04/15/2004 09:08 AM House RLS

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ALASKA STATE LEGISLATURE HOUSE RULES STANDING COMMITTEE April 15, 2004 9:08 a.m. MEMBERS PRESENT Representative Norman Rokeberg, Chair Representative John Coghill Representative Lesil McGuire Representative Carl Morgan Representative Ethan Berkowitz Representative Beth Kerttula MEMBERS ABSENT Representative Pete Kott COMMITTEE CALENDAR HOUSE BILL NO. 334 "An Act relating to unlawful exploitation of a minor." - MOVED CSHB 334(RLS) OUT OF COMMITTEE HOUSE JOINT RESOLUTION NO. 9 Proposing amendments to the Constitution of the State of Alaska relating to an appropriation limit and a spending limit. - HEARD/AVAILABLE FOR CALENDARING 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. - AVAILABLE FOR CALENDARING HOUSE BILL NO. 298 "An Act relating to the distribution of appropriations from the Alaska permanent fund under art. IX, sec. 15(b), Constitution of the State of Alaska, and making conforming amendments; and providing for an effective date." - HEARD/AVAILABLE FOR CALENDARING HOUSE BILL NO. 542 "An Act relating to specialty construction contractors and to construction contractor exemptions." - SCHEDULED BUT NOT HEARD PREVIOUS COMMITTEE ACTION BILL: HB 334 SHORT TITLE: UNLAWFUL EXPLOITATION OF MINOR SPONSOR(S): REPRESENTATIVE(S) MEYER 01/12/04 (H) PREFILE RELEASED 1/2/04

01/12/04 (H) READ THE FIRST TIME - REFERRALS

01/12/04 (H) JUD

01/30/04 (H) JUD AT 1:00 PM CAPITOL 120

01/30/04 (H) <Bill Hearing Postponed> 02/20/04 (H) JUD AT 1:00 PM CAPITOL 120 02/20/04 (H) Scheduled But Not Heard 02/23/04 (H) JUD AT 1:00 PM CAPITOL 120 02/23/04 (H) Heard & Held; Assigned to Subcommittee 02/23/04 (H) MINUTE(JUD) 03/01/04 (H) JUD AT 1:00 PM CAPITOL 120 03/01/04 (H) <Bill Hearing Postponed Wed. 3/3/04> 03/03/04 (H) JUD AT 1:00 PM CAPITOL 120 03/03/04 (H) Scheduled But Not Heard 03/05/04 (H) JUD AT 1:00 PM CAPITOL 120 03/05/04 (H) -- Meeting Postponed to 3/16/04 -- 03/16/04 (H) JUD AT 1:00 PM CAPITOL 120 03/16/04 (H) Moved CSHB 334(JUD) Out of Committee 03/16/04 (H) MINUTE(JUD) 03/18/04 (H) JUD RPT CS(JUD) NT 5DP 1NR 1AM 03/18/04 (H) DP: SAMUELS, HOLM, ANDERSON, OGG, 03/18/04 (H) MCGUIRE; NR: GARA; AM: GRUENBERG 04/15/04 (H) RLS AT 9:00 AM FAHRENKAMP 203 BILL: HJR 9 SHORT TITLE: CONST AM: APPROPRIATION/SPENDING LIMIT SPONSOR(S): REPRESENTATIVE(S) STOLTZE

01/31/03 (H) READ THE FIRST TIME - REFERRALS

01/31/03 (H) STA, JUD, FIN 02/11/03 (H) STA AT 8:00 AM CAPITOL 102 02/11/03 (H) Heard & Held 02/11/03 (H) MINUTE(STA) 04/04/03 (H) W&M REFERRAL ADDED BEFORE STA 04/09/03 (H) W&M AT 7:00 AM HOUSE FINANCE 519 04/09/03 (H) Heard & Held 04/09/03 (H) MINUTE(W&M) 04/17/03 (H) W&M AT 7:00 AM HOUSE FINANCE 519 04/17/03 (H) Heard & Held 04/17/03 (H) MINUTE(W&M) 04/24/03 (H) W&M AT 7:00 AM HOUSE FINANCE 519 04/24/03 (H) Heard & Held 04/24/03 (H) MINUTE(W&M) 04/29/03 (H) W&M AT 7:00 AM HOUSE FINANCE 519 04/29/03 (H) Heard & Held 04/29/03 (H) MINUTE(W&M) 04/30/03 (H) W&M AT 8:00 AM HOUSE FINANCE 519 04/30/03 (H) Heard & Held 04/30/03 (H) MINUTE(W&M) 05/02/03 (H) W&M RPT CS(W&M) NT 3DP 2NR 2AM 05/02/03 (H) DP: HEINZE, WHITAKER, HAWKER; 05/02/03 (H) NR: MOSES, GRUENBERG; AM: KOHRING, 05/02/03 (H) WILSON 05/02/03 (H) W&M AT 7:00 AM HOUSE FINANCE 519 05/02/03 (H) Moved CSHJR 9(W&M) Out of Committee 05/02/03 (H) MINUTE(W&M) 05/06/03 (H) STA AT 8:00 AM CAPITOL 102 05/06/03 (H) Scheduled But Not Heard 05/06/03 (H) JUD AT 5:30 PM CAPITOL 120 05/06/03 (H) -- Meeting Canceled -- 05/06/03 (H) STA AT 5:30 PM CAPITOL 102 05/06/03 (H) -- Meeting Canceled -- 05/07/03 (H) STA AT 8:00 AM CAPITOL 102 05/07/03 (H) Heard & Held 05/07/03 (H) MINUTE(STA) 05/07/03 (H) JUD AT 1:00 PM CAPITOL 120 05/07/03 (H) <Bill Hearing Postponed> 05/08/03 (H) STA RPT CS(STA) NT 3DP 3NR 05/08/03 (H) DP: SEATON, LYNN, DAHLSTROM; 05/08/03 (H) NR: GRUENBERG, HOLM, WEYHRAUCH 05/08/03 (H) STA AT 8:00 AM CAPITOL 102 05/08/03 (H) Moved CSHJR 9(STA) Out of Committee 05/08/03 (H) MINUTE(STA) 05/08/03 (H) JUD AT 3:30 PM CAPITOL 120 05/08/03 (H) <Bill Hearing Postponed> 05/09/03 (H) JUD AT 1:00 PM CAPITOL 120 05/09/03 (H) Heard & Held 05/09/03 (H) MINUTE(JUD) 05/12/03 (H) JUD AT 1:00 PM CAPITOL 120 05/12/03 (H) <Bill Hearing Postponed to Wed. 5/14/03> 05/14/03 (H) JUD AT 1:00 PM CAPITOL 120 05/14/03 (H) Heard & Held 05/14/03 (H) MINUTE(JUD) 05/15/03 (H) JUD AT 8:30 AM CAPITOL 120 05/15/03 (H) -- Meeting Canceled -- 10/29/03 (H) JUD AT 5:00 PM Anch LIO Conf Rm 10/29/03 (H) Heard & Held 10/29/03 (H) MINUTE(JUD)

01/23/04 (H) JUD AT 1:00 PM CAPITOL 120

01/23/04 (H) Heard & Held

01/23/04 (H) MINUTE(JUD) 02/02/04 (H) JUD AT 1:00 PM CAPITOL 120 02/02/04 (H) Moved CSHJR 9(JUD) Out of Committee 02/02/04 (H) MINUTE(JUD) 02/04/04 (H) JUD RPT CS(JUD) NT 1DP 6NR 02/04/04 (H) DP: MCGUIRE; NR: SAMUELS, HOLM, GARA, 02/04/04 (H) GRUENBERG, ANDERSON, OGG 03/15/04 (H) FIN AT 4:00 PM HOUSE FINANCE 519 03/15/04 (H) -- Meeting Canceled -- 03/16/04 (H) FIN AT 1:30 PM HOUSE FINANCE 519 03/16/04 (H) Heard & Held 03/16/04 (H) MINUTE(FIN) 03/17/04 (H) FIN AT 1:30 PM HOUSE FINANCE 519 03/17/04 (H) Heard & Held 03/17/04 (H) MINUTE(FIN) 03/22/04 (H) FIN AT 1:30 PM HOUSE FINANCE 519 03/22/04 (H) Heard & Held 03/22/04 (H) MINUTE(FIN) 03/25/04 (H) FIN AT 1:30 PM HOUSE FINANCE 519 03/25/04 (H) Heard & Held 03/25/04 (H) MINUTE(FIN) 03/29/04 (H) FIN AT 9:00 AM HOUSE FINANCE 519 03/29/04 (H) Scheduled But Not Heard 04/06/04 (H) FIN AT 1:30 PM HOUSE FINANCE 519 04/06/04 (H) Failed To Move Out Of Committee 04/06/04 (H) MINUTE(FIN) 04/07/04 (H) FIN AT 1:30 PM HOUSE FINANCE 519 04/07/04 (H) Moved CSHJR 9(FIN) Out of Committee 04/07/04 (H) MINUTE(FIN) 04/08/04 (H) FIN RPT CS(FIN) NT 2DP 5NR 04/08/04 (H) DP: MEYER, STOLTZE; NR: HAWKER, FATE, 04/08/04 (H) FOSTER, HARRIS, WILLIAMS 04/15/04 (H) RLS AT 9:00 AM FAHRENKAMP 203 BILL: HJR 26 SHORT TITLE: CONST. AM: PERMANENT FUND P.O.M.V. SPONSOR(S): RULES BY REQUEST OF LEG BUDGET & AUDIT BY REQUEST 04/17/03 (H) READ THE FIRST TIME - REFERRALS 04/17/03 (H) W&M, JUD, FIN 04/22/03 (H) W&M AT 7:00 AM HOUSE FINANCE 519 04/22/03 (H) Heard & Held 04/22/03 (H) MINUTE(W&M) 04/24/03 (H) W&M AT 7:00 AM HOUSE FINANCE 519 04/24/03 (H) Heard & Held 04/24/03 (H) MINUTE(W&M) 04/25/03 (H) W&M AT 7:00 AM HOUSE FINANCE 519 04/25/03 (H) Heard & Held 04/25/03 (H) MINUTE(W&M) 04/29/03 (H) W&M AT 7:00 AM HOUSE FINANCE 519 04/29/03 (H) Heard & Held 04/29/03 (H) MINUTE(W&M) 04/30/03 (H) W&M AT 8:00 AM HOUSE FINANCE 519 04/30/03 (H) Heard & Held 04/30/03 (H) MINUTE(W&M) 05/02/03 (H) W&M RPT CS(W&M) NT 5DP 1DNP 1NR 05/02/03 (H) DP: HEINZE, MOSES, WILSON, HAWKER, 05/02/03 (H) WHITAKER; DNP: KOHRING; NR: GRUENBERG 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 05/02/03 (H) MINUTE(W&M) 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 05/07/03 (H) Moved CSHJR 26(JUD) Out of Committee 05/07/03 (H) MINUTE(JUD) 05/08/03 (H) JUD RPT CS(JUD) NT 3DP 3NR 05/08/03 (H) DP: OGG, SAMUELS, MCGUIRE; 05/08/03 (H) NR: GRUENBERG, GARA, HOLM 05/16/03 (H) FIN AT 1:30 PM HOUSE FINANCE 519 05/16/03 (H) Heard & Held 05/16/03 (H) MINUTE(FIN)

01/20/04 (H) BILL: HB SHORT TITLE: DISTRIBUTIONS OF APPROPS FROM PERM FUND SPONSOR(S): WAYS & MEANS WITNESS REGISTER REPRESENTATIVE KEVIN MEYER Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Spoke as the sponsor of HB 334. REPRESENTATIVE RALPH SAMUELS Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Explained that auto waiver as it applies to HB 334. REPRESENTATIVE MIKE HAWKER Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Discussed his suggested amendment 9(FIN). ROBERT STORER, Executive Director Alaska Permanent Fund Corporation Department of Revenue Juneau, Alaska POSITION STATEMENT: During discussion of ACTION NARRATIVE TAPE 04-2, SIDE A Number 0001 CHAIR NORMAN ROKEBERG called the House Rules Standing Committee meeting to order at 9:08 a.m. Representatives Rokeberg, Coghill, McGuire, Morgan, Berkowitz, and Kerttula were present at the call to order. HB CHAIR ROKEBERG announced that the first order of business would be HOUSE BILL NO. 334, "An Act relating to unlawful exploitation of a minor." Number 028 REPRESENTATIVE COGHILL moved to adopt HB 334, remarked in that the intent was to change the criminal status of exploitation of a minor from a class B felony to a class A felony. As a member of Standing Together Against Rape (STAR) and the father of two young daughters, Representative Meyer mentioned that he may have a conflict of interest on this matter. He pointed out that in Anchorage there have been some high profile cases in which people have been abusing minors and making child pornography. Representative Meyer clarified that "sexual exploitation" doesn't involve any [minors], rather it's the making of photographs, film, or video of minors. REPRESENTATIVE MEYER recalled the hearings on this legislation in the House Judiciary Standing Committee where the discussion turned to the question of what is worse: making child pornography or selling it. Representative Meyer opined that making child pornography is worse because without making it there is nothing to sell. Furthermore, some people make child pornography for their own use and don't actually sell it. He recalled that Representative Gruenberg felt that the selling of child pornography is as bad as making child pornography. Therefore, Representative Gruenberg proposed an amendment to change the distribution of child pornography to a class A felony after the second offense. The aforementioned amendment was adopted. Although the past criminal code reveals that there aren't many circumstances in which [minors] were actually charged with this, the difficulty arose when the committee began to pose "what if" scenarios. For example, what if an 18-year- old boy takes [naked] photographs of his 17-year-old girlfriend that are ultimately placed on the Internet and the girl's father files charges against the boy. The father could do the aforementioned now and [the boy] could be charged with a class B felony. The question is whether to make it a class A felony, to which Representative Meyer announced that is not his intention. REPRESENTATIVE MEYER clarified that he isn't [targeting the minors] who are having consensual sex rather [the legislation intends] to target those adults who are enticing [minors] and unlawfully exploiting them. He recalled that the House Judiciary Standing Committee accepted making this a class A felony, but the desire was to attach a letter of intent. After he and Representative Gruenberg worked on a letter of intent, the two realized that people don't really pay attention to letters of intent. Therefore, the discussion turned to the possibility of making the second offense of unlawful exploitation of a minor a class A felony. He suggested that if minors in the situation laid out above are charged with a class B felony, those minors probably deserve a class A felony for a subsequent offense. Representative Meyer characterized the change of the second offense to a class A felony as a reasonable compromise. Representative Meyer pointed out that the committee packet should include a breakdown of offenses. A class B felony, first offense receives one to four years while a class B felony, second offense receives four years. However, a class A felony, first offense receives five years. Therefore, one is gaining a year of punishment by raising the second offense of unlawful exploitation of a minor to a class A felony. Number 120 REPRESENTATIVE McGUIRE inquired as to why Version Q is being proposed. SUZANNE CUNNINGHAM, Staff to Representative Kevin Meyer, Alaska State Legislature, explained that [in Version Q] the second offense of unlawful exploitation of a minor is a class A felony. REPRESENTATIVE McGUIRE asked if the auto waiver is addressed [in Version Q]. REPRESENTATIVE MEYER confirmed that the auto waiver was left out of [Version Q]. He noted that Representative Samuels was comfortable with [leaving the auto waiver out] since the second offense is [increased to] a class A felony. REPRESENTATIVE KERTTULA surmised then that there has been no automatic waiver, and therefore it wouldn't matter whether it was a second offense for a juvenile [because that juvenile] wouldn't be in the adult system. She asked if she is correct. MS. CUNNINGHAM answered that for the second offense, a juvenile would be waived into adult court for the class A felony. REPRESENTATIVE KERTTULA inquired as to other crimes in which the automatic waiver of a juvenile occurs. REPRESENTATIVE McGUIRE turned attention to the auto waiver statute, AS 47.12.030. class A felony or unclassified felony, or a felony against a person, there is an auto waiver of a minor to adult court if the minor is 16 years of age. Representative McGuire explained that when [unlawful exploitation of a minor] was going to be made a class A felony on the first offense, she was concerned about a scenario as laid out earlier between a boyfriend and girlfriend. She recalled that the desire was to make an exemption to the auto waiver. However, [Version Q] specifies that [unlawful exploitation of a minor] would be a class A felony on the second offense. Therefore, the auto waiver isn't included. REPRESENTATIVE BERKOWITZ pointed out that the auto waiver statute applies to any felonies against a person and unlawful exploitation against a minor is a crime against a person. He asked if currently the auto waiver isn't [available]. REPRESENTATIVE MEYER specified that currently unlawful exploitation against a minor carries a class B felony. He related his understanding that the auto waiver only refers to class A felonies. REPRESENTATIVE KERTTULA remarked that she wasn't sure. REPRESENTATIVE BERKOWITZ turned to the auto waiver statute, AS minor is alleged to have used a deadly weapon in the commission of the offense". There isn't a deadly weapon used in [the unlawful exploitation of a minor]. Number 176 REPRESENTATIVE KERTTULA inquired as to the broadness of the [definition] of "exploitation of a minor." aforementioned language refers to 15-16 year olds having sex, then she remains concerned that [the second offense being a class A felony] is too harsh. MS. CUNNINGHAM pointed out that AS of unlawful exploitation of a minor. She noted that [the sponsor] worked fairly close with the Division of Juvenile Justice, which had the same concern as Representative Kerttula. However, after the division compiled a 10-year history with regard to the minors who have committed this crime and discovered that none of them were second offenders. REPRESENTATIVE KERTTULA inquired as to the definition of "exploitation." REPRESENTATIVE McGUIRE specified that the definition refers to photographs, videos, and the making of [pornography]. She clarified that "exploitation" doesn't refer to rather "exploitation" involves enticing a minor into a situation in which pornography is made. REPRESENTATIVE KERTTULA highlighted the language "knowingly induces" in AS 11.41.455. regard to consensual behavior rising to a class A felony. REPRESENTATIVE MEYER informed the committee that this legislation was brought forward [on behalf of] STAR and the Council on Domestic Violence & Sexual Assault, entities that frequently apply for federal grants. Representative Meyer indicated that the committee packet should include documents showing that Alaska's criminal [statutes], as compared to federal [statutes], are very liberal for this particular offense. The aforementioned impacts the above-mentioned entities when trying to obtain federal [grants]. REPRESENTATIVE BERKOWITZ recalled that the original legislation back in 1978 included the component that [the unlawful exploitation of a minor] was being done for commercial purpose. He mentioned the aggravator section of Title 12, and recalled that if one commits a crime for commercial purposes, it constitutes an aggravator. Therefore, the sentences could be increased above the norm. Representative Berkowitz opined that the sentences Representative Meyer specified earlier are the standard realms, but the courts have the ability to deviate from those in exceptional cases. Number 224 CHAIR ROKEBERG related his understanding that Representative Kerttula is concerned with regard to whether there could be multiple charges by a vigorous district attorney. He surmised that one couldn't necessarily be charged with assault and exploitation [of a minor] unless it fits the fact pattern. He asked if that is correct. REPRESENTATIVE BERKOWITZ surmised that Chair Rokeberg was asking if, in a continuing course of conduct, there could be multiple charges in that continuing course of conduct. CHAIR ROKEBERG interjected, "Oh, yeah you could ... if it was a continuing course of conduct. But ... I think you're ... concerned about isolated incidence or ..." REPRESENTATIVE KERTTULA stated that she is concerned about the auto waiver with which she didn't agree, even for a second offense. "We're talking about kids and I just reason why you don't have a hearing before a judge about whether they should be waived or not," she explained. She stressed that it would be a step and the waiver could occur with judicial involvement. She surmised that CSHB difficult situations. CHAIR ROKEBERG opined that Representative Samuels' and Meyer's arguments are very compelling. The [possibility] of this falling unjustly on some teenager is slim, and furthermore the judicial discretion would address that. REPRESENTATIVE KERTTULA pointed out that [under Version Q] the problem is that it will be done automatically, without any judicial involvement. She remarked that she has seen teens be charged with things that are surprising. CHAIR ROKEBERG commented, "This is the second offense." REPRESENTATIVE BERKOWITZ pointed out that the committee packet includes documents from the Division of Juvenile Justice, which specify the number of youth charged with this conduct. He related that the document specifies that in 2004 there was one year-old for whom the waiver wouldn't matter. In 1999, four [minors] were charged and the cases were dismissed. Therefore, he concluded that there just aren't a lot of cases that impact juveniles. He opined that getting hung up on the juvenile waiver issue isn't focusing on the appropriate issue. However, he expressed concern with the legislature tinkering with what judges do. He noted that currently [unlawful exploitation of a minor] is a class B felony that a judge can ramp up for second and subsequent offenses. In essence, this legislation reaches into the judiciary and instructs the judges with regard to sentencing. Although Representative Berkowitz related his belief that harsher sentences for this type conduct are appropriate, [the legislature] should be mindful of the separation of powers issue. Number 0356 REPRESENTATIVE COGHILL moved to report CSHB Standing Committee. HJR CHAIR ROKEBERG announced that the next order of business would be HOUSE JOINT RESOLUTION NO. 9, Proposing amendments to the Constitution of the State of Alaska relating to an appropriation limit and a spending limit. CHAIR ROKEBERG explained his intention to bring up order to have a very minor discussion. He noted that the committee packet should include a suggested amendment by Representative Hawker, who he wanted to explain the amendment. He announced that HJR amendment. Number 372 REPRESENTATIVE MIKE HAWKER, Alaska State Legislature, spoke to his suggested amendment, which read: Page 3, line 17: Delete "Reconsideration" Insert "Repeal" Page 3, lines 25 - 30: Delete all material. Insert "Section 16 of Article IX (appropriation limit) is repealed July 1, 2009." REPRESENTATIVE HAWKER explained that the amendment would provide a hard sunset to HJR future legislatures. Although Representative Stoltze, the sponsor of HJR 9, issue, he would prefer that it occur on the House floor rather than through a House Rules Standing Committee hearing, Representative Hawker related. Representative Hawker explained that this resolution would place a constitutional amendment before the voters to limit future appropriations by a formula. Therefore, the concern is the inability to prognosticate the future with any particular accuracy or to anticipate what future legislatures may face. Some believe the aforementioned is [acceptable] because they don't want to allow spending in the state to expand very far. However, others don't want to bind future legislatures inappropriately due to the inability to predict the future. Representative Hawker related that the public has expressed the need to have reassurance that the legislature wouldn't embark upon a campaign of frivolous spending. To that end, 9, Representative the debate, but take up the amendment on the House floor. CHAIR ROKEBERG asked if the House Finance Committee discussed having automatic reconfirmation similar to the state's constitutional convention provision in order to have a review without having to go through the process and the amendment again. Number 426 REPRESENTATIVE HAWKER said he understood Chair Rokeberg to be referring to a future vote that would be required to reaffirm this particular resolution rather than requiring a vote to negate the resolution. He said the House Finance Committee did discuss that, although it wasn't made as much an issue as was looking at the algorithm. CHAIR ROKEBERG turned attention to page 1, line 10, 9(FIN), being] 75 or 100 percent of the sum is an issue that needs illumination. REPRESENTATIVE HAWKER stated that the question is probably best directed to the sponsor of HJR CHAIR ROKEBERG announced that the next 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. CHAIR ROKEBERG informed the committee that HB CHAIR ROKEBERG announced that the final order of business would be HOUSE BILL NO. 298, "An Act relating to the distribution of appropriations from the Alaska permanent fund under art. IX, sec. 15(b), Constitution of the State of Alaska, and making conforming amendments; and providing for an effective date." CHAIR ROKEBERG related his belief that there is some question about the cash flow incidence with regard to 298 now dividend and for government all on one day. The payment would be withdrawn 14 days after the end of the fiscal year. Mr. Storer acknowledged that as it applies to the dividend, historically there has been a single draw down, which makes sense because the funds are transferred to the Department of Revenue and then the payments go out quickly afterwards. While [APFC] can live with and manage drawing down the money on one day, it believes there are more effective ways to manage the assets of the permanent fund. Therefore, Mr. Storer recommended that the draw downs for government occur on 12 equal payments throughout the year. He explained that when large sums of money are liquidated, material adjustments to the asset allocation of the fund occur. Furthermore, there are significant transaction costs. He pointed out that the act of selling the security comes with a transaction cost. "To the degree one can make it over some systematic payout, the permanent fund can more effectively manage the asset allocation and the assets of the fund," he suggested. Mr. Storer clarified that under the suggestion of government draw downs occurring over 12 equal payments, there [APFC] wouldn't have to make material adjustments to asset allocation, but rather draw down on cash flow every month. Therefore, rather than reinvest cash flow in the equity market, it would be distributed out to the government. MR. STORER informed the committee that if the draw all goes to the general fund at the beginning of the fiscal year, the general fund would earn interest on that larger sum of money. However, if the funds are retained with the permanent fund for a longer period of time, [APFC] invests for a longer period of time and thus the permanent fund [monies] earn a higher rate of return than the general fund. "On some time basis, one would earn more money in the aggregate at the permanent fund. So, you would not only be mitigating against transaction costs, but you would earn some higher rate of return if the money resided at the permanent fund," he explained. Number 538 CHAIR ROKEBERG related his understanding that because of the cash flow requirements of the general fund, there are timing issues. He further related his understanding that currently [the legislature] draws down from the constitutional budget reserve fund (CBRF) as part of a cash cushion. The aforementioned draw down is as much as $400 million of the moving average throughout the year, depending upon the timing of other revenue receipts. MR. STORER agreed. He recalled that there is a larger draw down of the CBRF in the first quarter of the fiscal year, which diminishes as it goes along. Therefore, maybe there are other alternatives that could be worked out with the Department of Revenue. CHAIR ROKEBERG inquired as to how the primary liquidation of assets or realized gains necessary to fund the permanent fund dividend are performed. He mentioned his belief that it depends on market conditions. "I recall ... '01 or '02 where caught it on the rise to be able to ... provide the availability of cash flow that most people don't recall now," he asked. MR. STORER said that's correct. Mr. Storer pointed out that over time it has varied. However, he noted that [APFC] knows fairly well what the obligation, plus or minus $50-$100 million, will be to the Department of Revenue well in advance. Therefore, to some degree the asset allocation and the market environment determine the payout and funding. He recalled that it used to be that [APFC] would structure the bond portfolio such that some [investments] matured around the payout. However, the aforementioned is no longer done because the fund is mature and fully invested in the equity markets. Currently, [APFC] makes a recommendation to the Board of Trustees of the Permanent Fund at the June board meeting. The recommendation relates how [APFC] proposes to liquidate the assets, while being mindful of market conditions and asset allocation. Furthermore, staff is driven to reduce transaction costs as much as possible. CHAIR ROKEBERG inquired as to the period of time those transactions are made. MR. STORER answered that depending upon the markets, [the transactions] could occur within a month to three months. He specified that it would be over a month because of the timing of the payment to the department. "That's not to build up some cash in the bond portfolio to mitigate transaction costs," he explained. The [APFC] reports to the board what it does in terms of liquidation. CHAIR ROKEBERG surmised, "I think the issue does need to be identified and worked with. You're asking for a 12-month window, basically, for a portion of the draw down, but ... I think you need to have some type of window in which to operate that's not a single day as required in the bill, fundamentally now. Is that correct," he asked. MR. STORER replied yes, pointing out that the legislation provides 14 days to liquidate the securities. The longer [APFC] has to liquidate the portfolio, the more efficient [APFC] can be in reducing the transaction costs. Number 579 CHAIR ROKEBERG announced, "Rather than the committee taking any action on this today, I'd like the various bill sponsors and the corporation to massage this ... rather than get too involved in the minutia of this stage of its incubation." Chair Rokeberg announced that HB it being before the full House next week. ADJOURNMENT There being no further business before the committee, the House Rules Standing Committee meeting was adjourned at 9:53 a.m.

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04/15/2004 09:08 AM House RLS

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