Legislature(2025 - 2026)ADAMS 519
01/31/2025 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Savings Account/budget Reserves/investment Funds by the Department of Revenue | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
HOUSE FINANCE COMMITTEE
January 31, 2025
1:34 p.m.
1:34:14 PM
CALL TO ORDER
Co-Chair Josephson called the House Finance Committee
meeting to order at 1:34 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Andy Josephson, Co-Chair
Representative Calvin Schrage, Co-Chair
Representative Jeremy Bynum
Representative Alyse Galvin
Representative Sara Hannan
Representative Nellie Unangiq Jimmie
Representative DeLena Johnson
Representative Will Stapp
Representative Frank Tomaszewski
MEMBERS ABSENT
Representative Jamie Allard
ALSO PRESENT
Adam Crum, Commissioner, Department of Revenue; Pam Leary,
Director, Treasury Division, Department of Revenue; Zach
Hanna, Chief Investment Officer, Treasury Division,
Department of Revenue.
SUMMARY
PRESENTATION: SAVINGS ACCOUNT/BUDGET RESERVES/INVESTMENT
FUNDS BY THE DEPARTMENT OF REVENUE
Co-Chair Josephson reviewed the meeting agenda.
^PRESENTATION: SAVINGS ACCOUNT/BUDGET RESERVES/INVESTMENT
FUNDS BY THE DEPARTMENT OF REVENUE
1:35:31 PM
ADAM CRUM, COMMISSIONER, DEPARTMENT OF REVENUE, introduced
himself. He relayed that the presentation intended to cover
a treasury investment update, the structure of funds,
investment performance, and asset allocations and the risk
taken on the funds. He turned the presentation over to a
colleague.
PAM LEARY, DIRECTOR, TREASURY DIVISION, DEPARTMENT OF
REVENUE, introduced a PowerPoint presentation titled
"Treasury Investment Fund and Cash Flow Update," dated
January 31, 2025 (copy on file). The presentation would
address the work done by the Treasury Division, treasury
investment funds, and state cash flows. She provided a
review of the Treasury Division (Treasury) on slide 4. She
detailed that the division had 40 experienced professionals
with strong longevity working in the division's four
sections. She highlighted that Treasury leadership had an
average of 16 years with the division. Many of the
division's staff had professional designations such as
chartered financial analysts (CFA) like CIO Zach Hanna, and
certified public accountants (CPA) like herself. She stated
that managing $50 billion in numerous investment funds and
tracking state cash flows was as complex as it sounded. She
acknowledged the Treasury team for its work.
Ms. Leary pointed to a graphic on the right side of slide 4
beginning with a red box reflecting the Portfolio
Management section. The section included 16 investment
staff investing assets for state fiduciaries. She
highlighted that in FY 24 there were 80,000 trades made on
behalf of hundreds of state accounts that rolled into over
45 investment funds, utilizing approximately 30 investment
pools, and supported by over 130 investment managers and
600 private equity funds. She highlighted that about half
of the assets were managed internally.
Ms. Leary moved to the green box on slide 4 reflecting the
Accounting and Operations section. The section was
responsible for ensuring the 80,000 trades and costs were
directed and accounted for in the correct amounts and in
the right funds. The purple box reflected the Compliance
section, which helped protect invested assets by monitoring
adherence to existing laws, rules, regulations, contracts,
policies, and guidelines. The section performed more than
75 daily compliance tests on the division's trades. The
performance group calculated the performance for the 45
funds daily. She pointed to the teal box reflecting the
Cash Management section, which processed over 100,000
transactions annually that supported the revenue and
expenditures in the accounting system. The section oversaw
all of the cashflows into and out of the state and ensured
that the general fund had a sufficient balance to pay the
bills. The section was also responsible for ensuring that
federal reimbursements came into the state.
1:39:36 PM
Representative Johnson appreciated the returns generated by
the Treasury Division. She believed its returns were up
there with the best.
Ms. Leary thanked Representative Johnson for her words. She
continued with her presentation on slide 4. She mentioned
the unclaimed property group. She noted that the following
day was national unclaimed property day. She explained how
to check for any unclaimed money on the department's
website.
1:40:48 PM
ZACH HANNA, CHIEF INVESTMENT OFFICER, TREASURY DIVISION,
DEPARTMENT OF REVENUE, introduced himself and began on
slide 6 showing a summary of the process the Treasury
Division used to set over 25 state investment policies and
asset allocations. He detailed that the division had used a
formal state investment review for five years, which
involved the commissioner, staff, and an independent
advisory committee in a similar process used for the Alaska
Retirement Management Board (ARMB). The division reviewed
financial markets and performance for each fund quarterly
and at least annually it reviewed capital market
assumptions and selected asset classes for investment. He
stated that the division went through each fund to set the
appropriate investment policy and asset allocation that
consider fund objectives and fund constraints. He noted
that the appendix on slide 29 included a summary example of
some of the asset allocation and slide 30 showed website
links to the division's investment information.
Mr. Hanna moved to slide 7 titled "Recent Capital Market
Performance." He detailed that the past several years had
been incredibly volatile. The timeframe included the
pandemic, which led to high surplus and near zero interest
rates followed by significant inflationary pressure with
inflation peaking at over 9 percent annualized in June of
2022. The Federal Reserve responded with short-term
interest rates increasing to over 5 percent, which was
challenging for stocks and bonds in 2022. Inflation had
come down to more reasonable levels and capital markets had
a strong rebound in 2023 and 2024. He highlighted a chart
on slide 7 illustrating that performance was positive for
all asset classes in 2024. The positive returns were led by
a 24 percent return for U.S. equities and down the list
through 5 percent returns for cash equivalents and more
modest fixed income returns.
Representative Galvin asked about the chart on slide 7. She
thought it looked like most of the security returns were
also in the negative in 2018. She asked if it was a similar
situation to 2022.
Mr. Hanna replied that it was not a similar situation. He
explained that in 2018 there had not been nearly the
extreme movement in interest rates and inflation that
caused what occurred in 2022. The situation in 2022 was a
result of the interplay of inflation, interest rates, and
worries about economic growth. He relayed that the declines
in 2018 were more about concerns over economic growth and
the drop was not nearly as severe.
Mr. Hanna turned to slide 8 titled "Treasury Asset Class
Performance." The slide showed the performance of the asset
classes the Treasury Division managed for non-retirement
state portfolios through December of 2024. The investments
were all commingled that were used in different proportions
to construct portfolios that were diversified, low cost,
and with high liquidity. The division managed over 80
percent of the investments internally and focused on
delivering market returns with consistent upside. The top
section of the table on the right included the total
performance for each asset class state funds invested in,
followed by a section showing benchmark performance, and a
section showing performance relative to the benchmark.
Mr. Hanna began with the total performance section on slide
8 and highlighted that returns were strong [through
12/31/24]. He detailed that bonds and cash ranged from 2 to
5.6 percent for the year and equities ranged from 5 to 24
percent. Overall, the returns added $575 million of income
and gains to the state balance sheet in 2024, which
reflected one of the best years in the past decade. Results
in the bottom section showing performance relative to the
benchmark were also strong. For state portfolios, most of
the assets were in cash, short-term fixed income, and core
fixed income, which were all managed by a Treasury
investment team that had produced consistent and increasing
excess returns over time. The assets had one of their best
years in 2024 with excess returns from 34 to 70 basis
points. He clarified that a basis point was one one-
hundredth of a percent (e.g., 70 basis points was 0.7
percent). Total excess returns delivered by Treasury for
internally managed portfolios across the state and the ARMB
assets added $130 million in value over the benchmark
returns in 2024.
1:46:05 PM
Ms. Leary turned to slide 10 titled "Constitutional Budget
Reserve Fund (CBRF)." She pointed to the blue section of a
graph reflecting the fiscal year end balances of the main
fund of the Constitutional Budget Reserve Fund (CBRF). The
fund was created in the constitution in 1990 when voters
approved adding Section 17 to Article 9 of the state
constitution. All money received by the state after July 1,
1990, through resolution of disputes about the amount of
certain mineral related income, was required to be
deposited into the CBRF. The yellow area of the chart
reflected the balance of the CBRF subaccount, which the
legislature created in 2000. In accordance with statute,
money in the subaccount was required to be invested to
yield higher returns than in the main fund and was used for
funds that would not be needed for at least five years. In
2008, $4.1 billion was deposited into the subaccount and
was managed to achieve a higher return than the main fund.
In April 2015, the balance was returned to the main fund
when it was determined the funds would be needed within
five years. She highlighted that appropriations from the
CBRF required a three-quarter vote unless certain
conditions were met.
Ms. Leary stated that the green portion of the graph
reflected the Statutory Budget Reserve (SBRF) created in
1986. The SBRF was a part of the General Fund and Other
Non-Segregated Investments (GeFONSI) before and after being
managed as a separate fund from July 2013 to October 2015;
it was included on the graph to reflect total reserve
accounts. The invested balance of the CBRF was $2.7 billion
at June 30, 2024 and the SBRF contained $240 million.
Co-Chair Schrage noted there was significant fluctuation in
the state's savings over the years. He remarked that one
recurring topic facing the legislature was how much was
needed in savings for cashflow purposes. He had heard a
wide range of numbers. He asked what was needed in the CBR
to deal with revenue shortfalls or other fluctuations on an
annual basis.
Commissioner Crum replied that part of the conversation
involved conflating two accounts. He stated there was a
consideration about the general fund, which had to do with
the state's minimum cash operations. The goal was to
maintain at least $400 million in the general fund. He
stated that the number for the CBRF varied across the
board. He noted there were working agreements between the
Office of Management and Budget (OMB), the Department of
Law (DOL), and DOR.
Ms. Leary interjected that the [recommended balance] for
the general fund was $400 million to $500 million.
Commissioner Crum clarified that there was not a formal
agreement pertaining to the CBR. The goal was to make sure
there was a functional amount in rainy day accounts. The
department performed a consistent cashflow analysis. He
relayed that earlier in the week, in response to a question
about federal funds, the department analyzed state funds to
determine what it would look like if the state had to cover
the bill for federal funds and for how long. He added it
was a recurring theme that occurred with the potential
threat of [federal] government shutdowns, which had
occurred annually in the past three years. He stated that
having a policy number for the CBR was not for the
department to set. He elaborated that it was more about
looking at the overall function of government to ensure
bills and matching funds could be paid.
1:50:15 PM
Co-Chair Schrage remarked that he heard Commissioner Crum
not really wanting to give a number for the CBR. He asked
what the state would have to come up with if it was on the
hook for the federal funds.
Commissioner Crum answered that the working agreement was
to ensure the general fund would never go below $400
million, which was used to pay the state's bills on a daily
basis. He remarked on access to the CBRF and stated that
from a pragmatic standpoint $500 million was a very
dangerous floor.
Co-Chair Schrage did not really hear an answer being given
for what could reasonably be expected under plausible
scenarios where the federal government could dramatically
claw back funding to the state. He asked what the doomsday
scenario was. He asked if it was $500 million, $1 billion,
$2 billion, etcetera.
Ms. Leary answered that the state received about $95
million weekly in federal reimbursements. She explained
that in many cases, the state paid out cash for programs
and called for reimbursement. For example, Medicaid
represented about half of the amount and the department had
looked at how long it would take to have no cash at all if
it did not receive the remaining amount. The analysis
showed the state could operate its regular business through
May if it only received half of the reimbursements. The
presentation would further address the memorandum of
agreement (MOU) with DOL, DOR, and OMB. Under the agreement
there were different levels of response if things started
to happen to the state's cash. She explained that some of
the response may be deciding how to order the payment of
the bills. She relayed that coming to the legislature for
more money was at the bottom of the list of options. The
department would utilize all of the tools available to
ensure it had the cash needed to pay bills. The state had
yet to be in a situation where the federal draws had not
eventually been reimbursed. She noted that the pause [in
the receipt of federal funds] had been lifted for the time
being. The department would analyze the situation as things
progressed.
1:53:21 PM
Representative Johnson asked for the current balance in the
SBR.
Ms. Leary replied that the current balance in the SBR was
about $244 million. She noted it was a cash balance and was
a line item in the second General Fund and Other Non-
Segregated Investments (GeFONSI) fund. She explained that
once all of the amounts in and out of the fund were
determined at the end of the fiscal year, the balance may
change to zero depending on how money was moved.
Representative Johnson asked if the $244 million balance
[in the SBR] had been at the end of 2024.
Ms. Leary answered that it was at the end of 2024. She
clarified that the current balance, as of December 31,
2024, was $224 million. She noted that slide 28 showed a
list of the GeFONSI funds.
Co-Chair Josephson asked if the SBR funds were obligated or
could be appropriated.
Ms. Leary answered that the funding could be appropriated.
She stated that the question was whether the funding had
been appropriated for FY 24 on paper.
Co-Chair Josephson stated that more analysis on the
available funding would be needed. He referenced the pause
in federal funding and Ms. Leary's statement that $95
million came in weekly from the federal government. He
asked if DOR had experienced a pause in the federal funds
in its computer system. He asked if there was something
different in the current week that DOR had not previously
seen.
Ms. Leary replied that there were a number of different
payment systems the department used to obtain the [federal]
funding. She relayed that there had been a poorly timed
glitch in the system so that no one could get to the portal
of the PMS [Payment Management Services] payment system.
She explained that the glitch occurred in all states. The
department had not expected the Medicaid payments to stop.
She detailed that there were many national organizations
trying to keep apprised of the situation. She relayed that
eventually the payment systems opened up again on Monday or
Tuesday afternoon and the department was able to draw all
of the state's monies down.
1:56:39 PM
Commissioner Crum added there had been no reports from
providers of any delayed payments.
Mr. Hanna discussed CBRF asset allocation on slide 11. He
relayed that the CBRF had a potentially short time horizon
and needed principal protection and high liquidity because
it was the state's primary emergency reserve during periods
of cashflow uncertainty. The fund had a stable balance
close to $3 billion for the past two years, but it was
drawn down to $1 billion the prior three years through the
pandemic. The fund was currently invested in 100 percent
cash equivalents, which was not typical. He elaborated that
the fund was originally de-risked due to the pandemic
drawdowns, but staff had intentionally left the fund
positioned in shorter maturity investments due to the
attractive risk-return tradeoff versus longer maturity
investments. The position had been very accretive to
returns over the past three years because cash equivalents
had outperformed core bonds by roughly 600 basis points
during the timeframe. Over the longer term the CBR main
account had more typically had considerably longer bond
exposure and some equity exposure over time.
Mr. Hanna relayed that Treasury would likely recommend
transitioning the fund back towards a higher but still
moderate risk profile as interest rates continued to
normalize. From a performance perspective, 2024 was a great
year for the CBRF despite the modest decreases in short-
term interest rates in the second half of the year. The
one-year performance was 5.59 percent in excess of the
benchmark by 34 basis points, which resulted in $150
million in gains for the CBRF in 2024.
1:58:42 PM
Co-Chair Josephson asked who could speak the best about the
sweep that occurred on the night of June 30th. He noted
that the sweep may not physically occur for a month or two
after that date. For example, a couple of years ago, the
Higher Education Investment Fund (HEIF) of over $400
million went to zero and he assumed it was now part of the
$2.8 billion. He asked if budgets were now prepared so that
the sweep did not impact the obvious goals of designated
funds. He noted there were scores of funds collected from
trades (e.g., a boiler fund or an elevator repair fund). He
stated there was something about receiving the funds and
watching them be swept away. He asked how to operate in
that world.
Ms. Leary responded that the HEIF was swept, but there was
subsequent legislation that established HEIF as its own
fund. The mechanism for the sweep and reverse sweep was
historically done on paper so that for ease of use the
state could continue to do its work. She stated that on
paper the money went out, but it was still there and was
put back in. She explained that when the sweep occurred
without a reverse sweep, the funds were moved into the CBRF
and were not reversed, but after HEIF and the Power Cost
Equalization (PCE) were separated from the sweep mechanism,
the amount that went into the CBRF was very small. She
believed the proposed FY 26 budget included a mechanism for
the use of the sweep and reverse sweep going forward. She
reiterated that the amount [swept back into the CBRF] was
minimal and was not building the fund up considerably.
2:01:37 PM
Co-Chair Josephson stated that historically all of the
monies were returned so that they were not swept and there
had been a political understanding that cooperation had to
occur in order to prevent "bookkeeping nightmares" that he
was told could happen with a sweep. He sensed that budgets
were now built such that they were not concerns or
obstacles they once were. He stated it was an issue he
needed further information about. He asked for verification
that Ms. Leary was saying the sweep was in the low millions
of dollars now that the HEIF had been segregated.
Ms. Leary answered that she did not have the exact number
but in past years it had been very small. She offered to
reach out to OMB or the Division of Finance to determine
the number.
Commissioner Crum added that the two highest profile items
subject to the sweep were the HEIF and PCE. He believed
those accounts had been rectified legislatively to where it
was no longer a concern.
2:03:16 PM
Representative Galvin asked about the minimum amount that
should be in an emergency fund to enable the state to get
through a pandemic like COVID-19. She wondered if there was
an industry standard for a budget the size of Alaska's. She
asked how much readily available cash the state should have
on hand.
Commissioner Crum answered that the agreement of the $400
million for the general fund put Alaska in a better
position than almost all other states. He stated that the
past couple of years as the department had gone through the
cashflow analysis he had brought the issue up with peer
states in the State Financial Officers Foundation - having
a consideration about where "they actually stand" in
available bank accounts because "a lot of them" were
anticipating revenues coming in the door through sales tax
and other items. He explained that because the state had
standing bank accounts it was well positioned in order to
carry through. He detailed that of the $95 million coming
in [weekly], $45 million to $50 million went out the door
for Medicaid. The other $50 million kept the department in
a position to cover the bill well into four to five months
out. He explained the state was in a strong position in
that way in order to cover the rest of the federal dollars
needed.
Representative Galvin clarified that she was thinking about
an emergency like COVID or a natural disaster. She
understood there was a very small disaster fund. She
thought it sounded like Alaska was in an okay position and
was doing better than other states.
Commissioner Crum answered that the state had been able to
access the funds during the COVID-19 crisis. He elaborated
that during the first emergency disaster declaration the
governor's rules around access to funds changed. He
detailed that state dollars had been accessed working with
the legislature through the RPL [revised program
legislative] process through the Legislative Budget and
Audit Committee. Additionally, the federal government had
rapidly deployed Coronavirus Aid, Relief, and Economic
Security (CARES) Act funds.
2:05:49 PM
Co-Chair Schrage stated his understanding that in the past
the $400 million was necessary because incoming revenue did
not all match up with outflows throughout the year. He
stated that if revenues came in after expenses were due, it
was necessary to have cash on hand to pay expenses until
revenues came in. He asked if the $400 million was what was
needed to get through the year. He asked for verification
that the department was not concerned about having some
safety room in the CBR to be able to weather a downturn in
oil prices, a pandemic, or a cutoff of federal funding. He
had heard numbers in the past from the administration on
how much should be left in savings beyond that $400 million
for cashflows to be able to ensure the state was not
running into a major headache in the next year. He asked if
the department was comfortable with a scenario where the
CBR was spent down to zero and there was a $400 million
balance in the general fund. He clarified that was not
something he was advocating for. If the answer was no, he
asked how much the department wanted in savings to feel
comfortable the state could get through the year in a
responsible way.
Commissioner Crum responded that with the $400 million in
the general fund, $500 million in the CBRF would be a very
low floor. He stated that having $1 billion in savings and
access to that amount would probably be prudent if the
state was looking to carry forward and cover many other
items. He confirmed that the cashflows and inflows varied.
The money the state received from the Statewide
Transportation Improvement Program (STIP) and highway funds
came in lump sums that the state paid and received
reimbursement for. He stated, "It's making sure we have
cash on hand in order to do that."
2:07:56 PM
Ms. Leary reviewed slide 12 titled "General Fund and Other
Non-Segregated Investments (GeFONSI)." The general fund was
the state's checking account and all incoming and outgoing
cashflows went through the general fund. The fund had a
minimum floor of $400 million to ensure the department had
the funds to make payments. She stated that the amount
equated to a couple of days of all of the top payments
needing to be paid in one day. There were about 185 other
accounts and funds with assets in the two GeFONSI accounts.
She explained that all of the individual funds were managed
together but accounted for separately. The original GeFONSI
was created in 1992 as a way to pool accounts for
investment. The second GeFONSI was created in 2018 to
target a higher risk return for a subset of the funds. As
of the end of June [2024] there was $3.7 billion in the two
GeFONSI funds combined. She noted the appendix on slide 28
listed the top 30 GeFONSI I and top 30 GeFONSI II funds.
Representative Galvin relayed that the previous year the
legislature heard about one fund that was not used at all
and it had found a way to eliminate the particular fund.
She asked if there were other funds that were so rarely
used that the legislature should consider closing.
Ms. Leary responded that DOR did not necessarily see all of
the ins and outs of the underlying GeFONSI funds. She
relayed that there had been a request to minimize the
number of existing funds because some of the funds had zero
balances. She was uncertain who was leading the effort, but
the department had been asked for information to contribute
to the analysis.
2:10:53 PM
Representative Galvin asked to see the analysis when it was
complete.
Co-Chair Josephson replied affirmatively.
Mr. Hanna reviewed slide 13 titled "General Fund and Other
Non-Segregated Investments (GeFONSI I and II)." He relayed
that GeFONSI I and II had a short-term investment horizon
with a relatively high need for principal and income
protection. He detailed that GeFONSI I was 85 percent cash
equivalent and 15 percent short-term bonds. He noted that
GeFONSI II had a modestly higher risk with 61 percent cash
equivalent, 33 percent short-term bonds, and 6 percent
equities. Similar to the CBRF the two funds had fewer long-
term bonds than they had historically, which was
intentional and had paid off in the past three years. As
rates normalized, it was expected that some additional risk
would be added to the funds to increase earnings while
still protecting principal and income. Performance for both
funds for the year had been positive: GeFONSI I had a
return of 5.44 percent and GeFONSI II had a return of 5.97
percent, both were over 35 basis points in excess of their
benchmarks. Overall, the total performance resulted in $180
million in gains during 2024.
2:12:20 PM
Ms. Leary reviewed the Alaska Higher Education Investment
Fund historical balances on slide 14. The fund was
capitalized with a $400 million deposit of receipts from
Alaska Housing Finance Corporation (AHFC) and was used for
paying Alaska Performance Scholarship (APS) awards and the
Alaska Advantage Education Grants (AEG). Up to 7 percent
could be appropriated for the scholarship and grants. She
detailed that two-thirds went to the APS and one-third went
to AEG grants. She relayed that HB 322 established the fund
as a separate fund as of June 30, 2022. Additional
legislation passed in 2024 that increased the amounts of
the scholarships and grants. There had been no change to
the amount that could be appropriated from the fund.
2:13:33 PM
Mr. Hanna highlighted the HEIF asset allocation on slide
15. The department used a high risk profile for the fund to
achieve the fund's spending objective of up to 7 percent of
the prior year's balance. The risk profile for the HEIF and
other similar funds was set at 70 percent equities/30
percent bonds. Performance of the past year was strong at
11.39 percent (24 basis points in excess of the benchmark),
resulting in $44 million in gains for the year. The 10-year
performance was a strong 7.26 percent through a volatile
period.
Co-Chair Josephson asked what had been appropriated from
the account relative to the gains.
Representative Stapp answered that about $11 million was
appropriated out of the fund in 2024 in addition to the
normal contribution.
2:14:44 PM
Ms. Leary confirmed that $11 million had been appropriated
and she believed the number was increasing slightly in
proposed FY 26 budget to $16 million or $17 million. She
reviewed the Public School Trust Fund (PSTF) historical
assets on slide 16. The fund's balance at the end of FY 24
was $834 million. The fund was established in 1978 and was
funded by one half of one percent of state receipts from
the management of state lands, mineral lease rentals and
royalties. The funding was used as an offset to the K-12
formula funding. The fund contributed $32 million to the
Public Education Fund in FY 24 and was expected to
contribute $35 million in FY 25 and FY 26.
Representative Galvin found the fund interesting because of
the history she had heard from longtime Alaskans that
perhaps the state did not get as much as it should have
when the state had made an agreement with the federal
government on lands. She asked if there were any actionable
items to know about.
Ms. Leary replied that it was a historic fund and there had
been calls for legal action in the past. She believed
everything had been satisfied in terms of what the fund
should be and is. She had not heard any recent discussion
about that historical period of time.
Representative Galvin remarked that there were some strong
advocates out of Seward who had sent her letters numerous
times. She did not recall all of the details, but the
individuals did not think she was doing enough; therefore,
she was asking the question for the record. There had been
some thought around mental health lands that Alaska did not
receive as much as it should have at one point, and it was
still yet to be determined. She stated she was putting the
question out there because she did not want to lose out on
it.
2:18:03 PM
Commissioner Crum answered it would be an interesting
exercise to go through given the state was about 5 million
acres shy from the statehood act. He believed 366,000 acres
were still being conveyed to the University [of Alaska]
system. He did not doubt that there was likely something
missing and he thought it would require working together to
figure it out.
Mr. Hanna continued to discuss the PSTF on slide 17. The
PSTF had a long time horizon with the same high risk
profile as the Higher Education Fund. Treasury also worked
to inflation proof the fund over time through the
investment policy and spending recommendations. Performance
over the past year was 11.39 percent, which was 24 basis
points in excess of the benchmark and resulted in $88
million in gains, bringing the fund back to peak assets
from its balance in 2021 prior to the 2022 drawdown.
Co-Chair Schrage asked for more detail about the inflation
proofing mechanism.
Mr. Hanna replied that statutory language called for
increasing net income over long periods to the Treasury's
income beneficiaries. It was the department's
interpretation of the language as a requirement for
inflation proofing. There were also some issues with how
the fund was set up legally, specifying that the fund could
not be cut into principal of the Children's Trust land
values. The mechanism for the fund was a five-year
smoothing, one year in arrears. The legislature could
appropriate up to five percent of the five-year smoothed
value over time. He detailed that Treasury did a projection
using the state's capital market and inflation assumptions
combined with what inflation had actually been. He
explained that Treasury would recommend a spending level
that had the fund fully inflation proofed over 20-year and
30-year forward periods. He relayed there was a memo that
went to the Department of Education and Early Development
annually, which outlined what the five-year average was and
the amount of allowed-for spending. Treasury also had a
lower recommendation to fully inflation proof, which ranged
over the 20-year and 30-year period. He believed the
division's recommendation was between 4.6 and 4.8 percent
the previous year. He stated it was pretty close to being
inflation proofed over time and if the division's
recommendation was followed, the expectation was that the
fund would be inflation proofed over time.
2:21:15 PM
Co-Chair Schrage stated his understanding there was a
statutory limit of 5 percent and Treasury made a
recommendation below the 5 percent to maintain the
principal of the fund and ensure it continued to grow. He
asked if the recommendation was typically followed.
Mr. Hanna answered that some years it was followed, and
some years 5 percent was appropriated. He could follow up
with where the number had been historically.
Co-Chair Josephson surmised the fund acted as a mini
Permanent Fund where the principal could not be spent, it
was inflation proofed, and a sustainable share was taken
annually.
Mr. Hanna replied that the mechanism was different but
there were some similarities. He explained that ultimately
Treasury could recommend a spending level, whereas the
Permanent Fund had limitations in terms of what could be
spent and had a 5 percent draw requirement.
Representative Galvin asked about the parameters and how
the 4.6 percent could be used.
Mr. Hanna replied that it went into a portion of the
state's education funding formula.
Co-Chair Josephson asked for verification that it was
designated funding that could be used for anything.
Alternatively, he asked if it was more like a dedicated
fund.
Commissioner Crum would follow up, but he believed the
funds were designated. He noted it was created pre-
statehood. He believed the original land grant was the
argument that it was funds dedicated to that purpose.
2:23:41 PM
Ms. Leary reviewed historical assets for Public Employees'
Retirement System (PERS) and Teachers' Retirement System
(TRS) in the pension and health defined benefit (DB) plans
on slide 18. The blue portion of the graph reflected PERS
and the orange portion reflected TRS. The four funds
totaled $31 billion on June 30, 2024. She relayed that as
closed funds, the DB plans currently experienced annual net
withdrawals. The withdrawal in FY 24 was $1.5 billion. The
ARMB was the fiduciary of the funds and was comprised of
nine trustees (two from PERS, two from TRS, two
commissioners, two public representatives, and one finance
officer). FY 24 Investment returns for the funds were just
over 9.2 percent and the 40-year return average was 8.96
percent, which compared favorably to the current actuarial
assumed rate of 7.25 percent.
Representative Johnson shared that she had heard from
constituents there had been a glitch in the system related
to making deposits from municipalities into individuals'
retirement accounts. She noted the issue had been going on
since November. She asked how to figure out benefits that
were not accruing as the funds were sitting in an account
somewhere and not going into the retirement fund. She asked
what the legislature could do to try to resolve the
problem.
Ms. Leary answered that Treasury was very aware of the
situation and the Division of Retirement and Benefits was
working hard on a solution and it would take time to get
the money into the accounts. She explained there was an e-
reporting system where subdivisions reported through. Money
came in and was sent on to Empower, the record keeper for
the DB, SBS, and Deferred Compensation plans. She
elaborated that e-reporting used payroll information to
ensure contributions were going to the correct individuals
in the right amount. She was uncertain how the analysis was
done once in the accounts.
2:27:33 PM
Representative Stapp referenced Ms. Leary's statement that
net outflows from the fund were a total of $1.5 billion and
the fund valuation was $31 billion. He asked if the
outflows equated to a little over 5 percent.
Ms. Leary agreed.
Representative Stapp asked how much of the fund was in
liquid assets. He remarked that the cash withdraw was
higher than the percent of market value (POMV) on the
Permanent Fund. He asked about the asset makeup of the PERS
and TRS fund. He assumed the funds had liquid assets
because the cash had to go out.
Mr. Hanna answered that he would cover the issue in some
detail on slide 19. He confirmed that a higher proportion
of liquid assets was required for the cash outflow profile.
He relayed that the fixed income allocation had gone from
19 percent three years back to 21 percent two years ago to
23 percent one year ago. He explained it was a direct
reaction to liquidity needs and a reaction to a higher rate
environment allowing Treasury to make the changes without
sacrificing returns.
2:29:34 PM
Representative Stapp remarked that the state made
additional contributions to the fund continuously. He
stated that without the contributions there would be a
liquidity crisis on the fund. He asked about the chances of
a fire sale if the state did not make additional
contributions annually to create liquidity.
Mr. Hanna answered that the state contributions that went
towards the unfunded liability were roughly 2 percent per
year. The net outflows were in the 5 to 5.5 percent range
annually. He explained that if the contributions did not
occur, the outflows would be 2 percent higher. He reported
that Treasury believed there was adequate liquidity to
cover the situation if it occurred, but it would represent
a challenge if it occurred for a prolonged period of time.
Representative Stapp explained he was asking the question
because the pension system was backstopped by the Permanent
Fund. He provided a hypothetical scenario where there were
three years of 1 percent returns. He asked what type of
number they would be looking at as a liquidity crisis on
the fund. He reasoned that it would not be possible to
sustain cash outflows on a $30 billion fund when drawing
$1.5 billion from the fund annually. He asked what the
state would have to take from the Permanent Fund to
backstop the pension fund under the scenario.
Mr. Hanna replied that he would have to follow up. In rough
terms, under the hypothetical scenario, it would be 6
percent of the fund corpus that was expected but now
missing. He noted the other piece of the scenario was flat
assets rather than increasing assets. He stated that "the
other wonderful thing about managing a pension system is
outflows are not really a percentage of assets, they are
hard dollars." The percentage floated up and down with the
asset level. He elaborated that if there was an economic or
capital market environment where assets were flat rather
than increasing or there was a serious inflection in the
market where assets were down, there could be scenarios
where the 5 to 7 percent outflow became a 10 percent
outflow. He shared that Treasury's consultant conducted an
asset liability study annually and liquidity was a big
piece of that looking towards sufficiency in down market
scenarios. He relayed that 23 percent fixed income was a
marked increase from where the fund was two to ten years
ago. Treasury expected it had adequate liquidity likely to
survive Representative Stapp's scenario for three years,
but if it went significantly beyond that timeframe there
could be real issues. He stated that under the scenario,
the unfunded liability would be growing. He relayed that if
the situation did not recover through capital market
activity, ultimately it would be something the state would
have to make up in some form.
2:33:52 PM
Representative Stapp stated that if the withdrawal had to
be 6 percent due to three years of economic downturn, it
was basically the entire previous year's dividend
appropriation that would be needed to backstop the
retirement system. He estimated the number to be between
$700 million and $800 million. He asked if his statement
was accurate.
Mr. Hanna answered that the number was probably similar in
gross figures, but he was uncertain under the scenario
whether there would be a point in time infusion versus
paying amount back into the system over a much longer
amortized period. He explained that the existing unfunded
liability was being paid back into the system through 2039.
Absent a liquidity crisis, the mechanism would have the new
amount amortized over the 15-year period; it would be the
normal mechanism for dealing with liquidity issues and
lower than expected earnings.
Co-Chair Josephson asked when there had last been three
consecutive years of one percent growth.
Mr. Hanna replied that he would have to look it up. He
stated it had occurred in the past; there had been
prolonged periods of negative capital market performance.
He cited the bursting of the tech bubble as an example
where there was likely negative performance over a two to
three-year period. From an asset liability perspective,
Treasury did a lot of modeling of down scenarios, and it
was the division's expectation that the asset position into
the fund could accommodate normal statistical scenarios
that had occurred in the past.
2:36:20 PM
Co-Chair Schrage reviewed his takeaway from the
conversation. He stated that because investments were used
to drive pensions and state services through the POMV out
of the Permanent Fund, when there were good years the
state's financial position improved and in bad years the
liabilities worsened.
Mr. Hanna agreed it was true. He pointed out that the DB
pension system was a little over $30 billion in value and
the Permanent Fund was a little over $80 billion in value.
There was certainly substantial economic and equity
exposure coming through both of those sources that could
move in a similar direction. There was smoothing involved
that would help out with some of the things. He relayed
that state investment accounts were mostly much more
conservative that should not have the same movement. There
was an advantage of having some of those investments
postured in a different fashion than some of the risk
assets, which were quite large for the state.
Co-Chair Schrage thought the concern had been articulated
well. He thought there were also many people looking at
national trends tech was a substantial part of GDP and
market performance and the economy could potentially be
"super-heated" with some of the changes happening on the
federal level. He remarked that it would improve the
state's position when it came to the pensions and reduced
the unfunded liability. He asked for verification that the
state's position would improve significantly if the economy
and stock market performed well over the next couple of
years, which he believed many people expected to be the
case.
Mr. Hanna agreed.
2:38:40 PM
Mr. Hanna discussed the PERS and TRS asset allocations on
slide 19. The state retirement systems on slide 19
represented 83 percent of the Treasury assets under
management. The systems had a more complex asset allocation
because they were long-term funds with a long-term
fiduciary board. As a result, the funds had allocations to
less liquid alternative investments such as private equity,
private debt, and real assets. The current asset allocation
was 43 percent public equities, 23 percent fixed income,
and 34 percent alternative investments. The returns overall
had been strong. Management tended to focus on longer term
returns for the funds since having the material allocations
to alternatives could make the shorter-term comparisons
difficult and/or misleading at times. The 10-year return
through September 30, 2024 was 7.91 percent (41 basis
points over the benchmark), which was in excess of the
actuarial expected return. The excess returns had resulted
in over $2 billion in additional value added to the pension
systems over the 10-year period. The performance was in the
top third when compared to peers (better than over 65
percent of other public pension systems). Part of the
excess return could be attributed to ARMB's low cost
approach. The division emphasized internal management just
as it did with the state funds, which had led to costs that
were 30 percent lower than the median peer and $30 million
in savings per year. Overall, there were strong returns for
the ARMB, which made a meaningful contribution to
retirement assets and a reduced need for higher state
contributions historically.
Co-Chair Josephson commended the division on its work.
Representative Stapp asked about the difference between the
PERS and TRS fund compared to other funds. He noted that
the the outflows on the pension fund were not just a
percentage draw, the outflows were a requirement because
they went to paying retirees. He remarked that the outflows
on the pension fund were indexed to something that had no
bearing on anything else the state did.
2:41:07 PM
Mr. Hanna responded that the amounts were effectively hard
dollar obligations of the retirement system. The actuary
did a new valuation of the system annually. He received
information on expected outflows in nominal dollars for
almost 100 years into the future. The information showed
what the outflows would be to pay for pension and health
benefits. The assets of the fund may go up or down, so it
was easy to think about the outflows as a percentage of the
fund, but they were not. They were hard dollar outflows.
From a management perspective it was what the division
needed to focus on; its obligation managing the pension
system was to meet benefit payments when they were due and
the funds needed to be positioned in such a way that it
occurred. He stated it required higher liquidity and it
required the division and its consultants to do substantial
modeling to understand what the systems looked like in down
market scenarios or contribution issues. He stated it was a
good point and something that was lost on many when they
thought about retirement systems.
Commissioner Crum added that the board and investment staff
worked with actuarial tables showing outgoing dollar
amounts and long-term projections. The department worked
with a consultant that showed projections of how markets
performed throughout the tech bubble and how the current
portfolio would do it if similar circumstances arose. As
opposed to the 5 percent POMV draw [from the Permanent
Fund], saying a percent draw for the outflows of ARMB was
really just a data point in time.
2:43:56 PM
Co-Chair Josephson stated that when it came to ARMB and the
PERS and TRS funds he thought more oversight and regulation
had been built in post-2006. Oversight included an annual
actuarial review and an intensive review every four years.
The reforms had been built in while the state ended the DB
program that were designed to keep a better eye on the
status of the funds.
Ms. Leary agreed. She explained there were three reviews.
The first was by the state's actuary, Gallagher. The second
was a review actuary whose purview was an annual look at
the assumptions being used. The third was an audit that
occurred every four years.
Mr. Hanna referenced Representative Stapp's question and
explained that when looking at nominal benefit payments
over time in real dollars, it was roughly $65 billion in
payments that would go out of the systems collectively over
time (the information came from the prior year's experience
study). He stated it left $35 billion that needed to be
made up in contributions and earnings. He believed $12
billion of the $35 billion that needed to be made up was
coming from contributions (including the normal cost for
current employees and the unfunded liability of about $7
billion, which left $23 billion that needed to be made up
in earnings over time). He clarified it was the expectation
given the current 7.25 percent expected return. Ultimately,
the current expectation was that roughly $65 billion in
benefits would be paid out over time that would come from
current assets, earnings, and contributions. Over time, the
mix would shift depending on what happened in the capital
market.
2:47:00 PM
Mr. Hanna turned to slide 20 and reviewed the Treasury
investment result summary. He shared that Treasury was made
up of a great team of professionals who took a lot of pride
in managing the complex portfolios and generating strong
results for the state. In 2024, performance for the
collection of funds managed by Treasury resulted in an
aggregate 9.1 percent return and $4.5 billion in total
gains for the year.
Commissioner Crum highlighted the statutory requirement and
prudent investor rule of maximizing risk adjusted returns.
He detailed that the outsized gains [highlighted by Mr.
Hanna] came at a strong return for a low risk profile. The
department was trying to make sure that it was not subject
to massive swings. He noted that on some of the prior
funds, when there was a decrease due to a market crash, it
was not massive portions of the fund. He elaborated that
compared to peer groups, Treasury had maintained a good
level for the amount of risk and gains returned.
Representative Galvin asked for comment on the overall
assessment of credit ratings. She thought it was important.
She remarked that some individuals were wondering whether
anyone would invest in Alaska. She asked if the state's
ratings were anticipated to change anytime soon. She
wondered if there was a fear that some of the forecasts
were inaccurate.
Commissioner Crum responded that the state had received six
credit rating increases over the past 1.5 years across
state subdivisions. One of the reasons for the increases
was stability including steady holding pattern of the
budgets passed by the legislature as well as the increased
demand and need for the POMV draw making up a larger
portion of the unrestricted general funds. He relayed that
there had been substantial gains in the amount of the
funding valuation in the state's retirement system. The
health side was up 140 percent and [the retirement side]
was at 70 percent. He noted that the figure had grown from
60 percent a couple of years back. They had recently closed
a deal on [indecipherable] in finance and had done three in
the department in the past year, bringing in multiple
savings to the state. He relayed that tens of millions of
dollars in net present value had been saved for the deals.
He explained that it kept Alaska active in the capital
markets. He shared that each time one of the transactions
was done, it forced the credit agencies S&P, Moody's, and
Kroll to rate the transaction. Recent transactions
included the airport system, Goose Creek, and the Municipal
Bond Bank. He continued that while the state was not at the
high levels of the CBR in 2014 (when the fund was in excess
of $17 billion), the holding pattern seen in cash
equivalents was recognized by credit rating groups as a
nice, steady, even prospect. The massive swings up or down
caused the most concern. The relatively steady approach
over the past four years had mellowed out how the agencies
were viewing the state. Additionally, there were items the
governor had put forward that had been passed by the
legislature that looked at a range of things including the
bipartisan energy taskforce and looking at other options
such as addressing in the carbon markets to bring future
revenues to the state.
2:51:49 PM
Representative Galvin observed that because of the state's
great bank accounts and some certainty there would likely
not be the major problem that occurred in the past where
the state had to deposit a $3 billion cash infusion into
the retirement system, the interest rate became more
beneficial to the state.
Commissioner Crum replied that the better the state's
credit rating, the better the cost of dollars was. The
state had done no new issuances. He explained it had been
outstanding debt, which based on some federal rule changes
in recent years, had allowed a new financial tool. The
state debt book included more information. He stated that
how Alaska could use some of the public finance tools would
be a valuable conversation.
Ms. Leary turned to slide 22 titled "SOA Treasury Cash
Flow." She stated that the general fund had money going in
and out. The slide showed a small sample of the types of
inflows and outflows. She moved to slide 23 and discussed
revenues/expenditures and volatility. She relayed that the
state was becoming much more stable in terms of the funds
coming from the ERA draw. She elaborated that it provided
substantial stability because there was certainty around
the money being received in the current and following year
when doing the POMV formula. She stated that the situation
had been in place since 2019. The 2024 investment revenue
was 55 percent to the unrestricted general fund and
Treasury was expecting the number to grow to 60 percent for
the current year and a bit higher in FY 26. Oil revenue had
been decreasing as its percentage of the unrestricted
general fund. She addressed expenditures and explained that
like the federal draws, there was often money going out the
door (to things like Medicaid, transportation, and
education grants) before it went back into the general
fund. There was often a disconnect of when money came in
versus when it went out and there were some seasonal
cashflow needs. For example, in the summer when
construction projects started, more money went out the door
early in the fiscal year.
Representative Galvin referenced the mismatching of the
monies, particularly Medicaid. She asked if there were ways
to tighten up the timespan between cash outflows and
inflows. She wondered if additional staff resources would
help with the issue.
2:56:31 PM
Commissioner Crum responded that the system was pretty well
accounted for. He explained that because Centers for
Medicare and Medicaid Services (CMS) was such a large
portion of the federal budget, there were very tight rules
around who the fiscal agents were, how states processed the
funds, and the time it reached providers.
Ms. Leary addressed cash flow deficiencies versus revenue
shortfalls on slide 24. She explained that cash flow
deficiencies were the timing issue where Treasury did not
have the money when it was needed. She elaborated there
were numerous tools to address the issue and manage
cashflows. One was adjusting the timing of ERA transfers to
the general fund. Treasury did not take the money at the
start of the fiscal year, it left the money in the
Permanent Fund in order to earn greater returns, and took
it as needed to help maintain the $400 million minimum
balance in the general fund. If Treasury started to see a
situation where the balance may drop below $400 million, it
would call out for more money, which could be done
primarily through the ERA. Funding had been borrowed from
budget reserves in the past. The last time had been October
2023 when funds had been borrowed for a month in order to
keep the money in the treasury and avoid having to call out
an additional amount. Another method was managing timing of
expenditures. For example, the public education fund drew
money, which used to be done at the beginning of the fiscal
year. Over time, the division had developed a more even
flow throughout the year in order to avoid impacting
cashflows in one lump sum. Revenue shortfalls occurred when
there was not sufficient incoming revenue to cover
appropriations within a given fiscal year. The legislature
typically included language in the operating budget where
budget reserve funds were appropriated for revenue
shortfalls. She believed the language was included in the
proposed FY 26 budget. Treasury had used the CBRF
historically to cover revenue shortfalls. She added that
the state actually got to a point of repaying the CBRF in
2010 before it started borrowing again in FY 15.
2:59:40 PM
Co-Chair Josephson stated that historically the use of CBR
funds had been approved by a three-quarter vote in the
event Treasury was short-funded or there was a crisis. He
stated the amount had been as much as $500 million that
Treasury was free to access from the CBR. He considered a
scenario where the legislature did not authorize access to
CBR funds. He asked for verification that Treasury was
allowed to draw from the CBR in a moment of need and repay
it.
Ms. Leary answered that it was part of Treasury's
memorandum of understanding (MOU) she would discuss on the
next slide. She explained that if Treasury knew it could
repay the amount needed for a shortfall in a given year, it
could take money for that purpose. She relayed that
Treasury primarily used the CBR for cashflow issues.
Co-Chair Josephson was glad Treasury had that liberty. He
asked about the difference between giving legislative
authority in the budget for Treasury to use CBR funds
versus failing to pass the language and Treasury being
allowed to use the funds anyway.
Commissioner Crum responded that the benefit of legislative
authority was the ability to deal with catastrophic events.
For example, if the price of oil went negative for a
substantial period of time and Treasury did not have enough
funds and could not repay the amount by the end of a fiscal
year. He stated it was the benefit of the vote from the
legislature for Treasury to have access to the CBR draw. It
was the division's intent that anytime it needed to pull
from the CBR for cashflow purposes, that the money would be
replaced prior to the end of the fiscal year.
Co-Chair Josephson recognized that Representative Hannan
had joined the meeting after attending a bill hearing.
3:02:13 PM
Ms. Leary turned to slide 25 titled "Cash Deficiency
Memorandum of Understanding." The slide outlined the MOU
between DOR, OMB, and DOL. She reviewed the slide:
• Targets $400 million minimum cash threshold in the
General Fund proper.
• Outlines procedures for addressing cash flow timing
mismatches:
o Develop monthly cash projections.
o Monitor daily General Fund cash balances. Update
forecasts based on new cash flows.
o Execute appropriated transfers from ERA, CBRF, or
others.
o Perform temporary fund borrowing (CBRF, ERA,
subfunds) to be repaid by fiscal year end.
o In the event of forecasted revenue shortfall:
o Seek legislative action through the Governor to
access additional funds through appropriation
from other Reserve Funds.
o Prioritize disbursements, restrict
expenditures.
Representative Galvin asked if there had been any thought
about bringing the $400 million [minimum floor in the
general fund] up to meet inflation. She observed that the
slide specified the MOU had been created in 1994.
Ms. Leary responded that the MOU was updated as needed. She
relayed that most recent update was at least five years
back, but it had been a good number for Treasury during
that time.
Commissioner Crum clarified that the original memo was
developed in 1994. He did not believe it was at the $400
million dollar mark at the time.
Ms. Leary responded affirmatively. She provided a cash flow
summary on slide 26. She highlighted that cashflow
forecasting changes happened on the revenue and expenditure
side. Even with balanced budgets, cashflow mismatches
occurred. Additionally, revenue shortfalls may occur if
forecast assumptions were incorrect.
3:05:04 PM
Co-Chair Josephson asked about slide 28 in the appendix. He
was trying to get a better understanding of the sweep
issue. He looked at the Alaska Fisherman's Fund under
GeFONSI II and asked if there were fees from fishermen than
helped capitalize the $11.6 million.
Ms. Leary replied that she was not certain about the source
of revenue for the specific fund.
Co-Chair Josephson stated his understanding that some of
the 60 funds [shown on slide 28] were funded by private
individuals through professional licensing fees.
Ms. Leary agreed.
Co-Chair Josephson used the Agricultural Revolving Loan
Fund as an example. He provided a scenario where the
legislature appropriated $8 million instead of the $8.745
million shown on slide 28. Under the scenario, he believed
the $745,000 balance would sweep away. He asked if he was
accurate.
Ms. Leary answered that many of the funds [shown on slide
28] were designated and had some requirements because funds
were coming from outside the state to replenish the fund
balance. She explained that the likelihood of those funds
being available for draws or sweep was less than the
general fund. She noted that the balances shown on the
slide were at a point in time and did not necessarily
reflect the amount put in by the legislature the previous
year. She elaborated that it could be an aggregated fund
over many years that was being developed for a specific
purpose.
Co-Chair Josephson discussed his philosophical concern
where Alaskans were required to contribute their own funds
and a portion of that money lapsed into the general fund
and was swept. If he was told he was required to contribute
money to a fund and some of his resources were swept to the
CBR, he would wonder if the funds he provided were merely
helping the state pay back its CBR debt. He was alarmed by
the fact that there used to be an understanding in the
political culture that the reverse sweep would occur as a
recognition that the system needed to keep track of the
funds and that was no longer the case. He would talk to the
Legislative Finance Division to determine whether the
problem had been cured by writing a budget that dispensed
with the concern.
3:09:07 PM
Commissioner Crum offered to follow up with a report
showing which of the funds were sweepable. He stated that
many of the funds shown on the slide that were set up by
statute or settlement meant there were specific rules
around how they could be used. He highlighted the Public
School Trust Fund as an example and explained that the
corpus of the fund could not be touched. The fund had to be
invested in a certain way in order to propose a draw. He
pointed out that slide 28 only showed the top 60
participants out of around 230 funds managed by Treasury.
He noted that the funds had different asset allocations and
risk profiles. He elaborated that Treasury did substantial
work to manage the funds and put forward recommendations to
whoever the governing body may be as to the appropriate
draw.
Co-Chair Josephson referenced the past court case Hickel v
Cowper. As an example, he highlighted that the case talked
about the Spill Prevention and Response Fund. He explained
that because the fund was needed in the event of emergency,
it was deemed to be available for appropriation and not
sweepable. Additionally, federal dollars could not be
swept. He was alarmed to learn from the case that many
things could be swept. He stated it was the reason there
had been a concern with the HEIF, which the legislature had
fixed. He asked about the other 229 funds and stated the
legislature needed to figure it out.
Representative Stapp stated that the case also specified
that the ERA account did not require legislative action to
spend "and we all know how that turned out." Separately, he
noted that the state insurance catastrophic reserve fund
was capitalized above the statutory limit. He understood it
was likely because Treasury had obligated funds that it
would spend. He remarked that according to AS 37.05.289,
there was not supposed to be more than $50 million in the
fund. He asked what happened when the fund balance exceeded
$50 million. He wondered where the money went.
Commissioner Crum responded that the department collected
and invested the funds. He explained that the draws on the
fund were the responsibility of the bodies using the
program. He explained that Treasury did not measure or
track the expenditure portion. He added that whatever funds
the state had, Treasury tried to grow the amount.
Co-Chair Josephson thanked the department for its
presentation. He reviewed the schedule for the following
Monday.
ADJOURNMENT
3:13:04 PM
The meeting was adjourned at 3:13 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| H.FIN Treasury Investment and Cashflow Update 01.31.25.pdf |
HFIN 1/31/2025 1:30:00 PM |