Legislature(2025 - 2026)ADAMS 519
01/30/2026 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presenation: Savings, Reserves, and Investments 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 | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
January 30, 2026
1:51 p.m.
1:51:55 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:51 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Andy Josephson, Co-Chair
Representative Calvin Schrage, Co-Chair
Representative Jamie Allard
Representative Jeremy Bynum
Representative Alyse Galvin
Representative Sara Hannan
Representative Elexie Moore
Representative Frank Tomaszewski
MEMBERS ABSENT
Representative Nellie Unangiq Jimmie
Representative Will Stapp
ALSO PRESENT
Janelle Earls, Acting Commissioner and Administrative
Services Director, Department of Revenue; Pam Leary,
Director, Treasury Division, Department of Revenue; Zach
Hanna, Chief Investment Officer, Treasury Division,
Department of Revenue.
SUMMARY
PRESENATION: SAVINGS, RESERVES, AND INVESTMENTS BY THE
DEPARTMENT OF REVENUE
Co-Chair Foster reviewed the meeting agenda.
^PRESENATION: SAVINGS, RESERVES, AND INVESTMENTS BY THE
DEPARTMENT OF REVENUE
1:53:28 PM
JANELLE EARLS, ACTING COMMISSIONER AND ADMINISTRATIVE
SERVICES DIRECTOR, DEPARTMENT OF REVENUE, introduced
herself and her colleagues.
PAM LEARY, DIRECTOR, TREASURY DIVISION, DEPARTMENT OF
REVENUE, provided a PowerPoint presentation titled
"Treasury Cash Flow and Investment Fund Update," dated
January 30, 2026 (copy on file). She addressed the slides
with prepared remarks:
Slide 2 is our agenda. First, we're going to introduce
you to the functions in Treasury and then we will take
a deeper dive into cash management, followed by an
update of the Treasury's investment funds.
On slide 4 we have a chart that shows the four
sections of the Treasury Division that touch
investments and cash flows. We have 40 professionals
that work in these sections with strong longevity. In
fact, Treasury leadership has an average of 17 years
at the Treasury. Many of our staff have professional
designations such as CFA (Chartered Financial
Analyst), like CIO Hanna, and CPAs (Certified Public
Accountant) like me. The box in red shows the
Portfolio Management Team, also called the front
office, where 16 investment staff invest the assets
for state fiduciaries. The team performs or oversees
120,000 trades annually, develops asset allocations
and investment policies on behalf of hundreds of state
accounts that roll into 45 investment funds, utilizing
30 investment pools, supported by about 150 investment
managers and over 700 private equity funds. That is a
lot, more than last year in fact and about half of the
assets are managed internally and you'll hear more
about that from CIO Hanna a bit later.
The green box is the Accounting and Operations side of
the house also referred to as the back office, which
ensures that those 120,000 trades and costs are all
directed and accounted for in the correct amounts and
in the right funds. The purple box in the lower left
is the middle office where compliance and performance
reporting is housed. The Compliance Group helps
protect invested assets by monitoring adherence to
laws, rules, regulations, contracts, policies, and
guidelines. They perform more than 75 compliance tests
on trades daily. The Performance Group calculates the
performance for 45 funds every day. This group also
supports the other sections as the data management
center bringing technology into our daily practice to
make us more efficient and knowledgeable.
1:56:53 PM
Ms. Leary continued to review slide 4 with prepared
remarks:
Cash Management in the teal colored box on the lower
right is arguably one of the most important central
functions provided to the state, processing thousands
of transactions daily that support the revenue and
expenditure in the accounting systems. They oversee
all of the cashflows into and out of the state to
ensure that the General Fund has sufficient balances
to pay our bills. They also coordinate with our
investment team daily to maximize our invested cash
amounts. I will talk a little more about Cash
Management in the next slides but will say that
managing cashflows and investing $58 billion in
numerous investment funds is as complex as it sounds
and I would take this opportunity to acknowledge our
very skilled team for the work they do and the strong
track record that they have.
1:57:43 PM
Ms. Leary turned to slide 6 titled "Managing Alaska's Cash
Flows" and provided prepared remarks:
Cash Management provides many core services to the
state from maintaining bank contracts for depository
services and credit card acceptance programs to
working with departments on federal programs. Arguably
the most important daily task is managing state
cashflows. As the graphic on the right shows, cash
inflows come from various sources: tax revenue,
federal programs, agency receipts, and reserves.
While, cash outflows are made to pay for payroll,
pensions, Medicaid, and Permanent Fund Dividends to
name a few. As I will discuss later, the Cash
Management team is experienced in working with the
state's reserves to ensure we have sufficient cash
balances to pay our bills. According to Pew Trust
research, Alaska's primary rainy day fund, the
Constitutional Budget Reserve (CBR) is the second
highest of all states in terms of being able to cover
our operating budget. With the passage of SB 26
starting in 2019, revenue began coming into the
Treasury from the Earnings Reserve Account (ERA)
managed at the Alaska Permanent Fund. This has allowed
for fewer draws from the rainy day fund and has been a
welcome tool to manage cashflows, especially with
uncertainty surrounding the amount of timing of
cashflows.
Representative Galvin asked for context around the term
"significant reserves." She referenced the statement that
Alaska was the second highest of 50 states. She asked if
there was a best practice for the amount a state like
Alaska should have in reserves. She wondered if Alaska was
exceeding that amount.
Ms. Leary answered that Alaska's $2.9 billion to $3 billion
in reserves was a higher absolute number. When the Pew
Trust looked at rankings it looked at the number of days a
state could cover its operating expenses with reserves. She
detailed that Wyoming was the highest with a year or more
in reserves. Alaska had sufficient reserves to cover about
191 days of operating expenses. There were many answers
that could be given to the best practices question. She
believed every state was individual. She relayed that some
states and municipalities used formulas. She remarked that
coverage of days was an important data point. She detailed
that from an absolute standpoint and Pew Trust standpoint,
the state's reserves were currently adequate. There were
always questions about what constituted enough and she
believed that was a budgetary and administrative question.
She noted that a lot of numbers had been heard over the
years and what the correct number was was still in
question.
2:01:13 PM
Representative Galvin imagined the ratings agencies
evaluated Alaska based on cash flow and other factors. She
guessed there were some standards the agencies looked for
such as the ability to cover at least 150 days or whatever
the number was. She remarked that Alaska was in a difficult
fiscal time and it would be nice to know that the state was
not putting itself at any risk of downgrading its ratings.
She would be grateful to have more certainty around what
rating agencies were looking at when they looked at the
component.
Ms. Leary answered that the department's debt manager would
come speak to the committee about the rating agencies. She
believed the state had four [rating] upgrades in the past
couple of years, which was based on fiscal restraint,
knowing reserve balances, the stability of the revenue
stream (much of which was currently coming from the ERA).
She did not know exactly what the rating agencies had and
she did not know whether the debt manager would be able to
provide an explicit answer. She noted that the fact that
the state's ratings had continued to be stable had seen
upgrade indicated that rating agencies thought Alaska was
doing ok.
2:03:10 PM
Co-Chair Schrage remarked that while the state had large
cash reserves, it had more volatile revenues than any other
state, which warranted a large reserve because there may be
dips in oil revenue for a prolonged period. He recognized
there were best practices and metrics the rating agencies
used to evaluate states, but he thought it was difficult to
create a standard based on the rest of the country given
Alaska's unique budgetary volatility. He asked if Ms. Leary
agreed with the sentiment.
Ms. Leary agreed. She pointed out that the state's revenue
stream was a bit more certain because the ERA represented a
larger portion of that stream.
Representative Tomaszewski looked at slide 4 and referenced
the bullet point reflecting that the division made trades
on behalf of hundreds of state accounts that rolled into
45+ investment funds. He asked if the division was
investing the unemployment insurance (UI) fund.
Ms. Leary responded affirmatively. She elaborated that the
UI fund was one of the funds in the General Fund. More
detail would be provided in the presentation.
Representative Tomaszewski asked if the hundreds of
accounts were pooled together for investing. He asked if
there was information on how the funds were doing, what the
investments looked like, and where the interest was going.
Ms. Leary replied that the presentation would address the
General Fund and Other Non-Segregated Investments
(GeFONSI), which the fund rolled up into. She explained
that that GeFONSI I and II were investment funds invested
in management funds. The funds' overall returns on any
given day were the same, but cash flows in and out of the
funds meant that there would be slight differences in the
returns between the funds in a fiscal year. The division
calculated the interest on a daily basis and assigned it to
each of the funds managed in the GeFONSI accounts.
2:06:08 PM
Representative Hannan looked at slide 4 and understood
there were 40 people in the Treasury Division with 16 in
portfolio management. She asked about the number of staff
in the other three sections.
Ms. Leary replied that Cash Management had 5 filled
positions and 12 in the back office operations in
administration.
Representative Hannan asked if the back office was
accounting and operations.
Ms. Leary responded affirmatively.
Representative Hannan about the number of positions in the
Compliance Section.
Ms. Leary clarified that compliance was included in group
she had just mentioned.
Representative Hannan stated her understanding there were
40 total division employees.
Ms. Leary responded there were currently 40 filled
positions, which included debt management and unclaimed
property - unclaimed property day was February 1 and she
encouraged people to look for their missing money.
Additionally, there was an Alaska Retirement Management
Board (ARMB) liaison, generally considered as part of the
portfolio group because the position dealt with most of the
retirement management investments.
Representative Hannan asked if all of the cannabis tax
revenue ended up with the Cash Management section because
it was physically cash.
Ms. Leary answered that all cash inflows and outflows came
through Cash Management. She described the section as the
gatekeeper of the state's bank.
2:08:31 PM
Ms. Leary moved to slide 7 related to revenue and
expenditure uncertainty and read from prepared remarks:
On slide 7 we have detailed why we have revenue and
expenditure uncertainty. Unrestricted general fund
revenue came from two main sources: oil revenue and
investment earnings. Oil is as commodity was quite
volatile both in terms of price and quantity. The
revenue from Permanent Fund investments was much less
volatile. Due to the percent of market value formula
that provides certainty in the current year and in the
next year. Further, because investments are providing
a greater share of unrestricted general revenue,
projected to be more than 60 percent this year and
next, we have a bit more certainty with revenues at
least in the short term.
On the expenditure side, while those are generally
planned, there can be uncertainty in terms of amounts
and timing and those fall into a couple of categories.
For example, federal programs require that departments
spend the money before we call for reimbursement.
There was always money going out the door before
coming in. Also, there tend to be larger
appropriations at the start of a fiscal year largely
because the appropriations settled for the next year
start going out and funds need to be available for
those.
2:10:24 PM
Ms. Leary addressed slide 8 with prepared remarks:
Slide 8 defines cash flow deficiencies and revenue
shortfalls and how we deal with them. Over time as
more subfunds were created, the General Fund proper
had less money in it to pay our bills and that
resulted in our need to monitor our cash balances more
closely. Cash flow deficiencies are common and they
can be addressed by managing the timing of receipts
and payments. An example of this is when we spread out
an appropriation payment across the year rather than
just transferring the funds at the beginning of the
year and we often will work with departments and
divisions to make sure that that can happen. There is
a memorandum of understanding between the Departments
of Revenue, Administration, OMB, and Law that outline
steps that we follow and those are shown on the
righthand side of the slide. This is what we do if we
have a cash deficiency, which is currently defined as
forecast cash dipping below $400 million for five
days. If we see cash flow starting to get lower and
lower, in our forecasting tools, which we update
daily, it's remedied by taking our borrowing from the
earnings reserve or the budget reserves.
A revenue shortfall occurs when revenue is
insufficient to cover General Fund appropriations in
any given fiscal years when you have a deficit. The
legislature generally includes language annually in
the operating budget, which appropriates budget
reserve funds for revenue shortfalls. Treasury was
reliant on this appropriation to authorize use of
budget reserve funds to address both revenue
shortfalls and the cash flow time mismatches. The
Constitutional Budget Reserve Fund (CBRF) has been
used to cover revenue shortfalls historically although
the Statutory Budget Reserve has also been used in the
past.
2:12:46 PM
Ms. Leary moved to slide 9 titled "Cash Management in
Action" and provided prepared remarks:
The graph shows forecasted and actual cash for the
first half of this fiscal year 26. This is updated
daily after the Cash Management team works with the
departments and analyzes all of the anticipated
payments and incoming revenue for any changes they
expect to the forecast. For example, if the tax
department knows its oil revenue forecast or cannabis
cash is going to be different than anticipated, the
tax department will let us know so we can update our
cash forecast and that gets built into this diagram.
Another example, which actually happened a few years
back when there was a decision to pay Permanent Fund
Dividends a little bit earlier than had planned, we
hadn't made a cash call, and so we had to change our
cash call plans. Sometimes we're anticipating funds
that just don't come in, such as when the federal
government announced it was going to shut down certain
payments or if federal dollars are taking longer to
show up as reimbursements. The Cash Management team
has to be responsive and readily react to these
scenarios and they do so on a daily basis.
Now that the Earnings Reserve Account is our primary
tool in addressing cash deficits, at the start of each
year we create an expected ERA draw and we work with
the Permanent Fund Corporation to come up with a plan
that works for them as well as our cash means and it
seeks to maximize investments of the earnings reserve
and not go below our $400 million threshold. We've
increased the number of draws in the past couple of
years to provide greater flexibility and known
liquidity needs. We will have made 61 draws at the end
of this fiscal year from the earnings reserve totaling
$26 billion over the last eight years. We've had to
revise our schedules from time to time but maybe only
a couple of times per year due to unknown
circumstances.
Representative Hannan looked at the diagram on slide 9 and
observed there was a dramatic dip on August 11 and 12. She
could not tell what caused the dip. She asked if it
required the draw of a cash reserve or if the rebound was
fast enough that the problem was resolved the following
day. She thought the date at the time of the federal shut
down and transfer.
Ms. Leary answered that it was a planned dip and recovery.
She explained that it was generally shown separately on
different days and she thought it was in the opposite
direction the previous year. She believed it reflected the
preparation of making the transfer of dividend fund
balances from the General Fund into the Permanent Fund
Dividend fund. The money had been called on the next day
and on an accounting basis it all happened at once. The
cash never actually physically dipped below the threshold.
She elaborated that there was background data that allowed
the division to aggregate and show how the money was
moving. She shared that it was helpful for her and the
investment team to have a visual on where cash would be.
Representative Hannan asked for verification that even
though it looked dramatic in the slide, it was something
that occurred annually when moving money in preparation for
distributing PFD checks. She stated her understanding that
the transfer was scheduled and did not reflect a surprise
to the division.
Ms. Leary replied affirmatively. She explained that
sometimes there was a direct payment into the Permanent
Fund Dividend fund and it did not go through the General
Fund, but that was unusual. She confirmed that the transfer
was normal and part of the process.
2:17:50 PM
Ms. Leary continued reviewing slide 9 with prepared
remarks:
The last item on this slide highlights the integration
of our cash investment teams. Every day based on
forecasts and planned cash flows, Cash Management
projects cash expected to be available for investment
and works with our Portfolio team to ensure that all
expected funds are fully invested. Cash Management is
a small but mighty team with a big impact throughout
the state and they do a great job.
2:18:38 PM
ZACH HANNA, CHIEF INVESTMENT OFFICER, TREASURY DIVISION,
DEPARTMENT OF REVENUE, turned to slide 11 and reviewed the
Treasury investment process with prepared remarks:
Page 11 is a summary of the process that Treasury uses
to set over 25 investment policies for four
fiduciaries of the state. The commissioner of Revenue
is the sole fiduciary for many of the state funds that
we'll be covering today. For the past six years
Treasury has used a formal state investment review to
develop and recommend investment policy. This involves
the commissioner, investment staff, and an independent
investment advisory committee. We use a similar
process to what we use for the retirement board
investments. We review financial markets and
performance for each fund quarterly and at least
annually we review capital market assumptions and
recommend asset classes and underlying investments. We
go through each fund to recommend an appropriate
investment policy and asset allocation that considers
fund investment objectives and attributes like time
horizon and liquidity needs. All Treasury investment
recommendations to state fiduciaries are thoroughly
vetted, they adhere to state law, and are consistent
with best investment practice. The full quarterly
investment review packets are available online on our
website (linked in the back of the presentation in the
appendix).
2:20:10 PM
Mr. Hanna moved to general capital market performance
information on slide 12 titled "Recent Capital Market
Performance." He provided prepared remarks:
Over the past few years we've experienced really an
extraordinary economic cycle. We went through a global
pandemic with high stimulus and near zero interest
rates, then markets faced a surge of inflation,
followed by one of the fastest interest rate hiking
cycles in history. Today inflation has moderated to
more reasonable levels and over the last three years
capital markets have staged a strong rebound.
As you can see in the far right chart, which rank
orders asset class returns each year, performance was
all positive last year for 2025. It was led by a 32
percent return for international equities and on down
the list including 7 percent returns for fixed income
and 4 percent for cash equivalents. This is the
backdrop for the returns that we'll go through by
asset class and fund.
Mr. Hanna turned to slide 13 titled "Treasury Asset Class
Performance" and provided prepared remarks:
Page 13 has the performance for the asset classes that
Treasury manages for state portfolios. These are
commingled investments that we use in different
proportions to construct portfolios that are
diversified, low cost, and have high liquidity. We
manage over 80 percent of these funds internally and
focus on delivering market returns with consistent
upside. The top section of the table on the right has
the total performance for each asset class followed by
a section with benchmark performance and then finally
a stoplight section with performance relative to that
benchmark. As you can see, returns were strong in the
top section with cash and bond returns ranging from 5
to 8 percent and equities from 2 to 33 percent. In the
bottom benchmark relative section the returns were
also strong overall. For state portfolios, most of the
assets are in the first three categories from cash
through core fixed income. These are all internally
managed and Treasury has produced consistent excess
returns over time and 2025 was no exception, with
excess returns from 24 to 42 basis points or .24 to
.42 percent (a basis point is one one hundredth of a
percent). Overall, strong positive returns across the
state investment pools, which we'll go through by fund
shortly.
2:22:35 PM
Representative Hannan asked if the 1-year, 3-year, 5-year,
7-year, and 10-year columns on slide 13 were predictive or
historic.
Mr. Hanna replied that the numbers were historical
investment returns through 12/31/25. He turned to the
Treasury investment result summary on slide 14. The slide
summarized the overall investment results for the year
across Treasury portfolios and quantified the financial
impact. He shared that he and Director Leary had the honor
of working with a great team of professionals who took a
lot of pride in working to generate strong results for the
state. Overall, returns in 2025 were 12.9 percent across
all of the funds (all $58 billion) including retirement and
state accounts managed by Treasury. The returns resulted in
$6.7 billion in gains for the calendar year.
Representative Galvin turned to slide 11. She shared that
the Higher Education Investment Fund (HEIF) had been used
to help balance the budget the prior year. She remarked
that the legislature could have opted to use CBR funds, but
only if the will had been there. She asked if HEIF was
doing better than the CBR in terms of growth. She asked if
any money had been left on the table by choosing the HEIF
over another fund source.
Mr. Hanna replied that the presentation would cover the
fund in detail. He detailed that HEIF had a high risk
profile and was heavily invested in equity markets. He
relayed that equity markets did well in 2025. He reported
that HEIF had much higher returns than the CBR [in 2025].
Representative Galvin asked if the decision may have
resulted in the loss of some funds that could have been
gained because it was a high earning year.
Mr. Hanna agreed.
Mr. Hanna continued with slide 14 and provided prepared
remarks:
The state funds that we're going to go through today
added $658 million in gains to the state balance sheet
in 2025. That's strong performance for a set of lower
risk portfolios. The retirement systems that we'll
touch on last rank in the top third of peer public
pension plans generating excess returns over the past
10 years of $2 billion over benchmark performance,
which directly reduces state and employer
contributions. As we mentioned, managing significant
assets internally allows for tighter control results
and material cost savings.
Mr. Hanna turned the presentation over to Ms. Leary. He
noted that Ms. Leary would cover the background and history
of each fund and he would cover asset allocation and
performance.
2:25:51 PM
Ms. Leary addressed the Constitutional Budget Reserve Fund
(CBRF) on slide 16. She discussed the savings reserve funds
reflected by a chart showing invested asset history. The
blue portion of the chart showed the fiscal year end
balances of the main CBRF fund. She detailed that the fund
was used for liquidity and revenue volatility management
and was created in the Alaska Constitution in 1990 when
voters approved adding Section 17 to Article 9 of the state
constitution. She detailed that deposits to the fund
included all money received by the state after July 1, 1990
through resolution of disputes about the amount of certain
mineral related income. The gold section of the chart
reflected the CBRF subaccount, created by the legislature
in 2000. In accordance with statute, money in the
subaccount was invested to yield higher returns than in the
primary 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 that the funds would be needed within that five-
year period.
Ms. Leary detailed that the gray area in the graph on slide
16 represented the Statutory Budget Reserve (SBR) created
in 1986. The SBR was part of the GeFONSI before and after
being managed as a separate fund from July 2013 to October
2015. The SBR was included in the graph to reflect all of
the reserve accounts. On June 30, 2025, the invested
balance of the CBRF was $2.9 billion and the SBR had $149
million.
2:27:57 PM
Mr. Hanna addressed slide 17 titled "Constitutional Budget
Reserve Fund Combined Main and Sub Accounts." He reported
that balances had been stable at close to $3 billion for
the past three years, but were drawn down to $1 billion the
prior two years through the pandemic. The CBRF was the
state's primary reserve fund with a potentially short time
horizon. Treasury staff had consistently recommended an
investment approach that provided high liquidity and
principal protection. The slide showed that at year end the
combined CBRF accounts were 100 percent invested in cash
equivalents. Historically, the asset allocation often
included longer term bonds and a modest equity exposure at
times to enhance earnings while still protecting principal.
He stated that since yields had remained elevated for cash
investments and published fiscal information did not
support a longer time horizon, Treasury staff recommended
leaving the fund invested in cash. From a performance
perspective, 2025 was a good year for cash investments and
the CBRF overall. The one-year performance was 4.48 percent
in excess of the benchmark by 20 basis points. In total,
there were $127 million in net gains for the combined CBRF
accounts in 2025.
2:29:19 PM
Ms. Leary addressed the balances of the two GeFONSI funds
on slide 18. She explained that the General Fund was the
checking account of the state where all of the cash flows
went in and out. The fund had a $400 million minimum. There
were about 185 other accounts in the GeFONSI funds that
were managed together but accounted for separately. The
first GeFONSI was created in 1992 as a way to pool accounts
for investment and the GeFONSI II was created in 2018 to
target a slightly higher risk return for a subset of the
funds. As of June 30, 2025, there was $3.4 billion in the
GeFONSI funds combined. She noted the presentation appendix
included a list of the top 30 funds that rolled into each
of the GeFONSI funds as of the end of December 2025.
Currently, the General Fund was the largest of the funds at
close to $1.5 billion.
Mr. Hanna reviewed the investment information for the
GeFONSI funds on slide 19. Both GeFONSI I and II had a
short investment horizon with a relatively high need for
principal and income protection. He detailed that GeFONSI I
was 85 percent cash equivalents and 15 percent short term
bonds and GeFONSI II had a modestly higher risk with 61
percent cash equivalents, 33 percent short term bonds, and
6 percent equities. Similar to the CBRF, the funds had
fewer long term bonds than they have had historically, but
as rates normalized - which may happen in the current or
following year - there may be some additional risk added to
the funds to increase earnings while continuing to protect
principal. Performance for the year was positive for both
funds with a 4.71 percent return for GeFONSI I and a 5.93
percent return for GeFONSI II (both 30 basis points in
excess of their benchmarks). Overall, the total performance
resulted in $172 million in gains in 2025.
2:31:37 PM
Ms. Leary reviewed the historical asset values of the
Public School Trust Fund (PSTF) on slide 20. The PSTF had a
2025 year-end balance of $911 million. The fund was created
in 1978 and was funded with one half of one percent of
state receipts from the management of state lands. The fund
was used to provide an offset to the education formula
funding. In FY 25, the fund contributed $35 million to the
Public Education Fund and was expected to contribute $35 in
FY 26 and $37.5 million in FY 27.
Mr. Hanna turned to funds with a long time horizon and a
high ability to bear risk, beginning with PSTF on slide 21.
Treasury used a high risk profile for the fund to inflation
proof it and achieve the long-term statutory spending
objective of up to 5 percent of the last five years'
average balance. The risk profile for PSTF and other
similar funds was set at the risk equivalent of 70 percent
equities and 30 percent bonds. He detailed that Treasury
sought to preserve the purchasing power of the fund over
time through a combination of the investment policy and
spending recommendations that Treasury made to the
Department of Education and Early Development and Office of
Management and Budget. Performance over the past year was a
high 17.07 percent, modestly over the benchmark. The fund
had $141 million in gains for the year, which brought it
back to peak assets. The 10-year compound performance was a
high 8.6 percent.
2:33:22 PM
Ms. Leary reviewed the HEIF on slide 22 with prepared
remarks:
The fund was capitalized with $400 million deposited
from the Alaska Housing Capital Corporation and its
used to support the Alaska Performance Scholarship
(APS) awards, Alaska Advantage Education Grants (AEG,
and other education uses. Up to 7 percent can be
appropriated for scholarships and of that amount, two-
thirds goes towards the APS awards and one-third
towards the AEG grants. HB 322 established the Higher
Education Fund as a separate fund as of June 30, 2022
and HB 148 passed recently, increasing the amounts of
the scholarship and grants. The balance as of June
2025 as shown on this slide was $435 million, which
was reduced by a $130 million transfer to the General
Fund at the beginning of FY 2026.
Representative Tomaszewski considered the scenario that
occurred the previous session where the legislature decided
to withdraw $130 million from the HEIF account. He remarked
that Treasury had the money invested in a long term
investment that was generally generating a high return. He
asked if the division had discretion to take funding from
another location such as cash equivalents to avoid spending
from an account that could have made substantially more if
the funds had not been used.
Ms. Leary replied that the division worked with OMB in
terms of how to move the money, but because it was part of
the budget and how the legislature decided to move the
money, that was what was moved. She stated it was an
interesting situation because it was essentially filling
the deficit. The amount of the deficit had not been known
right away, and it took a bit of time to determine what
amount should be transferred. In the end, it was roughly
$130 million that would fill the gap. Treasury staff, as
the investors, were not the ones pulling the triggers for
the incoming and outgoing money. Generally, that
responsibility went to agencies that had been given
appropriation authority, OMB, and the Division of Finance.
She concluded that Treasury did not have a choice.
2:36:47 PM
Representative Tomaszewski imagined Treasury looked at the
"these moves" and wondered why the legislature had chosen a
particular option. He asked what was lost by making that
one move [using funds from HEIF].
Mr. Hanna replied that they would have to go back to look
at the date of the transfer and follow up. He noted that a
rough estimate was the six-month return of 8.29 percent on
slide 23 minus the CBRF return of around 2.25 percent. A
very rough approximation was about 6 percent on the $130
million.
Representative Hannan asked how much of the withdrawn funds
had grown back in the last six months since the withdraw
had been made. She noted that the balances provided were
annualized instead of fiscal year making it harder to
determine the number.
Mr. Hanna replied that the fund increased in value by $61
million in the calendar year. He detailed that for the year
the returns were ironically half and half. He did not
recall exactly how they were apportioned throughout the
year. He estimated that about half of the gain occurred in
the second half of the year. He noted that it was probably
slightly less than that because the value went down. He
could follow up with the precise information.
Representative Hannan noted there was discussion of
restoring the money in the supplemental. She asked about a
hypothetical scenario where Mr. Hanna was a personal
advisor and she had drawn the money out of a high risk
savings account. She asked whether he would recommend
increasing the restoration to the amount of lost earnings.
For example, if she took $100 million, but it could have
been $110 million, she asked if she should restore $110
million. Alternatively, she asked if the restoration of the
original $100 million was acceptable from a management
perspective.
Mr. Hanna replied that it was a policy call. He stated that
when similar things had occurred in the past, both paths
were taken at different times. At times the principal
reduction was restored and at times the principal reduction
and foregone earnings were restored. He stated that it was
effectively a budgetary choice. He remarked that markets
went up and down and the recent market performance happened
to be a very strong period that no one predicted. He noted
that if the legislature went down the path of restoring
funds, additional market activity would take place between
the current day and when the funds were restored. He
highlighted that markets could continue to go up during the
time period, but they also could go down.
2:40:38 PM
Representative Allard requested to receive information
showing the percentages lost and gained back [in the HEIF]
in an email for the committee.
Mr. Hanna agreed.
Representative Galvin was interested in the information for
the CBR as well in order to compare it to the HEIF. She
wanted to get a sense if it was the best choice to balance
the budget.
Mr. Hanna was happy to provide the information in an email.
He reviewed HEIF investment performance details for the
year on slide 23. The fund had the same high risk profile
as the PSTF to support the annual spending on scholarships
and other programs. Unlike the PSTF, the HEIF did not have
a smoothing mechanism or inflation proofing. He detailed
that scholarship spending was up to 7 percent of the prior
year's ending value in statute. The fund had not
historically been inflation proofed. Spending prior to the
$130 million reduction was roughly equal to the overall
cumulative earnings of the fund over time. The fund was
$400 million at inception and was roughly the same size at
the start of FY 26. Performance over the past year was
strong at 17.08 percent, in excess of its benchmark, and
resulted in $61 million in total gains. The 10-year
performance was 8.86 percent, which was well over
expectations; it had been a very strong period of capital
market performance over the past 10 years. The challenge
for the fund was that current spending of over $30 million
per year was already at the fund's earning capacity prior
to the $130 million reduction used to balance the budget
[in FY 26] and in the longer term spending and the fund's
capitalization level may need to be reconciled. He
understood the legislature would be talking with Alaska
Commission on Postsecondary Education (ACPE) about expected
spending for the various programs the fund supported over
time and it likely could be factored in as well when
considering recapitalizing the fund or what the fund may
look like over the long term depending on how the program
spent the principal of the fund.
2:43:43 PM
Co-Chair Josephson recalled that about five years back the
fund was entirely swept into the CBR and not reverse swept.
He stated that the governor wanted to replenish the fund
with the CBR (there was no other source to do so). He noted
that although it had taken years, in a limited respect, it
would be a return of the capital back to HEIF.
Mr. Hanna replied affirmatively. He stated it would be a
return of the principal reduction that took place in FY 26.
Co-Chair Josephson asked for verification that when the
fund had been restored to just under what it had been prior
to the sweep the funds were new and not merely a return
from the CBR. He asked if it was true that - over his
objection - the CBR had been enriched by the sweeping of
HEIF.
Mr. Hanna replied that he may have answered incorrectly. He
stated that HEIF was swept around 2020. He believed that
when the fund was replenished it included some
approximation of the foregone earnings. He would follow up
with precise detail about what transpired.
Co-Chair Josephson opined that in almost an elementary way
there was a righteousness in using swept dollars to
replenish HEIF because at least $130 million of the funds
had originally come from HEIF.
Mr. Hanna answered that the HEIF funds had been swept into
the CBR and it was replenished from the CBR. He would
follow up on the details.
Ms. Leary added that the $130 million went from the HEIF to
the General Fund. The request in the FY 26 supplemental was
to replenish the funds from the CBR.
2:47:08 PM
Co-Chair Josephson clarified that he was saying there was
some logic in replenishing the HEIF from the source it was
swept to. He stated that there was a fairness in that
action.
Ms. Leary addressed the Public Employees' Retirement System
(PERS) and Teachers' Retirement System (TRS) pension and
health defined benefit (DB) plans on slide 24. She noted
that PERS was shown in blue in the graph and TRS was shown
in yellow. The four funds totaled $32.3 billion at the end
of June 30 and as closed funds, the defined benefit (DB)
plans currently experience net withdrawals annually. The
ARMB was the fund fiduciary and was comprised of nine
trustees (two from PERS, two from TRS, two commissioners,
two public representatives, and one finance officer). For
2025 investment returns for the funds were just over 10.11
percent and the 40-year average return for PERS/TRS was
8.51 percent, which compared favorably to the overall
actuarial assumed rate during that period of 8.17 percent.
Mr. Hanna reviewed the DB retirement assets on slide 25.
The ARMB was Treasury's largest client and represented 83
percent of Treasury assets under management. The systems
had a more complex asset allocation because they were long
term funds with a long term fiduciary board. The systems
had meaningful allocations to less liquid alternative
investments like private equity, private debt, and real
assets. The current asset allocation was 42 percent public
equities, 24 percent fixed income, and 34 percent
alternative investments. He relayed that returns had been
strong. Treasury focused on longer term returns in the
portfolio because having material allocations to
alternatives could make shorter term comparisons difficult
or misleading. The 10-year return through September 30,
2025 was 9.1 percent, which was 27 basis points over the
benchmark and well in excess of the current assumed
actuarial return of 7.25 percent. Part of the excess return
could be attributed to ARMB's intentional lower cost
approach that emphasized internal management. He shared it
led to costs that were roughly 30 percent lower than the
median peer, saving over $30 million per year consistently,
which went directly to the bottom line. He highlighted that
performance was in the top third of returns when compared
to peers, better than over 65 percent of other public
pension systems. Overall, strong returns for ARMB made a
meaningful contribution to retirement assets and reduced
the need for higher state contributions. He concluded the
presentation and was happy to answer any questions.
2:50:41 PM
Co-Chair Josephson remarked that ARMB was seeking something
like $34 million more than the governor proposed in his
budget. He asked for any guidance on what the legislature
should do or what model to use. He understood they were
using different models. He remarked that there was
criticism historically that the legislature did not do
enough to pay down the fund liability.
Mr. Hanna responded that the question would be best
addressed by the actuaries and the Division of Retirement
and Benefits (DRB) when they came to present to the
committee. He explained that Treasury's focus was on the
investment of the assets for the pension system. The
division staff worked with ARMB and were staff to the
board; therefore, they were aware of the liability payment
stream on the actuarial side. He stated that the difference
between what ARMB recommended and what was built into the
budget was a difference in how the debt was being
amortized. He detailed that ARMB had taken recent action to
reduce the amortization period from 25 years to 15 years,
which increased cost in the short term over what would have
been paid had the amortization period been longer. He
stated that a portion of the budget was built on the 25-
year period. He encouraged the committee to delve into the
subject when it talked with actuaries or DRB.
Co-Chair Foster thanked the presenters and reviewed the
schedule for the following meeting.
ADJOURNMENT
2:53:38 PM
The meeting was adjourned at 2:53 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| H.FIN DOR Savings Accounts and Cash Flow Presentation 01.30.26.pdf |
HFIN 1/30/2026 1:30:00 PM |
|
| DOR Response to H.FIN questions Savings Presentation 1.30.26.pdf |
HFIN 1/30/2026 1:30:00 PM |