Legislature(1993 - 1994)

02/02/1994 01:15 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
               HOUSE JUDICIARY STANDING COMMITTEE                              
                        February 2, 1994                                       
                            1:15 p.m.                                          
  MEMBERS PRESENT                                                              
  Rep. Brian Porter, Chairman                                                  
  Rep. Jeannette James, Vice-Chair  (arrived 2:25 p.m.)                        
  Rep. Pete Kott                    (arrived 1:30 p.m.)                        
  Rep. Gail Phillips                                                           
  Rep. Joe Green                                                               
  Rep. Jim Nordlund                 (arrived 1:35 p.m.)                        
  MEMBERS ABSENT                                                               
  Rep. Cliff Davidson                                                          
  OTHER LEGISLATORS PRESENT                                                    
  Rep. Mark Hanley                                                             
  Rep. Sean Parnell                                                            
  Rep. Gene Therriault                                                         
  COMMITTEE CALENDAR                                                           
  HB 277:   "An Act relating to public employees defending and                 
            indemnifying public employees with respect to                      
            claims arising out of conduct that is within the                   
            scope of employment."                                              
            HEARD AND HELD IN COMMITTEE                                        
  *HJR 48:  Proposing amendments to the Constitution of the                    
            State of Alaska relating to revenues from natural                  
            resources, the Alaska permanent fund, the                          
            appropriation limit and the budget reserve fund;                   
            and providing for an effective date for the                        
            HEARD AND HELD IN COMMITTEE                                        
  (* First public hearing.)                                                    
  WITNESS REGISTER                                                             
  STEVE TERRY, Director                                                        
  Human Resources                                                              
  Anchorage Telephone Utility                                                  
  600 Telephone Avenue                                                         
  Anchorage, Alaska                                                            
  Phone:  561-3000                                                             
  POSITION STATEMENT:  Testified in favor of HB 277                            
  SUSAN COX                                                                    
  Department of Law                                                            
  P.O. Box 110300                                                              
  Juneau, Alaska  99811-0300                                                   
  Phone:  465-3603                                                             
  POSITION STATEMENT:  Assisted the sponsor in drafting HB 277                 
  BRAD THOMPSON                                                                
  Risk Management                                                              
  Department of Administration                                                 
  P.O. Box 110218                                                              
  Juneau, Alaska  99811                                                        
  Phone:  465-2180                                                             
  POSITION STATEMENT:  Assisted the sponsor in drafting HB 277                 
  ROGER CREMO, Attorney                                                        
  425 G Street                                                                 
  Anchorage, Alaska  99501                                                     
  POSITION STATEMENT:  Testified in favor of HJR 48                            
                       (Spoke via offnet from Hawaii)                          
  REP. MARK HANLEY                                                             
  Alaska State Legislature                                                     
  State Capitol, Room 515                                                      
  Juneau, Alaska  99811                                                        
  Phone:  465-4939                                                             
  POSITION STATEMENT:  Testified and explained the House                       
                       Finance version of HJR 48                               
  DARREL REXWINKEL, Commissioner                                               
  Department of Revenue                                                        
  P.O. Box 110400                                                              
  Juneau, Alaska  99811-0400                                                   
  Phone:  465-2300                                                             
  POSITION STATEMENT:  Testified regarding HJR 48                              
  JIM KELLY                                                                    
  Alaska Permanent Fund Corporation                                            
  P.O. Box 25500                                                               
  Juneau, Alaska  99811                                                        
  Phone:  465-2047                                                             
  POSITION STATEMENT:  Testified regarding HJR 48                              
  PREVIOUS ACTION                                                              
  BILL:  HB 277                                                                
  BILL VERSION:                                                                
  SPONSOR(S): REPRESENTATIVE(S) PORTER                                         
  JRN-DATE    JRN-PG                     ACTION                                
  04/07/93      1070    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  04/07/93      1070    (H)   STATE AFFAIRS,JUDICIARY,FINANCE                  
  01/18/94              (H)   STA AT 08:00 AM CAPITOL 102                      
  01/18/94              (H)   MINUTE(STA)                                      
  01/25/94              (H)   STA AT 08:00 AM CAPITOL 102                      
  01/25/94              (H)   MINUTE(STA)                                      
  01/26/94      2157    (H)   STA RPT  CS(STA) 4DP  3NR                        
  01/26/94      2157    (H)   DP: KOTT, G. DAVIS, B. DAVIS,                    
  01/26/94      2157    (H)   NR:  OLBERG, VEZEY, SANDERS                      
  01/26/94      2157    (H)   -2 ZERO FISCAL NOTES (ADM,                       
                              ADM) 1/26/94                                     
  02/02/94              (H)   JUD AT 01:15 PM CAPITOL 120                      
  BILL:  HJR 48                                                                
  SHORT TITLE: RESTRUCTURE PERMANENT FUND                                      
  BILL VERSION:                                                                
  SPONSOR(S): FINANCE                                                          
  JRN-DATE    JRN-PG                     ACTION                                
  01/11/94      2032    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  01/11/94      2032    (H)   JUDICIARY, FINANCE                               
  02/02/94              (H)   JUD AT 01:15 PM CAPITOL 120                      
  ACTION NARRATIVE                                                             
  TAPE 94-15, SIDE A                                                           
  Number 000                                                                   
  The House Judiciary Standing Committee was called to order                   
  at 1:28 p.m.  A quorum was present at 1:30 with the arrival                  
  of Rep. Kott.  Chairman Porter announced that the committee                  
  would take up HB 277 first.                                                  
  HB 277 - INDEMNIFICATION OF PUBLIC EMPLOYEES                                 
  Number 025                                                                   
  REP. BRIAN PORTER, Prime Sponsor of HB 277, explained to the                 
  committee that HB 277 was currently in conceptual form and                   
  that he planned on briefing the committee on the concept and                 
  then next week will have it redrafted.  Rep. Porter said                     
  currently the state and most municipalities have a policy                    
  that provide indemnification for their employees if they are                 
  working within the scope of their employment and have not                    
  exceeded some level of behavior, generally described as                      
  gross negligence or an intentional act.                                      
  REP. PORTER explained there are a lot of public employees                    
  who, every time the mayor, city council, or governor                         
  changes, have this concern as to whether or not this policy                  
  that exists everywhere is going to be maintained, or whether                 
  for this one particular instance that policy might just be                   
  set aside for one person because of personality conflicts                    
  and things like that.  He concluded that basically the bill                  
  will establish formal indemnification versus policy, which                   
  is the current practice.                                                     
  Number 091                                                                   
  STEVE TERRY, Director, Human Relations, Anchorage Telephone                  
  Utility (ATU), testified in support of HB 277.  Mr. Terry                    
  explained that it is critical that public employers send the                 
  message to its employees, especially those employees who                     
  must make difficult and controversial decisions, that the                    
  employer will stand behind the employees when their actions                  
  are in the scope of their duties.  Those employees that must                 
  make decisions, particularly of the employment nature, are                   
  being increasingly challenged legally and are resulting in                   
  substantial and often staggering awards.  He said that                       
  individuals are increasingly being named as defendants or                    
  codefendants in addition to the deep pocketed employer, and                  
  attorney fees for that individual can run as high as                         
  $200,000, not to mention the jury's verdict, punitive                        
  damages, etc.                                                                
  MR. TERRY emphasized that it is not a theoretical problem;                   
  it has happened to him at ATU in a termination case.                         
  Number 194                                                                   
  SUSAN COX, Department of Law, Attorney General's Office, and                 
  BRAD THOMPSON, Risk Management, Department of                                
  Administration, were asked to answer questions from the                      
  Number 249                                                                   
  REP. PORTER discussed with Ms. Cox a question posed by a                     
  city manager in Southeast Alaska, that if an employer has                    
  terminated an employee, are they then not required to                        
  provide the indemnification.   The question was, would this                  
  not perhaps induce an employer to terminate an employee when                 
  they might not otherwise have done so. just to avoid                         
  indemnification?   Rep. Porter said they toyed with the idea                 
  of saying termination for just cause, and asked Ms. Cox                      
  about exempt employees who may be terminated for unjust                      
  cause, rather than any kind of normal consideration that's                   
  used to represent employees.                                                 
  Number 249                                                                   
  MS. COX replied that it's possible to draft a bill if it                     
  isn't so drafted that a former employee can be subject to                    
  the same indemnification and defense if a claim arises out                   
  of their former employment, which is currently the practice                  
  of the state.                                                                
  Number 284                                                                   
  REP. PHILLIPS asked that the issue of a time frame also be                   
  Number 294                                                                   
  MS. COX replied that generally indemnification lasts as long                 
  as the case lasts, and there is a two-year tort statute of                   
  Number 309                                                                   
  REP. GREEN noted there was a zero fiscal note and asked if                   
  there were any costs to the state.                                           
  Number 318                                                                   
  MR. THOMPSON responded that the state is currently self-                     
  insured up to $5 million, and they are already indemnify                     
  employees, and HB 277 would codify existing practice, so                     
  there would be no change in the costs.                                       
  MS. COX added that it may affect what a municipality may                     
  experience if they don't have this as their existing policy.                 
  Number 330                                                                   
  REP. GREEN followed up by asking if there was a cost.  He                    
  commented that certain benefits are taxable, and asked if                    
  indemnification would create a tax problem for people who                    
  are protected there under.  He also asked if HB 277 would                    
  provide for public employees a situation that is above and                   
  beyond that which is provided in the private sector.                         
  Number 352                                                                   
  MS. COX replied that she had never heard of any tax                          
  liabilities with indemnification.                                            
  MR. THOMPSON explained that most private sector employees of                 
  a substantial nature through either a self-insurance program                 
  or through a commercial insurance policy would have the same                 
  provision for their employees.                                               
  Number 362                                                                   
  REP. PORTER asked if it was a fair statement that what HB
  277 will say represents a reflection of existing law in                      
  terms of a requirement for an employer to be responsible for                 
  the acts of his or her employees.                                            
  Number 373                                                                   
  MS. COX replied that the legislation doesn't affect the                      
  circumstances in which the employer is liable for the acts                   
  of the employee; it only discusses situations in which the                   
  employee is sued, when the employer will take care of that.                  
  Ms. Cox explained that the bill reflects essentially the                     
  state's existing policy and practice with respect to state                   
  employees.  She said whether the state is required to do                     
  that is an open question, and the state probably doesn't                     
  have a duty of common law to do it, but it has long been the                 
  existing practice of the state of Alaska to afford that                      
  protection to all state employees.  Ms. Cox went on to say                   
  that there are a great many thousand state employees that                    
  are covered by existing collective bargaining agreements and                 
  so the state has contracted for that requirement with them,                  
  but for those not covered by collective bargaining (and                      
  those would be the ones covered by this bill), it's                          
  something that the state does because they think it's right,                 
  but not necessarily because they are legally required to.                    
  Number 396                                                                   
  REP. PHILLIPS asked, when the state contracts out to                         
  bargaining units, does that become a bargaining point or is                  
  it an assumed benefit?                                                       
  Number 402                                                                   
  MS. COX responded that it is negotiated, so as a result,                     
  there is not total consistency.                                              
  Number 420                                                                   
  REP. PHILLIPS asked if HB 277 would supercede the                            
  Number 424                                                                   
  MS. COX said HB 277 would only apply to those not covered by                 
  collective bargaining.                                                       
  Number 436                                                                   
  REP. NORDLUND discussed a provision in the bill in which the                 
  employee has to notify the employer within ten days, and                     
  said it seems too short of a time period.                                    
  Number 440                                                                   
  REP. PORTER noted that it goes on to say unless good cause                   
  for the employee's failure to provide timely or proper                       
  Number 445                                                                   
  MS. COX indicated that there is generally a twenty day time                  
  period for answering a complaint, but the ten days would                     
  only start running from the time of receiving the complaint,                 
  and as a practical matter, most often the employer most                      
  likely would get notice by other means, as well as from the                  
  REP. PHILLIPS asked if anyone explored (she said she was                     
  playing the devil's advocate on this) not acts of                            
  intentional or willful, but acts of stupidity.                               
  Number 477                                                                   
  REP. PORTER replied that the normal terms of responsibility                  
  are that if you have an intentional act that's obviously the                 
  worst, then the next level down is gross negligence, which                   
  usually is just outrageous behavior, then there is simple                    
  negligence, and HB 277 covers simple negligence, which is an                 
  unintentional mistake.                                                       
  Number 499                                                                   
  REP. NORDLUND asked if you could terminate an employee to                    
  avoid liability.                                                             
  Number 512                                                                   
  MS. COX said that one solution would be to make clear that                   
  the obligation of defense applies to former employees if the                 
  claim pertains to something that occurred during their                       
  employment, and then there is no advantage to terminating an                 
  employee to get out of this obligation.                                      
  Number 529                                                                   
  REP. KOTT asked Mr. Thompson, if the employee wants to                       
  continue legal action, but the employer doesn't want to,                     
  would HB 277 require the employer to continue with the                       
  Number 548                                                                   
  MR. THOMPSON replied that he could think of only one                         
  occasion where an individual was named that didn't want to                   
  participate in the settlement.  He said in HB 277 they hope                  
  to address that, with a good faith effort in notification,                   
  cooperating in the defense, and participation in the                         
  settlement, so it would be an obligation for the employee to                 
  participate with the employer in a good faith settlement.                    
  Number 562                                                                   
  MS. COX said she would address the issue in the next draft                   
  of HB 277.                                                                   
  Number 583                                                                   
  REP. PORTER asked for any other questions; and hearing none,                 
  closed the hearing on HB 277 until further notice.  He then                  
  brought up HJR 48.                                                           
  HJR 48 - RESTRUCTURING THE PERMANENT FUND                                    
  Number 584                                                                   
  ROGER CREMO, an Anchorage attorney whose proposal led to the                 
  introduction of HJR 48, testified via teleconference from                    
  Anchorage regarding the plan.  Mr. Cremo said the purpose of                 
  the amendment was to avoid the consequences of unsustainable                 
  budgets.  He said HJR 48 provides a system that is designed                  
  for a government that uses its wealth rather than its broad                  
  taxing power to finance operations and capital improvements.                 
  Mr. Cremo pointed out that current funding practices can't                   
  continue because of fluctuating oil prices, and the                          
  amendment would change that by putting all natural resource                  
  revenues that have accumulated in various reserves into the                  
  permanent fund.                                                              
  MR. CREMO said the amendment defines a maximum sustainable                   
  level of six percent of the market value of the fund, and                    
  there has to be a transitional period in the amendment that                  
  gradually lowers the percentage to six over a period of                      
  MR. CREMO continued with several points supporting HJR 48,                   
  including the fact that all resource derived monies would be                 
  placed in the permanent fund, thereby increasing its wealth;                 
  the money must be invested and reinvested; and the income of                 
  the fund be retained in the fund, which would prevent the                    
  money from being spent.  He then said he was available for                   
  Number 785                                                                   
  REP. NORDLUND questioned the use of the word "geometrically"                 
  and asked why it was used and what it means.                                 
  Number 790                                                                   
  MR. CREMO replied that he looked for a mathematical                          
  progression, which would be arithmetic or geometric.  He                     
  explained that using a geometrical progression would cause                   
  much larger jumps as the progression approaches six percent,                 
  and levels and smooths off until the year 2006, the end of                   
  the period of the plan, unless the legislature changes it.                   
  Number 830                                                                   
  REP. NORDLUND asked if there was any possibility of                          
  ambiguity using the term geometrical, and if it could be                     
  defined in the legislation.                                                  
  Number 835                                                                   
  MR. CREMO responded that neither the legislature or the                      
  courts would find any ambiguity in the definition, but it                    
  would not be a problem to define it in the bill.                             
  Number 842                                                                   
  REP. GREEN said he thought a definition might tend to                        
  confuse the public and suggested using a table to show the                   
  percentages over the ten years.                                              
  Number 850                                                                   
  MR. CREMO reflected that it was a reasonable suggestion, but                 
  wondered if it would open it up to the legislature to change                 
  the numbers.                                                                 
  Number 860                                                                   
  REP. PORTER said that if he understood Rep. Green's                          
  suggestion, it wasn't necessarily putting it into the                        
  constitution, but putting it into the document from which                    
  the public would be voting on this proposal.                                 
  Number 865                                                                   
  MR. CREMO asked the chairman if the legislature could                        
  control the document that is used to make the explanation to                 
  the public.                                                                  
  Number 869                                                                   
  REP. PORTER responded that he believed the legislature would                 
  have some input on who writes the explanation, and he                        
  believed that selection would be made carefully and would                    
  probably be someone from the House or Senate Finance                         
  TAPE 94-15, SIDE B                                                           
  Number 000                                                                   
  REP. PORTER asked if there were any other questions for Mr.                  
  Cremo.  Hearing that there would be questions in the future,                 
  he asked Mr. Cremo if he would be available at a later date                  
  to do so.  Mr. Cremo responded that he would be available.                   
  Number 087                                                                   
  REP. PHILLIPS asked if there was opposition to the plan and                  
  if the committee could hear that side.                                       
  Number 096                                                                   
  REP. PORTER replied that if anyone knows who the opponents                   
  are, invite them to the table.                                               
  Number 121                                                                   
  REP. MARK HANLEY, Vice Chair of the House Finance Committee,                 
  testified regarding the House Finance version of HJR 48 and                  
  suggested that after Finance reviews the bill that it come                   
  back to House Judiciary to make a final review of the                        
  constitutional and judicial aspects of the bill.  He said                    
  what he wanted to do was give an explanation of the approach                 
  Finance is looking at, and he thought it needed serious                      
  considerations as a long term plan.                                          
  REP. HANLEY said under the proposal all oil and resource                     
  revenues would go into the permanent fund first, and out of                  
  the fund would come a set percentage, which is where the                     
  geometrical plan comes in, taking 20 percent in the first                    
  year of an average of over about five years of the earnings.                 
  He explained that the withdrawal, plus nonresource revenues,                 
  would be what's available to pay for all things, the                         
  operating budget, capital budget and the permanent fund                      
  dividend program.                                                            
  REP. HANLEY discussed the spreadsheet and how the figures                    
  were arrived at and answered questions from the committee                    
  about the figures.                                                           
  Number 506                                                                   
  REP. HANLEY said there was one question about the plan in                    
  the case of a disaster, which was, will we have a pot of                     
  money available for the emergency?                                           
  Number 520                                                                   
  REP. HANLEY stressed that in his opinion if the residents of                 
  Alaska feel this plan will eliminate the permanent fund                      
  dividend (PFD), they won't support the legislation.  He also                 
  stressed that it is not the intent of the plan to eliminate                  
  the PFD.                                                                     
  Number 549                                                                   
  REP. G. PHILLIPS stated some concerns and gave an example of                 
  being six years down the line and we are at a position where                 
  only six percent is going into the budget.  She said her                     
  concern relates to entitlement growth, population growth,                    
  and everything that will cause this side of the budget to be                 
  so unbalanced, and to the side that would put money into                     
  natural resource development and keep the whole thing going.                 
  Rep. Phillips said one of the great fears she has is that as                 
  we cut down to that certain level, we're going to have so                    
  much of the whole program tied up in entitlement funding                     
  that we will not have money to continue resource                             
  Number 569                                                                   
  REP. HANLEY said that was a concern of a lot of people, and                  
  the plan shifts money to build up the principal of the                       
  permanent fund, but under any scenario the cash available                    
  would be about the same; however, up to this point, the                      
  Cremo plan was growing faster than the traditional method.                   
  He said those problems would always be there, but under                      
  current spending we will eventually face a large deficient,                  
  and then what will we do.                                                    
  Number 598                                                                   
  REP. GREEN commented that the plan doesn't make or lose                      
  money, and forces the legislature to do what they have to                    
  do, and will generate more money in the long run.                            
  Number 625                                                                   
  REP. JAMES said this plan assumes we are not going to do                     
  anymore than is already being done in resource development.                  
  Number 636                                                                   
  REP. HANLEY disagreed, saying there is no limit on                           
  development and we are only limited in spending.                             
  Number 662                                                                   
  REP. NORDLUND said he felt it was a minimalist proposal, and                 
  if adopted, doesn't necessarily mean we have to cut                          
  spending. And under either the traditional plan or the Cremo                 
  plan the legislature will be faced with a hard decision in                   
  either case.                                                                 
  Number 672                                                                   
  DARREL REXWINKEL, Commissioner, Department of Revenue,                       
  expressed that it is good news that the legislature is                       
  talking about the problem; however, he was not there to                      
  speak for or against the proposal.  He cautioned that there                  
  is a lot of financial information floating around based on                   
  various revenue forecasts that differ.  He discussed various                 
  other observations and expressed concern that the six                        
  percent payout could cause the permanent fund balance to                     
  REP. PORTER said that not all investments would be made in                   
  common stock.                                                                
  Number 740                                                                   
  COMMISSIONER REXWINKEL responded that they have a                            
  diversified portfolio, and cited various estimates on                        
  expected returns on investments.                                             
  Number 795                                                                   
  REP. NORDLUND asked Commissioner Rexwinkel if he would put                   
  more faith in return on market investments versus the value                  
  of the price of oil in future years.                                         
  Number 800                                                                   
  COMMISSIONER REXWINKEL replied that there is a lot of                        
  uncertainty with both the market and oil.                                    
  Number 849                                                                   
  JIM KELLY, Permanent Fund Dividend Corporation, testified                    
  and referred the committee to a paper he prepared entitled                   
  "20 Questions and Answers on the Cremo Plan."  Mr. Kelly                     
  said it is very clear that this plan will stabilize                          
  revenues, and there will be much more stability if the                       
  budget is based on five years, or in this case a three year                  
  plan, and it would increase the permanent fund under any                     
  circumstances; however, the legislature will have less money                 
  to spend under the plan.                                                     
  MR. KELLY discussed the assumptions used and said there are                  
  all kinds of things that could happen in either direction,                   
  and the fund has kept up with inflation and growth.                          
  TAPE 94-16, SIDE A                                                           
  Number 000                                                                   
  MR. KELLY said if the conservative estimates turn out to be                  
  the case, you will end up with significantly less money.  He                 
  discussed inflation, and if you are paying out more, then                    
  you are not protecting the fund, but with less you are.  He                  
  discussed the impact on PFD's and said they would rise                       
  dramatically because the principal is going to rise                          
  dramatically, which will produce less money for the                          
  legislature unless the statute is changed.                                   
  MR. KELLY agreed with Rep. Hanley that if residents don't                    
  know what's going to happen to PFD's, no one will support                    
  HJR 48.  He said there is no doubt that the plan will get                    
  the legislature where they want to go, but it could take 15                  
  to 20 years.                                                                 
  Number 220                                                                   
  REP. PORTER asked if PFD's could be capped at a certain                      
  Number 232                                                                   
  MR. KELLY stated that he thought people would want to know                   
  what's going to happen to the PFD or they won't vote for the                 
  MR. KELLY recommended changing the section that calls for a                  
  seven member board, and said he thought the six member board                 
  was working fine now.  Mr. Kelly said the real suggestion he                 
  wanted to make was on the six percent withdrawal rate.  He                   
  said it gives the legislature no assurance you are                           
  protecting the permanent fund because in bad years with                      
  inflation you are very likely going to be eating it up.  He                  
  suggested a possible change of using a different number,                     
  dropping six to four, which would still provide less money.                  
  He said, however, that a better solution would be to say the                 
  amount withdrawn every year is not to exceed the real growth                 
  of the fund, defined as all the new money that comes in,                     
  subtracting inflation, and that's what you would have.                       
  MR. KELLY endorsed the concept of the proposal and concluded                 
  his testimony.                                                               
  Number 392                                                                   
  REP. GREEN asked, if we don't have any kind of cap, what                     
  happens in a high inflation year?                                            
  Number 408                                                                   
  MR. KELLY replied that actually it would be significant                      
  inflation over a five year period, and that's a lot of                       
  inflation and could probably minimize that problem by the                    
  feature of averaging it out.                                                 
  Number 422                                                                   
  Discussion continued about growth of the fund, inflation                     
  proofing, PFD's and the percentage of growth in real dollar                  
  REP. PORTER concluded the hearing on HJR 48 and held the                     
  resolution for further hearings.                                             
  CHAIRMAN PORTER adjourned the hearing at 3:35 p.m.                           

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