Legislature(2003 - 2004)
05/07/2003 01:40 PM House JUD
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
May 7, 2003
1:40 p.m.
MEMBERS PRESENT
Representative Lesil McGuire, Chair
Representative Tom Anderson, Vice Chair
Representative Jim Holm
Representative Dan Ogg
Representative Ralph Samuels
Representative Les Gara
Representative Max Gruenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE JOINT RESOLUTION NO. 26
Proposing amendments to the Constitution of the State of Alaska
relating to and limiting appropriations from and inflation-
proofing the Alaska permanent fund by establishing a percent of
market value spending limit.
- MOVED CSHJR 26(JUD) OUT OF COMMITTEE
HOUSE BILL NO. 145
"An Act relating to public interest litigants and to attorney
fees; and amending Rule 82, Alaska Rules of Civil Procedure."
- MOVED CSHB 145(JUD) OUT OF COMMITTEE
HOUSE BILL NO. 244
"An Act relating to the Code of Criminal Procedure; relating to
defenses, affirmative defenses, and justifications to certain
criminal acts; relating to rights of prisoners after arrest;
relating to discovery, immunity from prosecution, notice of
defenses, admissibility of certain evidence, and right to
representation in criminal proceedings; relating to sentencing,
probation, and discretionary parole; amending Rule 16, Alaska
Rules of Criminal Procedure, and Rules 404, 412, 609, and 803,
Alaska Rules of Evidence; and providing for an effective date."
- SCHEDULED BUT NOT HEARD
HOUSE JOINT RESOLUTION NO. 20
Proposing amendments to the Constitution of the State of Alaska
repealing the prohibition on dedicated funds.
- SCHEDULED BUT NOT HEARD
HOUSE JOINT RESOLUTION NO. 4
Proposing an amendment to the Constitution of the State of
Alaska relating to the duration of a regular session.
- SCHEDULED BUT NOT HEARD
HOUSE BILL NO. 157
"An Act eliminating the Alaska Public Offices Commission;
transferring campaign, public official, and lobbying financial
disclosure record-keeping duties to the division of elections;
relating to reports, summaries, and documents regarding
campaign, public official, and lobbying financial disclosure;
providing for enforcement by the Department of Law; making
conforming statutory amendments; and providing for an effective
date."
- BILL HEARING POSTPONED
HOUSE JOINT RESOLUTION NO. 9
Proposing amendments to the Constitution of the State of Alaska
relating to an appropriation limit and a spending limit.
- BILL HEARING POSTPONED
SPONSOR SUBSTITUTE FOR SENATE BILL NO. 41
"An Act relating to medical care and crimes relating to medical
care, including medical care and crimes relating to the medical
assistance program."
- BILL HEARING POSTPONED TO 5/10/03
CS FOR SENATE JOINT RESOLUTION NO. 5(STA)
Urging the President of the United States and the Congress to
act to ensure that federal agencies do not retain records
relating to lawful purchase or ownership of firearms gathered
through the Brady Handgun Bill instant check system.
- BILL HEARING POSTPONED TO 5/10/03
PREVIOUS ACTION
BILL: HJR 26
SHORT TITLE:CONST. AM: PF APPROPS/INFLATION-PROOFING
SPONSOR(S): RLS BY REQUEST OF LEG BUDGET & AUDIT BY REQUEST
Jrn-Date Jrn-Page Action
04/17/03 1025 (H) READ THE FIRST TIME -
REFERRALS
04/17/03 1025 (H) W&M, JUD, FIN
04/22/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/22/03 (H) Heard & Held
MINUTE(W&M)
04/24/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/24/03 (H) Heard & Held
MINUTE(W&M)
04/25/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/25/03 (H) Heard & Held
MINUTE(W&M)
04/29/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/29/03 (H) Heard & Held -- Location
Change --
MINUTE(W&M)
04/30/03 (H) W&M AT 8:00 AM HOUSE FINANCE
519
04/30/03 (H) Heard & Held
MINUTE(W&M)
05/02/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
05/02/03 (H) Moved CSHJR 26(W&M) Out of
Committee
MINUTE(W&M)
05/02/03 1272 (H) W&M RPT CS(W&M) NT 5DP 1DNP
1NR
05/02/03 1272 (H) DP: HEINZE, MOSES, WILSON,
HAWKER,
05/02/03 1272 (H) WHITAKER; DNP: KOHRING; NR:
GRUENBERG
05/02/03 1273 (H) FN1: (GOV)
05/02/03 1273 (H) FN2: ZERO(REV)
05/06/03 (H) JUD AT 5:30 PM CAPITOL 120
05/06/03 (H) -- Meeting Canceled --
05/07/03 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 145
SHORT TITLE:ATTY FEES: PUBLIC INTEREST LITIGANTS
SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
03/03/03 0359 (H) READ THE FIRST TIME -
REFERRALS
03/03/03 0359 (H) JUD, FIN
03/03/03 0359 (H) FN1: ZERO(LAW)
03/03/03 0359 (H) FN2: INDETERMINATE(ADM)
03/03/03 0359 (H) GOVERNOR'S TRANSMITTAL LETTER
04/25/03 (H) JUD AT 1:00 PM CAPITOL 120
04/25/03 (H) Meeting Postponed to April 28
04/28/03 (H) JUD AT 1:00 PM CAPITOL 120
04/28/03 (H) Heard & Held
MINUTE(JUD)
05/02/03 (H) JUD AT 1:00 PM CAPITOL 120
05/02/03 (H) Bill Hearing Postponed to 5/5
05/05/03 (H) JUD AT 1:00 PM CAPITOL 120
05/05/03 (H) <Bill Hearing Postponed>
05/06/03 (H) JUD AT 5:30 PM CAPITOL 120
05/06/03 (H) -- Meeting Canceled --
05/07/03 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
ROBERT D. STORER, Executive Director
Alaska Permanent Fund Corporation (APFC)
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Presented HJR 26, which was sponsored by
the House Rules Standing Committee by request of the Joint
Committee on Legislative Budget and Audit by request, and
responded to questions.
BOB BARTHOLOMEW, Chief Operating Officer
Alaska Permanent Fund Corporation (APFC)
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Assisted with the presentation of HJR 26
and responded to questions.
LAURIE CHURCHILL
Nikiski, Alaska
POSITION STATEMENT: Testified in opposition to HJR 26.
CRAIG TILLERY, Assistant Attorney General
Environmental Section
Civil Division (Anchorage)
Department of Law (DOL)
Anchorage, Alaska
POSITION STATEMENT: During discussion of HB 145, responded to
questions on behalf of the administration.
BENJAMIN BROWN
Legislative Assistant
Alaska State Chamber of Commerce (ASCC)
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 145 and
responded to questions.
DORNE HAWXHURST
Anchorage, Alaska
POSITION STATEMENT: As a former executive director of Cordova
District Fishermen United, testified in opposition to HB 145.
ALLEN JOSEPH
Association of Village Council Presidents (AVCP)
Bethel, Alaska
POSITION STATEMENT: Testified in opposition to HB 145 and
responded to questions.
PAUL LAVERTY
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 145.
RICH HEIG, General Manager
Greens Creek Mining Company;
President
Council of Alaska Producers
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 145 and
responded to questions.
ROBERT B. BRIGGS, Staff Attorney
Disability Law Center of Alaska, Inc.
Juneau, Alaska
POSITION STATEMENT: During discussion of HB 145, provided
comments on Version D and responded to questions.
ACTION NARRATIVE
TAPE 03-52, SIDE A
Number 0001
CHAIR LESIL McGUIRE called the House Judiciary Standing
Committee meeting to order at 1:40 p.m. Representatives
McGuire, Anderson, Ogg, and Samuels were present at the call to
order. Representatives Holm, Gara, and Gruenberg arrived as the
meeting was in progress.
HJR 26 - CONST. AM: PF APPROPS/INFLATION-PROOFING
[Contains brief mention of SJR 19 and HJR 3.]
Number 0048
CHAIR McGUIRE announced that the first order of business would
be HOUSE JOINT RESOLUTION NO. 26, Proposing amendments to the
Constitution of the State of Alaska relating to and limiting
appropriations from and inflation-proofing the Alaska permanent
fund by establishing a percent of market value spending limit.
[Before the committee was CSHJR 26(W&M).]
Number 0075
ROBERT D. STORER, Executive Director, Alaska Permanent Fund
Corporation (APFC), Department of Revenue (DOR), explained that
after years of study, the proposed constitutional amendment -
HJR 26 - has been requested by the Alaska Permanent Fund
Corporation Board of Trustees ("the Board") to ensure that
inflation-proofing is in the Alaska State Constitution so that
all generations are treated equally. He indicated that
inflation-proofing the Alaska permanent fund ("the fund") has
been a key issue for the Board since its inception over 20 years
ago. He went on to say:
The way we propose to address inflation-proofing is by
limiting the amount that can be appropriated in any
given year to no more than 5 percent of the moving
average of the fund. We call that "[percent] of
market value" or "POMV." And what we are proposing is
[that] that limit be based on the five-year moving
average of the fund.
MR. STORER indicated that he next wished to speak to five key
differences between [POMV] and the status quo, and that these
differences have been outlined in a document provided in
members' packets. He said:
The [percent] of market value, as I noted earlier,
offers constitutional inflation-proofing protection
for the entire fund. The status quo on inflation-
proofing is by statute; it comes after the [permanent
fund dividend (PFD)] and it inflation-proofs the
principal only. To date, the legislature has always
had the ability and has chosen to inflation-proof the
fund, but that's not necessarily the case in the
future. We're not predicting it; we just think
memorializing it in the [Alaska State] Constitution is
a very important issue.
The second item is ..., as I noted earlier, it's a
spending limit: no more than 5 percent of the five-
year moving average of the fund. By ... limiting the
availability of only taking the real income - or the
income in excess of inflation - the residual stays
with the fund, and that's how you inflation-proof:
you're not taking all of the income, only the real
income - or the income in excess of inflation. As it
stands today, the status quo, the entire earnings
reserve may be appropriated.
Number 0321
And I can give you examples where, over the last four
years, up to 25 percent of the fund was represented by
the earnings reserve, so one could take - appropriate
- 25 percent of the fund in the heavy days of the bull
market. Or there's been a couple [of] times this year
in the, hopefully, ... late stages of a bear market
where nothing was available. So think about that
volatility: you can appropriate 25 percent or zero,
depending on what happens. That's how it now stands.
Markets are always volatile. You talk about during
volatile markets - and I've been doing this for a long
time and I haven't seen it yet where there wasn't a
volatile market - it's a magnitude issue, and we've
been in ... very volatile markets. The POMV approach,
or what we're suggesting, actually creates greater
stability than the current methodology. We have had
times where the dividend alone has been in excess of 5
percent or, over the next few years, it'll be 3
percent or potentially zero. As I noted yesterday,
there's still a 10-percent chance that there could be
no dividend [from] the permanent fund this year. So
you get greater stability and greater predictability
by doing this methodology.
MR. STORER continued:
Item four. ... When the permanent fund was created 26-
27 years ago, it was a world of bonds only, and bonds
are very stable; you buy them for income producing,
you get the interest payment every year. And so
basing your methodology, as we do now, on realized
income or the realized cash flow of the fund probably
made a lot of sense. But that was a different world.
The fund currently is [composed] of about 50 percent
in the equity markets; ... you buy more volatility on
a year-to-year [basis], but you earn a higher rate of
return by accepting that volatility. And so ... the
current methodology did make sense 26 years ago, but
we think less so right now.
Number 0510
We've spoken a lot about why 5 percent; we've stated
that we believe the limit, if you will, of 5 percent
is on the high end of doable. It doesn't mean that
one has to appropriate all the 5 percent in any given
year, but we want to limit [it] up to 5 percent. But
we've looked at 76 years of data; we know that our
asset allocation and our statutes will allow us to
achieve, we believe, a 5 percent real rate of return
over time. We're very comfortable in making that
statement. So, it's consistent with our asset
allocation and the long-term philosophy of a permanent
fund.
That stability really goes to predictability. And
there is greater stability in the payout methodology
of using the moving average of a fund versus the
current one. Year to year you don't know - we don't
know - how much would be available until ... the end
of the day [on] June 30th. But if you accept our
methodology as appropriate, you will have less
volatility in the payout and you will know with
precision what is available in any given year. That,
Madame Chair, is very briefly why we think moving to
the constitutional amendment, memorializing the
spending limit, is appropriate.
Number 0616
BOB BARTHOLOMEW, Chief Operating Officer, Alaska Permanent Fund
Corporation (APFC), Department of Revenue (DOR), turned
attention to CSHJR 26(W&M), and noted that the House Special
Committee on Ways and Means, along with Legislative Legal and
Research Services, outside counsel to the APFC, and [a
representative from] the attorney general's office, spent 4-5
hours working on the technical aspects of the bill's language.
Therefore, the resulting language in CSHJR 26(W&M) was what all
parties involved felt was the best way to move forward. He
offered:
In the title, it's really just trying to make a
statement of ... why we're amending the [Alaska State]
Constitution and that [we] basically want to limit the
appropriations, on a fiscal-year basis, that can come
out of the permanent fund. And the reason we're
limiting the appropriations is to assure the real
value of the fund grows over time and that all we're
spending is the value in excess of inflation on a
year-to-year basis so you protect it.
On page 1, line 10, is the first amendment to the
[Alaska State] constitution. And what that's doing is
just referring to a new [subsection] (b) that we're
going to add to the constitution .... [On] Line 11,
we're deleting the word "principal" from the
constitution. And that's been something that's been a
longstanding -- that people have understood that the
permanent fund, the principal, could not be spent and
the income could. The reason the trustees ... propose
removing that, and that came after quite a lot of
debate at the board meetings, is that the word
"principal" -- we believe you can protect the fund, as
explained on page 2, by the spending limit.
And the benefit of removing the word "principal" is
basically a policy decision of balancing the benefit
of assuring that each year, there's going to be a
distribution, versus the risk that in the short term
you might dip into the fund a little bit if you have
... down years of income. So it's a balancing, and
they believed it's in the best interest of the
permanent fund, and the investment strategy, if we
know, on a year-to-year basis, how much is going to
come out of the fund and that it's limited and
predictable. Then that helps their investments; they
know what to have invested, they know when they're
going to have to raise money ... for the dividend or
for general government. So that's a significant issue
that's had a lot of debate.
Number 0803
MR. BARTHOLOMEW continued:
And then on lines 13 and 14, we're deleting the
language from the [Alaska State] Constitution that
says all income from the permanent fund will go to the
general fund except [as] provided by law. And the
legislature, since 1982, has taken advantage of the
"provided by law", and they've directed that all
earnings would go to the earnings reserve in the
permanent fund. By deleting the two sentences, what
in effect happens is, all income stays in the
permanent fund, subject to the 5 percent
appropriation. So ... it's no longer necessary to
direct the income.
On page 2 of the resolution, starting on line 2, is a
fairly long sentence that does two things. It states
how we intend to protect the permanent fund - ... the
goal is to protect the real value over time - and that
it's going to be limited to a ... 5-percent annual
appropriation of the five-year average. But lines 5
and 6 are a little hard to read at first go because it
talks about [that] we're going to use the market
values on June 30th for the first five of the six
fiscal years preceding the year that you want to spend
the money.
And ... that language is in there ... so that when the
legislature [comes] into session in January -- so an
example this year: you've come into town, you're
working on the [fiscal year (FY)] 04 budget; by
looking back an extra year, it allows you to know [in]
January exactly what's available from the permanent
fund based on the spending limit. So you'll know, as
soon as [you] start working on the budget, how much is
available for either dividends or government purposes,
and you don't have to ask for estimates, you don't
have to ask for projections. So, ... what we'd be
doing is: the FY 04 spending limit would have been
based on [the] year ended June 30, 2002. And that's
the main intent; [it] was so you knew exactly what's
available. It doesn't have to be appropriated, but
there's certainty to the amount.
MR. BARTHOLOMEW concluded:
And then the last addition is a temporary item, and
that's Section 3. And that's a transitional item
which won't become a permanent part of the [Alaska
State] Constitution. It just [ensures] that at the
date the voters pass this, ... all the earnings of the
permanent fund stay in the permanent fund - there's no
debate about whether it's general fund money or other
funds - it's part of the permanent fund, to be
protected. And then Section 4 states that this would
have to go to a general election so that all the
voters in Alaska could weigh in on this change. And
that would happen in November 2004, and if that was
successful, then it'd be approximately early January
2005 that the change would take effect.
Number 1018
LAURIE CHURCHILL stated that she is opposed to HJR 26. She went
on to say:
The PFD's appropriations should not be limited. I
believe the current funding formula should be left
alone. Alaska is experiencing a decline in North
Slope oil production; we're currently at 50 percent of
what the North Slope used to produce in the 1980s.
This decline in oil production means less money is
being placed into the permanent fund dividend. I'm
very concerned that the Twenty-Third [Alaska State
Legislature] has introduced 596 bills and resolutions,
and out of these 596 resolutions and bills, ... 17
pieces of PFD legislation have been introduced. And
in my personal opinion, only two of these bills are in
favor of the citizens of Alaska, and I believe that
SJR 19 and HJR 3 are the only ones that favor the
citizens of Alaska. And I'm just asking that you
please vote no on this ... HJR 26.
CHAIR McGUIRE, after determining that no one else wished to
testify, closed public testimony on HJR 26.
REPRESENTATIVE GARA said he had a question about the mechanics
of "this proposal." He elaborated:
Under POMV, we'll end up taking 5 percent of the value
of the permanent fund every year - I hope that a large
part of that will go to a dividend .... But how does
this work? The concept is that we're going to keep
the value of the permanent fund up with inflation; in
addition, we're going to stick a certain percentage of
our oil royalties into the permanent fund so it can
grow and stay ahead of inflation. I understand that
part.
But tell me how the 5 percent payout will keep us up
with inflation in, for example, a very high-inflation
year and a high-earnings year .... And then how it
will do the same thing in a very low-earnings year ...
and low inflation. So there are four factors that
you'll face in the real world. Some years there will
be high inflation; some years there will be low
inflation; some years there will be great stock market
and real estate asset returns; some years there will
be terrible stock market and real estate asset returns
- maybe negative ones. Can you tell me what happens
... in relation to keeping the value of the fund up
with inflation under those four different
circumstances?
Number 1199
MR. STORER remarked that in any given year, as well as in "short
periods," that's a very real issue. He elaborated:
If we looked over the last three years, we did not
keep up with inflation in terms of the value of the
fund. However, we did continue to inflation-proof the
principal of the fund because of the discipline that's
been invoked during the good years. In short periods
of time - and I going to define short as three, even
five years - you may not achieve the 5-percent real
rate of return. Or you will, if you were to look at
1998, ... challenge why 5 percent; I don't remember
exactly, but my guess is we probably earned 10- to 12-
percent real rate of return over the three to five
years prior to that.
It's the discipline in the longer-term time horizon,
through the good and the bad times, [that] is what
really matters. A lot of people focus on the bear-
market side of the equation and what happens in the
down years. I think one of the [important aspects] of
this is not getting caught up in what I will call the
mania of a bull market and think you can overspend.
It really is important to create that discipline in
the good and bad times. And that will ensure the
maintaining [of] the purchasing power ... over time,
for all generations.
I give an example of least one friend of mine who runs
an endowment fund in a major university, and they got
caught up in the bull market, and the university
started a large capital project well in excess of what
I'll call, sort of theoretically, the 5 percent; now
they're not able to sustain those kinds of returns,
but they have commitments, based on the heavy bull
market, that they must continue to make and overpay.
This creates the discipline in the good and bad years
that allows you to achieve the goal. But in short
periods of time, anything you suggested can happen
where we could earn well in excess of 5 percent or
well below that 5-percent real rate of return. If you
think about it, ... [in] any given year there's so
much volatility that one could not predict that ...
kind of precision in even [a] one- to three-year time
horizon.
Number 1325
REPRESENTATIVE GARA said that that explanation deals with what
happens when the stock market does well and what happens when it
does poorly, but added that he'd like a more detailed
explanation regarding what would happen in years with high
inflation and in years with low inflation. He elaborated:
Let's assume we have an 8-percent return in the stock
market and on our real estate holdings in a particular
year. What happens ... to the value of the permanent
fund if, let's say, inflation is 13 percent that year,
and then what happens if inflation is 2 percent that
year? (Indisc. - coughing) assume an average stock
market and real estate asset return, but wildly
varying inflation amounts for the year.
MR. STORER replied:
You're going to run into problems in the short term.
Could I use a real-life example, if I may? Let's go
back to the late '70s, where inflation was quite high
and continued higher. ... So, you wrap that emotion
into it and, in fact, during probably the five-year
period prior to that, you did have barely positive
returns on bonds and I think some - absent '73-'74 -
... positive returns on equities, but you were not
keeping up with inflation. So we would not have kept
up for probably about a four- or five-year period, and
you'd say this isn't working.
What happened around '82 is, ... we were still in a
high-interest-rate environment, and you keep fighting
a war that you've won. In that case, inflation was
descending and stayed low for what is now 15 years.
We were just looking ... at our early returns, and in
the early '80s, there was one year where the permanent
fund only ... basically owned [a] bond portfolio and
we returned 25 percent. And I don't remember, but my
guess is inflation was below 6 percent. And so, if
you looked even in that five-year period, if ... our
asset allocation existed in that rising, horrible,
high-inflationary environment, [we would have not
achieved] the goal.
If [we'd] maintained that discipline, though, as we
came out of that environment, and at least for 15
years and probably longer [when the] inflation war was
won, then I think we've achieved an excess of a 6-
percent real rate of return ever since then. So, in
short periods, the answer - and I'm defining a short
period in that case of five years - we would not have
achieved inflation-proofing. If you stayed the course
and had that discipline, you would have been
successful.
Number 1463
MR. STORER, in response to a question, replied that according to
two studies, about 70 percent of endowments and foundations use
some sort of payout methodology that is formula driven based on
a percentage of market value. Most use a three-year time
horizon, but many use a five-year time horizon; the longer the
moving average, the greater the stability from year to year -
ultimately the payout is the same. He offered that the proposal
before the committee, the 5-percent limit, is not inconsistent
with the aforementioned studies. More important, however, is
that it would be consistent with the fund's asset allocation and
objectives.
REPRESENTATIVE SAMUELS, on the issue of 5 percent, said,
"Actually it will be less, as the average goes; that's what I'm
reading from the numbers."
MR. STORER replied:
That is correct. What happens is, you look at the
payout two ways. It's 5 percent of a five-year moving
average, and in a perfect world the fund is growing
every year, so that 5 percent is a series of five
smaller and larger. Usually they take the snap shot,
then, based on the year-end value of the end point.
And if you looked at that 5-percent payout, and just
assumed you earned "8 nominal, 5 real," it equates to
more of a 4.6-4.7 payout versus the ending value of
that time period.
MR. BARTHOLOMEW noted that included in member's packets is a
schedule that shows, "going forward, if the permanent fund
achieved its median 8-percent return, what's the true effective
rate of taking 5 percent of a five-year average," adding that
it's really 4.6 percent or 4.7 percent.
REPRESENTATIVE SAMUELS asked whether any other of the 30 percent
of the funds referred to in the aforementioned studies "operate
the way that we do," wherein it is not known what "you're going
to have in the earnings."
MR. STORER said he could not say whether any of those funds are
based on realized income, but surmised that some do shorter time
horizons and are, he opined, suffering from the bigger problems
brought about by living day to day.
Number 1632
REPRESENTATIVE GRUENBERG remarked that HJR 26 is a very
thoughtful piece of legislation and contains many dimensions.
He relayed that many have said to him that HJR 26 is a good
piece of legislation because it adopts an endowment principal.
However, he added, all of the endowments of which he is aware,
for example, university-type endowments, are different from the
permanent fund in one key respect: those other endowments
generally only endow operating expenditures, rather than both
operating expenditures and capital expenditures.
REPRESENTATIVE GRUENBERG referred to the four different
variables mentioned earlier: high inflation, low inflation,
good stock market, and bad stock market. He said:
I would like to focus on the high-inflation model, and
the fact that "this" is endowing capital expenditures
as well as operating expenditures. I could foresee a
circumstance [of] high inflation where a legislature
might say, "We foresee a period of high inflation
coming up; therefore, what we want to do is buy our
capital expenditures now, while we can do so
relatively cheaply, because a road will cost a lot
more next year and more even than that the year after,
so what we're going to do is put our money into assets
that will float with the inflationary rate." And
because you have a "governor" or a cap on the amount
that can be appropriated in this bill, it has a
weakness because it won't let the legislature deal
with high inflationary rates by investing in a capital
budget now. How do you answer that problem?
MR. STORER replied:
The one thing that we've always said is, our
perspective is inflation-proofing and ensuring that
all generations are treated equally; ... the trustees
believe it is not within their providence [to say] ...
how the money is spent or appropriated, and so we've
stayed away from that issue. ... There is a board of
trustees; we have a charge of -- fiduciary
responsibility is an important [term] ....
REPRESENTATIVE GRUENBERG pointed out, however, that the issue of
how the legislature is to work with the proposed changes, should
they be adopted, is something that does need to be discussed
now. "We have to recognize and deal with that factual
possibility," he added.
Number 1865
MR. BARTHOLOMEW surmised that Representative Gruenberg's example
is that of a future legislature believing that it is in the
state's best interest to spend more, in the short term, on
capital expenditures, because of high inflation. Mr.
Bartholomew offered:
The legislature does have numerous tools; [for
example] issuing debt. So you would cap the
distribution from the permanent fund, but ... it could
fund debt. If you wanted to issue debt to take
advantage of needing a large amount of money, you
would have a stream of money from the permanent fund
that you could commit to debt retirement. So that's
just an angle of where you could ... issue debt and
say, for the next five years, "I want to use 'X'
amount of the 5 percent to retire that debt." So
that's just an example of where, at least knowing you
have a steady stream, ... we're not going to have any
problems issuing debt. And I'm not saying you
directly link them, but that's just an option.
REPRESENTATIVE OGG, after remarking that language in the [Alaska
State] Constitution should be clear and not ambiguous, indicated
that he has concerns about the language used in proposed
subsection (b), which, he surmised, defines how "things" come
out of the permanent fund. He posited that the first clause of
subsection (b) is really just intent language and therefore not
mandatory. He asked that someone explain to him why this intent
language ought to be included in the constitution.
MR. BARTHOLOMEW remarked that the discussion in the House
Special Committee on Ways and Means centered on that very issue.
He relayed that some people favored simplifying subsection (b)
to say that appropriations will be limited to 5 percent of the
five-year average "with the look-back provision." Others,
however, felt that because HJR 26 is proposing to remove the
word "principal", it would be helpful if the language in
subsection (b) contained an explanatory preface, particularly
since the proposed changes would be going before the voters [if
the bill passes].
Number 2057
REPRESENTATIVE OGG argued, however, that although the first
clause in subsection (b) refers to protecting the fund from the
effects of inflation, it does not mention protecting the fund
from the effects of deflation. In addition, he noted, it uses
the terms "real value" and "over the long term", and although
these may be terms of art in the accounting and investment
fields, he is not aware that they currently have any legal
meaning; therefore, he would like to know how these terms would
be defined, for example, during an argument before the supreme
court.
MR. BARTHOLOMEW indicated that there was discussion in the House
Special Committee on Ways and Means regarding the aforementioned
language's potential to create an open field for legal
challenges. He mentioned, though, that there is other
legislation going through the process that outlines the
implementation of this resolution's provisions, and that the
Senate has discussed using that implementing language as a
vehicle for statutorily defining the aforementioned terms and
statutorily outlining further the criteria by which the
legislature determines whether to take the full 5 percent. He
mentioned, additionally, regarding a definition of "long term",
that the U.S. Department of the Treasury considers ten-year
notes to be long-term securities.
REPRESENTATIVE OGG mentioned that this only indicates to him
that the terms he has concern with do not already have their own
legal definition that scholars or constitutional attorneys could
point to and say that they know what those terms mean. He
observed that even if this legislature does like the idea of
going along with what the Treasury currently considers to be
long term, that decision won't be binding on future legislatures
that might decide they like some other definition better. He
remarked that he is not comfortable with approaching [language
destined for] the constitution in this manner.
MR. BARTHOLOMEW argued that the "financial and economic
definitions" for the aforementioned terms would be sufficient.
With regard to the term "real value", he explained that this
means maintaining purchasing power even through the effects of
inflation. He relayed that to the APFC, "long term" means 10
years. He pointed to existing constitutional language, which
says, "unless otherwise provided by law", as proof that it is
usual to not try to define everything in the constitution.
Number 2298
REPRESENTATIVE OGG asked what impact HJR 26 would have today if
it had been in effect 3 years ago.
MR. STORER offered his belief that "we'd be about the same
place." He elaborated:
We went through a bull market where we were earning
extraordinarily high real rates of return through
about March of about 2000, and then we started earning
negative real rates of return because of the stock
market. So, the answer [to] what is long term, ...
that is a term of art; I think it's sort of ten years
or longer [as] a decent benchmark .... I'd be
surprised if we didn't earn a 5-percent real rate of
return, looking back over the last 10 years.
MR. BARTHOLOMEW added that the APFC can show that over the last
10 years, it has earned in excess of a 5-percent real [rate of
return]. And because the state, for the last three or five
years, has not spent more than 5 percent of the fund's market
value and because the fund has earned more than 5 percent, both
the state and the fund would be in the exact same financial
position they are in today. He noted that under the current
funding formulas, the legislature could have spent more than 5
percent during those years, but didn't.
REPRESENTATIVE OGG remarked, however:
My question was trying to focus, not on so much the 5-
percent part of spending it, but was on the words
"real value" and "long term" and how they would apply
in that particular situation. And "real value" --
because you're running through a period of (indisc.)
great growth, the fund itself increases in value to
like $29 billion. Is that a "real value" any more?
And then it drops [to $23 billion]. ... Where does
"real value" fit in there at that point in time?
TAPE 03-52, SIDE B
Number 2386
MR. STORER said that he is comfortable saying that the APFC
achieved "that goal, that objective, during that period." The
value of the fund was just slightly less than $29 [billion] in
[the first part of] 2000, and the subsequent drop in value
occurred in three ways: payouts of over $2 billion in
dividends; subtractions from the earnings reserve to be put into
the principal; and the market drop. He added, "Over the last --
from that period, the first fiscal year (indisc.) a negative
3.25; second fiscal year, negative 2.25; and I'm delighted to
say we're slightly positive this fiscal year to date as of last
night." Therefore, he remarked, the drop in the fund's value
was not all due to the market; in fact, he added, "we were able
to inflation-proof and meet the dividend distribution during
that three-year period as well."
MR. BARTHOLOMEW added:
When it reached $29 billion, and the NASDAQ marked had
just finished a year of returning 80 percent, there
was a lot of [questions] of was that real. And people
that bought it at that time have learned it wasn't.
And so, the principal, what was protected against
inflation, back then, was $21 billion. So we had $8
billion above principal, and I think the market has
told us it wasn't all real. The $21 billion, luckily,
is still real. ... If the market corrected another
year, the value of the fund would go below that, and
so "real" is trying to maintain that principal ... -
the purchasing power of that principal. So, as we
move forward, that's what's real to us. And we're
going to have up years again, and the fund's going to
grow, but it may grow faster than the sustainable
markets, and we're going to come back down or ... vice
versa - it could go down and then up.
REPRESENTATIVE OGG remarked that the foregoing explanation just
begs more questions. That's the problem with "real value", he
said, because according to his interpretation of that
explanation, "real value" appears to be tied to the NASDAQ and
whatever its value is. Or is it the "real value" with respect
to the value of Alaska's economy or the cost of real estate?
The purchasing power with regard to real estate in Alaska has
not decreased from $29 billion down to $23 billion, he observed.
He reiterated that he has concerns with how the terms "real
value" and "long term" will be interpreted. Why confuse people
with language like that?
MR. STORER mentioned that he tends to define "real value", in
terms of purchasing power, by using a Consumer Price Index (CPI)
as the criteria regarding inflation.
Number 2231
CHAIR McGUIRE indicated that she could see Representative Ogg's
point regarding the ambiguity of the aforementioned terms.
However, although such terms might typically be seen in the
intent section of "regular" bills, retaining the first clause of
the proposed subsection (b) will clarify for the voters the
intent of the proposed changes to the constitution.
REPRESENTATIVE GARA said:
My big fear is that we're going to do something to
jeopardize the permanent fund, and I know that POMV is
a careful attempt to not do that. But it still
worries me. If there's one great decision we've ever
made in this state, I believe it's the creation of the
permanent fund. But I worry about some of these 10-
year horizons where, to an economist, 10 years is a
short amount of time, [but] to legislators, to school
children, 10 years is an incredibly meaningful part of
their life.
And so I'm worried that if we take 5 percent of the
value of the permanent fund out every year, and we
have one of these 15-year difficult periods for the
stock market, though that's looked at as a blip on the
screen by economists, that's a whole generation of
school children here. And I'm wondering whether it is
wise to spend upwards of 5 percent of the value of the
permanent fund when we might have a 15-year period of
economic downturns.
REPRESENTATIVE GARA concluded:
So, I guess the first question is, can you tell me ...
how long have economic downturns - and I'm talking
about economic downturns which mean stock market
downturns or level periods - how long have some of
these periods lasted in the past? What kind of
periods are we facing where we might see declines in
the value of the permanent fund plus 5 percent
withdrawals from the value of the permanent fund? In
order for me know to how much we might possibly damage
the permanent fund, under a proposal like this, I
guess I'd like to know what those timeframes have been
historically.
Number 2105
MR. STORER replied:
There are more up markets than down markets, ... and
I'm talking about the stock market here, which is
really the driver of higher rates of return. ... And
so ... in my mind, that 5 percent is a limit; one does
not have to take 5 percent, ... but it creates a
discipline on the upside. ... Depending on how you
want to define the Depression, ... there were four
significant downturns.
The Depression had a several-year downturn. And then
the stock market went up 50 percent, and then it had a
few more years of downturn, and then the stock market
went up with few down years after that. After that,
prior to what we're experiencing right now, the worst
years were in 1973 and 1974, and nobody wanted to own
stock in 1975. And ... one could say that was the
beginning of this long run that we've just
experienced. Now we have - now, which has gone on for
... almost exactly three years - this bear market. ...
I found there were 14 observations where there was a
negative year followed by a positive year. The
average rate of return, when it turned positive, was
up 28 percent; that was with a high of 50 percent, and
that was in the middle of the Depression, to a low of
up 4 percent - and I forget when that was - I think it
might have been in the mid-'70s. And so, ...
typically, if you accept that data, and I do, ... when
you come out of the bear market, the stock market will
go up rather dramatically because of the depressed
prices in the stock market.
Number 2001
MR. STORER continued:
I'm not prepared to suggest that will happen in this
time, because we went to such a high bubble preceding
this - or high valuation - that we're more back into
normal valuation; so I'm not about to suggest that
this market will turn around and we'll achieve a 28
percent or anything like that. So, ... [there were]
four real periods of prolonged bear markets. Two
periods ... - you could break it down - were in the
Depression, when we were in a deflationary period.
One was ... in the middle of the oil crisis and
commodity shortages and inflation and sort of in that
"guns and butter" era ... at the end of the Vietnam
war. And then the one we're going through right now,
which was preceded by an extraordinary bull market.
But most of the time, the stock markets have gone up.
REPRESENTATIVE GARA sought to clarify his question:
There have been periods of time where the stock market
hits a peak. It goes down and it doesn't reach that
peak again for five years, ten years, I think even
sometimes longer than that. Those are the long
periods of drought that I'm wondering about. What
have been the longest periods of time where ... [the]
stock market has hit its peak and then not reached
that peak again - the longest period between those.
Because that's the period I'm worried about, is we hit
a high moment for the permanent fund, we're the
legislators for the next 15 years, [but] we're
spending 5 percent of the value of the permanent fund
in a long period where we never get back to the peak
of the stock market.
MR. STORER replied:
The two periods that were prolonged, I can't remember
the years, but one was during the Depression, where I
guess it was 1929 was a peak and I ... think it was 10
or 15 years or maybe longer that we came back up to
that era in terms of valuation of the stock market.
The other, if I remember correctly, in the late '60s -
either '66 or '68 - the "Dow" hit 1,000, [and] it may
have taken 10 years for the Dow to hit 1,000 again.
I'm offering extremes, but those extremes did happen.
Number 1899
That is also, keep in mind, why we diversify our
portfolios. The permanent fund is only about half
invested in equities. Our bond portfolios and our
real estate portfolios have been achieving double-
digit returns during this last three years since ...
That's why you don't want to get caught up in the
mania, and the permanent fund did not, in terms of
thinking you're supposed to put all your money in the
stock market, and we've benefited from that in the
bear market.
While our returns have been negative, they've been
considerably less than our peer group out there; we've
been achieving very high comparative returns. So ...
you want to diversify ... in a manner that helps you
achieve you're goals, both in your long-term
objectives and your risk. That's a risk; we look at
that modeling every day.
REPRESENTATIVE GARA brought attention to Amendment 1, a
handwritten amendment which, with original punctuation, read:
At p.2 line 6 after "year."
c) the Permanent fund Dividend shall equal at
least the greater of: 1) the Dividend paid in 2003 or
2004, adjusted for inflation, or; 2) 50% of the amount
stated in section (b) of this section, which ever is
greater. The Legislature may issue a Dividend greater
than these amounts in any year.
d) Concetual [sic] - Sevability [sic] of section
(c) if it results in a ruling, that causes the
Permanent funds earnings to be taxable by the U.S.
Internal Revenue Service.
REPRESENTATIVE GARA, before offering Amendment 1, pointed out
that the line that contains "or; 2) 50%" should instead contain
"or; 2) a per recipient share of 50%", and that subsection (d)
contains two misspelled words that should read "conceptual" and
"severability".
Number 1784
REPRESENTATIVE GARA made a motion to adopt Amendment 1 [text
provided previously].
Number 1782
CHAIR McGUIRE objected.
REPRESENTATIVE GARA offered that Amendment 1 would
constitutionalize the dividend. He said:
My worry is that if we adopt this constitutional
amendment, it might be seen by some as a first step
towards getting rid of the dividend itself. And so if
we're going to authorize the legislature to spend any
of the permanent fund, I think this is the time to
make sure that we enshrine the dividend in the [Alaska
State] Constitution as well. So, this amendment
enshrines the dividend in the constitution so the
legislature can't get rid of the dividend program.
It also sets a minimum amount to be paid for the
dividend. So this vote will happen in November of
2004 if this resolution passes; I don't want the
dividend to go down lower [than] the most recent
dividend before the vote comes along. So the proposal
is that the dividend shall never be any lower than the
greater of the 2003 or 2004 dividend; the dividend
shall never be lower than a per recipient share of
half of the money that we take out of the permanent
fund.
And just so members of the committee know, I spoke to
[Mr.] Bartholomew; if projections work out well, it
seems like by 2004 the dividend might be about $900,
[and] it seems this year, if we have a dividend, it
might be about $1100. If we pass this amendment, and
we split the use of this 5 percent fifty-fifty between
state government and the dividend, at fifty-fifty, in
2004, that would be something close to a $900
dividend. ... So in that year, for example, under this
proposal, the dividend would be higher; it would be no
lower than the prior year's dividend.
But the concept is that we should enshrine the
dividend, we should make sure that it doesn't keep
going down, and we should also give the legislature
the flexibility to issue a larger dividend beyond
that. But I want to set minimums. I'm just worried
that we're going to start losing the dividend. The
dividend, I think, does a very good job of sharing the
wealth among Alaskans; there are very few programs
anywhere where people of all walks of life share in
wealth.
And I think it's become something that our economy
relies upon; I think I've seen [numbers] that show the
drastic affects upon this economy if we were to take
the dividend out of the economy. That's not to
mention the obvious uses that many people use for the
dividend, which is ... payment of prescription drugs,
[and] payment for food and shelter and clothing. So,
that's the idea.
Number 1653
REPRESENTATIVE GARA continued:
There's a subsection (d), which addresses a legal
issue; there is some argument back and forth that if
we constitutionalize the dividend, that somehow the
IRS [Internal Revenue Service] might start taxing
permanent fund earnings. I don't believe that that
would happen, I've looked at the arguments myself, I'm
not a scholar on the issue though, and so what
subsection (d) would do, and this is a conceptual part
of this amendment, ... [is] include a severability
clause that said if constitutionalizing the dividend
caused the IRS to start taxing the permanent fund,
then we would not go that route because we wouldn't
want the permanent fund to be taxed.
So that would make this [subsection] severable. And
there have been previous versions of a POMV amendment
that have included a severability clause. So that's
just conceptual for now, but when the amendment
passes, then we'll draft the amendment's language, as
we'll need to do.
REPRESENTATIVE SAMUELS said that he agrees with Representative
Gara regarding the importance of the dividend on the economy,
but does not agree that HJR 26 gives the legislature any more
authorization to appropriate money from the earnings of the fund
than it already has. "We can do that right now," he added. He
indicated a reluctance to vary from the framework that the Board
has proposed. He opined that Amendment 1 would muddy the water,
would be divisive, and would do the people of Alaska a
disservice.
Number 1444
A roll call vote was taken. Representative Gara voted in favor
of Amendment 1. Representatives Ogg, Samuels, Gruenberg,
Anderson, and McGuire voted against it. Therefore, Amendment 1
failed by a vote of 1-5.
Number 1431
REPRESENTATIVE GRUENBERG made a motion to adopt Amendment 2, to
delete from page 2, lines 2-3, "To protect the permanent fund
from the effects of inflation and thereby assure that the real
value of the permanent fund will be preserved over the long
term,"; and on page 2, line 4, capitalize the "a" in
"appropriations". Thus subsection (b) would begin with "(b)
Appropriations". He noted that the House Special Committee on
Ways and Means had a lot of discussion regarding this language.
Number 1412
REPRESENTATIVE SAMUELS objected for the purpose of discussion.
REPRESENTATIVE GRUENBERG said that although he originally liked
the language he is proposing to delete, he has since changed his
mind and would now prefer to have it removed. He elaborated:
One reason is that there may be other reasons why
appropriations should not exceed 5 percent. The
protection of the ... permanent fund ... from the
effects of inflation may only be one reason. I'm
going to give you another reason that's just as valid,
and that is because the limitation on appropriations
is a spending limit, and that in itself is another
very good reason for having this here. So that's my
first reason for wanting to delete it. ...
The second reason is because we had a lot of debate in
[House Special Committee on Ways and Means] on whether
this is mandatory language or merely descriptive, and
it caused a lot of legal discussion, and I think the
less legal discussion we have, and ambiguity in a
constitutional provision, the better.
And the third reason, independent reason, is because
there are very few constitutional provisions that have
descriptive language in them. And they asked this
question of me ..., "Is there any other place in the
constitution with descriptive language?" And the only
place I could think of was our "right to bear arms"
amendment, where originally it said the well regulated
[Militia] being necessary, et cetera, et cetera, and
that caused a lot of problems with that amendment, and
we had to amend it to assure a private right. So it
really caused ... litigation in another state and
caused us to have to amend the constitution. And it's
just much cleaner not to have that language in. And
so for those three reasons, I would move to delete
....
CHAIR McGUIRE said that she tended to agree for those same
reasons, as well as for the reasons brought forth by
Representative Ogg. She mentioned that the only reason for
keeping it in would be to assist the voters in interpreting the
remainder of subsection (b)
Number 1259
REPRESENTATIVE GRUENBERG noted that the language he is proposing
to delete could be inserted in the voter pamphlet, which the
courts typically look to as part of legislative history.
MR. BARTHOLOMEW, after noting that the Board would be
comfortable with either keeping the aforementioned language or
deleting it, suggested that the title of HJR 26 should not be
changed, even though it, too, contains some of the same
language, since the proposed constitutional amendment will be
placed, word for word, in the voter pamphlet.
REPRESENTATIVE GRUENBERG said he had no objection to keeping the
title the same.
CHAIR McGUIRE, for the benefit of Representative Holm, who had
just joined the meeting, detailed the changes being proposed by
Amendment 2.
REPRESENTATIVE SAMUELS [withdrew] his objection to Amendment 2.
Number 1123
REPRESENTATIVE GARA stated that he objected to Amendment 2.
REPRESENTATIVE GARA, regarding failed Amendment 1, mentioned to
Representative Holm that "nobody would let me constitutionalize
the dividend."
REPRESENTATIVE HOLM indicated that had he been present, he, too,
would have voted against Amendment 1.
REPRESENTATIVE GARA, speaking to his objection to Amendment 2,
said:
I understand the argument of the folks who want this
out of the constitutional language. I like it. I
think courts will often look at legislative intent
[and] they'll look at constitutional intent. I think
it's fine to have intent language in a statute or in
the constitution as long as it doesn't mess up the
wording of the statute or constitution. The mechanics
of this provision will be that 5 percent of the value
of the permanent fund can be spent. It's clear. ...
So I don't see that the intent, the statement that we
want to protect the permanent fund from inflation,
harms this at all.
... I can't envision a circumstance where it would
interfere with the operation of this constitutional
amendment, and I think it is nice for the public to
have an explanatory statement in the constitution. I
think we do that with our "free speech" clause; I
think we do that with a number of other constitutional
provisions where we have extra language that the
courts use for intent purposes. But at a minimum
this, I think, helps the public also understand that
they have the right to have the permanent fund, over
the long term, protected from inflation. So, that's
my objection.
CHAIR McGUIRE said that this was a tough issue for her because
she agrees with both sides of the argument. She remarked that
she wants HJR 26 to succeed, both "in its intent" and with the
electorate.
REPRESENTATIVE HOLM noted that he could see both sides of the
argument, but indicated that he agrees with the point that over
time, the constitution could become quite cumbersome because of
the addition of intent language. He also suggested the
possibility that the current intent language may no longer apply
in the future.
The committee took an at-ease from 3:04 p.m. to 3:05 p.m.
Number 0891
REPRESENTATIVE OGG asked whether the language currently in
subsection (b) would prohibit funds from being appropriated for
reasons other than the protection of the permanent fund from the
effects of inflation.
MR. BARTHOLOMEW replied:
It's my understanding that there's no prohibition to
taking money out of the permanent fund up to the level
of 5 percent. So, the constitutional amendment would
say, up to 5 percent, it's the power of appropriation
that removes it and there's no stipulation [as] to why
you would take it out or whether you could or
couldn't. It's up to 5 [percent]. It would prohibit
you, for any reason, above -- you could not go above
that 5 [percent]. That's a hard and fast limit.
REPRESENTATIVE OGG pointed out, however, that the first clause
of subsection (b) seemingly specifies "To protect" as the
particular purpose for which funds may be appropriated. He
asked whether money could be taken out of the permanent fund
without [subsection] (b).
MR. BARTHOLOMEW explained that since Section 1 of HJR 26 removes
the word "principal" from the constitution, lacking subsection
(b), no money could be removed from the permanent fund because
the constitution would then say that the permanent fund could
only be used for income-producing [investments]. Thus the
permanent fund would grow forever.
REPRESENTATIVE SAMUELS suggested, then, that by not deleting the
first clause of subsection (b), the legislature could
appropriate money beyond the 5-percent limit if the goal of
protecting the permanent fund from the effects of inflation is
reached.
REPRESENTATIVE GRUENBERG added that although he was not sure,
that might actually be the case. He suggested that the
legislature really doesn't want to cause litigation over this
issue.
CHAIR McGUIRE agreed.
Number 0635
A roll call vote was taken. Representatives Holm, Samuels,
Gruenberg, Ogg, and McGuire voted in favor of Amendment 2.
Representative Gara voted against it. Therefore, Amendment 2
was adopted by a vote of 5-1.
Number 0574
REPRESENTATIVE SAMUELS moved to report CSHJR 26(W&M), as
amended, out of committee with individual recommendations and
the accompanying fiscal notes. There being no objection, CSHJR
26(JUD) was reported from the House Judiciary Standing
Committee.
The committee took an at-ease from 3:14 p.m. to 3:25 p.m.
HB 145 - ATTY FEES: PUBLIC INTEREST LITIGANTS
[Contains brief mention of HB 86 and SB 97.]
Number 0557
CHAIR McGUIRE announced that the final order of business would
be HOUSE BILL NO. 145, "An Act relating to public interest
litigants and to attorney fees; and amending Rule 82, Alaska
Rules of Civil Procedure."
Number 0506
CRAIG TILLERY, Assistant Attorney General, Environmental
Section, Civil Division (Anchorage), Department of Law (DOL),
having presented HB 145 on behalf of the administration at the
bill's last hearing, indicated that he was available for
questions.
Number 0490
BENJAMIN BROWN, Legislative Assistant, Alaska State Chamber of
Commerce (ASCC), noted that the ASCC is a membership
organization of over 700 small, medium, and large businesses and
35 local chambers of commerce. He stated that the ASCC strongly
supports HB 145, which, he opined, will bring sanity and reason
back to the "public interest litigant doctrine." He went on to
say:
As you know, [Madame Chair and members of the
committee], Rule 82 is the provision of the Alaska
Rules of Civil Procedure that governs the award of
[attorney] fees in civil litigation. Probably more
for the edification [of] anyone who's listening who is
not as conversant as members of the [House Judiciary
Standing Committee] are likely [to] be with the
English rule in Alaska, Alaska is among a small
minority of jurisdictions in the United States that
actually has the English rule for [attorney] fees. In
most jurisdictions, it doesn't matter who wins or
loses, you pay for your own attorneys. You could have
costs awarded, but costs are often a lot less than
[attorney] fees in most lengthy and sizable civil
litigations.
... I think Alaska, coming late to the process of
developing its judicial system, saw some wisdom in
[the English rule for attorney fees], and I mention
that as a preface to my comments on the public
interest litigant doctrine as an exception to our
version of the English rule. Our version of the
English rule, under Rule 82, which begins with the
phrase, "Except as otherwise provided by law or agreed
to by the parties", gives a certain range of
percentages, from 1 to 20 percent, in cases where
there's a monetary judgment recovered. In cases where
there's no monetary recovery, the range is between 20
and 30 percent that one party or the other can recover
... of his or her [attorney] fees.
When we look at the kinds of cases that are often
brought by public interest litigants, they are cases
without monetary recovery because they're not brought
for monetary damages; they're brought for declaratory
judgments and injunctive relief, and usually with some
sort of attempt to effectuate a public policy and, in
many cases, to prevent a permitted project or some
other development from going forward. Again, as I
stated a moment ago, [Rule 82] begins with the phrase
"Except as otherwise provided by", and the enabling
statute for Rule 82 is the one that's being amended by
Section 1 of the bill: "[Sec. 09.60.010] Costs and
attorney fees allowed to a prevailing party".
Number 0300
MR. BROWN continued:
So I take it perforce as kind of beyond legal argument
that any other provision of law in [Sec. 09.60.010]
can, without a court rule change, effect a change in
Civil Rule 82. And the change that this bill seeks to
effectuate is to narrow an exception to the ...
attorney fees rule called the public interest litigant
doctrine, which has been articulated by the [Alaska]
Supreme Court in a number of cases: Citizens
Coalition For Tort Reform v. McAlpine, Anchorage Daily
News v. Anchorage School District, and it comes up
again and again.
It's a four-part test wherein the court will look at
the nature of ..., usually, the plaintiff, who's the
purported public interest litigant, and see if that
party meets a pretty stringent test of "A, B, C, and
D" and, on that basis, determine whether or not to
accord them public interest litigant status. If the
party is so fortunate as to pass the court's four-part
test, it can recover not 20 or 30 percent, but 100
percent of its [attorney] fees if it prevails on even
a single issue. And there was a case called
[Matanuska Electric Association v. Rewire The Board]
where the court struck down the doctrine of
apportioning prevailing parties - the extent to which
they prevail - and if they prevailed in a few issues,
the courts said, "Well, then, they prevailed overall,
and if they're a public interest litigant, they can
get the whole shebang back."
Number 0179
MR. BROWN went on to say:
So it's really a very strong exception, to Rule 82,
that [the] court has crafted here. The [ASCC] doesn't
want to get rid of the public interest litigant
doctrine; the [ASCC] supports ... the governor's
approach set out in House Bill 145 in a very, very
limited number of actions: those that appeal an
administrative agency decision from the Department of
Environmental Conservation [DEC], the [Alaska]
Department of Fish and Game [ADF&G], or the Department
of Natural Resources [DNR], in which one of those
three departments has made a coastal consistency
determination, adopted regulations, or made an
administrative-law decision and allowed for an
opportunity for that decision to be reviewed under the
normal processes of administrative law.
In those contexts, when it's that kind of an action
with the state as the defendant, it's - I think - wise
not to allow the ... [Alaska] Supreme Court's
exceptional public interest litigant doctrine to skew
the scales and not restrict the potential recovery to
20 to 30 percent or impose liability for the
plaintiff's cost on the defendant: the state. And
the reason for that is this: this will just make the
court have to return to the stated language of Rule 82
if it really feels that there are exceptional
circumstances that justify an award of greater than 30
percent. If you look at Rule 82(b)(3), there are a
number of exceptions within Rule 82 that can achieve
the same purposes as the public interest litigant
doctrine.
MR. BROWN, to illustrate this last point, paraphrased from Rule
82(b)(3), which, with some formatting changes, read:
(3) The court may vary an attorney's fee award
calculated under subparagraph (b)(1) or (2) of this
rule if, upon consideration of the factors listed
below, the court determines a variation is warranted:
(A) the complexity of the litigation;
(B) the length of trial;
(C) the reasonableness of the attorneys' hourly rates
and the number of hours expended;
(D) the reasonableness of the number of attorneys
used;
(E) the attorneys' efforts to minimize fees;
(F) the reasonableness of the claims and defenses
pursued by each side;
(G) vexatious or bad faith conduct;
(H) the relationship between the amount of work
performed and the significance of the matters at
stake;
(I) the extent to which a given fee award may be so
onerous to the non-prevailing party that it would
deter similarly situated litigants from the voluntary
use of the courts;
(J) the extent to which the fees incurred by the
prevailing party suggest that they had been influenced
by considerations apart from the case at bar, such as
a desire to discourage claims by others against the
prevailing party or its insurer; and
(K) other equitable factors deemed relevant. If the
court varies an award, the court shall explain the
reasons for the variation.
TAPE 03-53, SIDE A
Number 0001
MR. BROWN, after suggesting that subparagraphs (F), (I), and (J)
are quite important and germane to public interest litigants,
opined that when HB 145 is adopted, it will still be possible,
for a court that thinks it's necessary, to treat someone that
would otherwise be a public interest litigant in a special way.
Instead of using the four-part public interest litigant doctrine
test, if the court, for example, felt that subparagraph (K)
applied, it would simply have to state its reasons on the
record. He opined that HB 145 is a very good bill that will
help bring a level playing field back to litigation, a playing
field that has been somewhat skewed by some attempted
usurpations in recent years of the public interest litigant
doctrine.
Number 0111
REPRESENTATIVE HOLM moved to adopt the proposed committee
substitute (CS) for HB 145, Version 23-GH1064\D, Luckhaupt,
4/30/03, as the work draft. There being no objection, Version D
was before the committee.
REPRESENTATIVE GARA, to Mr. Brown, said: "Clearly, this is a
political fight, and ... it interests me that you say the [ASCC]
supports the 'public interest litigant rule,' just not in this
area of cases - these natural resource cases. Am I right about
that?"
MR. BROWN replied:
The [ASCC] supports Rule 82 [attorney] fees because
this modification of the English rule puts an
incentive into the litigation process that makes
people not file frivolous suits and realize that there
may be a downside to their causing others to spend
money to defend a suit that is not likely to be
prevailed upon. As far as the public interest
litigant doctrine, I think the [ASCC's] position is,
is that Rule 82 ought to work as Rule 82 in the vast
majority of situations, and the public interest
litigant doctrine ought to be restricted to those
litigants who are truly pursuing cases in the public
interest, which probably means that the state isn't
going to be a defendant all of the time in those
cases.
REPRESENTATIVE GARA, referring to Mr. Brown's comment regarding
"attempted usurpations," said:
The kinds of cases this bill would take out of the
"public interest litigant role" rubric are of a kind,
according to [a Legislative Legal and Research
Services report] that only 19 of those have been filed
since 1993. None of them have been found to be
frivolous. So, what we've done is we've allowed
people to use the "public interest rule," and just so
members know, the public interest rule says that if
you file a case that is not for your own financial
benefit - you're not going to make money off of the
case - we're going to encourage your right to ...
access to the courts by saying, if you lose and it's
not a frivolous case, you're not liable for [attorney]
fees, and if you win, you can get reasonable
[attorney] fees paid to the people who took the case
for you.
And so in the 19 of these cases that have occurred in
the last 10 years, I guess you have a problem with
some of them. But I don't know what the problem is,
because ... I've seen a summary of those cases and I
haven't seen any found to be frivolous - I haven't
seen any found to be abusive cases. So how is this
rule being abused?
Number 0348
MR. BROWN replied:
Just to clarify, ... the significance of an
individual's potential financial interest versus the
public interest is but one part of the four-part test.
And, indeed, if I'm not mistaken, the [Alaska] Supreme
Court, in - it was a Homer case, a gentleman who was
concerned about rezoning -- just because an individual
has a potential personal financial stake does not deny
that person the potential of being a public interest
litigant. It's possible to have a personal financial
interest as well as being concerned on behalf of the
broader public interest. So that's the clarification
of what the [four-part] test is.
Look at the defendants that are named in this proposed
amendment ...: They're the Department of
Environmental Conservation [DEC], the [Alaska]
Department of Fish and Game [ADF&G], and the
Department of Natural Resources [DNR]. Look at the
nature of the actions being appealed here: coastal
consistency determinations, adoption of regulations
where there was an opportunity for public comment and
an opportunity to seek administrative review. Those
are already public processes; they already have the
benefit of the full panoply of administrative law.
Individuals who have been able to go through those
processes can go to court if they're dissatisfied with
the result of those processes.
If they go to court and they prevail, they can get -
assuming they want declaratory relief and don't seek a
monetary judgment - ... up to 30 percent of their
[attorney] fees back. That seems more than fair and
reasonable to me. ... This would not have affected the
Rewire the Board case. But in that case, the
potential does exist where someone can file a laundry
list of 20 alleged deficiencies in an administrative
finding. Were they, under the Rewire the Board ...
holding, to prevail on but one of those 20, all the
[attorney] fees could be recovered from the other
party. That potential exists ... if you look at the
different cases right now.
So even though ..., on your list of 19 cases with the
state as the defendant, you may not see a potential
problem, I submit that a potential problem does exist.
And I further submit that Rule 82 goes far enough to
protect the interests of litigants, who don't have to
necessarily rely on the public interest litigant
doctrine, when under [subparagraph] (K) they can
convince a judge that there are other equitable
factors that are indeed relevant that justify giving
them more than 30 percent that they would otherwise be
capped at in Rule 82.
Number 0507
REPRESENTATIVE GARA suggested that he and Mr. Brown were talking
past each other. He said:
Let's just be honest about this: there are folks out
here who want to keep environmental groups from filing
litigation. And that's why this bill has now been
limited to natural resource cases even though in every
one of the years over the last 10 years, this bill has
tried to wipe out the public interest rule for
everybody. But now ... this year's version of the
bill focuses on natural resource cases. So, we're
going to allow the public interest right to everybody
else except for those who challenge that small class
of cases you mentioned.
Why is it not fair to let people have open access to
challenge their government, [first]? And [second],
how can somebody afford to challenge their government
in court if the case doesn't involve money, so the
person doesn't have a financial interest in the case,
and they're an average person who makes, let's say,
$25,000 a year and they can't afford to hire an
attorney? So you're somebody who believes that
government is doing something terrible - they're
refusing to leave a no-logging buffer zone along a
stream bank - and [you] feel that this stream is
therefore going to be endangered and the trout in that
stream are going to be endangered, and [you] want to
go get an attorney.
And under current law, [you] can say to the attorney,
"If you win, the state will pay our [attorney] fees.
But under the rule you propose, if [you] win, the
state's not going to pay [your attorney] fees. The
public member is too poor to pay the [attorney] fees.
How do they challenge their government's conduct?
That's the question. I mean, 30 percent of your
[attorney] fees isn't a lot of money if you don't have
a lot of money to start out with. So why is that fair
to that person?
Number 0618
MR. BROWN responded:
Well, 30 percent as allowed in Alaska's English rule
in Rule 82 is 30 percent more than in the vast
majority of jurisdictions in this country and, indeed,
in the federal system. [Also], your hypothetical
conversation between a potential public interest
litigant and his potential attorney is just that - a
hypothetical. I could posit a number of other
hypotheticals ... that might be less shining examples
of the way people go about doing this. And I'm not
submitting that it's about trying to make money off
the [attorney] fees, solely; I think that people that
bring these cases really do care and really believe
that they're fighting a noble cause.
But I hope that they've chosen to fight that noble
cause in the administrative context, previously. I
hope they've done their best to convince the decision
makers in the agencies at the [ADF&G, DNR, or DEC]
that a certain decision should be made a certain way.
I hope that if that decision hasn't come out to their
favor - and probably at this point they've engaged
counsel, and they're not going to be able to use Rule
82 to recover the cost of that for the administrative
action - but if they're going to be effective
advocates even in the administrative context, well,
it's likely that there's some sort of representation
involved or they're really learning a lot and becoming
good pro se advocates for themselves.
They also have an opportunity, at the administrative
level, for these types of cases, to appeal and seek
review within the administrative agency. It's only
when they go to court that this comes into play. And,
again, when they go to court, because they've had a
greater chance to avail themselves of administrative
law against the state, which I submit is not a
presumptively tainted defendant ... - we are all the
State of Alaska - this defendant should not be
subjected to a punitive rule that places it at a
disadvantage.
And the level playing field of Rule 82 affords plenty
of protection for someone who wants to pursue what he
or she thinks is a noble cause after an administrative
decision has been rendered. ... I'm sorry if that
doesn't answer your question, because I think I'm
looking at a different hypothetical going into it than
you are looking at it going into it, and I think maybe
that influences what is fair or unfair when we get to
the point of someone taking a case to superior court.
Number 0755
REPRESENTATIVE GARA remarked:
I've seen agencies make terrible decisions. That's
the whole point of the public interest rule, is when
an agency makes an terrible decision that impacts a
community, a citizen from that community should be
able to challenge it. But if they can't afford to
hire an attorney and we're not going to now let them
recover their [attorney] fees if they win, I think
there are a lot of circumstances, not just a few
circumstances, where bad agency decisions are going to
remain in effect. And maybe we have a different view
as to how many bad agency decisions there are, but I
think there are a lot, and I don't think that agencies
are always responsive to the public.
MR. BROWN replied that under Rule 82(b)(3)(I), a judge is free
to consider the extent to which a given fee award may be so
onerous to the non-prevailing party that it would deter
similarly situated litigants from voluntary use of the courts.
Even if HB 145 becomes law, that provision of the Alaska Rules
of Civil Procedure would still apply, he concluded, adding, "a
good judge ought to be able to take recourse to that and put the
reasons for the variation down in his or her finding, so if it's
further appealed to the [Alaska] Supreme Court, they can take a
final look at it."
REPRESENTATIVE GARA asked Mr. Brown how many times subparagraph
(K) has been used to fully compensate someone for his/her
attorney fees. "I mean, are you offering something that's
really going to be used, that really has been effective, or are
you offering something that's not really going to be used and
hasn't been effective?" he also asked.
CHAIR McGUIRE suggested that any response would merely be
hypothetical, and that that provision of Rule 82 hasn't been
used because the recourse of being awarded attorney fees in
public interest litigation has been available. She surmised
that Mr. Brown is simply offering that the subparagraphs of Rule
82(b)(3) would be used when the current remedy is no longer
available.
Number 0868
REPRESENTATIVE GARA said:
I disagree, though. The public interest rule only
applies - only compensates people for their [attorney]
fees - in cases against the state. There are times
where people file suits against corporations, I
suppose, or private businesses, where they have no
financial incentive to do it. It happens all the
time. The question is, has subsection (K) ever been
used to their benefit to compensate them for their
full [attorney] fees. I don't think it really has in
more than one or two cases. But if you know for a
fact that it has been a useful tool, I'd like to hear
the statistics or some of the statistics. If not,
then I don't see how we can we determine that that is
a useful alternative.
MR. BROWN responded:
I'm not prepared to provide that statistical evidence
right now. ... We can go over what the four-part test
is. I don't know that it actually restricts the
defendant to being the state of Alaska. I don't
really know if I read that as necessary, and that may
have been the case thus far. I do know that the
plaintiff cannot be a governmental entity; the
plaintiff has to by private entity. But, I guess,
under your logic, we have to stick with the rule as it
currently exists, because we are afraid that Rule 82
isn't going to do enough.
But before the public interest litigant was created by
the supreme court, Rule 82 had its provisions that
allow for this, and it was adopted by the supreme
court under the language of [AS 09.60.010]. So, it's
kind of an evolutionary process. And I would hope
that we could trust our court system and, indeed, our
legislature, to work together to craft a reasonable
set of rules that will be fair to everyone and will
not increase unnecessary ... litigation, but at the
same time will not cause the state to have to pay
unreasonable fees for cases that perhaps ought not to
have been brought or so vigorously litigated in the
first place.
Number 0964
REPRESENTATIVE SAMUELS asked, "Does the [ASCC] feel that a
lawsuit should be part of the process on every project?"
MR. BROWN said that the ASCC does not want to see the courts
misused. The administrative law process works quite well, he
opined, adding that other pending legislation will improve the
process even more. He suggested that those proposed changes
will make his arguments stronger. He offered that under the
current administrative permitting process, such a strong record
is created that the court is precluded from trying to reopen
issues when there is such a self-contained record. The ASCC
doesn't want an incentive in the rules that takes things out of
the administrative law context that ought not be taken out.
REPRESENTATIVE SAMUELS surmised: "So everyone should have
something in the kitty if you want to go play."
MR. BROWN indicated that although he would not phrase it that
way, he did understand Representative Samuels's point.
REPRESENTATIVE HOLM, after noting that Representative Gara spoke
of the right of a litigant to recover, asked Mr. Brown:
"Wherein is it more right for a person to recover their fees and
make you pay for them? You, as another citizen of ... Alaska,
why should you be the one that has to pay for them for frivolous
litigation?"
MR. BROWN replied:
I agree. And it would be possible to do away with the
English rule altogether. ... That would be a draconian
response to abuses of a system that allows one party
to recover his or her [attorney] fees from another
party. We're not even discussing that here. We want
to keep the English rule; we want to keep Rule 82 with
its exceptions for a judge that really feels that they
need to be put to use. It's the far-reaching public
interest litigant doctrine that I think we're looking
at here, and trying to rein it in, in a very narrow
number of cases. And I don't think it's unwise and,
while reasonable minds might disagree, I think ... - I
hope I'm making a strong argument - that this is going
to return things to where they ought to be: in the
center, fair to both sides.
Number 1100
REPRESENTATIVE GARA raised a point of order. He said:
The last question related to whether it was fair to
recover full [attorney] fees against another citizen.
This rule we're talking about right now, the public
interest rule only applies to cases against the state
government or state government subdivisions. That's
the rule. That's the rule we're talking about.
CHAIR McGUIRE stated that Representative Gara is correct, adding
that there has been much debate going back and forth between the
government and corporations.
REPRESENTATIVE HOLM remarked that he is merely trying to make
the point that "we are the government." In other words, when
someone sues the state government, he/she is "suing all of us."
REPRESENTATIVE GRUENBERG sought confirmation that the intent of
Version D is to require the court, "if they apply the McCabe
line of cases," to meet the requirements of Rule 82(b)(3) - to
make the special findings required under it.
MR. BROWN reminded members that although the ASCC supports HB
145, it is not the bill's sponsor. The ASCC is hopeful that
Rule 82 as written, rather than as interpreted by the courts
with the public interest litigant doctrine, will govern in the
future, for the narrow category of cases being excepted via HB
145. He posited that the special findings required by Rule
82(b)(3) will end up being more appropriate, on a case-by-case
basis, than the four-part test for "public interest litigant"
status.
REPRESENTATIVE GRUENBERG said:
One thing does bother me. Constitutionally, to amend
a [court] rule, the legislature has to have a two-
thirds majority. ... It does seem to me that that
would be required; if [we] are ... to avoid litigation
and the attendant fiscal note, we probably ought to
pass this by a two-thirds majority. Right?
MR. BROWN offered his belief that a court rule change is not
necessary because of the way the introductory language to Rule
82 is written. He suggested having others address that
question.
REPRESENTATIVE GARA asked Mr. Brown if he'd seen any written
opinions on that point.
MR. BROWN said he had not.
Number 1381
DORNE HAWXHURST said that she could offer a specific case, as
opposed to a hypothetical case, that will show why HB 145 should
be rejected. She elaborated:
In 1995 I was the executive director of Cordova
District Fisherman United [CDFU], and in that capacity
I had the opportunity to participate with other
public-interest appellants in the "Prince William
Sound Tanker Plan" appeal. Some of the other
appellants were the United Fisherman of Alaska [UFA],
the City of Cordova, and the Kodiak Island Borough; a
number of individual fisherman also appealed. So
[these] were not just so-called environmental groups.
Now, the issue in the appeal was whether or not DEC
had implemented the law that this legislature enacted
in 1990 after the [Exxon Valdez] spill - that was
House Bill 567. The law required the oil shippers to
have better oil-spill plans so we would never again
have to suffer as we did after the [Exxon Valdez]
spill.
One of the most important requirements of the law was
that the oil-spill plans had to protect
environmentally sensitive areas including areas like
the Copper River delta, the Copper River flats, which
are vital to the health of our state's fishing
industry. Now, the reason the fishermen appealed was
because after the public comment period closed on the
tanker plans, the DEC removed the requirements that
the oil companies identify a plan to protect the
Copper River delta, and this was under pressure from
the oil companies. And, as Representative Gara said,
this an example of a bad agency decision - using his
words "a bad agency decision."
Number 1473
MS. HAWXHURST continued:
So the fishermen had to take on DEC and the oil
shippers' lawyers in order to get the oil-spill plans
to protect the delta as required by law. We also
raised other issues like the failure of DEC to require
best-available-technology escorts for these tankers
that were racing by our backyard. The administrative
appeal was prohibitively expensive to most appellants.
The City of Cordova withdrew in frustration over the
expense of the appeal process and DEC, as did several
other appellants. After three years in the appeal
process, DEC finally decided to settle with [CDFU] and
the [UFA] and to require a plan to protect the delta
and to require the tanker [tugs].
So, although there were other issues that CDFU felt
strongly about, they decided not to bear the cost of
going forward. The administrative record alone, not
including [attorney] fees, cost $10,000. So I
understand that the attorney general's office has held
the "Prince William Sound Tanker Plan" case out before
you, or at least the Senate Judiciary [Standing]
Committee, as one reason to get rid of ... public
interest litigant status. I urge this committee to
look at that lawsuit as a reason to keep public
interest litigant status for suits against DEC.
[The] DEC's abuse of the process after the public
comment period had closed and its failure to carry out
the law have cost the state hundreds of thousands of
dollars in litigation costs, and has put the public
and individual fishermen through years of litigation
to finally get DEC to do the right thing, to carry out
this legislature's directive. Now, I'm personally
grateful to the fishermen and the individuals who
continued and caused DEC to finally abide by the law.
Alaskan's who value their salmon fishery would be
equally grateful if they knew the facts of the case.
Approving this bill is not going to level the so-
called playing field with other litigants. It's going
to block those individuals who are trying to provide a
public service to our state by volunteering their time
and money to see that the laws are properly enforced.
As a former executive director of Cordova District
Fisherman United and as the wife of a displaced
Alaskan fisherman - displaced by the [Exxon Valdez]
spill - I would ask that you reject HB 145. It will
prevent individuals from being able to protect their
(indisc.) from DEC's abuses and from seeking to carry
out the laws that ... this legislature has passed as a
public service to Alaskans. And, as Mr. Brown has
said, we are all the State of Alaska. Thank you so
much.
Number 1574
REPRESENTATIVE GARA asked what additional protections the
appellants were able to garner from DEC.
MS. HAWXHURST replied:
I most specifically was concerned, on behalf of the
Cordova fishermen, with what was proposed in our
backyard with the ... Copper River delta and flats,
and also the transportation of the tankers using the
best available technology. If you would like to learn
of the other benefits that we derived through this, I
would suggest that you ask that of Nancy Wainwright,
who was our public interest attorney for this process.
And we were really very grateful to be able to have an
attorney, because we could not get through this
otherwise. We weren't even given standing, for
example, with the local coastal council. It was
really unbelievably difficult.
Number 1669
ALLEN JOSEPH, Association of Village Council Presidents (AVCP),
stated his position as being that HB 145 should not pass. He
also mentioned that he has testified on this issue in the past
and continues to oppose the idea that public interest litigants
should be held liable for attorney fees when they sue the state
for the benefit of the public. Government is not perfect;
however, it is made better when members of the public point out
excesses and wrongs that should be corrected. Sometimes
lawsuits are needed to get government's attention; therefore, he
opined, there should be an avenue for people to sue the state
without being penalized. Public interest lawsuits are sometimes
complex and take a long time to resolve. As a result, the costs
can be enormous. For that reason, he said, he opposes HB 145,
and suggested that it should not pass.
REPRESENTATIVE GARA asked Mr. Joseph whether he felt he had the
means to hire an attorney for the purpose of challenging one of
the state's resource agencies over a decision threatening his
community.
MR. JOSEPH said no, adding that most such cases take years to
resolve.
REPRESENTATIVE GARA noted that he'd received a letter from the
AVCP in opposition to HB 145. He asked Mr. Joseph if he knows
people who have used the "public interest litigant laws" in the
past.
MR. JOSEPH relayed that he knew Willie Kasayulie from the
village of Akiachak who sued the state "to bring equal
maintenance costs for schools ... in rural areas." He added
that a lot of people in his area have supported the "police-
protection lawsuit" filed against the state by the Alaska Inter-
Tribal Council. In addition to these two examples, he
acknowledged that [members of his community] have been on the
other end of public interest lawsuits such as the McDowell v.
State case regarding subsistence, and the Alaskans For a Common
Language, Inc. v. Kritz case regarding instituting English as a
common language. He added, however, that regardless of cases
such as the latter two, the AVCP still feels that the current
public interest litigant laws should not be changed.
CHAIR McGUIRE pointed out that [Version D] would not affect
[most] of the types of cases that Mr. Joseph referred to.
Number 1899
PAUL LAVERTY said he would be testifying in opposition to HB
145. He predicted that even though [Version D] would not apply
to some of the types of cases Mr. Joseph referred to, once the
exceptions to the public interest litigant laws are carved out,
it will open the crack for other exceptions to be added in the
future. "We're starting down a slippery slope to widen the
prohibition on public interest lawsuits," he added. He went on
to say:
Public interest lawsuits are our last check and
balance [that] private citizens can bring against
government actions that ... disregard [either]
regulations, laws, or the [Alaska] State Constitution.
I personally have been involved as a public interest
litigant, and that resulted in the [Alaska] Supreme
Court case of [Laverty v. Alaska Railroad Corporation
(12/1/00) sp-5338]. In my particular case, what
happened was, a member of the administration for the
railroad essentially gave away 1 million tons of
gravel to a couple of developers here in Anchorage.
And there was no bidding on this contract nor was it
noticed as a public notice of the disposal of state
resources.
When I learned about this action, I testified before
the [Board of Directors of the Alaska Railroad
Corporation], brought it to their attention, which at
this time they were not aware of because of the way
the contract was written: it didn't require board
approval. I asked them to rescind the contract
because I didn't think it was in the best interest of
the Alaska Railroad [Corporation], nor was it publicly
noticed like it should have been. When the [Board of
Directors of the Alaska Railroad Corporation] took no
action, I sent a letter to then [Senator] Loren Leman,
Representative Kay Brown, and Representative Terry
Martin, bringing the situation to their attention.
Number 2029
And at that point, Representative Martin, who was the
head of the Legislative Budget and Audit Committee,
requested [that the Division of Legislative Audit]
perform an audit of this situation. And the audit ...
resulted in a Report Number 08-4547-9...(indisc. -
coughing), which upheld some of the concerns I had, in
that, one, ... this contract wasn't necessarily in the
best interests of the Alaska Railroad Corporation and
it violated their own internal procurement
regulations. And it was also potentially in violation
of the [Alaska] State Constitution that required
public notice before disposal of Alaska assets could
be conducted.
MR. LAVERTY continued:
After getting that report from your audit committee, I
again asked Representatives Martin, Brown, and Senator
Leman to take some sort of an action and to "null and
void" that contract. And, specifically, I asked them
in a letter to send a report on [to] the Alaska
attorney general's office to determine whether or not
... this was an actual legal contract. When that did
not occur, I was finally forced to make a rather
difficult decision: whether or not I wanted to pursue
this through the state's legal system. And let me
tell you, it was not a simple decision that I made,
taking on the Alaska Railroad Corporation, given that
I had, at that time, no financial resources to pursue
it out of pocket.
So, I was able to find an attorney, and we argued the
matter before district court and superior court and
state supreme court. And the [Alaska] Supreme Court
found that yes, indeed, the points I had raised in my
initial lawsuit were valid and that the Alaska
Railroad [Corporation] did indeed violate the [Alaska]
State Constitution.
So I would just urge the committee to realize that ...
there's going to be times ... when the administration
of the state government may change and the shoe may be
on the other foot with regard to decisions handed down
by these resource-oversight commissions and
departments in the state government, and that by doing
away with the ability for public interest litigants to
bring suit on some of these actions, [it] may be
detrimental in the long run down the road. So, again,
I just voice my opposition to House Bill 145 ....
Number 2168
RICH HEIG, General Manager, Greens Creek Mining Company;
President, Council of Alaska Producers, first noted that the
Council of Alaska Producers is a consortium of hard rock mining
companies, both existing and potential, that have interests in
Alaska. He indicated that the Council of Alaska Producers
appreciates the work being done on HB 145, and hopes that it
will pass in some form this session. He went on to say:
We believe that ... public interest litigation may be
necessary at times, we accept that, but we'd like to
see a more balanced field from a legal-fee standpoint.
The resource industries are presently burdened, and
generally rightfully so, with extensive state,
federal, and local ... permitting requirements ....
The process can take several years. We have been in a
process of acquiring EIS [Environmental Impact
Statement] at this point in time at Greens Creek;
we've been in the process for over two years, and we
just went out for a draft - the draft was just
published ... about two weeks ago.
The process also includes ... a public comment period
- it includes public hearing opportunities - [and] the
process includes administrative review. So that is
quite an extensive process in front of us, as a
resource industry, as it is. The potential for civil
or administrative appeals following that permitting
process -- it's difficult, it's time consuming, and
it's very costly, both for the agencies and the
industry, and I'll speak from the industry standpoint.
The real issue to the industry is the cost associated
with prolonged development stages when a permit has
been issued, and we go into a period where we don't
know where the end of that time period will be because
of the potential for ... public litigation. Good
projects can be delayed for extended periods of time.
The risk beyond the permitting approval process is
worrisome to industries; we don't know when, at times,
we'll be allowed to develop a project or carry on,
because we're waiting for an amendment to be approved.
Number 2285
MR. HEIG concluded:
If this legislation has the opportunity to reduce
public -- or reduce costs of litigation where there is
little chance of the public interest group prevailing,
... that's good. But more important to the agencies
and to the industry is the cost associated with
prolonging the development of [a] project. And from
that standpoint, we support ... HB 145, and we ask and
urge ... you to pass this legislation. Thank you.
MR. HEIG, in response to questions, indicated that the
aforementioned EIS process that Greens Creek Mining Company is
currently undertaking has cost approximately $1.5 million; that
the overall environmental costs are "probably a million more
than that" because of ongoing regulatory requirements and the
company's own environmental standards; and that the "footprint
of Greens Creek is about 360 acres," which includes the mining
site; facilities site; Hawk Inlet sites; various disposal sites;
and the roads, which make up about half of the total acreage.
REPRESENTATIVE GRUENBERG asked Mr. Heig whether either of his
organizations or similar groups have found it necessary to
engage in what might be considered public interest litigation.
MR. HEIG indicated that there was an instance in the Fairbanks
area involving Fairbanks Gold Mining, Inc., and the True North
Project, and an instance involving Greens Creek Mining Company
that "hasn't occurred yet" in which a new solid-waste permit
from DEC might be challenged via litigation.
TAPE 03-53, SIDE B
Number 2370
REPRESENTATIVE GRUENBERG surmised that if the latter occurs,
then Greens Creek Mining Company might be dragged along
involuntarily, so to speak.
MR. HEIG concurred, indicating that his company would engender
legal fees in supporting the agency. He also indicated that the
permit in question will be modified as the process unfolds.
REPRESENTATIVE GRUENBERG asked Mr. Heig whether his organization
or another industry group might find it necessary to challenge
an unreasonable governmental agency decision from time to time.
MR. HEIG said he did not know, but surmised that an organization
itself probably would not because of a lack of funds; however,
individual companies within such an organization might do so.
REPRESENTATIVE GARA sought confirmation that the aforementioned
$1.5 million costs are related to current governmental agency
requirements and not to public interest litigation, which is
what the legislation addresses.
MR. HEIG confirmed that the aforementioned costs are not related
to public interest litigation.
REPRESENTATIVE GARA said:
The other thing I would ask you about is, ... I wonder
whether we're giving away too many rights - giving
away too many of the public's rights. And there has
to be a balance between reasonable development and
reasonable environmental protection. We've just
passed a bill in the House the other day - HB 86; ...
the purpose of the bill was to protect companies
against injunction lawsuits where the injunction
lawsuit wasn't well-founded, and so we passed a bill
that said if you file a bad-faith injunction lawsuit
you're liable for the damages you cause to a company.
Is that not enough? Are you familiar with that bill
at all?
MR. HEIG said he is not familiar with that legislation.
REPRESENTATIVE GARA asked:
I suppose if this legislature were to protect you from
bad-faith injunction lawsuits, would that be enough
and might you be able to tolerate the remainder - us
allowing to continue this public interest rule in
environmental cases - if you were protected against
bad-faith injunction lawsuits?"
Number 2178
MR. HEIG replied:
I have no problem with public interest litigation if
... there's a purpose served, and when I speak of a
balanced field, if it minimizes frivolous suits, if it
minimizes suits where it's being challenged to take up
time in hope that the industry will fall by the
wayside, [then] I would like to see ..., if the public
litigants lose, that their fees are not recovered.
REPRESENTATIVE GARA said:
I guess I don't know that we're that far apart. If we
assured you that we passed a bill that said you can't
file bad-faith injunction lawsuits, and if we assured
you that if somebody filed a frivolous public interest
litigant suit against you, you could recover full
[attorney] fees against them for harassing you, would
that be enough? Could we leave the public interest
rule in effect in the remainder of cases outside of
those contexts?
MR. HEIG replied, "The way I see it, from a simple standpoint,
... from a balanced field, is that if the public litigants lose,
there should be no funding for what they've done; they should be
able to supply their own funding for their legal challenges."
REPRESENTATIVE GARA agreed.
REPRESENTATIVE OGG remarked that some of the legislation that
the legislature has been working on is, in a sense, passing
authority to commissioners or people in administrative positions
to waive local regulations so that they can make decisions
without the normal public processes. In those types of
situations, he asked of Mr. Heig, if a governmental agency made
a decision that goes against his company and caused it to raise
a legal challenge, for example, because a future administration
waived regulations without any public process, would he still
feel the same way.
MR. HEIG declined to speculate.
Number 1905
ROBERT B. BRIGGS, Staff Attorney, Disability Law Center of
Alaska, Inc., first explained that his organization is the
agency designated by federal statute, and by virtue of receiving
federal grants, to provide protection and advocacy services for
Alaskans with disabilities. He went on to say:
One aspect of our services include legal services,
which at times do include filing lawsuits in court.
Often, we have disputes with the state, over state
benefits. Our initial concern with HB 145 was that it
might apply to decisions that affect our clients. ...
A letter by David Marquez, Assistant Attorney General,
... dated April 21, 2003, signed by Ms. Deborah Behr
in Mr. Marquez's name, ... clarifies that [Version D]
... is intended to very narrowly limit the effect of
the bill.
The letter contains two important clarifications. One
is that the bill clearly applies to administrative
appeals as well as civil lawsuits initiated in state
court. The reason that clarification is important is
because there are two aspects of the "public interest
litigant exception" as it is applied by the Alaska
Supreme Court. First, it applies as an exception to
Alaska Rule of Civil Procedure 82. The second way
that the doctrine is applied is in deciding how to
award costs under Rule 508 of the Alaska Rules of
Appellate Procedure; [those] costs are specifically
defined to include [attorney] fees. So, Mr. Marquez's
letter, as interpretation of [Version D] ...,
clarifies that ... administrative appeals would be
covered by this bill, as well as actions brought in
the first instance in superior court. ...
Number 1709
MR. BRIGGS continued:
The letter also provides important clarification as
further amplified by the colloquy between the members
of this committee that the bill only applies to
decisions by three state agencies, and in so doing
clarifies that the bill is not intended to apply
generally to other public interest litigation that may
be brought against other agencies of the State of
Alaska or other agencies of other entities of
government: municipal entities or regional entities.
Those are important clarifications that the committee
needs to understand as they vote on this bill.
... I've been involved with debate about the public
interest litigant exception for at least the last four
years. I bring to that debate the experience of
having worked as an attorney for the U.S. Army Corp of
Engineers, as an attorney in the U.S. attorney's
office as an assistant attorney general, and I've come
to understand that the power of government, when an
individual is litigating against the government, is
quite awesome. And for that reason, I think the ...
Alaska Supreme Court wisely recognized that in certain
kinds of litigation, it was important to have what we
know of as the public interest litigant exception.
With the important refinements that have been made by
... [Version D], as explained by Assistant Attorney
General Marquez's letter, the Disability Law Center
[of Alaska] has no objection to the bill. However, we
do recognize that there may be claims against some of
those agencies; we think the range of public interest
litigation that might be brought against those
agencies is likely to be narrow and limited. Anybody
who advocates on behalf of people with disabilities
must understand the extreme financial pressure our
legislature and our state fiscal system is under. And
we do not want to oppose resource development in the
state, because we stand to benefit from that to the
extent general fund revenues are increased.
Number 1695
MR. BRIGGS added:
I do want to caution the committee, however - because
I always want to be clear about my views on bills -
that in regulating this area, the committee comes
close to touching upon ... a couple of very sensitive
issues. One is the question of whether the bill
violates constitutional protections of free speech.
There are U.S. Supreme Court opinions which say that
the filing of a lawsuit is itself an act of free
speech. And I'm thinking specifically of some
litigation from the early 1960s involving the NAACP
[National Association for the Advancement of Colored
People]. And so, it is possible for someone to
challenge this bill as an attempt - an
unconstitutional attempt - to quiet the effort of
certain viewpoints from being addressed in the court
system.
I think the reason behind this bill obviously was, as
some say, "to level the playing the field." But I
think the supreme court recognized, in adopting the
public interest litigant exception, that the playing
field was not level to begin with, that in order to
encourage people to act as private attorneys general,
and I think also as an element of providing access to
the court, that it was necessary to insulate certain
parties from liability for [attorney] fees, should
they lose good-faith claims that are brought, and that
they should recover full fees should they prevail on
those claims. ... I think ... the lawyers on this
committee understand some of the basics of those
doctrines.
I think other people have testified about the high
cost of litigation, and that, basically, is why the
public interest litigant exception is there:
litigation costs have skyrocketed. And those high
costs stand as a very important impediment to the
expression of certain ideas in the court system. And,
as we have pointed out in previous testimony on SB 97,
the founders of not only our U.S. Constitution but our
Alaska [State] Constitution wisely decided that our
citizens should have three avenues of petitioning
government to redress grievances, not one.
Number 1598
MR. BRIGGS said:
The first, of course, is the legislature, and this is
seeking to change the laws that guide us all, by
petitioning our individual legislators. The second,
of course, is the executive branch. And the third is
seeking to resolve a dispute by filing an action in
court. So this ... bill, if passed, will have the
effect of saying that a certain class of people, who
are recognized by the court as under the public
interest litigant exception, will no longer have the
benefit of that rule. I think it is unfortunate that
this committee does not have better statistical
evidence to support the decision being made here,
because undoubtedly there will be equal protection
claims raised by those who are adversely affected by
this bill should it pass.
... Perhaps some of you also have the data that is
available, and it is very difficult to parse. For
example, the data from the attorney general's office
does not generally give much description of the nature
of the litigation for which funding requests are being
asked. And so it is very difficult, just looking at
lists of that litigation, to say, "Okay, this was a
public interest litigant case, or it wasn't," or,
"This was a particular type of public interest
litigant case." The most definitive data I have seen
on this subject comes from a legislative memorandum
which apparently researched published cases that are
reported in the Pacific Reporter, and ... gave a
description of the case, the name of the party, as
well as the amount of [attorney] fees awarded.
The total for a 10-year period that was awarded,
supposedly under the public interest litigant
exception, was $9 million, which sounds like a lot.
But in reality, $4.5 million of those awards came in
one case: the Weiss case, which was a mental health
case. I've inquired [of] the executive director of
the Alaska Mental Health Trust Authority, who has
informed me that the ... [attorney] fees awarded in
that case were actually done by settlement, not by any
award by a judge after litigation ... over the
entitlement to [attorney] fees.
Number 1472
MR. BRIGGS added:
So I'm not sure it is fair to include the Weiss
[attorney] fees in ... this mix here of numbers,
partly because that award was for interim fees, which
involved a very large class action. And so I think
the Weiss case is an unusual case. I'm not sure it
should be entered into the calculus of deciding ...
who is affected by the public interest litigant
exception. But even including it, this was the
breakdown I came up with: 7.9 percent of the cases
reported were natural resource or environmental cases
- that actually surprised me, given the fact that we
are a ... state still developing our natural
resources; 9.5 percent of the awards were for civil-
rights cases, which I classified as miscellaneous
civil rights other than the Weiss case; 30.4 percent
of the cases involved elections or redistricting; and
only 1.8 percent involved miscellaneous other cases.
If you subtract out the Weiss case, the figures look a
little more like the world that I think is being
talked about before you today. If you subtract Weiss,
that leaves $4.5 million that has been awarded under
the public interest litigant exception: 16 percent of
the awards went for natural resource and environmental
cases; 19 percent to civil rights cases; 61 percent to
election and redistricting cases; and 3.6 percent ...
I provide that data simply because I think you need to
have some basis for deciding how to treat somebody
differently if this bill is to pass and it is to pass
equal-protection muster.
This body has debated the public interest litigant
exception a lot. I ... left one important research
file at the office, but I did [spend] some effort at
looking back to see what previous legislatures have
done with regard to this exception. And I should
point out as an aside that I sat on the "Alaska Civil
Rule 82" committee back in 1983, when its revision was
being debated. And I was one of those who felt that
it was wise for the Alaska Supreme Court to adopt a
notation in Supreme Court Order [(SCO) 1118am] that
specifically preserved the public interest litigant
exception.
Number 1347
MR. BRIGGS went on to say:
And our recommendation was followed by the [Alaska]
Supreme Court, and if you go look up [SCO 1118am] you
will see that notation [is] adopted not as a statement
that it should be published as a notation; [instead]
it is in fact a separate paragraph of the [SCO]. And
so, if you look at the [SCO] itself, it says the
public interest litigant exception is not affected by
this rule. And I say that because one legal question
here is: what is a court rule? Is it simply a body
of rules that is contained in something called the
Alaska Rules of Civil Procedure and the Alaska Rules
of Appellate Procedure?
I suspect, although I have not found [an Alaska]
Supreme Court case to definitively state this, ...
that the Alaska Supreme Court would say, "A rule is
what we say is a rule." And it could very well be
that a court order such as [SCO 1118am] is [an Alaska]
Supreme Court rule just as the notation that is
attached to the publication of ... Civil Rule 82 ...
could be interpreted [that] it was intended to be a
court rule. I say that because you've already heard
from one member of this committee that perhaps Article
IV, Section 15, of the [Alaska] State Constitution may
require this statute to be passed as a court rule if
it's to ... survive judicial scrutiny.
I should point out that since 1993, ... every statute
that has amended Civil Rule 82 has specifically done
it with a nod to the Alaska Supreme Court by specific
court rule amendment adopted by a two-thirds majority.
I believe I heard early testimony that ... because
Civil Rule 82 has at its beginning a statement, quote,
"Except as otherwise provided by law", that therefore
the [Alaska] Supreme Court was somehow signaling to
the legislature that a two-thirds majority was no
longer required.
I've never heard it said, when I sat through the Civil
Rule 82 debate in 1993, which resulted in the complete
rule that you see today - well, the rule as it
existed, it did include the "Except as otherwise
provided by law" language - I don't recall any debate
about that subject. I think it was just an oversight
by the committee. Obviously, the [Alaska] Supreme
Court may have thought about it, and it certainly is a
plausible interpretation. But, on the other hand, the
fact that the public interest litigant rule has never
been codified into Rule 82 may be further evidence
that the Alaska Supreme Court certainly intends that
it continue to be viewed as a separate rule that
cannot be changed except by a two-thirds majority of
this body. With that, I conclude my testimony and
will respond to any questions you have.
Number 1179
REPRESENTATIVE GRUENBERG broached the idea of making an
amendment that would specify that HB 145 is an indirect court
rule amendment.
REPRESENTATIVE GARA, speaking to Mr. Briggs, said:
I am aware of - at least I have information about - a
case that involved a handicapped Alaskan who wanted
fair access to fishing and hunting programs. And I
have the vaguest understanding of the case, but it
seems to be a case that is a public interest litigant
case that [would] be precluded if we passed this bill
- at least it would be affected if we passed this
bill. ... Was that a case that would be affected by
this bill and what was it?
MR. BRIGGS replied:
I think the answer is yes. I'm aware of two cases
involving Alaskans with disabilities that have been
brought against public resource management agencies.
The first case -- and ... neither of them involved
court cases, and so, to that extent, I guess maybe the
correct answer to your question is, because they did
not proceed along far enough, they would not have been
affected by this bill.
The first case was a case that our agency brought; it
was a complaint ... brought against the [Alaska]
Department of Fish and Game, seeking relaxation of
rules against motorized access to a non-motorized area
in order to engage in, I believe, bear hunting by
someone who had paraplegia and wanted to use a four-
wheeler to go into this area to engage in hunting.
And I believe it was resolved by the department wisely
deciding that the Americans With Disabilities Act
[ADA] ... or [Alaska's] anti-discrimination statutes
might require [reasonable] accommodation of this
person's disability, and so they relaxed the rule for
that person.
Number 1001
MR. BRIGGS continued:
The second case I'm aware of was a case involving an
attorney here in Juneau named Mike Stanley who
represents fishermen in fishing-permit appeals, and
... I talked with him some about this case as he
developed it. My understanding of the case was that
it was a commercial fishing permit applicant who was
not given appropriate credits for fishing. I'm not
exactly sure of the particulars, but I think that
there was a claim that the [ADA] required, because of
this fisherman's disability, some relaxation of the
rules with regard to how his ... credits for [a]
fishing permit were calculated. And he prevailed in
an administrative proceeding on that ADA claim.
So, technically, neither one of the cases would have
been affected by this bill because they were both
resolved administratively before ever getting to
court. But, yes, the reality is that there ... may be
some cases in the future, by Alaskans with
disabilities, ... where they want to assert a case
against the [Alaska] Department of Fish and Game, the
Department of Natural Resources, or the Department
Environmental Conservation. Now, the most likely
claim is going to be an employment discrimination
claim, which is going to be claim where the person has
a personal interest, and so that person is probably
not going to be viewed as a public interest litigant
unless they can try to create some claim that is
broader than themselves.
Number 0936
MR. BRIGGS concluded:
But we have decided that because the range of people
with disabilities that would be affected by the bill
as amended is narrow, we do not oppose this bill. And
I apologize if it's sounds like I'm making the brief
for people who do oppose this bill; I'm not trying to
do that. I am trying to have this body make an
informed decision that at least tries to address the
legal concerns that I think a supreme court is going
to look at when the bill is reviewed.
MR. BRIGGS, in response to a question, clarified that the
Disability Law Center of Alaska is neutral on the bill, and is
providing testimony because, generally, the public interest
litigant exception is very important to its clients. He added:
I can say [that] I've seen the looks in the eyes of
families when I say, "You know, if we take this case
all the way, against the state, the bill could be
hundreds of thousands of dollars in legal fees; unless
you're classified as a public interest litigant,
you'll be liable for those fees - you, your family,
your house." And that chills the decision to file a
lawsuit unless there is a reasonable expectation that
we can classify the case as a public interest litigant
case.
CHAIR McGUIRE, after ascertaining that no one else wished to
testify, closed public testimony on HB 145.
Number 0832
REPRESENTATIVE SAMUELS made a motion to adopt the new fiscal
note provided by the Division of Risk Management, Department of
Administration. There being no objection, it was so ordered.
Number 0790
REPRESENTATIVE GRUENBERG made a motion to adopt Amendment 1, a
handwritten amendment, which read [original punctuation
provided]:
Page 2 line 13
Sec. __ AS 09.60.010 is amended by adding a new
subsection to read:
(c) Nothing in this section shall prohibit the
court from awarding a successful public interest
litigant costs and reasonable attorney's fees or
refusing to award any costs or attorney's fees against
an unsuccessful public interest litigant if the court
determines that such an order is warranted under
Alaska Rule of Civil Procedure 82(b)(3).
Number 0782
CHAIR McGUIRE objected.
REPRESENTATIVE GRUENBERG offered that Amendment 1 would merely
stipulate that the court should do as Mr. Brown predicted it
would do, and after reading portions of Amendment 1 out loud,
said it will apply to both Civil Rule 82(b)(3) and Appellate
Rule 508(e). He opined that Amendment 1 would solve a lot of
problems and give the court discretion as long as it made
special findings that an award is warranted.
MR. TILLERY opined that Amendment 1 appears to be unnecessary,
and that the administration would not support it. He added that
the language in Amendment 1 is true for any litigant regardless
of whether he/she is a public interest litigant.
REPRESENTATIVE GRUENBERG suggested that if Amendment 1 does
nothing else, then, it would at least provide the public with
notice that the courts have such authority.
MR. TILLERY expressed opposition to including unnecessary
language in statute.
CHAIR McGUIRE indicated that she opposes Amendment 1.
REPRESENTATIVE GARA said:
Under current law, the court will defer to the intent
of Rule 82, which is to award [attorney] fees against
the party that loses. What [Amendment 1] does is it
tells the court that it's our intent that it be
allowed to exercise its discretion not to award
[attorney] fees against a citizen who files a public
interest case. If we don't adopt [Amendment 1], the
courts will award [attorney] fees against public
interest litigants. So, without the statement of
intent that comes with this ... [amendment], make no
mistake about it, citizens who file public interest
cases will be held liable for [attorney] fees under
Rule 82 - I feel very confident in that - for
crippling amounts, potentially.
CHAIR McGUIRE observed that that is the purpose of the bill,
adding, however, that the courts retain the discretion to alter
the award.
Number 0308
A roll call vote was taken. Representatives Gara and Gruenberg
voted in favor of Amendment 1. Representatives Samuels,
Anderson, Ogg, Holm, and McGuire voted against it. Therefore,
Amendment 1 failed by a vote of 2-5.
Number 0284
REPRESENTATIVE GRUENBERG made a motion to adopt Conceptual
Amendment 2, a handwritten amendment, which read [original
punctuation provided]:
page 2 line 13
Sec__ The uncodified law of the State of Alaska is
amended by adding a new section to read:
Indirect Court Rule Amendment
Sections 1 and 2 of this Act have the effect of
amending Alaska Civil Rule 82 and therefore take
effect of they receive the two-thirds majority vote of
each house required by art. IV, sec.15 Constitution of
the State of Alaska.
Number 0254
CHAIR McGUIRE objected, and offered her belief that the language
in Rule 82, "Except as otherwise provided by law" makes a court
rule change and its accompanying two-thirds majority vote
unnecessary.
REPRESENTATIVE GRUENBERG recalled from Mr. Briggs's testimony
that all other statutory changes to Rule 82 have involved a two-
thirds majority vote. He opined that a court would be likely to
find that HB 145 is an indirect court rule amendment, thus
requiring a two-thirds majority to pass. He suggested that
adoption of Conceptual Amendment 2 would avoid costly
litigation.
CHAIR McGUIRE predicted that HB 145 would pass by a two-thirds
majority anyway.
REPRESENTATIVE GRUENBERG pointed out, however, that regardless
of whether a bill passes by two-thirds, the issue of whether to
adopt a court rule change requires a separate vote.
REPRESENTATIVE GARA mentioned that the [Alaska State]
Constitution says that a court rule change requires a two-thirds
vote from each body, that that particular constitutional
provision was taken from New Jersey's constitution, and that
there was a case - John S. Westervelt's Sons v. Regency, Inc. -
in New Jersey predating the [Alaska State] Constitution that
interprets New Jersey's constitution as classifying attorney fee
awards as a court rule. He said he strongly believes that HB
154 is changing a court rule.
TAPE 03-54, SIDE A
Number 0001
REPRESENTATIVE GARA said he is very troubled by the fact that
every time this legislation has come up in the past - every year
since 1993 - it has been considered a court rule change. He
suggested that frustration over the fact that such legislation
has not yet garnered the required two-thirds majority vote has
prompted some to proffer the conclusion that a two-thirds vote
is not required this time. "All along, I think, we've all
believed that a two-thirds vote is required," he added. He also
said:
I think we're entering dangerous ground. I think to
be safe we should include a statement that this is
considered a court rule change. I think we're doing
something very, very risky by passing a bill that at
[the] least, under any analysis, raises a very fair
chance that the courts are going to strike the law
down two years from now. So the safe thing to do
would be to consider it a court rule change, and I
support the amendment.
CHAIR McGUIRE relayed that a note passed to her makes the point
that in creating the public interest litigant doctrine, the
[Alaska] Supreme Court could have prefaced Civil Rule 82 with
language mandating a court rule change, but did not do so.
Number 0204
A roll call vote was taken. Representatives Gara and Gruenberg
voted in favor of Conceptual Amendment 2. Representatives
Anderson, Ogg, Holm, Samuels, and McGuire voted against it.
Therefore, Conceptual Amendment 2 failed by a vote of 2-5.
Number 0236
REPRESENTATIVE GARA then introduced Amendment 3, a handwritten
amendment, which read [original punctuation provided]:
P.2 line 3
After "litigant," the rate of attorney's fees
awarded may not exceed $125/hour. If a public
interest litigant's case is deemed frivolous by the
court, full attorney's fees at a rate that may not
exceed $125/hr. may be awarded to the defendant
against whom that case was filed.
REPRESENTATIVE GARA said:
We've heard some claim that people think the public
interest rule has gone too far. I don't agree, but in
the interest of drawing people from both sides
together on this one, at least as many people as
possible, I would agree to change the public interest
rule to make sure that we don't award excessive
[attorney] fees, [and] I would agree to change the
public interest rule to make sure that if people file
frivolous public interest cases, they be held
accountable. So, what [Amendment 3] does is it caps
the [attorney fees] award at $125 an hour. The going
rate for [attorney] fees is somewhere between $165 and
$185 an hour, sometimes more. There have been cases
where people have requested and been awarded up to
$300 an hour in cases the courts have deemed to be
especially difficult and for whatever other reasons.
But I think this would at least satisfy a number of
the concerns people have made. It would satisfy the
concerns that maybe there are frivolous claims out
there, though the report from [Legislative Legal and
Research Services] says that of the 19 public interest
litigant cases in natural resource cases it's found
over the last 10 years, not a single one of them has
been found to be frivolous, and plaintiffs have
actually prevailed in 17 of 19 of those cases.
But that's what the amendment would do; it would just
limit the [attorney] fees award to something that I
hope we would all consider to be reasonable, not
abusing, and do just like Representative Fate's bill
does, which is go another step towards saying, if your
claim is frivolous, we won't tolerate it and we'll
award full [attorney] fees against you if you file a
frivolous claim. I hope this is a compromise that
people could live with ... as a reasonable compromise.
REPRESENTATIVE GARA, in response to a question, indicated that
he would not oppose additional language that would allow the
amount of $125 to rise right along with cost of living
increases.
Number 0440
CHAIR McGUIRE announced that there is objection to Amendment 3.
MR. TILLERY, after stating that HB 145 is intended to establish
a level playing field, surmised that Amendment 3 would not
accomplish this goal, and indicated that the administration is
opposed to Amendment 3.
Number 0537
A roll call vote was taken. Representatives Gruenberg,
Anderson, Ogg, Holm, Samuels, Gara, and McGuire voted against
Amendment 3. Therefore, Amendment 3 failed by a vote of 0-7.
REPRESENTATIVE GRUENBERG said:
I think that the record shows that these cases have
not been frivolous, they have been brought only when
necessary, and that if this bill passes it will chill
public interest litigants. And it's only a question
of time until the double-edged sword comes into play
here, and I think the real test - and I've said this
before - of litigation is whether a bill is as good
coming at you as it is going with you. And there's
going to come a day when industry groups are going to
be filing public interest litigation against what they
consider to be bad regulations or regulatory
interpretations, or appealing agency decisions in this
area.
And the current McCabe rule, which is the seminal case
in this area, the public interest interpretation of
Rule 82 - and I think it's an interpretation of that
rule - will protect whoever is the successful public
interest litigant. And it may be the only way the
public interest can by protected, so I'm going to put
a "do not pass."
Number 0779
REPRESENTATIVE OGG, after saying that the language on page 1,
line 14, through page 2, line [2], does not make sense to him,
suggested that perhaps the "or" on page 1, line 14, and the
"and" on page 2, line 1, should be switched with each other.
Number 0801
CHAIR McGUIRE objected to this suggestion [which was later
treated as Amendment 4]. She posited that the current language
has a broader scope, with the intent being to encourage people
to participate in the public process instead of seeking recourse
via a lawsuit.
MR. TILLERY added that [Amendment 4] would make a dramatic
change from what is intended. He elaborated:
There are sort of three decisions that can come down
from ... any one of those three agencies that would be
affected by this bill. One of those is a coastal
consistency determination. Another one is the
adoption of regulations. And a third is a decision
for which there was an opportunity for the public to
comment to the agency before the final agency
decision, and administrative review. It's not enough
that ... the public simply is able to comment, but
that it also must have an opportunity to seek the
administrative review for that third category.
Conversely, those (indisc.) public comment to seek
administrative review aren't necessarily implicated in
the first two. And an example might be regulations
where there's a tremendous amount of public comment
and so forth, but there isn't necessarily
administrative review.
MR. TILLERY said that although the current language in HB 145
might be difficult to read, it is intended that there be those
three distinct instances. In response to further questions, he
said that all three instances have an opportunity for public
comment, though not all have the possibility of administrative
review. What is intended is that any one of the three agencies
may either make a coastal consistency determination, adopt a
regulation, or make a decision for which there was an
opportunity for the public to comment and an opportunity to seek
administrative review. Again, both public comment and
administrative review are not necessarily going to accompany a
coastal consistency determination or the adoption of a
regulation.
CHAIR McGUIRE suggested that it could be looked at thus: a
coastal consistency determination is "A"; adoption of a
regulation is "B"; and an agency decision that includes
opportunities for both public comment and administrative review
is "C."
MR. TILLERY agreed with that summation.
REPRESENTATIVE OGG remarked that the current language in the
bill could have been clearer, adding that his main concern is
that the bill not be interpreted to mean that the aforementioned
decisions could be made without some form of public process.
Number 1118
REPRESENTATIVE OGG then withdrew [Amendment 4].
REPRESENTATIVE OGG indicated that as a harvester of the
resources of the state, he is very concerned about the issues
being raised by HB 145. Although the bill may be aimed at
curtailing lawsuits by large environmental groups with lots of
funding, the public interest litigant exception is essential for
the "little guy," the average harvester of Alaska's resources.
Referring to Ms. Hawxhurst's example, he indicated that although
he, too, would like to see organizations such as "Greenpeace"
prevented from attacking some of the decisions made by Alaska's
resource management agencies, it is also important for average
citizens - the harvesters of Alaska's resources - to be able to
seek redress from those agencies via the public interest
litigant exception. He opined that HB 145 will not affect the
large environmental organizations, which have the money to bring
suits against state agencies; instead, it will impinge on
Alaska's individual resource harvesters, who don't have the
financial wherewithal to challenge bad agency decisions.
CHAIR McGUIRE expressed understanding of Representative Ogg's
position.
REPRESENTATIVE HOLM said that he, too, as one involved in
agriculture, is cognizant of the fact that there is a need for
the public interest litigant exception in order to keep
government from "taking our land through these types of
processes where they classify it and don't allow us to utilize
those properties that we own." He opined, however, that passage
HB 145 will serve the greater good because "we cannot afford, in
the state of Alaska, to be locked up by groups that come from
other places of the country purely for the purpose of locking
the state of Alaska up."
Number 1497
REPRESENTATIVE GARA said:
I've worked against this bill before I was a
legislator, and I'm going to speak against it today.
It's a bill that's shown up almost every year, and
it's a bill that's troubled me more than almost any
other legislation every year. We should let the
public challenge its government, but this bill works
to prevent the public from being able to challenge
their government. It's the wrong way to go. Our job
is to protect the public, but this ... [bill protects]
the government, and it does so in an irresponsible
way.
... I see a trend, this year, to closing the doors to
public access. This is one example of where we're
closing the doors. I believe - and I respect the
opinions on the other side, but there's a bill to make
it harder for people to file initiatives - ... DEC
just adopted ... or is in the process of adopting
pesticide rules and they held no public hearing. And
I'm wondering where we're going, where we're going
other than to a place where the public has no input
any more - or less input. And I think more input is
better.
... Let's look at the objective facts. ... We can
"demagogue" this issue and talk about frivolous
environmental lawsuits, but we had [Legislative Legal
and Research Services] do some work for us, and they
found [that] over the last 10 years, ... in this
environmental area that we're trying to regulate [via]
this bill, only 19 of [these public interest litigant
cases] ... have been filed. [And] 17 of them were
found to be cases where the plaintiff was right, and
the plaintiffs weren't just environmental groups, they
were fishermen, they were subsistence users, [and]
they were Native Alaskans.
The record just doesn't substantiate the claim by the
attorney general's office that ..., "The public
interest rule has," quote, "led to increased
litigation and suits without merit," end quote. It's
a nice statement, but it is divorced from reality.
We've uncovered no cases without merit in the last 10
years in this area. And not only is the attorney
general's office wrong in claiming that there's been
in increase in litigation over the years, our
Legislative Affairs Agency did some research and said,
between 1993 and 1997, 11 of these cases were filed,
and in the most recent five years, only 8 cases were
filed.
Number 1631
REPRESENTATIVE GARA continued:
So actually, there's been a decrease in this kind of
litigation. Has it bankrupted the state? No. The
awards to the fishermen's groups and the Native Groups
and the conservation groups, and whoever the people
are who filed these 19 cases over the last 10 years
have averaged about $60,000 a [year] .... Not
millions of dollars. So, $600,000 over the last 10
years. So I think the fears that exist aren't related
to [the] reality [that] exists. Let me just talk
about who we're going to close the courthouse doors to
and why we're going to close the courthouse doors.
As an attorney, I know people have come into my office
and I've told them that we have a very onerous rule in
this state that says if you file a lawsuit and you
lose, even if it was a good-faith lawsuit, you're
going to be on the hook for 20 percent of the other
side's [attorney] fees. And many people have looked
at me and said, "I can't afford that; I would like to
pursue my claims, I have a valid claim, my rights have
been trampled on perhaps, but I can't take the risk
that I lose, and maybe on a technicality I'll lose and
I'll owe the other side 20 percent of their [attorney]
fees."
Well, that's what the public interest rule does, it
says, if you have a true matter of public interest, if
your not filing the case to make money, if you have a
true matter of public interest and you lose, but it's
a good-faith claim, you don't owe your government
[attorney] fees. It opens the courthouse doors to
people who don't have money, and that's a good thing.
And I think ironically this bill recognizes that's a
good thing because it's only trying to close the
courthouse doors in natural resource cases. It leaves
them open in other cases, and that's a good thing.
Number 1682
REPRESENTATIVE GARA went on to say:
But I wonder why it's picked natural resources cases,
since the facts don't substantiate that any people in
natural resources litigation have abused this rule
over the years. ... We're going to close the
courthouse doors to people - fishermen who are
dissatisfied with an oil spill contingency plan that
the state has approved. Let's say the state does a
bad job and allows oil companies to adopt a bad oil
spill contingency plan, one that endangers our fishing
streams and our fishing waters, and a public member
says, "I don't think that contingency plan follows the
law or is strong enough."
Well, before that person can sue, if we pass this
bill, they're going to have to dare to look [Exxon
Mobil Corporation] in the eye and say, "If I lose my
suit, I'm going to pay 20 percent of your [attorney]
fees." It's a lot of money; I think they're not going
to do it. It's a case they would file against the
state, but it would be protracted litigation, and I
think it would cost them too much to take the risk of
paying 20 percent of the state's [attorney] fees.
If you're a fisherman, and you say, "You know, my
fishing streams are best protected if I have a ...
150-foot no-logging buffer along my fishing stream,"
and DNR says, "Well, I'm only going allow a 50-foot
buffer along the fishing stream." And the fisherman
wants to challenge DNR's determination, because we've
now moved [the Division of Habitat and Restoration]
over to DNR; that fisherman is going to have to reach
in his pocket and say, "If I lose this case, can I
afford to pay 20 percent of the state's [attorney]
fees?" I think their answer is going to be no.
Number 1757
REPRESENTATIVE GARA concluded:
So I think this is a bad rule. ... This bill has
failed in prior years because every year it's
portrayed as -- the public interest rule is portrayed
as a rule that only Democrats or conservationists or
people that the majority doesn't like files these
suits. But then all of a sudden the Republicans come
marching in, and they say, "No, we've used the public
interest rule too." And in fact, people from all
walks of life have used this public interest rule.
The subsistence case that has gotten us into this
situation where we are today, that held our
subsistence law unconstitutional 10 years ago, was
filed by people who had a quite conservative view on
the issue that they filed on. They won. They
probably wouldn't have been able to do it without the
public interest rule. And I respect that they took
the case and they challenged government, I don't agree
with the result, but I respect their right to do that.
And people from all walks of life have used this rule.
... I think it's a rule that provides for open
government, accessible government. I think we should
never be scared of the public - we should only
encourage the public to challenge our conduct - but
the day we've decided that we're scared of the public
and that we're going to chill the public's right to
challenge our conduct, I think, is the day that we've
gone the wrong way. And I know that all of the bad
things I've talked about aren't the intent of any of
the people who support this bill, and I understand
there are good arguments on both sides, but I feel
very strongly that this is poor public policy.
CHAIR McGUIRE pointed out, however, that HB 145 is not
preventing someone from bringing suit; it is merely saying that
in certain circumstances, the state isn't going to pay all of
the attorney fees. She noted that lawsuits are not the only way
to solve problems, and reiterated her suggestion that the goal
of the bill is to encourage people to participate in the public
process instead of seeking recourse via lawsuits.
Number 1907
REPRESENTATIVE GRUENBERG offered:
I think that many people on this committee have
personally seen some action by government that they
don't like. And I'm looking back at something that
happened to a couple of you just a couple of days ago
that we discussed in a couple of committees. And that
had to do with the invasion of your rights as you went
through the airport. It wasn't exactly like this, but
the concept was somewhat similar. And I'm sure you
can all, everybody in this room, ... foresee a
circumstance where you felt or might feel that
government was acting beyond the scope of it's
authority. And I'm not just talking about in this
area; I'm talking about in any area.
And you would have been in the legislature, and you
would know how difficult and expensive it is to change
a law. And you would know how difficult and expensive
it is to get government, anything from the
"transportation authority" on down, to change the way
the bureaucracy works. It's very difficult. So the
only way you could potentially change what was
happening to you would be to go to some attorney and
[say] ..., "I've got a problem here, and it's
something that I haven't lost any money on, but it's
something that has really affected my right" - whether
it's a fisherman, or going through the airport, or
having your dog taken away from you, or whatever
happens to be important. ...
But the last refuge that each of us has to make things
equal with the government is in the court of law. ...
And [a law has] got to look good coming at you as well
as going with you. And my question is to the
committee: ... assuming that there are problems with
the way certain types of lawsuits have been conducted,
or [that] there might be, is this the best way of
dealing with them? And there are lots of other ways
that you could deal with the problem. The question
is, is this the best way? Or ... are you overbroad
and hit beyond the mark or ... miss the mark? And I'd
just ask you to consider that because this is only one
possible solution to that problem.
Number 2058
REPRESENTATIVE SAMUELS moved to report the proposed committee
substitute (CS) for HB 145, Version 23-GH1064\D, Luckhaupt,
4/30/03, out of committee [with individual recommendations and
the accompanying fiscal notes].
Number 2060
REPRESENTATIVE GARA objected.
Number 2081
A roll call vote was taken. Representatives Anderson, Holm,
Samuels, and McGuire voted in favor of reporting the bill from
committee. Representatives Ogg, Gara, and Gruenberg voted
against it. Therefore, CSHB 145(JUD) was reported from the
House Judiciary Standing Committee by a vote of 4-3.
ADJOURNMENT
Number 2087
The House Judiciary Standing Committee was recessed at 5:47 p.m.
to a call of the chair. [The meeting never was reconvened.]
| Document Name | Date/Time | Subjects |
|---|