pursue
litigation, it is clear that any remaining questions the
committee may have would get answered during that process. He
thanked the committee for understanding the need to protect the
possibility of potential litigation.
2:55:58 PM
REPRESENTATIVE JOSEPHSON asked Mr. Poag if it is his
understanding that at-will employees can still sue under the
[Implied] Covenant of Good Faith and Fair Dealing, under that
common-law doctrine.
MR. POAG noted Ben Hofmeister was available to answer questions,
then he shared his understanding of at-will employment, as found
in the bylaws. He continued:
Ms. Rodell serves at the pleasure of the board. She's
the one and only employee that the board has the
ability hire or to fire. And my understanding is that
the things that would restrain the board's decision to
hire or fire the board have to do with constitutional
restraints. In other words, she couldn't be
terminated for an unconstitutional reason - something
maybe regarding her age or her gender. I've never
evaluated whether a covenant of good faith and fair
dealing would apply to an employment contract; I would
have to research that. It seems odd to apply it in
that context. But I could certainly look into that
unless Mr. Hoffmeister has a more specific answer.
REPRESENTATIVE JOSEPHSON indicated he would seek no further
response. He remarked that the charters that guide the agency
require it "to do certain things, even for at-will employees,"
and he said he was sure the committee would hear more about
those obligations on the part of the [Alaska] Permanent Fund
[Corporation Board of Trustees].
CHAIR VON IMHOF remarked that that is one of the things the
committee had hoped to learn: that which was done on the
agency's behalf to arrive at the decision to terminate Ms.
Rodell.
2:58:10 PM
SENATOR STEDMAN first noted some members, including himself, may
not have legal background in terms of employment law. He
recognized the caution being expressed because of the
possibility of future litigation. Nevertheless, he noted
committee members have submitted questions to Chair von Imhof,
and they are questions that could be asked at any time at the
will of Chair von Imhof. Furthermore, he expressed that they
are questions that need to be asked.
3:00:38 PM
SENATOR VON IMHOF acknowledged she had received questions, and
she encouraged further questions and a robust discussion.
3:01:04 PM
REPRESENTATIVE ORTIZ asked about the basis of the strained
relationship between the board and Ms. Rodell.
MR. RICHARDS answered it was not his intention to talk about the
specific events surrounding the board's decision-making. He
said he was happy to answer questions relating to process, and
he said he would do his best to answer questions related to
documents provided to the committee.
SENATOR VON IMHOF offered her understanding that the board
meeting in Kodiak, Alaska, was public.
MR. RICHARDS answered yes.
CHAIR VON IMHOF asked, "So, there was nothing in there that was
covered under executive session or anything that's private, is
that correct?"
MR. RICHARDS responded:
That's correct; I think we can discuss the Kodiak
meeting. But what we can't discuss is the Kodiak
meeting as it was discussed in the executive session.
So, this is the tricky thing to this, right? So, I
mean, I can make some broad observations to this, if
I'm asked, but I certainly can't go into how any of
those observations informed and/or were discussed or
resulted in actions taken in the executive session.
SENATOR VON IMHOF noted Mr. Richards had said there were
tensions, and she questioned whether tensions she is not able to
see would be mentioned.
MR. RICHARDS said he thinks they would be apparent, as "it is on
the public record." He added, "If they're not apparent, then
maybe that was not a very good thing for me to try to cite to in
the public record."
3:03:35 PM
SENATOR MICCICHE asked about whether Mr. Richards could draw a
line between what can and cannot be discussed.
MR. RICHARDS re-emphasized that he would not discuss specific
facts related to the executive director's removal and the
reasons for it, except to point to "the few items in the public
record that are available."
3:04:22 PM
REPRESENTATIVE TUCK said the Legislative Budget and Audit
Committee is responsible for oversight of the fund and ensuring
investments are made wisely. He said tensions are not
necessarily a bad thing and sometimes lead to better outcomes.
He said he would hate to discover Ms. Rodell's termination as an
at-will employee was due to a personality issue. For that
reason, he said he would like to learn more about the tensions
that occurred on December 8, [2021], in order to understand what
was justifiable.
MR. RICHARDS responded that the board has been granted the
statutory obligation to oversee the funds; it has set up a
system with designated roles; the executive director is the only
employee that reports directly to the board, which is the direct
supervisor of the executive director; the executive director is
an at-will employee; and there are "years of documented items"
in the papers provided. He continued:
If there are problems with the board, communicating -
or whatever they are - with the executive director, it
is wholly, appropriately in our right to remove an at-
will employee and to find someone that can have a
working relationship with the board that is more in
keeping with how we need to manage the fund.
... Ms. Rodell ... was a highly compensated executive-
level employee, and at the end of the day, it is a
board's prerogative to put in place a person that they
think ... can best work for the board and best manage
the fund.
MR. RICHARDS added that this is not the case of a classified
employee that has the right to disagree with the loss of his/her
job.
REPRESENTATIVE TUCK responded that he recognizes Ms. Rodell was
an at-will employee. He added, "But just because you can
doesn't mean you should." He said he thinks the committee wants
to figure out whether [Ms. Rodell's termination] should or
should not have happened.
3:07:32 PM
REPRESENTATIVE JOSEPHSON noted that Mr. Richards had stated that
the executive director is the only employee that reports
directly to the board, but he offered his understanding that the
chief investment officer (CIO), pursuant to a new, internal
order, also reports directly to the board.
MR. RICHARDS responded that that was "a little incorrect." He
explained:
In 2018 there was an initiative to make that happen
based on some behavior that was observed from Ms.
Rodell that made the board uncomfortable. There was a
change in administration and a change in trustees.
That issue got brought back up again in 2020, and that
is to basically have the ... chief investment officer
report directly to the board. The board did not
ultimately select to do that. Instead, what the board
did is it put in place, in the investment guidelines,
a policy where Ms. Rodell was largely removed from
participation and investment decisions. In
particular, a committee structure was created, and the
committee structure provided that the investment
committee - the committee that the CIO runs that is
composed of his selected investment professionals -
will make the investment decisions for the
corporation; those would then go up to the executive
director; the executive director had the right to
alter or veto those recommendations; but if she did
so, it had to be reported to the board within 30 days.
From the ... roughly two years in which that policy
has been in place, the executive director never once
altered or changed any investment decision made by the
chief investment officer.
REPRESENTATIVE JOSEPHSON noted that Mr. Richards had said that
two years ago an event or series of events occurred that made
the board uncomfortable vis a vis Ms. Rodell, and he asked for
confirmation that following those series of events, "you awarded
her a merit increase."
MR. RICHARDS confirmed that is correct. He explained that when
there is an employee where things are not "going great," one
option is to ignore it; another is to work on it and foster a
good relationship with the employee; and another alternative is
to terminate the employee. He indicated that having increases
[in salary] speaks to the second option where "things were being
worked on."
3:10:27 PM
REPRESENTATIVE TUCK offered his understanding that at one time,
Ms. Rodell had tried to combine the executive director and CIO
positions.
MR. RICHARDS specified his response to Representative Tuck was
his own - not speaking for anyone else - and he proceeded to
say, "That was the incident in which, for me, huge red flags
went up, and I think was ultimately the incident that led to a
differentiation between the executive director's role ... being
an administrative role ..., but not a role in which she was to
have day-to-day involvement in the investments."
3:11:12 PM
MR. RICHARDS began a PowerPoint presentation [hard copy included
in the committee packet]. He stated that the fund was created
in 1976 via a constitutional amendment. Ultimately, the Alaska
Permanent Fund Corporation was created in 1980 under Senate Bill
161. Regarding the issue of maintaining the independence of the
corporation, Mr. Richards spoke about a memorandum that had been
written on Senate Bill 161 in conjunction with a conference
committee. He stated that the fund has levels of independence
but "is not independent as a true corporation." He said the
permanent fund "exists as a feature within the state's system."
The legislative branch is responsible for approving [the fund's]
budget; the Legislative Budget and Audit Committee is
responsible for oversight; the executive branch and governor are
responsible for appointing board members; and the fund itself is
within the executive branch. He explained that means that the
corporation interacts with all those state entities, but where
the independence is created is in the fiduciary obligations of
the fund; as a trustee, he is operating and acting as a
fiduciary.
MR. RICHARDS spoke about the legal framework surrounding the
corporation: the Constitution of the State of Alaska; Alaska
Statute; regulatory power; bylaws; "a very robust set of
charters and policies" that fill out those bylaws; and board
resolutions.
3:14:53 PM
REPRESENTATIVE JOSEPHSON noted there have been at least four
resolutions in the last decade "that speak to a sustainable,
predictable draw." Further he noted the board has repeatedly
recommended a draw of 5 percent. He surmised it had been Ms.
Rodell's job to defend the resolutions.
MR. RICHARDS interjected, "Unequivocally."
REPRESENTATIVE JOSEPHSON entertained the notion of Ms. Rodell
shouting her support for the resolutions "from the rafters" and
queried whether the board would have a problem with that.
MR. RICHARDS answered, "No, it was the express purpose of
adopting these resolutions to put forward the board's policy in
terms of how it views a number of issues." He gave examples,
including the board's support of a resolution that the state
should follow a rules-based system for fund transfers. He said
those resolutions were adopted in 2018-2020 and have been
confirmed a number of times.
REPRESENTATIVE JOSEPHSON surmised from media accounts he had
read that Ms. Rodell, if asked, would say that the topic that
had been raised was the source of the dispute. He noted Mr.
Richards had said the board agrees with the 5 percent or less;
therefore, if Ms. Rodell thinks that is the cause for her
termination, Mr. Richards would disagree.
MR. RICHARDS indicated that the statements he had read made him
feel he was in "a dystopian world." He imparted that during his
time as attorney general during the Walker Administration, he
was actively involved working with the group that drafted and
argued for the Alaska Permanent Fund Protection Act, which is
what resulted in the percent of market value (POMV). He spoke
further about his efforts toward a rules-based system;
therefore, he said it is not clear to him why Ms. Rodell "is
choosing this item to suggest was something that she was fired
over." He observed that Ms. Rodell's critique makes no sense,
because the executive director follows the policies put in place
by the board. If the board wanted to change a resolution to
have a one-time ad hoc draw, for example, then it would do so,
and the director, as an employee of the board, would be
obligated to follow the policy. He pointed out that the board
has not decided to change the resolutions, and it still believes
in and supports these resolutions.
3:20:45 PM
CHAIR VON IMHOF pointed out that Ms. Rodell has First Amendment
rights.
MR. RICHARDS concurred but said having the right of free speech
does not mean someone is not supposed to, "in the appropriate
way, carry the message of your employer."
CHAIR VON IMHOF asked Mr. Richards whether the board, at any
time, had "entertained or modeled ... making a one-time ad hoc
draw that exceeds the 5 percent draw."
MR. RICHARDS answered yes. He detailed that during the meeting
in Kodiak, staff put forward "a modeling of that," which he said
was not robust and was "intellectually devoid," and the
commissioner of the Department of Revenue asked that it be done
differently. He encouraged Chair von Imhof to listen to that
conversation. He added, "So, yes, I was on e-mails where the
commissioner of Revenue specifically asked that [an]other ...
analysis that she thought was little more accurate be modeled."
CHAIR VON IMHOF asked Mr. Richards whether he was referring to
"the Callan and Associates' Monte Carlo simulation."
MR. RICHARDS replied, "I think that is what it turned into."
CHAIR VON IMHOF noted that Callan and Associates has been the
board's advisor for several years. She asked for confirmation
that Callan and Associates, in the last quarter of 2021,
provided a Monte Carlo simulation on testing the earnings
reserve account (ERA) and the POMV spending rule in various
different ad hoc draws." She added that that seems robust to
her.
MR. RICHARDS replied yes, but offered his understanding that the
models that Callan and Associates ran were the ones the
commissioner had asked it to run, among others. He added, "That
is the analysis that came after [emphasis on "after"] the first
analysis. The first analysis was presented by the chief risk
officer in Kodiak." In response to a follow-up question, he
said he did not recall the model having a recommendation, but
does recall that "they kind of forgot to put in inflation-
proofing." He explained, "They didn't inflation-proof until
2024, so I think that the modeling probably needs a little bit
of a dust off." He pointed out that this type of modeling is
not new, as Callan and Associates did similar modeling in 2020
just before the board passed Resolution 2001. Further, he noted
that the chief investment officer had prepared an entirely
different model, which Mr. Richards opined was "incredibly smart
and robust."
3:24:15 PM
REPRESENTATIVE ORTIZ proffered that based on Mr. Richards'
statements, Ms. Rodell was not let go based on an issue with her
performance or because of disagreement over the 5 percent issue,
which Ms. Rodell contends. He questioned, "So, where are we
going to go from here?"
MR. RICHARDS encouraged the committee to look at the public
record, which includes the statements made in the performance
reports, Ms. Rodell's own self-evaluations about "her own view
of the world," and other materials. He continued:
But we're not here prepared today to go into an in-
depth, detailed analysis of: Here's everything she
did right; and here's everything she did wrong.
CHAIR VON IMHOF stated that that was most unfortunate, since Mr.
Richards had been given a month to prepare.
3:26:05 PM
SENATOR BISHOP questioned what had spurred the decision to model
a $3 billion overdraw in Kodiak.
MR. RICHARDS replied that he does not know and offered his
understanding that it was "a staff-driven decision." He
considered that a trustee could have asked, and explained he
would not know since he had not been the chair of the board at
the time; however, he said he had assumed that "it had been
initiated by Angela or Sebastian, who is the risk officer."
SENATOR BISHOP asked that the committee seek an answer to his
question "on the record somewhere."
CHAIR VON IMHOF asked who normally engages communication with
Callan and Associates.
MR. RICHARDS answered that most of the time it is staff, but he
talks with Callan and Associates from time to time. He
explained that Callan and Associates is the board's advisor, but
since board members do not have staff, the fund staff handles
the vast majority of communications with Callan and Associates.
CHAIR VON IMHOF suggested a follow-up question for APFC folks
would be: "Who, from the permanent fund, communicated with the
most recent Callan report to request the various different
levels of modeling for ad hoc draws above the 5 percent? Who
was the primary communicator through the APFC? Was it a board
or was it a staff member and Callan for this ... most recent
round?"
3:28:27 PM
REPRESENTATIVE SPOHNHOLZ noted Mr. Richards had said the board
had not changed its position regarding a rules-based framework
or the 5 percent POMV system and wanted the chief executive
officer (CEO) to defend those resolutions. Further, she
recalled Mr. Richards had said Callan and Associates works for
and "models for the board," but then he described how the
analysis that was done first by staff and then Callan and
Associates modeled an ad hoc draw that would have been "in total
contrast to your own stated policy." She expressed confusion
why Mr. Richards would invest precious resources modeling
something that he has said the board does not support.
MR. RICHARDS recollected that a trustee had a conversation with
Callan and Associates "after they saw the one that was done in
Kodiak," and "he had some thoughts on how it could be done a
little better" and "was asked to do what he said he thought he
could do." Mr. Richards indicated he did not find that out of
the ordinary, because Callan and Associates has done this type
of modeling numerous times.
3:30:15 PM
REPRESENTATIVE TUCK recapped that two analyses were done that
the board thought were incomplete or incorrect; then a third one
was done that the board liked. He asked who did the third
analysis.
MR. RICHARDS responded that he liked all the analyses, except in
the most recent one by Callan and Associates where "the numbers
probably need to be adjusted for ... proper treatment of
inflation." The other ones were done in 2020 in the leadup to
adoption of Resolution 2021, by Callan and Associates,
specifically by the chief investment officer he noted was
available for comment today.
3:31:03 PM
SENATOR STEDMAN said he was puzzled over the contrasting views.
He said there are board resolutions for a rule-based structure.
MR. RICHARDS interjected, "That I was actively involved in
pushing and writing and have been an advocate for, for a very
long time."
SENATOR STEDMAN mentioned a presentation that had been given.
He said he thinks the public would be impressed with the
position of the permanent fund worldwide and its management,
costs, and benefits to the people [of Alaska]. He recalled the
presenter had talked about other funds that did not have the
long-term viability that the permanent fund had "when they've
moved off of a rules-based system." He mentioned a "trustee
paper number nine" and the board advocation of a rules-based
system "to hold the line," while one of the commissioners is
advocating before the public and the legislature for ad hoc
draws. He mentioned the inquiry about a one-time ad hoc draw,
and he stated that "that trustee is an employee of the
governor." He said it is not clear "where that break is." He
said he thinks this would make it difficult for any employee to
work with the board on that subject in harmony, because he said
the board is not in harmony.
MR. RICHARDS recollected the presentation to which Senator
Stedman referred was given by [Malan Rietveld, PhD], at the
request of the administration, and he indicated that the board
listened to the presentation as a courtesy to the
administration, but the board "took no action on it." He said
there are not "six people that walk in lockstep" but rather may
have differing views; however, there has been no motion to amend
the resolutions.
3:34:42 PM
SENATOR VON IMHOF recalled that Mr. Richards had said the board
was insulated, and she asked Mr. Richards to specify how the
corporation was insulated.
MR. RICHARDS answered, "We have less direct legislative and
executive officer involvement in our corporation than maybe
others do, by the structure." For example, he said the board of
trustees does not serve at will; its members must be fired "for
cause." He said he thinks there are "legislative carve-outs."
For example, he offered his understanding that the board may not
[be required to] follow "all the same travel policies that
everybody else does." He emphasized that the board members
serve as fiduciaries of a trust, and their primary obligation,
consistent with state law, is to act as fiduciaries.
CHAIR VON IMHOF asked, "So, you're being insulated to act as
independent fiduciaries of $83 billion?"
MR. RICHARDS said he did not know whether that is what the free
conference committee reported, but it seemed a reasonable
statement. He added, "The state's system does not necessarily
create our fiduciary status, but I believe it also does, so
there certainly are fiduciaries within that system."
CHAIR VON IMHOF asked Mr. Richards whether he thinks that the
governor's having sole responsibility of selecting the trustees
of the fund, as well as including two of his/her commissioners
serving on the fund, is truly insulating the fund and making it
nonpartisan.
MR. RICHARDS answered that he thinks "it works" and, further, he
offered his understanding that it is constitutionally mandated.
He added that only those appointees to boards and commissions
that are heads of departments or those to regulatory or quasi-
judicial are subject to legislative approval [via confirmation
hearings].
3:38:30 PM
SENATOR BISHOP asked who terminates a trustee if he/she breaches
his/her fiduciary responsibility.
MR. POAG answered that removal of a trustee takes place via the
executive branch. He suggested that individuals or the
legislature could bring a claim against individuals for breach
of fiduciary duty, to recover damages. A decision to remove the
trustee would be limited to the executive branch, and there
would be cause if there had been a breach of duty.
3:39:37 PM
SENATOR STEDMAN said he would like discussion held on who does
the executive review and a comparison of how it was done in the
past.
MR. RICHARDS responded that the first time he heard of the
commissioner not being the vice chair was from Ms. Rhodes during
the meeting in Kodiak. He said he has been on the board for six
years and was not aware that was a custom. He said, "I will add
that I don't think that's factually accurate. I think that
there have been ... commissioners that have served as vice chair
and chairman." He recollected the first vice chair was Tom
Williams when he was the commissioner of the Department of
Revenue. He said under governance documents, the vice chair is
chair of the governance committee of the board, and that
committee is tasked with the annual review of the executive
director. He said Carl Brady was vice chair 2018-19. He
indicated Mr. Brady was less formal in the review, and he
indicated there had been a survey that went to the board and was
summarized by human resources. In 2019, the head of human
resources expressed he was uncomfortable doing [the summary]
because it was his boss for whom he was doing it; therefore,
[the board] hired a consultant to do [the review] in 2020. Mr.
Richards said he was not a fan of the consultant process, and he
offered his understanding others were not, as well. Ultimately,
that time around the survey was designed by the vice chair and
was summarized by the vice chair and then passed to the human
resources. Mr. Richards said both the summary and the
underlying data were produced.
3:44:19 PM
SENATOR VON IMHOF advised that the committee would be discussing
the performance reviews a bit later in the meeting, as they are
"the meat and potatoes." She cited AS 37.13.050 as the statute
that governs how the governor chooses trustees of the APFC.
3:44:49 PM
REPRESENTATIVE JOSEPHSON offered his understanding that for the
last two decades the board has been adamant that there be a
rules-based system, and that it be predictable; at some point
the board made clear the number it believed to be most
supportable was 5 percent; then very recently the board directed
Callan and Associates to model a $3 billion overdraw. He
recollected that Mr. Richards had said Callan and Associates was
modeling the ERA overdraw durability. Representative Josephson
said, "It just strikes me that the $3 billion modeling is
precisely, to the penny, what the governor wanted last year as
bridge money."
MR. RICHARDS responded, "I think that's accurate." He then
corrected the notion that the rules-based system has been
supported by the board for 20 years; he said he thinks
Resolution 1801, in 2018, "was really the first time you saw
that language and that concept." He suggested that "a support
for a combination of the ERA and the principle" and a 5 percent
POMV could be observed 20 years ago, because those show up in
resolutions in 2003 and 2004. He said the rules-based system
was created around the permanent fund protection Act and got
adopted by the board after it began to see cracks in the system
where inflation-proofing was not happening every year, dividends
were starting to get paid out by nonformulaic methods, "not all
the royalty deposits occurred," and "the consummate risk of an
ad hoc draw."
REPRESENTATIVE JOSEPHSON expressed concern that "it wasn't an
accident that the governor wanted a $3 billion bridge draw and
that the board of trustees modeled that same draw."
MR. RICHARDS noted that the ad hoc draws also had been proposed
by the prior administration, he estimated in 2018. Then the
current administration proposed it. He reflected that the first
modeling of it was by the staff in Kodiak, and there were
concerns that "the modeling wasn't as robust as it could [be]."
He covered what took place from there, as previously iterated.
He said as chair of the board, he agrees to requests from
trustees that don't "take three hours" or are "totally off
agenda." He said there is room for whatever presentations
people want to have, and "modeling the durability of the ERA
from an ad hoc draw or for inflation-proofing is ... something
we have done regularly and often - oftentimes at my request."
SENATOR VON IMHOF asked what the modeling showed.
MR. RICHARDS responded that he did not know, but then gave an
overview of modeling as showing probability of an ERA failure
over a number of years based upon different scenarios. He said
he could not recall those scenarios in the present moment. He
recalled that Callan and Associates "did not think to include
inflation-proofing until 2024, so it showed a much more robust
ERA than I suspect would happen if you modeled it with
inflation-proofing."
CHAIR VON IMHOF responded, "With inflation-proofing exceeding 6
percent for certain months, I would expect that would be the
case."
MR. RICHARDS concurred. He said inflation-proofing would "put
some pressure on the ERA over time."
3:50:22 PM
SENATOR BISHOP suggested the need to bring before the committee
the trustee who requested the modeling on the ERA overdraw,
because he could see the committee going into a deeper
discussion regarding protecting the integrity of the fund for
future generations, which he stated is paramount. He added that
5 percent will probably not "cut it"; 7 percent is likely
necessary.
SENATOR VON IMHOF asked Mr. Richards to address slides 9 and 10
next.
3:51:53 PM
SENATOR MICCICHE, regarding observation that management of the
fund has remained politically isolated, at least on the surface,
said he remembers an administrative request to reward high-
performing employees. He continued, as follows:
I'm reading the vision "to deliver outstanding returns
for the benefit of all current and future generations
of Alaskans." So, I'm going to separate maximum
returns and politics. And when that request was made,
there was an -- I'm paraphrasing this comment --
something like, "It looks bad that employees receive a
raise while PFDs are being reduced," which is a
political comment. And looking bad is one thing, but
has the board remained, or attempted to remain
relatively politically pure toward the maximum
returns? Because some of these issues, without
getting into that detail about Ms. Rodell, do we
actively separate politics from maximum returns, which
is your mission, your vision? Because a lot of this
sort of reeks of something else.
MR. RICHARDS responded that he did not know how to answer that.
He expressed that there are six trustees, all with differing
points of view; therefore, until such time as there is a
resolution or decision made, each trustee is speaking as an
individual. As chair, he said one thing he likes about the
board's resolutions is that they speak on behalf of the entire
board. Regarding whether an issue is political, and harking
back to Senator Micciche's reference to the issue of raises and
poor dividend performance, he said, "We have a lot of issues
around how we're doing compensation, but that's not a thing
that's driving the discussion in any way."
SENATOR MICCICHE clarified that he was not asking Mr. Richards
to speak for others but would like to know whether Mr. Richards
remains on task with the board's mission and vision in its
operations, which, he said, is what the board is charged to do.
MR. RICHARDS answered, "Unequivocally." He stated that that
mission is investment returns.
SENATOR VON IMHOF said in the second half of the presentation
the committee would like to hear whether Mr. Richards felt Ms.
Rodell did not adhere to that vision and mission. She added
that she has seen in different documents that [Ms. Rodell] did
not adhere to the same vision and mission that the board did;
that they were at odds.
3:56:02 PM
SENATOR STEDMAN, regarding Senator Micciche's question, offered
his understanding that the commissioner of DOR "made that
comment," and it was political. He asked, then, if Mr.
Richards, as chair, councils board members to "keep that
political ideology off the table."
MR. RICHARDS answered no, but added that the board is a
congenial one. He said perhaps after a board meeting he might
suggest someone "tone it down a bit."
SENATOR STEDMAN opined that it is good for the chair "to
exercise that" and "keep it on focus" so that the board does not
"drift into the political realm."
MR. RICHARDS replied that that is a good observation, which he
would take to heart.
3:58:02 PM
SENATOR BISHOP asked Mr. Richards if the trustees have bi-annual
or annual fiduciary training.
MR. RICHARDS answered no; trustees are trained when they start.
He acknowledged that [periodic] training is "not a bad idea."
3:58:40 PM
REPRESENTATIVE SPOHNHOLZ said it concerns her when board members
start talking about linking compensation for staff with
dividends, appropriated by the legislature, and when the person
"that made those remarks" is the person "responsible for an
evaluation." She then observed that Ms. Rodell's rating was
higher in 2021 than in the previous four years; the only higher
rating being in her first year, 2017, which Representative
Spohnholz described as a "honeymoon" phase during which an
evaluation is likely to be good. She further observed that in
2020, Ms. Rodell had been given a raise, even though her
evaluation rated below her current one.
REPRESENTATIVE SPOHNHOLZ continued:
You can say that there's no change in the way that the
board is operating, but we now have a member of your
board who has made very controversial statements on
the record, which don't align with long-term ...
organizational development for our state's most
important ... resource. It smells really bad.
MR. RICHARDS offered his understanding that the 2021 survey
"broadly increased the number of people that were in the pool,"
in particular increasing the number of people to include "the
operational side of the house." He said [Ms. Rodell] was "very
popular with the operational side of the house"; therefore, it
would not surprise him that the result would be an increase in
Ms. Rodell's numbers. He remarked that a survey is a tool used
as a basis for conversation but not as sole consideration.
MR. RICHARDS stated that politicalizing something cuts both
ways. He explained:
On the one hand, you're concerned the board is being
politicized because of comments made or other things
that you see, but there's also a huge politicization
effect occurring through this committee process right
now. I mean, you ... brought up the chairman of the
board, to grill me pretty good, I might say, about
essentially a personnel decision involving an at-will
employee. So, it's your right to do it, but ...
there's politics going both ways here. So, I would
just encourage all of us to work through what needs to
be worked through, and then take our foot off the gas
and let things get back to normal. Because the
permanent fund, myself included, ... this is a lot for
us to handle.
REPRESENTATIVE SPOHNHOLZ pointed out that by definition, the
legislative process is a political process, while the management
of the state's most important financial aspect should not be
political. She listed factors for consideration as performance
of the fund and adherence to the rules, and she said she is not
clear on what, if anything, was different. She noted that the
survey shows employees and board members were happy with Ms.
Rodell's performance and that "the permanent fund" was, in 2021,
"celebrated internationally as one of the best places to work of
its kind." She said it is troubling that [Ms. Rodell] is
meeting all the benchmarks, yet Mr. Richards does not want to
talk about the process.
MR. RICHARDS acknowledged Representative Spohnholz' statement;
however, he said it is clear there has been stress between [Ms.
Rodell] and employees of the corporation, and the board "took an
at-will employee, who they manage, who is a highly compensated
executive, and made a decision to change." He characterized
that as "a normal, appropriate, natural process that occurs when
you manage a large corporation." He said he did not know what
else to say.
4:05:16 PM
REPRESENTATIVE TUCK said he does not think it is clear there
have been tensions, and the first time he has heard about them
is today. He stated that the Legislative Budget and Audit
Committee does have the oversight of the corporation, and
considering the outstanding performance of the fund, it is
appropriate that the committee ask these questions.
REPRESENTATIVE TUCK cited a portion of AS 24.20.156, which read
as follows:
The purposes of the Legislative Budget and Audit
Committee include
(1) monitoring and reporting
(A) the performance of the agencies of the state
that perform lending or investment functions,
(B) the extent to which the performance of these
agencies has contributed to the fiscal, financial,
economic, and social improvement of the state and its
citizens,
REPRESENTATIVE TUCK then cited a portion of [AS 24.20.206],
which relate to duties, and state that the Legislative Budget
and Audit Committee shall:
(5) provide for an annual post audit and annual
operational and performance evaluation of the Alaska
Permanent Fund Corporation investments and investment
programs;
REPRESENTATIVE TUCK remarked, "We're trying to [do] our best to
make sure this isn't political." He then credited
Representative Spohnholz as having said that simply by the
nature of it being government related, it is political. He said
the questions he is hearing from [committee] members appear not
to be political but to be of a fact-checking nature and in
response to there being ambiguity on the issue that needs
clarification.
REPRESENTATIVE TUCK referred to the three analyses done and
asked whether they were presented publicly.
MR. RICHARDS answered that the durability of the ERA has had
multiple analyses, and he encouraged Representative Tuck to look
at the one done in 2020 by the CIO. He offered his awareness
that "the durability one-time draw was done twice," always in
public session. He continued:
The board certainly can have materials distributed to
it, but it does not meet or have conversations except
for in public session. And one was done by staff at
the request of either the executive director or at the
request of the chief risk officer; I don't know the
answer. The second one that was done, was done by
Callan [and Associates]; and that one was done at the
request of the vice chair after Callan had offered
some thoughts on the one that staff had put together.
So, that is our ... record. And then I didn't see any
of those until they were in the board packet.
4:09:03 PM
SENATOR BISHOP recalled Mr. Richards' comment about the politics
cutting both ways, and he asked Mr. Richards to "refresh that
statement."
MR. RICHARDS responded that he is hearing legislators express
concern that politics are entering into the fund from the
executive branch. He said it is absolutely the legal right of
the Legislative Budget and Audit Committee to oversee the
Permanent Fund Corporation; however, just as it is the legal
right and role of the executive branch to oversee the
appointment of commissioners, he said he hopes "we don't have to
get too deep into politics with the legislature either, because
both involve politics, and frankly, both distract from the
fundamental mission of the board."
SENATOR BISHOP said he has sat at both ends of the table, and he
said the committee is here to find the facts.
4:10:47 PM
REPRESENTATIVE JOSEPHSON expressed surprise and concern that Mr.
Richards has said that what is happening is political rather
than denying any political involvement.
MR. RICHARDS clarified he did not mean to say that executive
branch politics had "entered the realm of the board." He
encouraged finding a resolution to the issue so that the board
can "move forward with its mission," while acknowledging the
right of the Legislative Budget and Audit Committee to "do what
you choose to do."
REPRESENTATIVE JOSEPHSON said Mr. Richards had stated that Ms.
Rodell was an at-will employee, and he said there is copious
evidence of that. He then noted that the [Implied] Covenant of
Good Faith and Fair Dealing requires there be an objectively
reasonable cause for the termination of an employee, and a jury
would be given that instruction. He expressed concern that "in
these 500 pages there is a tremendous amount of evidence that
our lawyers - the Department of Law - are going to have to
defend." He asked Mr. Richards if he should not be concerned
about that.
MR. RICHARDS indicated that this was a tough question for him to
answer, because not only does he serve as board chair, but he is
also a lawyer; however, he does think it is his role to opine
what could and could not be defended. As chair, he said he is
not concerned. He said he has been involved in the removal,
termination, forced resignation, "got to go spend time with my
family" situations in state government dozens of times, and he
cannot think of a single instance where it resulted in "a
successful termination lawsuit." He allowed there might be
[such a case in existence].
4:13:42 PM
SENATOR VON IMHOF, in response to Mr. Richards' remark about the
stress and tension between the board and Ms. Rodell, commented
that Ms. Rodell was not present to defend herself today.
Therefore, she read the following three comments from former
employees, who had spoken on her behalf:
The CEO was effective within the bounds set by the
board, but much of what needs to be strategically
addressed isn't within her power to implement due to
the board's failure to empower her.
Very effective at implementing and modeling mission,
vision, and purpose; recent attempts at engaging the
board in some strategic areas have been met with
resistance.
Recent board meetings brought to light that the board
does not seem to be still strategically aligned with
what they have previously approved. When Angela tried
to engage the board, the discussion was refused and
then seemed to be dismissed.
CHAIR VON IMHOF suggested the board had failed on its end to
properly engage and support Ms. Rodell in what should be a
shared mission from which the board deviated.
4:15:34 PM
MR. RICHARDS responded that he did not think it fair to read
[three] comments when he could have countered with the same
number of comments expressing the opposite view.
CHAIR VON IMHOF asked, "Which ones are accurate?"
MR. RICHARDS said the comments read were made in a survey, and
he does not know who made them. He said negative comments tend
to come from the board and staff, while the comments from "the
operational side of the house" tend to be positive. He said he
thinks that accurately reflects the dynamic of the relationship.
SENATOR VON IMHOF asked where the tensions lie.
MR. RICHARDS, regarding whether the board did enough to bring
the executive director along, said he thinks it did, and
ultimately that is not the board's obligation.
SENATOR VON IMHOF asked why, if the tensions between the board
[and Ms. Rodell] have been going on for a while, there is
"nothing in the 296 pages indicating a work performance
improvement plan."
MR. RICHARDS answered that to the extent that occurred, it would
have been in executive session; therefore, he could not talk
about it. Second, he said, "Different companies have different
ways of handling employee problems." There can be a formal
plan, but "there's not one that exists in the formal record."
He continued:
Again, ... you're putting a level of duty on the
board, in terms of how it tries to drag along an
executive director, that ... I don't think ... is
reflective of realistically how large corporations
operate. When a board gets, for whatever reason,
dissatisfied with their CEO, ... maybe you can make it
work; maybe you can't; maybe it's time to move on;
maybe it's not.
4:19:08 PM
REPRESENTATIVE SPOHNHOLZ recollected Mr. Richards had said the
board changed its evaluation process, and she asked him to
explain the reason behind the change.
MR. RICHARDS responded that the evaluation of 2018-19 was board-
centric; a consultant was brought in for 2020, with the survey
expanded and focused on the board and key reports, but there was
dissatisfaction with that method; so, the governance committee
wrote a survey, which was transmitted to the entire staff. He
questioned that decision, because while everyone's view is
important, he suggested the view of the receptionist, for
example, should not be equally weighted with the views of the
chief financial officer (CFO), the CIO, and the board. He said
it is "an adaptive process." He added, "And I also suspect our
ability to use surveys is going to be now quite dampened, as
well. So, I'm not sure that those are going to be a tool that
staff is going to engage much going forward, 'cause certainly no
one thought all this was going to get public."
REPRESENTATIVE SPOHNHOLZ said while she is not asking Mr.
Richards to violate the rules of executive session, she wants to
know whether he considered a performance improvement plan.
MR. RICHARDS emphasized his answer would include nothing having
to do with the executive session, then answered, "I don't think
so." He said that having been an executive of a large
corporation, he finds it "a little unrealistic" that an
executive CEO-level employee "of this magnitude" is going to be
treated like a classified employee working for the state or a
labor union person that would be instructed to improve under a
four-category plan. He said that in his experience, that is
just not how CEOs of large corporations are reviewed.
REPRESENTATIVE SPOHNHOLZ said she did not think anyone in the
room would expect the performance plan of a CEO of an $82
billion organization would be similar to that of a classified
employee, but clearly the board had performance benchmarks for
Ms. Rodell, and "it sounds like perhaps there was a
communication gap between what the board expected and what Ms.
Rodell was delivering." She asked Mr. Richards, "Did you ever
considered writing that down on a piece of paper and sharing
that with her and giving her the opportunity to decide whether
or not she was going to make an effort to meet your goals?"
MR. RICHARDS answered that all of the conversation "around those
things" occurred during executive session; therefore, "there was
no written thing." He added that that was probably on purpose.
He stated, "I mean, I'm not going to say that this is true, but
I would hesitate before I did something like that and put it in
someone's employment file."
REPRESENTATIVE SPOHNHOLZ said she would think that as an
attorney, Mr. Richards would want to cover his "rear end" by
"writing something down."
MR. RICHARDS said everybody was just trying to manage an
organization well and resolve any issues.
REPRESENTATIVE SPOHNHOLZ asked Mr. Richards whether he - by
phone or text, in the last six months - had any conversations
with members of the Office of the Governor regarding "Ms.
Rodell's role at the permanent fund."
MR. RICHARDS replied that he had been clear he would not go into
the interactions and communications and decisions that led up to
the firing of Ms. Rodell because it would not be appropriate to
do so.
REPRESENTATIVE SPOHNHOLZ said, "Alright, I will take that as a
yes."
4:25:03 PM
REPRESENTATIVE JOSEPHSON commented that Mr. Richards is entitled
to his opinion about plans of improvement, but page 33 of the
board's charters and policies from September [2020] "talks about
plans of improvement for the executive director, so it's a
thing."
4:25:25 PM
SENATOR MICCICHE lead up to a single question by emphasizing his
intent not to rake Mr. Richards "over the coals," while noting
that he would focus on the benefit of the fund being one in
perpetuity while political problems are temporary. He said
politics will erode maximum returns over the years, and if
allowed, the results could be tens of billions in lost
opportunity cost earnings and maximum returns. He then asked
whether Mr. Richards would manage for maximum returns or "let
erosion move into lost maximum returns in the future."
MR. RICHARDS answered that maximum returns would always be his
primary focus, to the extent it is his duty as a trustee "to do
that." He added, "I only hedge because there's different roles
for different people." For example, he said as a trustee he
does not oversee investments but is obligated to oversee and
create a system that provides for the highest returns possible
relative to risk. He added, "You always have to put in that
caveat." He said that is "what everybody's doing across the
company."
4:27:28 PM
SENATOR BISHOP recollected Mr. Richards had made a comment about
having to drag along the executive director. He remarked that
he would figure out a way to drag that person along, especially
when the one-, two-, three-, and five-year returns have all
"been benchmark," and in order to maintain those rates of
return. He asked for confirmation that Ms. Rodell had no
interaction with the human resources (HR) manager.
MR. RICHARDS answered that Ms. Rodell certainly had interactions
with the HR manager but had to report to the board as a matter
of hierarchy, and it was the board's obligation to oversee Ms.
Rodell's employment. Regarding the notion that the executive
director is tied to performance, he said while he respects
everyone "at the permanent fund," it is a team effort toward
winning. That said, he pointed out that Ms. Rodell did not
handle investments but had a limited oversight role, and if she
interfered, then she had to report to the board. The
investments are being handled by the chief investment officer.
He said different organizations have varying structures, and the
one that the Permanent Fund Corporation Board [of Trustees] has
is not atypical. He said although everyone on the team,
including the former and next executive director deserve aplomb
for the fund's performance, ultimately it is the CIO that is
responsible for managing the fund's assets. The executive
director's role lies more within administrative oversight and
political outlook.
MR. RICHARDS referred to a slide that shows the investments
"come to a peak" at the CIO, and then below the CIO are the
portfolio managers. There are 25-26 other investment personnel,
as well as "a very large stable of external asset managers and
all the different asset classes that are also charged with
investing."
4:31:13 PM
CHAIR VON IMHOF asked why the Survey Monkey format is not one
Mr. Richards wants to use again.
MR. RICHARDS answered that no one knew that the surveys would be
subject to the Public Records Acts requests; therefore, he
predicted surveys would not be a tool people would be eager to
use in the future.
CHAIR VON IMHOF asked if it is difficult to know whether one
person has taken the survey more than once or whether, in the
area of collating, there may be less oversight.
MR. RICHARDS said that if Chair von Imhof was suggesting someone
tampered with a survey, then that is a spurious accusation.
CHAIR VON IMHOF asked, "What were the controls in place to make
sure it wasn't?"
MR. RICHARDS answered that there are no controls in place; it is
an annual survey. He speculated that more attention has been
given to the survey by the Legislative Budget and Audit
Committee this year than in years past. He said the survey is a
tool; "it's not like it's this thing that gets a massive amount
of attention." He said he takes exception to the suggestion
that someone might have manipulated the data. He said the
surveys have all been produced, so someone could go through them
and compare them, but he said he "would encourage us not to go
down this road."
CHAIR VON IMHOF responded:
We actually did compare them; we laid them side by
side; and it was interesting that one year it was 21
employees, and the second year it was 38 employees.
It was quite a jump. One was done by a third party
where, as a score, one was the highest and five was
the lowest; and the next year it flipped where five
was the highest and one was the lowest. So it is a
misnomer if you say Ms. Rodell got a 2.73 in 2020, and
you think that's a low score, when in fact it's quite
a high score. And I think it's important to note when
the jump of participation goes almost double, it is
interesting; when it goes from third party to
internally with the executive branch, when the
executive branch has stated that they have no
knowledge of ... the termination of Ms. Rodell, it
does raise some flags.
CHAIR VON IMHOF said she thinks the question on some people's
minds is now that Ms. Rodell is "out of the way," will Mr.
Richards be applying for the job of executive director.
MR. RICHARDS answered no, stating that it would not even be a
possibility since he is divorced, has an eight-year-old son, and
lives in Anchorage.
4:35:27 PM
SENATOR BISHOP talked about his method of curbing "water cooler
comments" by requiring the person who talked about someone else
behind their back to repeat what they said in front of the
targeted person. He indicated the result of this practice is
that these types of comments "just go away." Next, he recalled
having read a statement that "50 percent of the legislature had
lost confidence in the executive director," to which he
responded that "nobody's interviewed me."
4:37:04 PM
SENATOR STEDMAN said he has heard the comment, "No one contacted
me." He then shared that he has no issue with [Ms. Rodell]. He
said she was always "straight up" and articulate; she was
forthcoming with information about the permanent fund and her
presentations to the legislature were good. He said he is not
her personal friend. He said he would question lack of support
for Ms. Rodell and inquire who was asked. He expressed concern
about a comment the committee had read about, that a trustee
thought his/her employment would be in jeopardy if he/she did
not support terminating Ms. Rodell. He emphasized that is a
serious issue that should be addressed if it is accurate.
MR. RICHARDS said he doesn't know anything about that, then said
he thinks he read "something similar." He issued a heartfelt
statement: "We are fiduciaries. We make decisions based on the
best interest of the fund." He said if a legislator, a
governor, or anybody else called him to say he/she wanted
someone hired or fired, he would thank the individual for the
input and tell him/her that he would consider it. He said he
has received high-pressure calls, and there are situations in
which he does what is asked and other situations in which he
follows his own counsel. He concluded, "And in this case, as a
fiduciary of this fund, people are going to exercise their own
independent judgement."
SENATOR STEDMAN said Mr. Richards was talking about himself. He
said he was not referring to Mr. Richards as having made that
comment, because "clearly you do not work for the governor."
4:40:42 PM
CHAIR VON IMHOF shared her perspective that what Senator Stedman
is talking about regarding the legislature, taking into account
the cover sheet detailing Ms. Rodell's performance, is as
follows: "Her relationship with the board is stressed and some
trustees report a lack of trust and candor. The same can be
said for her dealings with the executive branch and the
legislature." She indicated that she would like, as follow-up
information for the committee, to discover who, from the
legislature, provided input that said Ms. Rodell's dealings
report a lack of trust and candor. She asked Mr. Richards what
the basis would be for that statement. She noted that he has
heard from several legislators who were not contacted, and she
asked who was contacted to provide input.
MR. RICHARDS responded that he suspects that the answer is going
to be that that information would not be provided for reasons
that have been discussed. He pointed out that in service of
reflecting on relative boundaries, the executive director
reports to the board, not to the legislature. He added that he
has "no doubt" that Ms. Rodell was well-liked by many in the
State of Alaska Capitol building and well-liked by many of the
members of the committee. He shared his understanding that Ms.
Rodell's performance reports accurately reflect [the positive
sentiments towards her] in many ways. He opined that Ms. Rodell
did well regarding external communication, and that it was one
of her strengths in her job. However, that is just one role of
many that an executive has in managing the job, he said.
CHAIR VON IMHOF commented that Mr. Richards used Ms. Rodell's
relationship, or lack thereof, with the legislature as one of
the dedicated reasons [in the summary] to terminate her. She
opined that it is material.
MR. RICHARDS said that that was a board comment.
CHAIR VON IMHOF returned, "No, it is the overall summary." She
quoted from the summary as follows: "Oversaw an organization
that delivered record returns. Oversaw rapid expansion of
assets under the management. Designed a remote work system."
She shared her understanding that there are around 10 bullet
[points] like this.
MR. RICHARDS responded that he doesn't know, but would say that
whether or not an APFC employee is popular with the legislature
is certainly a factor that reflects on relative performance in
some of the areas of [Ms. Rodell's] job, but that it is
certainly not controlling as to other areas of her job. He said
that he would "no more hire or not fire someone because she was
popular with the legislature" than he would with anyone else.
He said that it is a factor to be considered.
4:43:33 PM
CHAIR VON IMHOF noted that the committee needs to talk about the
origin of "these large binders that everyone has in front of
them," which contain the release of Ms. Rodell's personnel file.
She asked Mr. Richard's who authorized the release of Ms.
Rodell's personnel file.
MR. RICHARDS responded that he doesn't know "who ultimately
authorized it," but can explain the process by which it was
released. He said that a Public Records Act request (PRAR) was
received first from the Anchorage Daily News (ADN), which he
said opened the doors. He explained that there was a review by
the Department of Law (DOL) to determine whether or not some or
all of the records were subject to release. He shared that DOL
determined that some or all of those records were subject to
public release. He explained that Ms. Rodell was then
contacted, and she hired an attorney. He relayed that her
attorney said that these records should not be released and
cited "whatever legal argument was put forward." He added that
DOL reviewed the information and notified Ms. Rodell's attorney
that DOL did not agree that the records were not subject to
PRAR, and that Ms. Rodell was given "something like a week" to
file a lawsuit to prevent the release. He said that that did
not occur and that the records were released "pretty darn close
to the statutory guideline." He opined that this is a lot of
work to get done in 20 days.
CHAIR VON IMHOF asked for clarification that Mr. Richards is
saying that the statute has been interpreted by DOL to support
that certain employees' personnel files can be released to the
public if simply asked for it.
MR. RICHARDS responded, "That's what they determined."
CHAIR VON IMHOF asked whether the employee files for
Commissioner Mahoney, Commissioner Feige, and for Mr. Richards
himself as acting Attorney General, should be asked for as well.
MR. RICHARDS responded, "I guess you can." He expressed that he
doesn't think this is good policy. He said, "Please don't think
that I'm saying that I think it's okay that this is released."
He noted that people have the right to have personnel files be
private. He said that he thinks it's "absurd" that all of this
confidential information has been made available, but "that's
the law."
CHAIR VON IMHOF asked Mr. Richards, "Why did communications
person Jeff Turner, with the Dunleavy Administration, comment
that he knew exactly the date and time when Ms. Rodell's file
would be released?"
MR. RICHARDS responded that he doesn't know who Mr. Turner is,
and he has no idea why, other than he suspects that "if you had
called Paulyn [Swanson], she would have told you."
CHAIR VON IMHOF asked why Paulyn, or anyone else at the Alaska
Permanent Fund Corporation, is "not in charge - solely in charge
- and protective of permanent fund employees' personnel files."
MR. RICHARDS responded that this is the way the state system
works. He said that when there is a legal case like this, it
goes to DOL, and DOL makes a determination. He reiterated that
he doesn't like the determination and that "it's a bad one," and
that he would change it if he were a legislator.
CHAIR VON IMHOF asked Mr. Richards to whom the personnel file
was released.
MR. RICHARDS responded that he thinks it was released to James
Brooks, but that it was released within a very short period of
time to the Legislative Budget and Audit Committee, as well. He
said that he doesn't know whether it was "a half day or a day,"
but that it was at right about the same time. He reiterated
that he wasn't the one doing this, but that this is what he
understood was occurring.
CHAIR VON IMHOF stated, "A personnel file was released to the
media."
MR. RICHARDS responded, "I know; it's terrible."
4:47:28 PM
REPRESENTATIVE JOSEPHSON commented that this has been, in one
sense of the word, "a productive time." He said that
notwithstanding everyone's incredibly busy schedules, it is his
request of the chair that the committee revisit this topic at a
future meeting.
4:48:03 PM
REPRESENTATIVE FOSTER referred to an earlier comment made by Mr.
Richards in which he claimed that the "stellar" performance of
the fund over the 1-, 3-, and 5-year performance periods should
be credited to the chief investment officer and not to Ms.
Rodell. He opined that some credit should be given to Ms.
Rodell for the performance of the fund.
MR. RICHARDS clarified that Ms. Rodell was a critical member of
the fund's team and complimented some of her administrative
decisions but stated that she did not have day-to-day decision-
making capacity over the investments. He added that should Ms.
Rodell change any of the investment decisions made [by the CIO],
those decisions would be required to be reported to the board,
and none had been reported in the two-year period in which the
reporting rule had been in place.
4:49:29 PM
SENATOR VON IMHOF asked how many times over the last five years
the CIO position had changed.
MR. RICHARDS postulated that it had changed three times.
SENATOR VON IMHOF stated that it had been Ms. Rodell as a
constant [presence over the previous five years] including
significant turnover of members of the board.
MR. RICHARDS suggested that the second CIO may have had reasons
for leaving that resulted in complexity related to the turnover
in the CIO position. He stated that regardless of board
turnover, the executive director position necessarily reports
directly to the board.
4:50:58 PM
SENATOR STEDMAN stated his concern regarding Ms. Rodell's
personnel file becoming public and recommended further
investigation into that matter. He expressed his desire that
the public be able to observe a full conclusion to the dismissal
and understand the management of the fund and the committee's
role in oversight of the management of the fund.
4:51:46 PM
REPRESENTATIVE ORTIZ stated that he had not been approached for
his input as a legislator on evaluating Ms. Rodell's
performance. He recalled Mr. Richards' statement of commitment
to the duty [of the board] to manage the fund for maximum return
and stated that any public suggestion [by a board member] of an
overdraw of the fund would be contradictory to maximum returns
for the fund.
4:53:04 PM
REPRESENTATIVE KAUFMAN stated that the focus of the committee
should be on the management and performance of the fund and
allowed that there may exist constraints on what may or may not
be discussed publicly. He said that he had requested unrelated
fiscal modeling [of scenarios] that he may not agree with to
determine failures or other information from the models. He
recalled his experience in the private sector of having
participated in 360-degree reviews and expressed his reluctance
at the time of having to provide feedback on upper management
and suggested that the process was not necessarily confidential.
He concluded with the suggestion that the overall performance
and management of the fund must take into consideration risk.
4:55:41 PM
REPRESENTATIVE JOSEPHSON expressed his concern that the
"covenant of the right to terminate" may exist; however, case
precedent in Alaska would show precedent that cases regarding
termination may be brought and referred to a case involving
Kenai Chrysler. He added that it would have been his preference
to compensate Ms. Rodell for her work he described as capable
rather than for a potential lawsuit settlement regarding her
termination.
4:56:47 PM
REPRESENTATIVE SPOHNHOLZ said she felt deeply troubled by what
she learned about this process, adding that she felt frustrated
by some of Mr. Richards' testimony. She opined that Mr.
Richards was "talking kind of out of both sides of [his] mouth."
She paraphrased his earlier statement regarding Ms. Rodell being
responsible for [APFC's] challenges, but not for any of its
successes. She contended that Ms. Rodell is a "world class
professional" who was the commissioner of the Department of
Revenue (DOR) prior to being the CEO of APFC; further, she
asserted that Ms. Rodell was not a "glorified administrative
assistant," adding that if she had been, Mr. Richards [the Board
of Trustees] would not have awarded her a 5 percent increase
last year. She pointed out that the Alaska Permanent Fund
currently brings in 70 percent of the state's unrestricted
revenue. She characterized APFC's decision to started modeling
overdraws that are in direct conflict with some of the position
papers that the board had been clear on for some time as
troubling. Nonetheless, she thanked Mr. Richards for his role
in creating the rules-based framework and the passage of Senate
Bill 26 [in the Thirtieth Alaska State Legislature], which made
the state more stable and modernized its funding structure, she
opined. She went on to express her concern that the Office of
the Governor seemed to know about the situation regarding Ms.
Rodell in advance, pointing out that the Office of the Governor
was able to speak to her personnel files being released on
January 11, [2022]. She shared her belief that Ms. Rodell's
popularity in the capitol building is inconsequential,
emphasizing that "it's about performance and about the law."
Nonetheless, she acknowledged that Ms. Rodell is respected in
the capitol building for her work in Alaska. She addressed the
importance of managing the permanent fund in an apolitical
manner because of its strategic importance to the future of
Alaska. She stated her belief that growing the permanent fund
should be the [legislature's] top priority, and she opined that
everything else should be secondary when it comes to Alaska's
fiscal policy. She welcomed future hearings on this topic,
sharing her belief that the committee's work is not done.
5:00:01 PM
REPRESENTATIVE FOSTER echoed the request for future meetings on
this issue. Specifically, he recalled that Mr. Richards had
mentioned that he couldn't speak to his fellow trustees' intent
or motivation. Consequently, Representative Foster expressed
his interest in hearing from those trustees at a future hearing.
5:00:37 PM
REPRESENTATIVE TUCK stated that he would like to see more
meetings on this issue, as well, opining that the events leading
up to Ms. Rodell's termination were unclear. He recalled that
Representative Josephson had pointed out that the executive
director should be allowed a performance review and the
opportunity for improvement. He indicated that everything
should be documented in writing, as it holds people accountable
in situations like this. He emphasized that it is the
committee's responsibility to look into matters such as [the
termination of Ms. Rodell] and shared his understanding that
though her termination may not have been political, it seemed to
be personal. He expressed his interest in acquiring additional
answers on what led up to that decision. He continued by
pointing out ambiguities in Mr. Richards' testimony. He stated,
"On one hand, she is not in charge of the investments, and ...
the investment staff weren't happy with her performance; but on
the other hand, she is overseeing the administration, the
clerical, the accounting, and if you ask them, she did a stellar
job." Representative Tuck thanked Chair von Imhof for holding
this meeting.
5:03:10 PM
MR. RICHARDS expressed his "shock" that he was called to testify
before the committee. He remarked:
We have an at-will employee who reports to the board,
who years of documented evidence demonstrates that
there were trust problems going both ways between the
board and the executive director - it's in her 2018
review; it's in her 2019 review. In her 2020 review,
she even says, "There's a reciprocal lack of trust."
This is the employee that reports to the board. This
has been going on for years. The board decided to
make a change.
MR. RICHARDS asserted that the board had the authority to
[terminate Ms. Rodell.] He opined that the response and the
feedback is due to Ms. Rodell's popularity and because she is
"making a lot of hay." He stated his hope that the committee
would respect that the board's job is to oversee the permanent
fund and the executive director. He posited that the board made
an "informed, rational decision, consistent with our policies
and all the laws, maybe there is something that you think is
applicable otherwise, but by and large we did it like you're
supposed to do it." Further, he asserted that the best course
of action for the permanent fund is to "move on." He
acknowledged that it is the committee's prerogative to hold more
hearings on this issue; however, he cautioned that there would
be a cost to that decision to Ms. Rodell, the Board of Trustees,
and the staff members involved. He encouraged the committee to
act quickly to allow APFC to redirect its focus back to managing
the permanent fund.
5:06:09 PM
SENATOR VON IMHOF said this is a tough way to start the
legislative session for all parties involved, adding that "this
will take as long as it takes." She reminded Mr. Richards that
the Legislative Budget and Audit Committee has the statutory
authority and fiduciary responsibility to ensure that Alaska's
"largest nest egg" is protected from political influence on any
side; further, that it is managed in a prudent and thoughtful
way with integrity. She opined that the answers provided today
were not as deep and thorough as the committee would have liked.
She remarked, "This is not the end of the story. We would like
to know why the governor's office had knowledge of the personnel
file." She added that she looks forward to future hearings on
this subject to address why Mr. Richards could not speak to the
intent and motivation of other trustees.
5:08:04 PM
ADJOURNMENT
There being no further business before the committee, the
Legislative Budget and Audit Committee meeting was adjourned at
5:08 p.m.
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