Legislature(1993 - 1994)

03/08/1994 03:00 PM House HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
           HOUSE HEALTH, EDUCATION AND SOCIAL SERVICES                         
                       STANDING COMMITTEE                                      
                          March 8,1994                                         
                            3:00 p.m.                                          
  MEMBERS PRESENT                                                              
  Rep. Cynthia Toohey, Co-Chair                                                
  Rep. Con Bunde, Co-Chair                                                     
  Rep. Gary Davis, Vice Chair                                                  
  Rep. Al Vezey                                                                
  Rep. Pete Kott                                                               
  Rep. Harley Olberg                                                           
  Rep. Bettye Davis                                                            
  Rep. Irene Nicholia                                                          
  Rep. Tom Brice                                                               
  MEMBERS ABSENT                                                               
  OTHER LEGISLATORS PRESENT                                                    
  Rep. John Davies                                                             
  COMMITTEE CALENDAR                                                           
  HB 506:   "An Act relating to student loans; to sanctions                    
            for defaulting on a student loan, including denial                 
            of a state occupational license or disbursement of                 
            state money; and providing for an effective date."                 
            PASSED OUT OF COMMITTEE                                            
  *HB 466:  "An Act authorizing the issuance of bonds by the                   
            Alaska Housing Finance Corporation to pay for the                  
            cost of repair and rehabilitation of student                       
            housing facilities of the University of Alaska;                    
            authorizing the insurance of bonds by the                          
            University of Alaska to pay for the costs of                       
            repair and rehabilitation of facilities of the                     
            University of Alaska; amending powers of the                       
            Alaska Housing Finance Corporation; amending the                   
            definition of "public building"; relating to the                   
            Alaska debt retirement fund; and providing for an                  
            effective date."                                                   
            PASSED OUT OF COMMITTEE                                            
  *HB 234:  "An Act relating to endowments and donations of                    
            the University of Alaska and the University of                     
            Alaska endowment trust fund; and providing for an                  
            effective date."                                                   
            PASSED OUT OF COMMITTEE                                            
  (* First public hearing.)                                                    
  WITNESS REGISTER                                                             
  JOE MCCORMICK, Executive Director                                            
  Alaska Commission on Postsecondary Education                                 
  3030 Vintage Blvd.                                                           
  Juneau, Alaska 99801-7109                                                    
  Phone:  (907) 465-6740                                                       
  Position Statement:  Answered questions on HB 506                            
  BRIAN ROGERS, Vice-President for Finance                                     
  University of Alaska System                                                  
  207 D Butrovich UA                                                           
  Fairbanks, Alaska 99775                                                      
  Phone:  (907) 474-7448                                                       
  Position Statement:  Testified in support of HB 466 and                      
                       HB 234                                                  
  WILL GAY, Executive Director                                                 
  Alaska Housing Finance Corporation                                           
  520 E. 34th Ave.                                                             
  Anchorage, Alaska 99503                                                      
  Phone:  (907) 564-9326                                                       
  Position Statement:  Testified in support of HB 466                          
                       (spoke via offnet)                                      
  ALISON ELGEE, Statewide Budget Director                                      
  University of Alaska                                                         
  227 4th St.                                                                  
  Juneau, Alaska 99801                                                         
  Phone:  (907) 463-3086                                                       
  Position Statement:  Testified on HB 466                                     
  CHIP WAGONER, Vice-President                                                 
  Alumni Board                                                                 
  University of Alaska Fairbanks                                               
  3294 Pioneer Ave.                                                            
  Juneau, Alaska 99801                                                         
  Phone:  (907) 586-1867                                                       
  Position Statement:  Testified in support of HB 466                          
  NICHOLAS ABRAMCZYK, Member                                                   
  Associated Students of the                                                   
  University of Alaska, Fairbanks                                              
  P.O. Box 99775                                                               
  Fairbanks, Alaska 99775                                                      
  Phone:  (907) 474-5156                                                       
  Position Statement:  Testified in support of HB 466                          
  LARAINE DERR, Deputy Commissioner                                            
  Department of Revenue                                                        
  P.O. Box 110400                                                              
  Juneau, Alaska 99811-0400                                                    
  Phone:  (907) 465-4880                                                       
  Position Statement:  Testified in opposition of HB 234                       
  PREVIOUS ACTION                                                              
  BILL:  HB 506                                                                
  SHORT TITLE: STUDENT LOAN PROGRAM                                            
  JRN-DATE    JRN-PG                     ACTION                                
  02/16/94      2416    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  02/16/94      2416    (H)   HES, L&C, FINANCE                                
  03/03/94              (H)   HES AT 03:00 PM CAPITOL 106                      
  03/03/94              (H)   MINUTE(HES)                                      
  BILL:  HB 466                                                                
  SHORT TITLE: AHFC BONDS FOR UNIV. OF ALASKA USES                             
  SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR                                 
  JRN-DATE    JRN-PG                     ACTION                                
  02/11/94      2348    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  02/11/94      2348    (H)   HES, FINANCE                                     
  02/11/94      2348    (H)   -2 ZERO FISCAL NOTES (GOV,                       
                              REV) 2/11/94                                     
  02/11/94      2349    (H)   GOVERNOR'S TRANSMITTAL LETTER                    
  03/08/94              (H)   HES AT 03:00 PM CAPITOL 106                      
  BILL:  HB 234                                                                
  SPONSOR(S): REPRESENTATIVE(S) DAVIES,Martin,Phillips,Bunde,                  
  JRN-DATE    JRN-PG                     ACTION                                
  03/17/93       684    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  03/17/93       684    (H)   HES, FINANCE                                     
  03/08/94              (H)   HES AT 03:00 PM CAPITOL 106                      
  ACTION NARRATIVE                                                             
  TAPE 94-40, SIDE A                                                           
  Number 000                                                                   
  CHAIR BUNDE called the meeting to order at 3:08 p.m., noted                  
  members present and announced the calendar.  He then read                    
  portions of an article from the Anchorage Daily News                         
  regarding students and student loans.  He indicated that                     
  collectively students in the United States owe $41.9 billion                 
  on student loans.  He said in many schools 70% of the                        
  student body choose to borrow, and the average debt per                      
  student is $79,000.  He further related that in a survey of                  
  551 recent college graduates, four out of ten students said                  
  they could handle their payments; however, one out four said                 
  their debt affected their decision as to when or if to                       
  marry.  One-third stated that it also influenced their                       
  decision to start a family, and four out of ten work at two                  
  jobs or more because of their debt.  He further stated that                  
  1/4 said their loans have caused them to live with relatives                 
  and 35% said they have postponed needed health care because                  
  of their debt.  He also said that 13% said they were forced                  
  to drop out of school because of their debt.                                 
  (CHAIR BUNDE stated for the record that Rep. Nicholia and                    
  Rep. B. Davis arrived at 3:10 p.m.)                                          
  CHAIR BUNDE then brought HB 506 to the table.                                
  HB 506 - STUDENT LOAN PROGRAM                                                
  Number 122                                                                   
  CHAIR BUNDE indicated that Amendment 1 was before the                        
  committee, which would address the issue of consolidating                    
  loans and would allow loans to be rounded off to the nearest                 
  tenth.  (He indicated that Rep. Olberg arrived at 3:11 p.m.)                 
  He then moved Amendment 1 for purposes of discussion.                        
  REP. BRICE objected.                                                         
  CHAIR BUNDE asked Mr. McCormick to speak to the amendment.                   
  Number 130                                                                   
  JOE MCCORMICK, Executive Director, Alaska Commission on                      
  Postsecondary Education (ACPE), answered questions on HB
  506.  He stated that "this is just a mechanical, or what I                   
  would call a technical, amendment to exact the                               
  administration of this provision of the bill.  And, this is                  
  the only further amendment that we have today..."                            
  Number 165                                                                   
  CHAIR BUNDE asked Rep. Brice to speak to his objection.                      
  REP. BRICE asked, if loans are consolidated and the average                  
  rate is 7.6%, will the rate then be rounded off to 8%?                       
  MR. MCCORMICK explained that it is the nearest tenth of a                    
  REP. BRICE said he understood.                                               
  CHAIR BUNDE asked if Rep. Brice still maintained his                         
  REP. BRICE said no.                                                          
  Number 194                                                                   
  CHAIR BUNDE, hearing no further objections, declared that                    
  Amendment 1 was adopted.  He said HB 506 as amended was                      
  before the committee.                                                        
  REP. VEZEY proposed an amendment that would incorporate the                  
  body of a bill he introduced (HB 488) with that of HB 506 as                 
  amended.  He said it dealt with the same chapters of Alaska                  
  CHAIR BUNDE interjected and said he assumed Rep. Vezey's                     
  amendment would limit student loans to Alaskan schools only.                 
  REP. VEZEY said yes.                                                         
  CHAIR BUNDE asked if he were interested in pursuing the                      
  REP. VEZEY asked the pleasure of the committee in regards to                 
  HB 488.                                                                      
  REP. BRICE said he felt that the amendment might hold merit                  
  in certain circumstances, but indicated that he would feel                   
  much more comfortable with back-up information and the                       
  opportunity to debate that specific bill before the                          
  amendment would be made.  He said he opposed the amendment.                  
  Number 262                                                                   
  CHAIR BUNDE asserted that he would rather address HB 488                     
  separately to allow opportunity for testimony and                            
  REP. TOOHEY suggested that a roll call vote be taken.                        
  CHAIR BUNDE stated that before the amendment could be                        
  addressed it would have to be seen and testified upon.  He                   
  said the committee would not vote on something that has not                  
  been discussed.  He reiterated that he wanted to handle it                   
  as a separate issue.                                                         
  REP. VEZEY concurred.                                                        
  CHAIR BUNDE asked for further discussion on HB 506.                          
  REP. BRICE suggested that perhaps some discussion should be                  
  made in the Labor and Commerce Committee in regards to                       
  capping the interest rate at 15% or 16%.  He referred to the                 
  article that indicated that employers are looking for highly                 
  skilled and technically trained college graduates.  He said                  
  that a free floating percentage rate could leave students in                 
  very difficult situations and that the loan program would                    
  not be making any loans.                                                     
  CHAIR BUNDE asked the pleasure of the committee.                             
  REP. VEZEY made a motion to pass HB 506 as amended out of                    
  committee with individual recommendations and accompanying                   
  fiscal note.                                                                 
  CHAIR BUNDE, hearing no objections, stated that HB 506 was                   
  so moved.  He then brought HB 466 to the table.  He asked                    
  for public testimony.                                                        
  HB 466 - AHFC BONDS FOR UNIV OF AK USES                                      
  Number 394                                                                   
  BRIAN ROGERS, Vice-President for Finance, University of                      
  Alaska, testified in support of HB 466.  He stated that the                  
  legislation would address the long standing problem of                       
  deferred maintenance throughout the University of Alaska                     
  system.  He said the proposal would authorize the Alaska                     
  Housing Finance Corporation (AHFC) to issue up to $30                        
  million for the repair and rehabilitation of student housing                 
  projects and would authorize the University of Alaska to                     
  issue an additional $45 million in bonds to cover other                      
  deferred maintenance projects throughout the system.                         
  MR. ROGERS referred to project lists in the committee bill                   
  packets and stated that the deferred maintenance problem                     
  totals over $150 million.  He said, accumulated over time,                   
  it would be a major step in solving the problem.  He                         
  expected that funds would be spent at $25 million per year,                  
  which would fix dormitories and address other projects.  He                  
  further stated that $30 million in AHFC bonds is the full                    
  amount of the repair and rehabilitation projects for student                 
  housing throughout the system and would bring all existing                   
  student housing deferred maintenance down to zero.  He                       
  stated that $45 million is the most current debt capacity                    
  allowed and he felt that going further than that would                       
  jeopardize the University's excellent credit rating.  He                     
  said bonds would provide a comprehensive program to address                  
  the deferred maintenance problem and would prevent                           
  accelerated deferred maintenance.                                            
  MR. ROGERS further stated that currently the cost of money                   
  is the lowest it has been in the last thirty years.  He said                 
  with a payoff over time with inflated dollars, the net                       
  present value will not be that much larger than the cost of                  
  issuance.  He then indicated that Will Gay was on line to                    
  testify also.                                                                
  CHAIR BUNDE asked for testimony from Mr. Gay.                                
  Number 477                                                                   
  WILL GAY, Executive Director, Alaska Housing Finance                         
  Corporation, testified via offnet in support of HB 466.  He                  
  stated that the bill would allow a chance for the AHFC to                    
  have access to the capital market and to help youths with                    
  student housing.  He said this was an example of one of the                  
  many ways that AHFC can help the state.  He commented that                   
  he had heard rumors about various amounts of assets that                     
  could be expropriated away from the AHFC.  He felt it was an                 
  example of how AHFC can help the state with its housing                      
  Number 507                                                                   
  REP. BRICE asked if the AHFC or the University will have to                  
  go before the legislature again for approval of specific                     
  MR. ROGERS stated that the bond issue would not require                      
  further legislative authority.  He said the University has                   
  tried to supply the legislature with a full list of projects                 
  and he would continue to keep the legislature apprised of                    
  the progress.                                                                
  Number 532                                                                   
  REP. VEZEY asked Mr. Rogers to explain to him why there is a                 
  $75 million bond authorization and a zero fiscal note.                       
  MR. ROGERS explained that the fiscal note is zero in terms                   
  of initial costs, but there is a debt service note that has                  
  not been provided.  The amount of debt service would "ramp                   
  up" to a total of $6.2 million on an annual basis, once all                  
  the bonds are issued and debt service begins.  There would                   
  be no cost to the general fund next year, but there                          
  certainly would be in the following years.                                   
  REP. VEZEY said he did not have a fiscal note from the                       
  CHAIR BUNDE asked Alison Elgee to testify.                                   
  Number 550                                                                   
  ALISON ELGEE, Statewide Budget Director, University of                       
  Alaska, testified on HB 466.  She stated that the proposal                   
  is in essence an appropriation bill that would appropriate                   
  debt capacity.  She said included in Section 6, subsection                   
  B, is the description of the anticipated annual payment                      
  amount on $45,000 that would be bonded under the                             
  University's debt capacity.                                                  
  Number 593                                                                   
  (CHAIR BUNDE stated for the record that Rep. Kott arrived at                 
  3:24 p.m.)                                                                   
  REP. VEZEY said he is still did not see a fiscal note that                   
  addresses the debt service.                                                  
  MS. ELGEE said she would be glad to provide Rep. Vezey with                  
  a fiscal note.                                                               
  MR. ROGERS stated that the debt service would be                             
  appropriated out of the Alaska Debt Retirement Fund.  He                     
  said he was unaware that a fiscal note had not been prepared                 
  for that.                                                                    
  REP. VEZEY asked what the Alaska Debt Retirement Fund is.                    
  MR. ROGERS explained that it is a fund that was created by                   
  Alaska Statute 37.15.011 that consists of annual                             
  appropriations by the legislature.                                           
  Number 627                                                                   
  CHAIR BUNDE asked Chip Wagoner to testify.                                   
  Number 630                                                                   
  CHIP WAGONER, Vice-President, Alumni Board, University of                    
  Alaska Fairbanks (UAF), testified in support of HB 466.  He                  
  stated that there is much history in the University of                       
  Alaska and today the University is one of the most                           
  internationally known research, teaching and public service                  
  institutions in the world.  He said it is rated in the top                   
  ten in research institutions in the country, and second in                   
  the Pacific Northwest for the number of national merit                       
  scholars attending UAF.  He stated that UAF is one of the                    
  few institutions in the country that has been not only                       
  designated as a land grant college, but also as a sea grant                  
  college and a space grant college.  He indicated that past                   
  legislatures have certainly recognized the importance of                     
  young people and their futures in the state.                                 
  MR. WAGONER said there are over 22 acres of roofs on the                     
  buildings at UAF, nearly 2.6 million square feet of floors,                  
  and over 25% of all state facilities are on the UAF campus.                  
  He then explained that UAF is one of the oldest investments                  
  in the state with buildings over 70 years old.  He said the                  
  mechanical systems are falling apart and they do not have                    
  ventilation systems.  He also stated that nearly 90% of the                  
  buildings are over 20 years old.                                             
  MR. WAGONER further commented on the state of disrepair                      
  throughout the entire UAF campus, citing leaking roofs and                   
  falling concrete.  He asserted that if the situation                         
  continues into the next few years, it will cost the state                    
  even more to maintain its investment.  He said the deferred                  
  maintenance is "catch up work."  He said deferred                            
  maintenance has been the Alumni Board's number one priority                  
  for the last two years.  He suggested that if the entire                     
  $150 million could not be funded, they were willing to                       
  accept $75 million.                                                          
  MR. WAGONER stated that a comprehensive funding solution is                  
  necessary to maintain Alaska's sound investment in the                       
  University.  He urged the committee to make deferred                         
  maintenance for the University system its chief priority                     
  this session.                                                                
  Number 818                                                                   
  CHAIR BUNDE asked Mr. Wagoner if there was any private                       
  support coming through from the Alumni.                                      
  MR. WAGONER stated that UAF just completed a campaign to                     
  raise funds for scholarships, etc.  He said he was pleased                   
  to say that the Alumni Board and the public contributed over                 
  $12 million.  He said the Alumni Association plans to become                 
  more proactive.                                                              
  CHAIR BUNDE commended the efforts of the Alumni Board.  He                   
  then commented that the reason the state has the deferred                    
  maintenance problem now is because the University                            
  administration and the Regents did not spend the money that                  
  had been given to them by the legislature, they invested it                  
  in other places.  He said he will support the bill now but                   
  would not support any reallocation of funds in the future.                   
  Number 865                                                                   
  REP. BRICE added that the Chamber of Commerce has been a                     
  great support to the University.  He then thanked Mr.                        
  Wagoner for his time and testimony..                                         
  Number 884                                                                   
  NICHOLAS ABRAMCZYK, Member, Associated Students of the                       
  University of Alaska, Fairbanks, testified in support of                     
  HB 466.  He stated that he is a resident on the UAF campus.                  
  He said that he uses the analogy that he is the tenant and                   
  the state is his landlord.  He specified various states of                   
  disrepair he has encountered, citing flooded bathrooms,                      
  broken heating systems at -60 degrees, and obstacle courses                  
  of buckets in the halls that catch the water leaking from                    
  the ceilings.  He related his concern he had as to whether                   
  his younger brother would be offered any type of quality                     
  education if the problem wasn't addressed.  He urged the                     
  committee to pass HB 466.                                                    
  Number 955                                                                   
  CHAIR BUNDE thanked Mr. Abramczyk for his testimony.                         
  REP. BRICE explained that while he was sitting in class at                   
  UAF he had encountered tiles and light panels falling from                   
  the ceiling.  He asserted that there is bound to be                          
  liability when deferred maintenance is not dealt with                        
  appropriately and he supposed that a student could be                        
  seriously injured.  He said ultimately the cost would fall                   
  back on the state.                                                           
  Number 000                                                                   
  CHAIR BUNDE suggested that another option would be to close                  
  the facilities.  He then closed public testimony and asked                   
  for testimony.                                                               
  REP. G. DAVIS reiterated the problems the University was                     
  facing and said the issue must be addressed.  He indicated                   
  that the financial aspect should be addressed in the Finance                 
  Committee.  He made a motion to move HB 466 out of committee                 
  with individual recommendations.                                             
  CHAIR BUNDE objected and asked if the committee would rather                 
  wait for the missing fiscal note.                                            
  REP. VEZEY said he would vote against moving the bill out                    
  until a fiscal note is received.                                             
  Number 022                                                                   
  REP. BRICE indicated that the committee is aware of the                      
  necessary funds which are outlined specifically in the bill.                 
  He said the information is there but not in fiscal note                      
  Number 028                                                                   
  REP. TOOHEY agreed with Rep. Brice.  She said the                            
  committee's job has been done and the funding would be                       
  addressed by Finance.                                                        
  REP. BRICE agreed with Rep. Toohey and Rep. Brice.                           
  CHAIR BUNDE called for the vote.  Representatives Toohey,                    
  Bunde, G. Davis, Olberg, B. Davis, Nicholia, and Brice voted                 
  Yea, and Rep. Vezey voted Nay.  Chair Bunde stated that                      
  HB 466 was passed out of committee without the accompanying                  
  fiscal note.                                                                 
  MR. ROGERS stated that he could have the fiscal note                         
  delivered to the committee by the end of the day.                            
  CHAIR BUNDE thanked Mr. Rogers.  He then brought HB 234 to                   
  the table.                                                                   
  HB 234 - UNIVERSITY OF AK ENDOWMENT TRUST FUND                               
  TAPE 94-40, SIDE B                                                           
  Number 000                                                                   
  REP. JOHN DAVIES, Prime Sponsor of HB 234, addressed his                     
  bill.  He stated that the legislation would transfer the                     
  management of the University of Alaska endowment trust fund                  
  from the Department of Revenue to the University.  He said                   
  Governor Hickel has charged the University "with managing                    
  the ranch."  He said the University seeks to have the                        
  authority to meet that responsibility.  He said, "I would                    
  note that the Department of Revenue has said that perhaps                    
  the comparisons here are apples and oranges.  Being an                       
  educational institution, the University chooses apples."                     
  Number 051                                                                   
  CHAIR BUNDE called on Brian Rogers for further testimony.                    
  Number 053                                                                   
  BRIAN ROGERS, Vice-President for Finance, University of                      
  Alaska, testified in support of HB 234.  He stated that the                  
  bill would increase the University's control over its                        
  endowment revenues and potentially increase income to the                    
  University.  He said the trust fund was established prior to                 
  statehood as a trust fund tied to the University's land                      
  activities.  The net income from the development of the land                 
  is placed in the trust fund and the University has access to                 
  the revenues annually.  He said that as of June 30, 1993,                    
  there was a total of $21 million in the trust and expected                   
  there to be $26 million by this year end.                                    
  MR. ROGERS asserted that the concern regarding management by                 
  the Department of Revenue was in the area of investment                      
  performance.  He said the Department does a "spectacular                     
  job" of managing fixed income investments; however, their                    
  equity funds have lagged significantly.  He said there are                   
  no international investment opportunities.  He indicated                     
  that after reviewing the last five years, it was felt that                   
  if the University had managed the portfolio under the asset                  
  allocation that the Foundation uses, as opposed to the asset                 
  allocation the Department uses, the difference would be                      
  about $300,000 per year.  He said the legislation was                        
  introduced by the five members of the University Budget                      
  Subcommittee of the House Finance Committee.                                 
  MR. ROGERS further stated that he had performance comparison                 
  numbers comparing the state's and the University's                           
  management plans.  He said the University may still want to                  
  have the state manage portions of the fixed income                           
  investment because they have done such a good job.  But, he                  
  felt that further diversification makes more sense.                          
  Number 145                                                                   
  CHAIR BUNDE asked if the University would be at a greater                    
  risk managing the money as it would be looking for a greater                 
  MR. ROGERS explained that because of the kind of                             
  diversification the University has been able to do, the risk                 
  levels are not being exceeded, while the return levels are                   
  being exceeded.  He attributed the success to the choice of                  
  superior managers that have been in the top 14% in the                       
  country for the last five years.  He said their fees are                     
  lower than comparable commercial managers because they are                   
  set up as a nonprofit organization.                                          
  Number 194                                                                   
  CHAIR BUNDE referred to the zero fiscal note from the                        
  University and said there must be a cost for managing the                    
  funds.  He asked, if additional funds are added to what is                   
  already being managed, would there be an additional cost.                    
  MR. ROGERS said that there would be a cost, but it would be                  
  netted against the investment results.  Investment fees are                  
  deducted from the net that is received.  He said it would be                 
  additional income, but the amount could not be predicted.                    
  He said he was surprised to see that it would actually cost                  
  the Department of Revenue more not to manage the funds.                      
  CHAIR BUNDE asked what percentage it costs to manage the                     
  Number 223                                                                   
  MR. ROGERS stated that it ranged from 20 to 50 basis points                  
  depending on the type of investment.  "The state's at 20% on                 
  average on theirs.  I believe we pay them $52,000... it was                  
  last year for managing our funds."                                           
  CHAIR BUNDE requested testimony from Laraine Derr.                           
  Number 230                                                                   
  LARAINE DERR, Deputy Commissioner, Treasury, Department of                   
  Revenue, testified in opposition to HB 234.  She stated that                 
  the Department of Revenue believes that it makes more sense                  
  for funds to be in one place.  When there are more funds to                  
  manage the costs are less expensive.  She said it cost the                   
  Department about 20 basis points to manage the funds.  She                   
  explained that 100 basis points is 1%, indicating that the                   
  Department charges the University 200ths of a percent to                     
  manage the funds which is "as inexpensive as you can get                     
  MS. DERR stated that in a performance measurement report                     
  that she received that week, the fund surpassed $26.7                        
  million in December.  She said the Department's strength is                  
  in fixed management and the fund earned $2.2 million from                    
  September 30, 1993, to December 31, 1994.  She further                       
  stated that the asset allocation in the Department for the                   
  trust fund is relatively risk free at 82% in fixed income                    
  and only 8% in domestic equity.  She explained that the                      
  Department met with the University in December and indicated                 
  that if the Department kept the funds and the funds were                     
  maintained in the treasury, the Department would be                          
  interested in working with an asset allocation.  She said it                 
  was true that the funds could be further diversified between                 
  fixed income and domestic equities.                                          
  Number 326                                                                   
  CHAIR BUNDE asked Ms. Derr to speak to the fiscal note.                      
  MS. DERR said there are no custodial fees because they are                   
  "netted out."  She said, "In their case, when they're not                    
  using state people to manage the funds, they can take them                   
  out of fees.  We essentially charge them, but it would                       
  reduce the earnings.  It's portions of people time...                        
  monitoring and investing managing the money."                                
  CHAIR BUNDE said, "But, you really wouldn't be doing the                     
  work.  So would you still be losing the income?"                             
  MS. DERR said, "The people are still there, so I have to pay                 
  their salaries.  Right now the fund is charged 22.5 thousand                 
  to manage the funds.  If the funds go away, I've still got                   
  the people there because it's like... 10% of this person's                   
  time and 3% of this person's time and counting the assets                    
  and investing the fund.  It's part of $3 billion in one part                 
  and $6 billion in another part that's invested, so it's very                 
  Number 359                                                                   
  REP. TOOHEY said she was a little nervous and said it would                  
  be like changing stock brokers.  She asked Ms. Derr if the                   
  fund would be in jeopardy if given over to the University.                   
  MS. DERR said no.                                                            
  REP. TOOHEY asked if the Department's primary concern is                     
  only to be in charge of the fund.                                            
  MS. DERR said yes.                                                           
  MR. ROGERS said the University managers offer other                          
  diversification and better equity management.                                
  Number 394                                                                   
  REP. TOOHEY asked what happens if the University takes over                  
  the fund and loses money.  She asked if the fund would be                    
  transferred back to the Department of Revenue.                               
  MR. ROGERS said long term relationships must be stressed and                 
  that it is not wise to jump from one management team to                      
  REP. BRICE said, "If University is paying that 22.5 out of                   
  its earnings, the $26 million... that wouldn't be considered                 
  straight general fund.  That should probably be considered                   
  program receipts."                                                           
  MS. DERR said the Department of Revenue pays the University                  
  interest on the fund quarterly and then they are billed                      
  annually for the $22,500.  She said the University may take                  
  it out of the earnings and interest that the Department is                   
  paying them.  She stated that the trust account is split                     
  amongst several people, and she would not be able to lay off                 
  a half-time person.  She said, "I would have to pick up the                  
  22.5.  I can't lay off a half-time person."                                  
  Number 460                                                                   
  REP. BRICE asked where the $22,500 was going to as it was                    
  not reflected anywhere else in the fiscal notes.                             
  MS. DERR said, "...and what Mr. Rogers said was that they                    
  would pick it up.  But they wouldn't be using University                     
  people to manage it.  They wouldn't be paying somebody in                    
  house.  They would be paying an external manager.  So, they                  
  could net fees on the entire thing, and so it would be just                  
  a different form of management."                                             
  REP. BRICE said it sounds like it is all within the same                     
  Number 480                                                                   
  REP. VEZEY stated that the Department invests in fixed                       
  income and the University invests in equity which has                        
  fluctuating principle values.  He said there would be higher                 
  return potential with the equity investment, but there would                 
  be a substantially higher risk involved.                                     
  MR. DERR said if the University invested all the funds in                    
  domestic equity, and the Department invested it all in fixed                 
  income, there would certainly be a difference in risk                        
  REP. TOOHEY asked if the University managers are going to be                 
  "willy-nilly" investors.  She said the Department has a                      
  proven track record.                                                         
  MS. DERR said that the assets are primarily in fixed income                  
  investments and indicated that it is relatively risk free.                   
  Number 518                                                                   
  REP. BRICE suggested that the business students at UAF could                 
  do a great job at managing the funds.                                        
  REP. G. DAVIS asked Mr. Rogers to explain the comparison of                  
  earnings rates that is supplied in the bill packet.                          
  Number 525                                                                   
  MR. ROGERS stated that both the state and the University get                 
  performance evaluations that are conducted by the state.  He                 
  indicated that he also had results from an evaluation that                   
  ended June 30, 1993, whereby the University endowment fund                   
  earned 14.17% under state management.  The University of                     
  Alaska Foundation Funds earned 16.1% over the same period.                   
  He said in 1993 the state earned 14.3% under fixed income                    
  versus the University at 13.2% and the Department out-                       
  performed the University's fixed income manager.  He further                 
  stated that the state earned 13.63% on the equity fund and                   
  the University earned 24.90%.                                                
  Number 564                                                                   
  REP. G. DAVIS asked if 1988 was the first year of                            
  MR. ROGERS said yes.                                                         
  REP. DAVIES maintained that the risk is relative to the                      
  nature of the particular investment and that most                            
  investments would be over a long period of time, thereby                     
  reducing the risk.                                                           
  MR. ROGERS noted that Mr. Rassmussen, Chair of the                           
  University Investment Committee, has helped to set the                       
  guidelines for asset allocation.  He further stated that the                 
  University's asset allocation does not normally exceed 50%                   
  in equities at any given point in time.  Approximately 25%                   
  of University equity investments will be foreign equities,                   
  and approximately 20% of bond investments will be outside                    
  the United States.  He said the University is taking a very                  
  cautious approach to nontraditional investments.                             
  MS. DERR asserted that the majority of funds in the                          
  Department are diversified in similar ratios to that of the                  
  University.  She indicated that the Department just recently                 
  received returns on the retirement fund that put them in the                 
  top seventh and eighth percentile in the United States for                   
  fund investments.                                                            
  Number 632                                                                   
  CHAIR BUNDE asked Ms. Derr what the percentage of return was                 
  for the Department last year.                                                
  MS. DERR said 14.3% for the entire funds.                                    
  CHAIR BUNDE asked what the total percentage of return was                    
  for the University's portion.                                                
  MS. DERR answered 11.5%.                                                     
  CHAIR BUNDE asked for further discussion.                                    
  MR. ROGERS stated that the Department of Revenue has been                    
  paying more attention to the fund since last year when they                  
  became aware that the University wanted to take over the                     
  management of funds.                                                         
  CHAIR BUNDE interjected and indicated that Rep. B. Davis was                 
  leaving for another meeting and for the record welcomed her                  
  back to Juneau.                                                              
  MR. ROGERS further stated that it appears that competition                   
  does have advantages.                                                        
  Number 669                                                                   
  CHAIR BUNDE said he endorsed competition amongst the three                   
  branches of the University.                                                  
  REP. BRICE made a motion to move HB 234 out of committee.                    
  CHAIR BUNDE indicated that public testimony had not been                     
  closed.  He asked for further testimony.  Hearing none, he                   
  closed public testimony and asked for discussion from the                    
  REP. BRICE made a motion to pass HB 234 out of committee                     
  with individual recommendations and accompanying fiscal                      
  REP. VEZEY objected.                                                         
  Number 682                                                                   
  CHAIR BUNDE called for the vote.  Representatives Bunde, G.                  
  Davis, Nicholia, Brice, and Toohey voted Yea and Rep. Vezey                  
  voted Nay.  Chair Bunde declared that HB 234 was so moved.                   
  Seeing no further business before the committee, CHAIR BUNDE                 
  ADJOURNED the meeting at 4:12 p.m                                            

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