Legislature(2003 - 2004)
02/03/2003 01:40 PM House FIN
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
February 03, 2003
1:40 PM
TAPE HFC 03 - 8, Side A
TAPE HFC 03 - 8, Side B
TAPE HFC 03 - 9, Side A
TAPE HFC 03 - 9, Side B
CALL TO ORDER
Co-Chair Harris called the House Finance Committee meeting
to order at 1:40 PM.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Eric Croft
Representative Richard Foster
Representative Mike Hawker
Representative Carl Moses
Representative Gary Stevens
Representative Bill Stoltze
Representative Jim Whitaker
MEMBERS ABSENT
Representative Kevin Meyer, Vice-Chair
Representative Reggie Joule
ALSO PRESENT
Representative Max Gruenberg; Stephanie J. Cole,
Administrative Director, Alaska Court System; Robert D.
Storer, Executive Director, Alaska Permanent Fund
Corporation, Department of Revenue; Bob Bartholomew, Chief
Operating Officer, Alaska Permanent Fund Corporation,
Department of Revenue; Craig Campbell, Adjutant General,
Commissioner, Department of Military & Veterans Affairs;
Samuel Johnson, Assistant Commissioner, Division of Homeland
Security; Denise Liccioli, Director, Division of
Administrative Services, Department of Military & Veterans
Affairs.
PRESENT VIA TELECONFERENCE
Larry Cohn, Executive Director, Alaska Judicial Council,
Alaska Court System; Marla Greenstein, Executive Director,
Alaska Council on Judicial Conduct.
GENERAL SUBJECT(S):
ALASKA COURT SYSTEM
ALASKA COMMISSION ON JUDICIAL CONDUCT
ALASKA JUDICIAL COUNCIL
ALASKA PERMANENT FUND CORPORATION
MILITARY AND VETERANS AFFAIRS
HOMELAND SECURITY
The following overview was taken in log note format. Tapes
and handouts will be on file with the House Finance
Committee through the 23rd Legislative Session, contact 465-
2156. After the 23rd Legislative Session they will be
available through the Legislative Library at 465-3808.
LOG SPEAKER DISCUSSION
TAPE HFC 03 - 8
SIDE A
001 Co-Chair Harris Convened the House Finance at 1:40 p.m.
ALASKA COURT SYSTEM (ACS)
300 STEPHANIE J. COLE, Reported that she had been the
ADMINISTRATIVE Administrative Director for nearly six
DIRECTOR, ALASKA years, and introduced Chris Christensen,
COURT SYSTEM Staff Counsel, Alaska Court System, who
would also be available to answer
members' questions. She referred to the
handout (copy on file), which included
details of the current budget request.
Ms. Cole noted that budget requests had
traditionally been prepared according to
the System's operating needs, and then
revised the request according to
legislative recommendations.
417 Ms. Cole Noted that the court system comprised 99
percent of the judicial branch of the
State government, but represented only
1.1 percent of the State Operating
Budget. She noted that over 77 percent
of the System's budget went to personnel
services, and that over 70 percent of
their employees were compensated at Range
15 or less. The System has court
facilities in 44 locations statewide,
also providing services to other
locations through the use of traveling
judges. ACS is primarily a service
organization; primary function was to
handle all civil and criminal cases, as a
constitutional mandate. She pointed out
that ACS has no control over caseload,
and that all cases that came before the
Court must be accepted, regardless of
available resources. Citizens,
businesses and various governmental
entities file cases.
602 Ms. Cole Summarized the ACS mission, as stated in
the handout (copy on file, as being to
handle cases in a timely, fair and
affordable manner. Ms. Cole pointed out
that last fiscal year 141,370 cases were
filed in the trial courts, a 9% decrease
from prior fiscal year. She noted that
the decrease was due to a drop off in the
number of traffic violations in district
court, and in fact the number of more
labor-intensive cases had increased. She
explained that the ACS included 34
Superior Court Judges in 13 locations,
with an additional 3 locations served by
traveling judges. The Superior Court has
jurisdiction over felony cases, the
number of which rose in the last fiscal
year by 6% overall, with some areas
increasing by a greater percentage.
These cases are the most likely to go to
trial and require more judicial and
clerical work. She also pointed out a 5%
increase over the past year in domestic
relations cases. Family cases comprise
nearly 40% of the total Superior Court
caseload. These cases, like felonies,
tended to return to the ACS for revisions
in future years.
833 Ms. Cole Explained the function of District
Courts, this being the lowest level of
court with limited jurisdiction; there
are 42 district court locations, presided
over by magistrates and district court
judges. She noted that, although total
number of cases had decreased, more
complex cases had increased 10% from the
prior fiscal year.
904 Ms. Cole Discussed revenue generated by court
action. She summarized that last year
ACS deposited over 6.1 million dollars
into the General Fund, generated from
filing fees, fines, forfeitures and cost
recoveries, as well as $736 thousand in
court fees, used to supplement other
state agency budgets. She added that the
Department of Law deposited additional
revenues of $3.5 million in fines, fees
and costs. Over $800 thousand of this
was reimbursement for Public Defender
costs. Finally, she noted that $1.3
million in fines for municipal cases was
returned to municipalities.
1004 Ms. Cole Highlighted five key issues that
challenge ACS: adequate security,
technology issues and upgrades,
timeliness and delay reduction, needs of
payment assisted litigants, and
therapeutic court projects.
1032 Ms. Cole Discussed court security. She emphasized
that concern in this area is increasing,
as more incidents of fearfulness in
courtrooms are reported. She noted the
escalating effects of anxiety over
terrorism, and cases involving domestic
violence. She explained that the
Department of Public Safety was required
by statute to provide security; their
staffing was not adequate. The goal of
ACS is to provide weapons screening at
all Superior Court sites. She stated
that the Juneau Court weapons screening
system was currently being operated using
federal grant monies available for the
short term. She also noted the effort to
seek funds available through the Federal
Homeland Security program.
1254 Ms. Cole Then discussed the issue of Technology.
The ACS relies on digital audio for
records, and telephone systems for remote
participation. Ms. Cole stressed the
need for an adequate court case
management system. Since the 1980's, the
ACS has used only a rudimentary system.
Ms. Cole explained that the system was
inadequate to collect and report
meaningful court statistic information.
The system generates a high error rate
currently. She reported that a modern
system had been acquired, but needed
modifying. Implementation of the new
system is projected by the end of
calendar 2004. She also reported that
the Courts' participation in the new
State contract with Alaska Communications
Systems for wide area network was
currently unclear. She explained that
their agency would decide whether this
system would meet their needs, or to find
an alternative method for these services,
such as ITG.
1626 Ms. Cole Discussed the issue of timeliness and
delay reduction. She recognized the
difficulty for individuals or
organizations to await resolutions of
court cases. Ms. Cole reported that in
February of 2000, the Court adopted
aspirational time standards for the trial
courts; in March of 2001 the Supreme
Court adopted Appellant time standards
for the appellant courts. She reported
that periodic review of caseloads were
conducted, and that, at the appellant
level, the Supreme Court was either close
to meeting or beating its time standards.
Ms. Cole reminded the Committee that case
delay relates to available resources.
She noted current budget requests, as for
a second District Court Judge and clerk
in Palmer. She added that the agency
took a $.5 million cut from its
maintenance level in last year's budget.
1851 Ms. Cole Discussed pro tem littigance. She pointed
out the Family Self Help Center in
Anchorage, opened in October of 2001,
which has served over 3,500 customers
statewide. The Center is funded by
Federal monies directed back to the State
through a formula generated by the Child
Support Enforcement Division. She
reported that the Center was successful,
but could serve more with increased
resources. She also noted that the
Center currently only helps with family
law, and would like to expand to other
areas.
2026 Ms. Cole Explained Therapeutic Court Projects.
These projects include: District Court
Mental Health Court in Anchorage;
Anchorage Felony Drug court; the
Anchorage and Bethel Felony DUI Projects;
Anchorage Wellness Court Project; a small
Juneau Wellness Project; and a Family
Care Court in Anchorage. Ms. Cole
clarified that, although these courts
were termed therapeutic, they actually
operated on a tougher, requiring
defendants to meet stringent mandates.
She reported that ACS was currently
evaluating all projects. Nationally such
courts are reporting successful results.
Ms. Cole stated that the programs require
more resources. She noted that the DUI
Project was not funded for the entire
year. Many of the projects were
initially funded by short term, but will
require additional funding to expand or
continue.
2341 Co-Chair Harris Asked how much funding was requested for
Security purposes.
2403 Ms. Cole Referred to a Capital Request and an
Operating Budget Request.
2418 CHRIS CHRISTENSEN, Reported that, at the present time,
STAFF COUNSEL, Juneau was funded by an $80 thousand
ALASKA COURT SYSTEM federal grant, and the request was for
$80 to continue the program. He also
noted that $75 thousand per system in
operating funds was needed to install
programs for Palmer and Kenai. He stated
that a Capital Request for an additional
$40 thousand to purchase equipment was
also pending.
2452 Co-Chair Williams Asked for clarification, asking whether,
with therapeutic courts included in the
Capital Budget, an increase would also be
requested in the Operating Budget for
this year.
2533 Mr. Christensen Responded that the funding in the Capital
Budget did not come through the Court
System, but rather as a grant through
Partnership Progress, the private,
volunteer organization in Anchorage,
which assisted in the project.
2552 Co-Chair Harris Asked about success of therapeutic
courts.
2601 Ms. Cole Explained that, while apparent changes in
defendant behaviors were impressive,
these projects were fairly new, and that
evaluations were underway. The Mental
Health Court in Anchorage has been in
existence the longest, and an evaluation
from the Judicial Court Council was
expected shortly.
2654 Co-Chair Harris Asked for the average time that cases
waited in process before being heard by a
court.
2716 Ms. Cole Responded that the amount of time before
a case went to court varied dramatically,
and that the current system did not allow
reporting of specific information.
2736 Co-Chair Harris Clarified by asking whether if funding
increased, it would directly effect and
improve turnaround time for cases.
2812 Ms. Cole Confirmed that increasing resources would
likely improve timeliness of cases. For
example, in Palmer, with a large caseload
per judge, cases would be handled more
quickly by adding another district court
judge and clerk.
2846 Representative Referred to Security, asking what options
Stevens were being considered. He noted his
concern over how little security was used
in the court in his home.
2927 Ms. Cole Clarified that the statutory requirement
was pertaining to the Department of
Public Safety to provide security. She
noted however that often State Troopers
were not what was most effective. She
referred to a weapons screening program
that was necessary to preserve the safety
of courtroom personnel.
3035 Mr. Christensen Added that, while Public Safety generally
used State Troopers, they also had a
united called Judicial Services, law
enforcement officers with limited
jurisdiction. Screening at door for
weapons in Anchorage, Fairbanks, and
Juneau was implemented by private
security officers and not State
employees. Noted that a new security
company had placed a bid on the Juneau
services.
3133 Representative Asked whether a statutory amendment was
Gruenberg necessary to add a new District Court
Judge in Palmer.
3203 Ms. Cole Responded that, under the current statute
(AS 22.15.020), the Supreme Court could
increase the number of District Court
judges without legislative action.
3230 Mr. Christensen Clarified that the statute only required
an amendment to create a Superior Court
Judge.
3247 Representative Read from AS 22.15.020, which outlined
Gruenberg the number of judges for each judicial
district. He observed that the Supreme
Court interpreted the statute to allow
them to create a different number of
district court judges than was in
statute. He asked how many district
court judges were currently in the third
judicial district.
3348 Mr. Christensen Responded that there were 17 district
court judges currently, which was a
decrease. He noted that, while a bill
was not needed to create a judgeship, the
legislature had always been asked for
approval through the funding mechanism.
3442 Representative Asked whether the Federal Homeland
Gruenberg Security Department had been consulted on
security measures.
3452 Ms. Cole Responded that letters had been sent to
Senator Stevens. She stated that ACS had
not directly spoken with Homeland
Security, except in inquiring about
available funding. She reported that
available funds through Homeland Security
had been first responder money.
3518 Representative Asked whether cost savings might be
Gruenberg realized by unifying the Superior and
District courts.
3559 Ms. Cole Stated that there had been no recent
examination of this idea, although there
had been a past proposal that did not go
forward.
3626 Representative Asked whether Truth in Sentencing
Stoltze Statutes were being successfully and
uniformly implemented.
3655 Mr. Christensen Responded that the process seemed to be
working smoothly.
3719 Representative Asked whether victims were notified of
Stoltze sentence reductions by the Court System
or by the Department of Law.
3753 Mr. Christensen Responded that statute placed the
responsibility for these notifications on
the Department of Law, because that
agency continues contact with victim. He
noted that many victims' addresses were
not allowed to be kept on file.
3814 Representative Referred to the budget request earlier
Hawker mentioned by Ms. Cole, noting that it
proposed a 4.4% increase in operating
budget. Asked about her priorities in
terms of budget reductions.
3853 Ms. Cole Responded that the only unknown budgetary
item was the contract with Alaska
Communication Systems. She explained
that $217 thousand was a worst-case
scenario, which could improve. She noted
that her department had only included
items that they considered important.
3940 Mr. Christensen Noted that the only increase which could
not be mitigated were the land fees.
4010 Co-Chair Harris Concluded the discussion and acknowledged
Ms. Greenstein via teleconference.
ALASKA COMMISSION ON JUDICIAL CONDUCT
4026 MARLA GREENSTEIN, Introduced herself and stated the mission
EXECUTIVE DIRECTOR, of the Commission. The Commission's
ALASKA COMMISSION ON primary mandate is to handle complaints
JUDICIAL CONDUCT concerning ethics of State court judges.
She explained that their caseload
fluctuated, as did the seriousness of
complaints. Ms. Greenstein noted that
Commission staff consisted of two people,
herself and an assistant. If an
adversarial relationship developed
between the Commission and a judge,
outside counsel was necessary.
4202 Ms. Greenstein Explained that fluctuating percentages of
financial needs from year to year
corresponded to cases when special
counsel was required. She noted a $20
thousand standing request for
professional services, which was not
always needed, yet not adequate to meet
the costs of an actual formal hearing
process, thus resulting in supplemental
requests. She also mentioned education
for court personnel as a cost.
4343 Co-Chair Harris Thanked Ms. Greenstein and welcomed Mr.
Cohn to give his report.
ALASKA JUDICIAL COUNCIL
4424 LARRY COHN, Referred to his handout, which outlines
EXECUTIVE DIRECTOR, Judicial Council duties. He noted that
ALASKA JUDICIAL the Council was a separate state agency,
COUNCIL, ALASKA created by the Alaska Constitution. The
COURT SYSTEM Council is comprised of three attorneys
and three non-attorneys, a citizens'
commission. Members are appointed with
consideration to State geographic
distribution. Mr. Cohn presides over a
staff of eight people. The Council has
Constitutional and statutory mandates in
three areas: to screen applicants for
judicial vacancies and make nominations
to Governor; to evaluate the performance
of judges who appear on the ballot in
their retention years and to make
recommendations to voters; to provide
studies and recommendations to improve
administration of justice.
4615 Mr. Cohn Noted the Council's budget request, which
was essentially a continuation budget.
He pointed out that council had not made
supplementary request in over 20 years.
He outlined the council's process of
judicial selection.
TAPE HFC 03 - 8, Side B
4624 Mr. Cohn Noted that the Council's duties in this
area were increasing, due to the aging of
the judiciary and the increased number of
positions. Regarding retention, the
Constitution requires that judges stand
for retention periodically, depending on
their terms; in 2002, a retention year,
16 judges appeared on the ballot. He
detailed various aspects of collecting
and distributing information on judges in
retention years.
4453 Mr. Cohn Referred to the Reports and
Recommendations portion of the handout
(copy on file). He noted two recent
reports, completed through the Criminal
Justice Council, regarding
recommendations to solve overcrowding the
prison system. He pointed out that it
was their intent to continue work with
Criminal Justice Council to examine cross
benefit information regarding aspects of
the criminal justice system. He also
noted the study on the criminal justice
process in order to identify any
unwarranted reasons for disproportionate
representation of minorities in the court
process. Mr. Cohn also noted involvement
in therapeutic court projects, including
evaluations of the DUI and mental health
courts.
4140 Representative Referred to page three of the handout,
Gruenberg outlining the performance evaluation of
pro tems and other judicial officers, and
asked whether the survey was disseminated
to the members of the bar and the public.
4047 Mr. Cohn Responded that he was unaware of the most
recent law judge evaluation. Regarding
the Pro Tem evaluation, the report was
sent to the Chief Justice, to whom it was
required, as well as copies of relevant
portions of the report to the judges.
4003 Representative Requested that Mr. Cohn send these
Gruenberg reports to members of the bar and the
public. He expressed his opinion that
these people needed the results of the
surveys.
3924 Mr. Cohn Agreed and explained that Council policy
was to provide as much information to the
public as possible. Noted that Alaskans,
compared to other places in the country
or world, received a great deal of
information. He noted that he would
require guidance from the Supreme Court
about disseminating information in the
manner Representative Gruenberg
described.
3833 Representative Requested a written response to his
Gruenberg question.
3754 Co-Chair Harris Concluded discussion on the Court System
and welcomed Robert Storer to address the
Committee.
ALASKA PERMANENT FUND CORPORATION
3728 ROBERT D. STORER, Introduced himself and Bob Bartholomew,
EXECUTIVE DIRECTOR, Chief Operating Officer, Alaska Permanent
ALASKA PERMANENT Fund Corporation, to present the overview
FUND CORPORATION, of the Permanent Fund Corporation.
DEPARTMENT OF
REVENUE
3700 BOB BARTHOLOMEW, Presented a Corporation Overview,
CHIEF OPERATING referring to an outline (copy on file).
OFFICER, ALASKA He pointed out that the Permanent Fund
PERMANENT FUND was established based on an article in
CORPORATION, the Alaska Constitution, stating that 25
DEPARTMENT OF percent of all mineral revenue would be
REVENUE placed in a permanent fund.
3502 Mr. Bartholomew Referred to page two, which outlined the
legislation expanding on the
Constitution: increasing the deposit
from 25 percent to 50 percent; and
directing income to be retained in the
Permanent Fund until appropriated. He
also pointed out the distinction between
the Board of Trustees and the Department
of Revenue, which administers the
Permanent Fund Dividend program.
3403 Mr. Bartholomew Noted on page three of the outline the
mission adopted by the Board. He also
explained the legislative mission of the
Corporation.
3311 Mr. Bartholomew Noted the organization of management as
listed on page 4. He noted that the
current organization had been adopted two
years ago, to emulate a money management
firm. He also discussed out corporate
goals as listed on the outline.
3217 Mr. Storer Pointed out the importance of diversified
asset allocation, which they believed
would realize a 5 percent return over
time.
3157 Mr. Bartholomew Referred to page 5, which illustrates the
Corporation's investment principles
(diversify, prudent expert rule, long-
term, balance between current and future
benefits), as well as the relationship
between the Fund and the legislature. He
noted the Legislative Budget and Audit
Committee as an oversight agency.
3103 Mr. Bartholomew Page 6 discussed how the Fund had
benefited from legislative actions. For
example, increasing the amount of oil
revenues dedicated to the Fund. Two
special appropriations from the General
Fund into the Permanent Fund, and seven
appropriations to protect the Fund. He
also pointed out four myths, for example
the idea that future returns could be
predicted, or that the past distribution
policy may remain the same, or that the
Fund was big enough to be all things to
all people.
2725 Co-Chair Williams Asked for more information regarding
WorldCom.
2644 Mr. Storer Responded that the Fund's exposure to
WorldCom and Enron was limited by many
standards. He also noted that the
Corporation had lost money with Enron, as
part of the S&P 500 index fund.
Approximately $13 million dollars were
lost in the Index Fund. However, in the
several years prior, the Fund the active
managers realized profits of nearly the
same amount. He discussed losses in
WorldCom, which equaled approximately $38
million dollars in the Index Fund, with
profits by active managers of essentially
the same amount. He pointed out that
WorldCom also issued debt that was part
of the Index Fund, against which the
Corporation managed portfolios, which
caused another $18 million of losses.
The Corporation is involved in the class
action litigation being brought against
both Enron and WorldCom. The Corporation
has also retained five law firms to help
evaluate the merits of pursuing class
action litigation.
2402 Co-Chair Williams Questioned how a company is investigated
before the investment.
2343 Mr. Storer Explained that external managers were
hired who use different disciplines,
thereby diversifying not only by asset
class but also by management style.
These external managers perform due
diligence and analysis to find companies
who will produce greater earnings. He
pointed out that, in the case of Enron,
the Corporation was not exposed through
active management. The only exposure was
through the Index Fund, which is
passively managed. He discussed the
methods of actively and passively managed
portfolios. He pointed out that, since
active management is more costly, a fund
the size of the Permanent Fund would
choose passive portfolios to get cost
effective exposure to an asset class. 40
percent of the Permanent Fund's equity
exposure is through passive management.
2048 Co-Chair Williams Questioned if more attorneys may be
needed to handle other class action
suits.
2030 Mr. Storer Expressed his belief that change was
effected through corporate governance.
He stated that managers have been
instructed to vote for more independent
boards. The Corporation is involved in
the Council of Institutional Investors,
which encourages good corporate
governance and policies. Mr. Storer
pointed out that the Corporation uses law
firms to investigate activities, but
there is no cost to the Fund unless
litigation is pursued.
1818 Mr. Storer Explained that the Fund is divided into
two parts: the principle and the earnings
reserve.
1745 Mr. Storer Referred to page two of the second
handout (copy on file). He explained
that the principle is comprised of three
items: $7.3 billion of dedicated oil
revenues, $7.6 billion in appropriated
inflation proofing, and $7 billion from
special appropriations.
1650 Mr. Storer Clarified that the earnings reserve
account is excess earnings, made of two
components: the appreciation of
portfolios, or unrealized gains, and
income earned over the course of the
year. He noted that the Fund typically
earned $70 million per month was earned
on real estate, cash flow dividends and
interest on bond portfolio, as well as
manager behavior to financial market.
1542 Mr. Storer Noted that the Earnings Reserve had
declined dramatically over the course of
the past three years. He then referred
to page three of the handout, which
tracked the pattern that led to the
current Earnings Reserve status, which
included earnings and losses from market
downturns, dividend payouts, and
inflation proofing transfers and realized
losses.
1313 Representative Asked about the balance of the Earnings
Whitaker Reserve Fund, after dividend payouts and
inflation proofing.
1289 Mr. Storer Stated that the $1.6 billion represented
a balance after inflation proofing and
payouts.
1246 Mr. Storer Responding to a question by Co-Chair
Harris, emphasized that the Earnings
Reserve Account has been in the negative
three times since June 30, 2003. He noted
that the balance of the Earnings Reserve
was $329 million dollars as of last
Thursday. He noted that, regarding
unrealized gains and losses, the Earnings
Reserve absorbs market volatility.
1128 Co-Chair Harris Summarized that, if the State were to
follow current practices for inflation
proofing the Fund, there could be
insufficient funds to pay dividends.
1107 Mr. Storer Stressed that it is difficult to predict
market volatility, and gave examples of
fluctuations over the short term. He
conceded, if downward market trends
continued, it would generate serious
issues, including the potential of no
dividend payout. He stated that, as the
year progressed, the Fund would have more
information to report to the Committee.
936 Mr. Bartholomew Pointed out that statutes require that
dividends be paid before inflation
proofing, and thereby inflation proofing
did not effect the dividend distribution.
913 Mr. Storer Again referred to page three of the
handout, which showed negative returns in
FY01, FY02 and FY03. He emphasized that,
in comparison to other large, public
funds (which were down by -5% to -10% for
the same period), Permanent Fund returns
have been very favorable.
748 Representative Observed that there were four articles in
Gruenberg the Los Angeles Times regarding the
effect of the newly proposed federal
policy of not taxing dividends. He asked
Mr. Storer's opinion on how this would
affect stock performance.
713 Mr. Storer Expressed his opinion that the policy
would help stocks. He pointed out that
the Permanent Fund was a tax-exempt fund
that did not receive dividends. He
stated that, for individuals, stockowners
could live on the income generated,
rather than selling stocks, which
increase stability. He affirmed that a
secondary effect would keep stock prices
up and increase the Fund's value.
548 Representative Croft Questioned whether President's Bush's
proposal would affect Alaskans paying
taxes on permanent fund dividends.
523 Mr. Storer Clarified that it would not affect
permanent fund dividend earners, since
the Fund was not a publicly traded
corporation.
445 Representative Asked if there were concerns regarding
Hawker the tax-exempt status of the Permanent
Fund if dividends continued to be
distributed individually through the
dividend program.
401 Mr. Storer Explained that the tax-exempt status is
retained due to the legislature's ability
to use the dividends for government
purposes. He noted that, if the ability
were somehow removed, the tax-exempt
status could be questioned.
321 Representative Asked whether it was possible to amend
Gruenberg the proposed legislation to prevent
Alaskans from paying tax on the PFD.
310 Mr. Storer Responded that this seemed an unlikely
proposition. He referred again to page
three, and noted that their total return
over the long term was projected at 8
percent. He noted, based on a new
capital market assumption, that the
current asset allocation would most
likely return 7.5 percent.
213 Mr. Storer Referred to page 4 of handout, which
illustrated asset allocations, with a
target allocation of 37 percent for
domestic equities, and a +/- 7 percent
balancing band. He stated his opinion
that those funds that adopted a
disciplined approach to investing (buying
low/selling high) were successful. He
also noted that in any year, the Fund had
a 25 percent chance of a negative return.
He noted that a positive return was
incumbent on maintaining the 37 percent
equity goal.
TAPE HFC 03 - 9,
Side A
040 Mr. Storer Responded to a question from
Representative Croft and explained that
maintained a disciplined approach, rather
than following investment trends, while
over the short term may cause returns to
lag, produced success over long term.
113 Mr. Bartholomew Discussed the statutory method for
determining funds available for
appropriation, the method for inflation
proofing, as well as pointing out current
debate on the statutory interpretation.
He turned to page five, which references
AS 37.13.140 and 145 to determine how
much was available annually for
distribution. The statute was
established in 1982. The first step of
the calculation process is to determine a
five-year average of the realized income
(cash flow, with any gains or losses from
sale of investments), and then devise a
sum slightly greater than one fifth of
that average. If necessary, a second
step is employed: if the Earnings
Reserve does not contain the amount for
payout indicated by the first
calculation, only the amount of the
Earnings Reserve could be appropriated,
and only one half of that to the
Dividends. He pointed out that, whether
the first or second method is used, both
limit the dividend payout to one half of
the Earnings Reserve. He also noted that
dividends were paid first, then inflation
proofing, then a remaining balance would
be left in the Fund.
423 Mr. Bartholomew Referred to page six which outlines the
process for calculations performed on
June 30. He noted that in 1999 and 2000,
the results were well above average,
while 2002 and 2003 were below the
average, a result of the market trends.
He noted that using the 21 percent
calculation would total $1.4 million
dollars, one half of which would go to
the dividend.
557 Mr. Bartholomew Responded to an earlier question from Co-
Chair Williams and explained that the
second method of calculation would be
used if the Earnings Reserve was less
than, in this case, $1.4 billion, the
income in the Earnings Reserve would be
divided in half for distribution.
623 Mr. Bartholomew Explained inflation proofing, as outlined
on page 7, as the change in the national
consumer price index annually. This
amount is then multiplied by the
principal of the Fund, in order to
calculate the amount necessary to
maintain the purchasing power of the
Fund. He noted that $602 million was
needed last year to inflation proof the
Fund; he speculated that this year, if
the rate of inflation remained
consistent, the amount need was $355
million.
742 Representative Croft Referred to the figure of .21 times the
past five years. He asked the reason for
the 50% payouts.
819 Mr. Bartholomew Reiterated that, once it was determined
by statue what was available for total
distribution, then half was taken for the
dividend, the other half for inflation
proofing. He pointed out that this was
in statute.
858 Representative Croft Restated that roughly 25 percent would go
to inflation proofing.
953 Representative Raised his concern about the mechanism
Whitaker whereby the Fund's principal was
protected from a loss in value. He asked
whether this was a function of the
Earnings Reserve Account.
1030 Mr. Bartholomew Affirmed that this was true, and had
become a source of recent debate. He
noted that, if the market declined, the
amount of the decline went into the
earnings reserve. He noted that if the
total value of the Permanent Fund
decreased below the principal, according
to statute, distribution from the Fund
would not occur. He stressed that, if
unrealized losses were brought into the
formula, and the value went below
principal, there were no funds available
for distribution.
1158 Representative Croft Reasoned that, if projections were
correct, and roughly $750 million were
paid to dividends, $350 million to
inflation proofing, slightly more than
$500 million would remain in the Earnings
Reserve. He referred to page 8, and
questioned whether, if downward market
trends continued, inflation proofing
would be shorted.
1303 Mr. Bartholomew Explained that the Fund had never shorted
inflation proofing. He noted that the
estimates on page 8 were after dividends
and inflation proofing had been paid
1355 Representative Asked for clarification as to whether,
Whitaker given that January was less than
projected, the next median would be
lower, thereby decreasing the likelihood
of having needed funds for dividend and
inflation proofing.
1430 Mr. Bartholomew Affirmed, indeed, January performance had
lowered the median. He pointed out,
however, that the Earnings Reserve
changed by $200 million per day
regularly.
1458 Mr. Bartholomew Responding the another question by
Representative Whitaker, confirmed that,
in the terms of probability analysis, the
median would in fact decrease.
1521 Mr. Storer Referred to page 7, which outlined
volatility models. He discussed
sophisticated tools to outline
probabilities. Their consulting firms
give over 300 probability scenarios. He
explained that the way to view this model
was to understand that their consultant
ran the model for a single year, and that
the model ran the median case for the
next year. He cautioned against
extrapolating out to future years. He
noted that if one held a pattern over
five years, one had a greater probability
of achieving a median return. The model
represents a series of single year
snapshots. He pointed out that the
important data was the realized earnings
reserve, as illustrated on page 8. He
noted that the total earnings reserve
stated that the median case resulted in
$500 million remaining in the Reserve. He
stated that in any given year, nothing
may be left in the Earnings Reserve.
1920 Mr. Storer Referred to page 9, and noted that there
was a 10 percent probability that the
dividend would zero in any given year,
not a series of years. He also noted
that as oil revenues declined, the
earnings of Fund have increased.
2024 Mr. Storer Concluded by stating the two points of
view regarding possible futures for the
Dividend: the concept that the true way
to compute the dividend was based on
realized income only; or that the total
earnings reserve (income and unrealized
income or loss) was what counts in
dividend payment. He pointed out that
the debate over these points of view
would continue. He noted that their new
Board and their Audit Committee, with
outside counsel, would be examining the
correct answer to this issue.
2240 Mr. Bartholomew Referred to page 10, and pointed out that
the blue income was defined in statute;
the orange or unrealized portion was
defined by accounting principals. These
methods arrive at a different amount in
the earnings reserve, and are an issue in
the debate.
2344 Representative Croft Asked whether the statutory intent was
indeed to refer to realized income, and
not a question of legal interpretation.
2349 Mr. Bartholomew Clarified that statute specifically
excludes unrealized gains and losses in
the calculations. He noted that
accounting principles generally require
examination of unrealized losses or
gains. He conceded that legal
interpretations may be required.
2449 Representative Croft Asked whether adequate funds were
available to inflation proof, as well as
for clarification about the definition of
principal.
2512 Mr. Bartholomew Noted that this policy issue effected
what was available for distribution,
whether dividends or inflation proofing.
2551 Co-Chair Williams Asked whether a change to the
distribution formula was being proposed.
2604 Mr. Storer Responded that a proposal would be made
to the new Board to change the payout
methodology to the market value method.
2654 Co-Chair Harris Reconvened the meeting after a short
break and welcomed Mr. Campbell to
address the Committee.
DEPARTMENT OF MILITARY AND VETERANS
AFFAIRS
5724 CRAIG CAMPBELL, Introduced himself and noted that he had
ADJUTANT GENERAL, Commissioner of the department for one
COMMISSIONER, month, as well as being the Adjutant
DEPARTMENT OF General for the National Guard for the
MILITARY & VETERANS State of Alaska. He introduced Samuel
AFFAIRS Johnson, Assistant Commissioner, Division
of Homeland Security and Emergency
Services, and stressed the significance
of this issue to the State.
Mr. Campbell Referred page one of his handouts (copy
on file), stating the mission of the
Department: to provide relevant, ready
quality forces and services for Alaskans
and the Nation. He noted that this
mission was broad to emcompass both the
agency's military and civilian goals.
2852 Mr. Campbell Referred to page three outlining the
reorganization of the Department. He
noted that the Department divided into
three sections: administrative services,
a civilian component (Emergency Services
and Homeland Security), and the military
organization. He noted that the
difference in the current organization
was in its direct connection to the Army
National Guard. This gave the ability to
respond quickly to a terrorist event. He
also noted that missile defense had been
re-alligned into one agency under the
Army National Guard, as opposed to two
entities.
3118 Mr. Campbell Stated their mission priorities:
Homeland Security; Recruiting and
Retention; Missile Defense; National
Guard Transformation; and the Veterans
Home. He explained that the National
Guard would be transformed to a joint
army/air operation.
3245 Mr. Campbell Referred to the chart outlining
personnel. He noted that, of over 4,000
members, only 1200 to 1300 full-time
federally paid Active Guard Reserve (AGR)
and technician employees. He explained
that only 250 were State employees, and
emphasized the opportunity to leverage
Federal Funding for programs. He pointed
out that the largest percentage of
employees were part time. He also
pointed out volunteers in the staff.
3445 Mr. Campbell Noted that the National Guard was
changing to include joint operations. He
highlighted this as an opportunity to
team with the Army. He explained that
the Fort Greely mission was one of
missile defense. He also noted aerospace
defense, stating his opinion that all air
and space defense should be organized
under the National Guard. He noted that
in Alaska, unlike other states in the
country, alert aircraft were under the
Active Duty Force, rather than the
National Guard. He summarized that new
mission goal of aerospace defense.
Examined whether operations at Fort
Greely could be combined into an army/air
mission. Proposed that this purple
concept would be more efficient. He also
noted the goal of remaining relevant with
Active Duty forces.
3821 Mr. Campbell Referred to Homeland Security Priorities
outlined in the handout (on file).
3854 SAMUEL JOHNSON, Explained that the response portion of
ASSISTANT Homeland Security was similar to that of
COMMISSIONER, Emergency Services, which resulting in
DIVISION OF HOMELAND combining the organizations to increase
SECURITY efficiency. In regard to mitigating
crises, he stated that the first step was
to identify critical assets in
prioritized order. Assets may be
depleted, and the organization must focus
on what is most critical. He reported
that the list had recently been
developed. He explained that
intelligence sharing was essential in
order to be proactive. He noted the
importance of a vulnerability assessment,
as well as identifying, in advance,
forces to address those vulnerable areas.
He stated that he believed the Alaskan
Task Force would be key in identifying
the forces to protect vulnerabilities.
4213 Mr. Johnson Explained Threat Level Procedures. He
noted that this might change if the
country were to go to war. He explained
that if the threat levels changed, the
cost to the State would increase.
4257 Mr. Johnson Discussed Response Procedures and
emphasized the challenge of outreach to
bush areas in Alaska. He referred to an
evaluation of the State Emergency
Coordination Center, which was currently
under-funded. They have examined other
ways to make the center work and save
money through streamlining and made
recommendation to eliminate redundancies.
For example, there existed in the State
three terrorism task forces; a
recommendation was made to place two
groups together, jointly chaired by the
Commissioner, and partnering state and
federal government.
4609 Mr. Campbell Regarding Recruiting and Retention,
discussed the intended improvement in
representing all cultures. He noted the
priority of giving opportunities to
Native Alaskans.
TAPE HFC 03 - 9, Side B
Mr. Campbell Noted the commitment to increase the
percentage of Native Alaskan officers.
He noted that the percentage of female
officers was better, but could still be
improved. He stated his belief that most
female officers were of lower rank, and
expressed a commitment to improve this
number. Noted past waivers of
requirements to qualify individuals to
serve in the National Guard. Pointed out
a focus on eliminating obstacles to
opportunities.
4459 Mr. Campbell Discussed his creation of a strategic
plan, which had not been implemented in
the past ten years, and his intention to
act on that plan. He will publish an
Annual Report, to determine whether goals
had been achieved. He also noted
performance measures as an effective
tool. He did not believe that current
performance measures were not reflective
of legislative needs for the department.
Also noted the importance of updating the
web site, due to the demographics of
Alaska.
4245 Mr. Campbell Referred back to Missile Defense,
outlined in the handout. President Bush
has accelerated initial deployment of the
program. He pointed out an issue of
inadequate housing at Fort Greely. Also
noted the proposed railroad connection
from Fairbanks to Fort Greely, stating
his position that, in terms of security,
a railway connection was easier to
contain than a road. He also explained
that power for Ft. Greely was ongoing
issue and that additional materials might
be required.
4008 Co-Chair Harris Referred to a resolution for extending
the railroad to Ft. Greely; he asked
whether military had been contacted.
3925 Mr. Campbell Confirmed that a discussion had been
ongoing and the railroad was favored by
the military and railroad.
3835 Mr. Campbell Outlined key issues as listed on the
handout. Stated that, if the federal
program were to be funded based on
population, Alaska would not fare well.
He stated his opinion that funding should
be based on other factors, and that
Alaskans needed to be part of discussion.
He stated that their civilian
technicians' union contract expired in
2000. He explained that the contract may
open for negotiations by year-end, but
that no problems were anticipated.
3647 Mr. Campbell Discussed the C12 Accident Lawsuit
Settlement, and stated that current
negotiations would likely settle without
litigation.
3623 Co-Chair Harris Noted that legislation was pending to
help with settlement.
3552 Mr. Campbell Emphasized the important issue of Army
Aviation Property Accountability. He
referenced a previous investigation of
parts related to the twin otter aircraft
of the Army National Guard. Some of the
parts were handled through improper
channels; the investigation revealed $1.2
million in missing parts. He stated that
the report will soon be closed and an
action plan developed to prevent this
from occurring again.
3441 Mr. Campbell Mentioned Deferred Maintenance. He will
discuss this during the budget process.
3416 Mr. Campbell He noted the Kulis Base Lease. Federal
military base construction funding
required 25 years on a base after
approval on a project is completed.
They have negotiated with the airport to
extend lease in order to continue to
receive construction funds, as well as to
discuss long-term solutions.
3313 Mr. Campbell Discussed the Missile Defense Program.
Concluded that he foresaw a challenge in
meeting program goals with current
resources. Assured the Committee that,
although vacancies may remain higher in
short term, no mission deficiencies would
occur. He noted that disaster relief
would require supplemental requests.
3127 Mr. Campbell Discussed the priority of three proposals
regarding Veterans Home, including one,
which would be managed by a health care
provider. They will research and present
a proposal.
3037 Co-Chair Harris Asked whether they were working with LB &
A about Veterans Home study.
3015 Mr. Campbell Responded that he would research that
answer.
2956 Representative Asked whether Mr. Campbell foresaw a
Stoltze change in the policy of the current
administration with regard to Emergency
Services as they pertain to economic
emergencies.
2939 Mr. Campbell Acknowledged that the previous year
contained a great number of disaster
declarations. He noted that it was the
Governor's option to declare disasters.
His new team would work with local
communities to determine best
resolutions.
3855 Representative Asked if we should consider a Coast Guard
Gruenberg facility at Dutch Harbor. He also
recommended recruiting minorities from
urban as well as rural areas.
2756 Mr. Campbell Agreed that recruitment should occur in
all areas. He responded that an ROTC
program in Alaska was being discussed as
a solution to increasing coastland
security.
3636 Representative Questioned the practicalities of working
Stevens between branches of military service.
2529 Mr. Campbell Emphasized that the services work
together but are paid separately. Each
commander makes the appropriate
decisions. Command and control can
operate together. He pointed out that the
Homeland Security Task Force has
demonstrated partnership ability.
ADJOURNMENT The meeting was adjourned at 4:33 PM
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