Legislature(1993 - 1994)
04/14/1994 08:00 AM House STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE STATE AFFAIRS STANDING COMMITTEE April 14, 1994 8:00 a.m. MEMBERS PRESENT Representative Al Vezey, Chairman Representative Pete Kott, Vice-Chairman Representative Bettye Davis Representative Gary Davis Representative Harley Olberg MEMBERS ABSENT Representative Jerry Sanders Representative Fran Ulmer COMMITTEE CALENDAR *HR 9: Protecting the lifestyle of pachyderms and other exotic animals. MOVED FROM COMMITTEE WITH DO PASS RECOMMENDATIONS HB 375: "An Act relating to investments of the permanent fund in certain limited partnerships each of whose principal purpose is investment in securities of public or private companies; and providing for an effective date." HELD IN COMMITTEE SB 303: "An Act relating to voter eligibility, voter registration, and voter registration agencies; and providing for an effective date." HELD IN COMMITTEE HB 482: "An Act making permanent a temporary requirement relating to the provision of employment information to the state." HELD IN COMMITTEE (*First public hearing) WITNESS REGISTER CARL BRADY, Trustee Alaska Permanent Fund Corporation Brady & Company 1031 West Fourth Ave. Anchorage, AK 99517 Phone: 276-5617 POSITION STATEMENT: Addressed HB 375 BILL SCOTT, Executive Director Alaska Permanent Fund Corporation 801 10th St. Juneau, AK 99801 Phone: 465-2047 POSITION STATEMENT: Answered questions on HB 375 DAVID GOTTSTEIN, President Dynamic Research Group P.O. Box 112729 Anchorage, AK 99511 Phone: 346-1797 POSITION STATEMENT: Supported HB 375 RALPH SEEKINS, Chairman Board of Trustees Alaska Permanent Fund Corporation 1625 Old Steese Fairbanks, AK 99701 Phone: 452-1991 POSITION STATEMENT: Supported HB 375 LAURA GLAISER, Elections Office of the Lieutenant Governor P.O. Box 110015 Juneau, AK 99811 Phone: 465-4084 POSITION STATEMENT: Addressed SB 303 for the Lieutenant Governor's Office, Sponsor MARY GAY, Director Child Support Enforcement Division Department of Revenue 550 W. 7th, Suite 312 Anchorage, AK 99501-3556 Phone: 269-6800 POSITION STATEMENT: Addressed HB 482 LARAINE DERR, Deputy Commissioner, Treasury Department of Revenue P.O. Box 110400 Juneau, AK 99811-0400 Phone: 465-4880 POSITION STATEMENT: Answered questions on HB 482 PREVIOUS ACTION BILL: HR 9 SHORT TITLE: PROTECTING LIFESTYLES OF PACHYDERMS SPONSOR(S): STATE AFFAIRS BY REQUEST JRN-DATE JRN-PG ACTION 04/06/94 3154 (H) READ THE FIRST TIME/REFERRAL(S) 04/06/94 3154 (H) STATE AFFAIRS 04/14/94 (H) STA AT 08:00 AM CAPITOL 102 BILL: HB 375 SHORT TITLE: PERMANENT FUND INVESTMENTS - LTD PARTNERS SPONSOR(S): RULES BY REQUEST OF LEGISLATIVE BUDGET AND AUDIT JRN-DATE JRN-PG ACTION 01/14/94 2066 (H) READ THE FIRST TIME/REFERRAL(S) 01/14/94 2066 (H) STATE AFFAIRS, FINANCE 03/05/94 (H) STA AT 08:00 AM CAPITOL 102 03/05/94 (H) MINUTE(STA) 04/14/94 (H) STA AT 08:00 AM CAPITOL 102 BILL: SB 303 SHORT TITLE: UNIFORM VOTER REGISTRATION SYSTEM SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR JRN-DATE JRN-PG ACTION 02/11/94 2792 (S) READ THE FIRST TIME/REFERRAL(S) 02/11/94 2792 (S) STA, JUD, FIN 02/11/94 2792 (S) FNS PUBLISHED (DPS,GOV,DHSS-3, DCRA) 02/11/94 2792 (S) ZERO FISCAL NOTE PUBLISHED (DOE) 02/11/94 2793 (S) GOVERNOR'S TRANSMITTAL LETTER 03/02/94 3027 (S) STA RPT 4NR 03/02/94 3027 (S) ZERO FN PUBLISHED (REV) 03/02/94 3027 (S) PREVIOUS FNS (DPS, GOV, DHSS-3, DCRA) 03/02/94 3027 (S) PREVIOUS ZERO FN (DOE) 03/02/94 3038 (S) JUD REFERRAL WAIVED Y11 N9 02/22/94 (H) MINUTE(STA) 03/02/94 (S) STA AT 9:00 AM BUTROVICH RM 205 03/02/94 (S) MINUTE(STA) 03/15/94 3212 (S) FIN RPT 1DP 1DNP 5NR 03/15/94 3212 (S) PREVIOUS FNS (DPS, GOV, DHSS-3, DCRA) 03/15/94 3212 (S) PREVIOUS ZERO FNS (DOE, DOR) 03/15/94 (S) FIN AT 08:30 AM SENATE FIN 518 03/18/94 (S) RLS AT 00:00 AM FAHRENKAMP ROOM 203 03/18/94 (S) MINUTE(RLS) 03/28/94 3373 (S) RULES RPT 1CAL 2NR 3/28/94 03/28/94 3375 (S) READ THE SECOND TIME 03/28/94 3376 (S) ADVANCED TO THIRD READING UNAN CONSENT 03/28/94 3376 (S) READ THE THIRD TIME SB 303 03/28/94 3376 (S) PASSED Y11 N8 E1 03/28/94 3376 (S) EFFECTIVE DATE PASSED Y19 N- E1 03/28/94 3377 (S) MILLER NOTICE OF RECONSIDERATION 03/30/94 3415 (S) RECONSIDERATION NOT TAKEN UP 03/30/94 3416 (S) TRANSMITTED TO (H) 03/31/94 3102 (H) READ THE FIRST TIME/REFERRAL(S) 03/31/94 3103 (H) STATE AFFAIRS, FINANCE 04/05/94 (H) STA AT 08:00 AM CAPITOL 102 04/05/94 (H) MINUTE(STA) 04/14/94 (H) STA AT 08:00 AM CAPITOL 102 BILL: HB 482 SHORT TITLE: EMPLOYMENT INFO PROVIDED TO THE STATE SPONSOR(S): REPRESENTATIVE(S) HANLEY,Ulmer JRN-DATE JRN-PG ACTION 02/14/94 2377 (H) READ THE FIRST TIME/REFERRAL(S) 02/14/94 2377 (H) STATE AFFAIRS 03/15/94 (H) STA AT 08:00 AM CAPITOL 102 03/15/94 (H) MINUTE(STA) 03/22/94 (H) STA AT 08:00 AM CAPITOL 102 03/22/94 (H) MINUTE(STA) 04/14/94 (H) STA AT 08:00 AM CAPITOL 102 ACTION NARRATIVE TAPE 94-47, SIDE A Number 000 CHAIRMAN AL VEZEY called the meeting to order at 8:03 a.m. Members present were REPRESENTATIVES KOTT, G. DAVIS, OLBERG and B. DAVIS. A quorum was present. HR 9 - PROTECTING LIFESTYLES OF PACHYDERMS CHAIRMAN VEZEY opened HR 9 for discussion. He stated HR 9 encourages the Governor to grant an extension for Moxie the elephant. Number 043 REPRESENTATIVE GARY DAVIS moved to pass HR 9 from committee with individual recommendations and attached zero fiscal note. Number 050 CHAIRMAN VEZEY asked the committee secretary to call the roll. IN FAVOR: REPRESENTATIVES VEZEY, KOTT, B. DAVIS, G. DAVIS, OLBERG. ABSENT: REPRESENTATIVES ULMER, SANDERS. MOTION PASSED HB 375 - PERMANENT FUND INVESTMENTS - LIMITED PARTNERSHIPS CHAIRMAN VEZEY opened HB 375 for discussion. Number 078 CARL BRADY, TRUSTEE, ALASKA PERMANENT FUND CORPORATION (APFC), introduced himself and BILL SCOTT, EXECUTIVE DIRECTOR, APFC, who joined him at the table. He addressed the proposed amendment to HB 375. The amendment reads as follows: *Sec 1. AS.13.120(g) is amended by adding a new paragraph to read: (21) Notwithstanding 37.13.120(i), equity investments may comprise more than five percent of the stock of a corporation only through an interest in a partnership, or ownership in a collective investment vehicle, under the following conditions: (A) the Fund shall not own more than a 60% interest in a partnership or collective investment vehicle; (B) the aggregate investment of the Fund under this paragraph may not exceed five percent of the total investments of the Fund; (C) at no time may the Fund own directly or indirectly, through a corporation, partnership or collective investment vehicle, more than 5% of any entity which has substantial oil and gas operation in the State of Alaska; (D) appropriate policies and procedures for investments under this section shall be reviewed and approved annually by the Board of Trustees. MR. BRADY stated the success of permanent fund's investments is primarily attributed to diversification, or asset allocation; attributing 90 percent of most funds success to asset allocation. He expressed markets do, however, fluctuate. He likened APFC's assets to a pyramid, whereby the further they horizontally diversify in other classes, the more safety brought to the principal of the corporation's assets. MR. BRADY explained APFC is requesting authority to invest into more than five percent of any one individual equity. When the fund had $3 billion, more than five percent of a Fortune 500 company or blue chip stock, would have been a significant amount of money. Five percent of smaller capitalization stocks may only be $8-$10 billion. APFC believes owning more than five of a particular equity would be more beneficial. MR. BRADY addressed alternative investment strategies. There are over 200 of public and private entities that have them. He noted Oregon and Washington have over $1.5 billion each in alternative investments, or with institutional investors. The APFC would limit itself to no more than 60 percent in a partnership with other institutional investors. APFC has been fortunate because the bull market has been very good to its stocks in the past; however, this is no longer the case. APFC is now losing some of its unrealized gains. Therefore, the horizontal horizon of the pyramid needs to be broadened to cover the fluctuations in the market in the future. He noted APFC international and global stocks are working in this way, whereas they are outperforming their U.S. domestic stocks. MR. BRADY commented the language provides there would not be double exposure on oil and gas, for example. APFC would not be purchasing stocks principally dealing with oil and gas in Alaska. APFC will spend a lot of time selecting who it intends to co-invest with. HB 375 is important now. CHAIRMAN VEZEY asked where the proposed amendment goes. REPRESENTATIVE HARLEY OLBERG interjected he believed the amendment was a proposed committee substitute. CHAIRMAN VEZEY inquired if MR. BRADY was suggesting the draft language for the proposed change to a CSHB 375 was to replace all the wording in the existing HB 375. Number 191 BILL SCOTT, EXECUTIVE DIRECTOR, APFC, responded that was correct. He stated the proposed amendment is a replacement of the original language, which accomplishes the same thing. The suggested change describes the investment more clearly. Number 195 CHAIRMAN VEZEY questioned if there was an AS 13.120. Number 200 REPRESENTATIVE OLBERG noticed the "37" was missing from the statute number. The correct statute is AS 13.37.120. Number 203 MR. BRADY stated the original language dealt more with vehicle, as opposed to the investment. Number 206 MR. SCOTT clarified the correct statute is AS 13.37.120. There had been a typing error in the amendment. He noted there would also need to be a new title. He suggested, "An Act relating to equity investments of the permanent fund." Number 208 CHAIRMAN VEZEY commented he did not understand the wording in the original HB 375; however, it would now be replaced. He questioned if the proposed change still dealt with the same subject. Number 222 MR. SCOTT responded the original HB 375 emphasized the vehicle, rather than the investment. He related to limited partnerships and how they got a "bad name" from the tax shelters of the 1980s. This has caused a misunderstanding. The intent of the committee substitute is to clarify what the investment will be. The investment would probably be handled through a "limited partnership" vehicle. If the APFC was able to own more than five percent of a corporation they would be able influence the corporate activities by improving its management and changing policies. These changes would improve the corporation's operating profits, thereby increasing the value of the stock. The APFC expects to gain extra earnings from the investment through the appreciation of the stock. Number 276 MR. BRADY explained co-investors would be investing with managers. He stated these institutional managers would select the stock and involve themselves in the activities MR. SCOTT mentioned. Alternative investments typically return higher rates with greater risk, therfore diligence in the investment is as critical. MR. BRADY referred back to the point of diversification. He stated currently, the fund's unrealized gains, "paper profits," have eroded to nearly $1 billion due to the 9-10 percent reduction in the markets. The intent is to redistribute the money into other areas that have had and continue to have a large degree of success. He noted most investors have this class in their portfolios; however, only a small percent. APFC limited the amendment to propose only five percent of the fund, and no more than 60 percent of the partnership. Number 303 CHAIRMAN VEZEY clarified APFC would like to be able to invest more than five percent in an equity. He inquired why APFC was limiting itself to only 60 percent of a partnership, implying they would not be dealing with less than nine percent of an equity. Number 316 MR. BRADY replied more than five percent of ABC stock. He noted, of the pool of stocks with the institutional investor, APFC would not own more than 60 percent. Number 319 CHAIRMAN VEZEY responded correct. He commented if the APFC had no more than 60 percent interest in a fund, the fund would have to own practically 10 percent of an equity before APFC would have five percent. Number 325 MR. SCOTT answered correct. He said the fund, however, might only buy 20 or 30 percent of a company. They would then have sufficient to influence management and improvement of the total operating characteristics of the company. If APFC owned 60 percent of that fund, they would effectively own 12 percent of a company. He noted the existing statute only allows the APFC to own five percent of a company. This is the reason for the restrictive language in the proposed committee substitute. Number 337 CHAIRMAN VEZEY agreed there was a lot of restrictive language. He inquired if the APFC was interested in expanding its investments to more than five percent of an equity. MR. SCOTT answered as a single investment, no. Number 343 CHAIRMAN VEZEY repeated the intent of the proposed legislation. MR. SCOTT added there are investment managers who specialize in managing these investments daily and they have been extremely successful. APFC would like to share in the success. CHAIRMAN VEZEY stated he was concerned that as returns tend to fall, the managers will tend to take higher risks to keep their returns up to historic levels. Specifically, pension funds. Number 365 MR. SCOTT pointed out "pension funds have no restrictions in their enabling..." Number 367 MR. BRADY explained APFC was not working from a legal list. They are working from a prudent investor list. He felt APFC has a philosophical difference than most investors. It would be very difficult for APFC to be much different from the market place because they are so diversified. APFC has a certain amount of money in "very, very, very conservative cash." On the other hand, APFC has its international/global stocks and real estate. The structure of the change is very similar to their real estate. He pointed out, for the first time in a long time, real estate outperformed all other asset classes this last quarter. Number 383 CHAIRMAN VEZEY referred to the restrictions of the proposal. He clarified the APFC would not invest more than five percent of the fund's assets in the total class. Number 391 MR. SCOTT answered in this type of investment, correct. Number 394 MR. BRADY added over 50 percent is in fixed income, or bonds. Real estate is six-seven percent. Number 396 CHAIRMAN VEZEY clarified in this type of investment, in total, APFC would not exceed five percent. MR. SCOTT replied of the fund, correct. Number 399 CHAIRMAN VEZEY stated the strategy is a diversification of a rather small portion of the portfolio. MR. SCOTT said correct. Number 401 MR. BRADY stated in their Ketchikan meetings last fall, they entered into securities lending as an additional class. This is authorized; however, they had not been doing it. He noted has produced $800,000 to $1 million since it was started a couple months ago. APFC wants to continue diversification as the fund continues to grow at $80-100 million a month in income. Number 416 REPRESENTATIVE OLBERG inquired of the total number of assets the fund has today. MR. SCOTT answered about $15 billion. Number 418 REPRESENTATIVE OLBERG pointed out five percent would exactly be "chunk change" - $750 million. Number 419 MR. BRADY said correct. He added it would be very difficult for the APFC to get anywhere near that amount of money at the onset. The asset allocation targets are hard to meet with the income flowing at the rate that it is. The targets cannot be met as fast as the revenue is coming in. APFC needs percentages to make everything add up to 100 in their totals. Number 428 CHAIRMAN VEZEY read subparagraph (C) of the amendment and said it was complicated. He stated APFC's opportunity to participate with a venture capital firm, who was going to do an exploration well in Alaska, would be almost nonexistent. Number 437 MR. BRADY responded APFC would not participate in the deal if the firm had an oil and gas producer in Alaska in the fund. APFC might end up with more than five percent and they feel it would be doubling their exposure, noting their core source is royalty revenue. He noted, as royalty revenue goes down, presumably the value of their stock would follow. Number 444 CHAIRMAN VEZEY felt this contradicted the intent of investing the state's wealth back into Alaska. MR. BRADY agreed, in that regard. Referring to this asset class, APFC owns a considerable amount of stocks with oil and gas operations in Alaska in their domestic equity portfolio. He believed ARCO, Exxon and Union Oil are stocks in that portfolio; however, they are not even near five percent. Number 456 CHAIRMAN VEZEY referred to mining and timber also. He stated by APFC standards, five percent of AMEX Gold would not be a major investment. He guessed $400-500 million. Number 461 REPRESENTATIVE G. DAVIS corrected gold and timber are not oil and gas. Number 462 CHAIRMAN VEZEY clarified subparagraph (C) is limited to oil and gas. He questioned why APFC would want to restrict its opportunities to invest in Alaska. He appreciated, however, the prudent investor attitude about investing in oil and gas prospects in Alaska. Number 472 MR. BRADY stated he believed the primary purpose was not to let it go. They do not want to invest in stocks which they are already getting their core source of income from. They fear if the price of oil were to go down the value of the stock would follow. This is a safety concern. Number 479 CHAIRMAN VEZEY commented he did not believe it was true that royalty was the APFC's core source of income anymore. MR. SCOTT answered not anymore. Number 482 CHAIRMAN VEZEY added oil has been converted into another form of wealth. MR. BRADY stated their investment income is superceding the royalty income now. Number 484 REPRESENTATIVE OLBERG questioned if royalties were not still the single largest source of income. Number 486 MR. SCOTT answered no, not for the APFC. He said their bottom line is more in a couple of months than they receive all year from royalties. He said CHAIRMAN VEZEY was correct. Number 490 REPRESENTATIVE OLBERG commented he was more concerned with how the APFC invests, not where. He has never felt the APFC "had a special charge" to invest in Alaska. The quality of investments is much more important than the geographic location. Number 495 CHAIRMAN VEZEY replied he had trouble putting into statute that APFC would basically stay out of oil and gas operations in Alaska. MR. SCOTT responded only with respect to this vehicle. Number 501 MR. BRADY said they could provide lists of stocks doing business in Alaska that are domicile elsewhere, but their revenue comes from Alaska. Number 503 CHAIRMAN VEZEY stated HB 375 would involve APFC with a managing partner that had a substantial equity interest and effective management influence. He questioned if this much restriction needed to be in statute. Are the Board of Trustees trusted enough to not have it in statute? Number 517 MR. BRADY replied that was a good point. Their debate on HB 375 resulted in the conservatism. He noted they have a very good board; however, trustees do come and go. Number 528 REPRESENTATIVE BETTYE DAVIS referred to subparagraph (C) of the proposed change. She asked if (C) could be deleted, thereby having it done in regulations rather than in statute. She noted the proposed amendment is supposed to be a committee substitute to the original HB 375. Subparagraph (C) does not have to be included. Number 535 MR. SCOTT commented the deletion would not affect the intent of the legislation. Number 537 CHAIRMAN VEZEY questioned why HB 375 had a $200,000 fiscal note. MR. SCOTT answered consultants and advisors will need to be hired to screen any investment of this type made by the APFC. They approach each investment with due caution, therefore an independent analysis will be done. Number 552 CHAIRMAN VEZEY said he was still trying to learn how the APFC accounts to the legislature. Number 556 MR. SCOTT responded the legislature approves their budget just as it does for other departments. Number 557 CHAIRMAN VEZEY pointed out there are general moneys and program receipts. Number 559 MR. SCOTT clarified they are funded by program receipts. APFC expects the expense impact would be far offset by potential gains. Number 568 CHAIRMAN VEZEY asked if the APFC would be objectionable to the deletion of subparagraph (C). Number 573 MR. BRADY said he did not believe so. They put subparagraph (C) in for two reasons. First, so APFC would carefully watch to not double their exposure. Second, it made APFC more politically comfortable because it clarified the proposal came from the board itself, and not the Administration. He stated there had been questions as to whether alternative investments would include water pipelines, etc... He answered no. Sub-paragraph (C) would dispel any concerns. (REPRESENTATIVE OLBERG left the meeting at 8:38 a.m.) Number 593 REPRESENTATIVE G. DAVIS asked if there was similar language in present statute in other areas where the APFC is limited. MR. SCOTT answered their only limitation in real estate is that it must be within the U.S. Other than that, not really. Number 598 MR. BRADY mentioned institutional grade and code. Number 600 REPRESENTATIVE G. DAVIS commented he thought it might be policy that certain percentages were to be invested in certain areas. He inquired if this was in statute or policy. Number 602 MR. BRADY clarified within institutional grade there is residential, industrial, commercial, etc... He noted certain things are not done because they do not think it is wise. Number 606 CHAIRMAN VEZEY inquired if there was a companion bill in the Senate. MR. BRADY answered yes, SB 244 moved out of Senate State Affairs yesterday. Number 610 REPRESENTATIVE B. DAVIS asked if the bill that passed the Senate State Affairs Committee was the new committee substitute. MR. BRADY affirmed REPRESENTATIVE B. DAVIS. Number 618 CHAIRMAN VEZEY asked if there was a motion to adopt the committee substitute, version E to HB 375. Number 619 REPRESENTATIVE B. DAVIS so moved, and noted that she wanted to delete subsection (C), page 1. CHAIRMAN VEZEY asked the committee secretary to call the roll. IN FAVOR: REPRESENTATIVES VEZEY, KOTT, B. DAVIS, G. DAVIS. ABSENT: REPRESENTATIVES ULMER, SANDERS, OLBERG. MOTION PASSED Number 627 REPRESENTATIVE KOTT clarified the committee substitute to HB 375, less subsection (C) had been adopted. Number 630 REPRESENTATIVE B. DAVIS asked what the title change would be. MR. SCOTT suggested the title be, "An Act relating to equity investments of the permanent fund." CHAIRMAN VEZEY asked why this title would be suggested. MR. SCOTT answered the title on the original HB 375 does not quite fit; therefore, the new title would simplify the description of the intent. He noted the original title emphasized limited partnerships which was not the thrust of the bill. Number 644 CHAIRMAN VEZEY said CSHB 375 would be held in committee so legal services could prepare a title. He advised it was very late in the legislative process and the actual chance of CSHB 375 passing this session was slim. Number 658 DAVID GOTTSTEIN, PRESIDENT, DYNAMIC RESEARCH GROUP, supported CSHB 375. He noted the permanent fund had expanded its scope of investments over the years. He felt the great market Alaska had been experiencing for the last 10-12 years was coming to an end. Therefore, from a risk management perspective, they would have to become even smarter to accomplish smaller returns because interests rates are not as high. He felt CSHB 375 would allow APFC to expand, while acting prudently. He concurred with MR. SCOTT that it is not necessarily appropriate to get bogged down in the vehicle. Making sure the investment is good and priced right is the most important. CSHB 375 would allow premium returns while managing the risk appropriately with partners. Number 683 RALPH SEEKINS, CHAIRMAN, BOARD OF TRUSTEES, supported CSHB 375. He clarified APFC was not trying to get more sophisticated, rather more profitable. He said the oil and gas restriction was a political limitation. TAPE 94-47, SIDE B Number 000 MR. SEEKINS estimated some of the restrictions presently on the APFC has cost the people of the state of Alaska between $300-400 million. He noted the APFC is restricted by law to a very small portion of the universe of corporate securities as an example. APFC is limited to AA or better, of the five percent, in the A category. There are certain good investments which the APFC cannot buy. He explained the only way "to own those A stocks is to be that five percent, or have an AA move down." MR. SEEKINS stated part of his mandate on the Board of Trustees is to return the best possible return for the people of the state of Alaska. He felt if they did get this additional class available to them, they would not fill it very quickly because they would be looking for the prudent investment. He noted if ten packages were bought, eight may be bad. Therefore, this is where the political risk comes in. Those two would be put on the front page even if a "killing" was made on the other eight. APFC wants to balance this problem. MR. SEEKINS expressed APFC felt without moving farther to the upper right on the risk factor, they can move farther up on the profit factor. They are seeking a balance. APFC is also not trying to put the legislature farther out on the "political limb" than it already is. SB 303 - UNIFORM VOTER REGISTRATION SYSTEM Number 116 CHAIRMAN VEZEY opened SB 303 for discussion. CHAIRMAN VEZEY called for a recess at 8:55 a.m. The meeting resumed at 9:02 a.m. Number 120 LAURA GLAISER, ELECTIONS, OFFICE OF THE LIEUTENANT GOVERNOR, addressed SB 303. She referred to CHAIRMAN VEZEY's question about whether the legislature could change the law and go back to where a person would not have to register to vote for federal elections. Currently, Alaska state law only allows this to be done for the President. She answered Virginia Ragle, Assistant Attorney General, Department of Law, spoke with the Department of Justice (DOJ) and they again would not commit to whether they will allow the change or file suit. DOJ mentioned one state had gone back and changed the language of its laws so a person did not have to be registered for federal elections and made it retroactive to April 11, 1993, even though the change was just enacted. DOJ did not look on this favorably. Number 156 CHAIRMAN VEZEY said he questioned if it might be cheaper to go to a dual standard. He felt the federal government was trying to use the National Voter Registration Act (NVRA) of 1993 to tell Alaska how to regulate federal elections, which they do not have the authority to do outside of court authority. Number 183 MS. GLAISER responded she felt the Lt. Governor viewed NVRA as it was directed to the Division of Elections. She stated it is extremely expensive to have two dual systems, therefore CHAIRMAN VEZEY was correct is assuming the federal government is forcing Alaska to accept that which they want for the federal government laws. She noted it is easier to conform state law to pick up the provisions in NVRA. Number 197 CHAIRMAN VEZEY clarified it would be easier to remove the requirements for registration for federal elections as we currently do with presidential elections. Number 199 MS. GLAISER said correct; however, NVRA says the state cannot do that. She noted one state has tried to go retroactive and that another has just tried to change that provision. DOJ is still not committing as to how they would pursue these changes; however, they gave the impression that a lawsuit would ensue. Number 207 CHAIRMAN VEZEY stated the next federal election would be November 1996. He questioned if Alaska should be in a rush to resolve this problem. Number 213 MS. GLAISER replied the only rush is that Alaska is supposed to be in compliance with NVRA by January 1, 1995. Compliance by 1995 would ensure the federal election in 1996 would be working under NVRA. Number 226 CHAIRMAN VEZEY said due to a lack of a quorum the committee could not take action on SB 303. He stated parts of SB 303 strike him as strange. He wondered how the courts would look upon a law that said it is legal to do something if it was on the books before a certain date, but it is not legal if it was not. CHAIRMAN VEZEY held SB 303 in committee. Number 241 REPRESENTATIVE G. DAVIS related to additional work caused by the mandates in federal laws and asked if there has been an extension on the January 1, 1995, deadline. MS. GLAISER replied January 1, 1995, is the only date they were given. No extension has been granted. Number 260 REPRESENTATIVE G. DAVIS inquired, should Alaska not be in compliance, what additional cost might be incurred to the Division of Elections relating to question ballots or a lawsuit by a voter. Has the cost of elections increased substantially as the population has increased. MS. GLAISER answered she was not aware of the cost of elections or question ballots increasing as the population increases. She felt SB 303 would not change this. The question ballot is important because it is considered a "fail safe" within federal law. Number 280 CHAIRMAN VEZEY asked for MS. GLAISER to prepare some of the information she received from Virginia Ragle so as a report might be added to the file. HB 482 - EMPLOYMENT INFORMATION PROVIDED TO THE STATE CHAIRMAN VEZEY opened HB 482 for discussion. Number 295 MARY GAY, DIRECTOR, CHILD SUPPORT ENFORCEMENT DIVISION, DEPARTMENT OF REVENUE, addressed HB 482. She stated HB 482 requires employers with 20 or more employees, to report new hires to the Child Support Enforcement Division (CSED). The original legislation enacted three years ago, contained a sunset clause. The original legislation had been proposed because CSED obtained a federal improvement demonstration grant to determine whether employer recording of new hires would increase the effectiveness of collections in child support. She said the first year the program was limited to only the largest employers of the largest number of obligors. The first year resulted in $753,000 in collections, of which $200,000 was directly associated to the additional information from the employers. MS. GAY noted prior to the legislation, the only method CSED had to obtain information as to whether an obligor was employed was whether the person gave them the information or through Department of Labor (DOL) records. The quarterly reports required by the DOL are only done at the end of ninety days. The employer does not have to submit them until thirty days later; therefore, by the time the information is accessible to CSED it is already four months old. Quite often the employee has moved on to another job and the CSED misses the opportunity to collect the child support. MS. GAY commented the second year CSED collected from seasonal employers. Seasonal employers are easily missed by the CSED. In the second year, including the first year target group, CSED collected in excess of $3 million, of which $625,000 was directly attributed to the legislation. MS. GAY commented in the third year, the target group will be analyzed according to the occupation. CSED will try to determine which occupations obligors are most commonly employed in, then target those occupations. Number 348 CHAIRMAN VEZEY asked if the employer reporting requirements were also applicable to labor unions and hiring halls. MS. GAY replied she thought the labor unions might have been included in immediate wage withholding. HB 482 regards employers. CHAIRMAN VEZEY inquired if hiring halls were required to notify CSED monthly of dispatches. Number 359 MS. GAY said she was not sure, but she did not think so. Hiring halls do not pay the wages. Number 367 CHAIRMAN VEZEY said he had thought they were also required to make the support. He commented the additional information makes collections much easier. The reporting is at the employer's expense and inconvenience. He felt employers should be given recognition for doing a tremendous service at no cost to the state. He suggested employers be compensated for their efforts. Number 379 MS. GAY responded current law states a dollar can be removed from the wages of the employee for the employer report. She said she did not know if there was federal match participation, whereby payment by the CSED would be an allowable expenditure for the federal match. Number 386 CHAIRMAN VEZEY mentioned the cost to the employer to account for the $1 deduction would be considerably more than $1. Number 388 LARAINE DERR, DEPUTY COMMISSIONER, TREASURY, DEPARTMENT OF REVENUE, answered questions on HB 482. She stated from her research, the sunset clause was put into the legislation three years ago because of a compromise. The dollar deduction and the sunset were part of the compromise so that if the program was not working in three years it could be repealed, or if there was significant cost impact to the employers it could be fixed at this time. From her knowledge, the $1 has not been under criticism. Number 404 CHAIRMAN VEZEY said he had not heard from anyone doing the $1 deduction. The $1 deduction was not worth it to the employers. He pointed out they are claiming the legislation is saving the state a lot of money on welfare payments; however, it is actually taxing the resources of the employers. The accounting process in the payroll is expensive. HB 482 would expand the project and go down the scale of employers. He felt employers would get more angry because they would have to work harder for the state. Number 424 MS. GAY reiterated the stages the program has gone through because it is a study. CSED does not want to put an undue burden on the employers. They do not intend to continue to request an employer with little turnover in employees to turn in the information. She emphasized the federal government feels the program is very worthwhile and there is legislation currently before Congress to require all states to enact laws, whereby employers would report the new hires. HB 482 would prevent confusion among the employers and the cost involved with starting and stopping the process. Number 449 CHAIRMAN VEZEY questioned the clause in statute that penalizes employers a 100 percent civil penalty for not witholding moneys if they have been notified of an employee with an obligation to the CSED. He stated the employee, once terminated, could come back to work in the future and the witholding order is still enforced until released by a court order. He could not recall any court order releasing any witholding order he has. He felt the 100 percent penalty did not foster a good relationship between the state and the employer. He found it offensive and believed it could be corrected easily. CHAIRMAN VEZEY stated he had written a letter to Laraine Derr with suggestive wording. Number 469 MS. GAY replied CHAIRMAN VEZEY has the opportunity. Number 478 MS. DERR did not recall receiving the letter. Number 490 REPRESENTATIVE G. DAVIS referred to the 1-3 ratio. He asked if the CSED was looking to extend the demonstration project or put the inclusions of the project into statute. Number 496 MS. GAY replied CSED would like to extend the project, even though the federal grant was only for three years. They want to keep the money coming in on a steady basis so the custodial parents can plan for their financial obligations. This would reduce the claims for public assistance. Number 504 REPRESENTATIVE G. DAVIS referred to the target ratio, 1-3 collected for each dollar spent on the program. He asked if the 1-3 target was met. Number 509 MS. GAY answered she had lost the report of those figures on the airplane to Juneau. She said $250,000, of the total $750,000, was directly attributed to the program the first year. This is approximately 1-3. Number 515 REPRESENTATIVE G. DAVIS inquired as to the anticipated cost of the program. Number 517 MS. GAY responded CSED did not attach a fiscal note to HB 482. The federal government granted approximately $250,000 a year for the project. She noted CSED had extra steps to go through to meet the reporting requirements, etc.,.... required by the federal grant. She said there was a specific cost involved to determine what the gains were attributed to. Number 526 REPRESENTATIVE G. DAVIS clarified the demonstration received $250,000 in federal grants and realized $200,000. Number 528 MS. GAY said, in the first year. Number 530 REPRESENTATIVE G. DAVIS inquired if this number was total or state share. Number 532 MS. GAY answered total. She said 50 percent would be attributed to AFDC, of which 50 percent would be state and 50 percent would be federal. Therefore, $50,000 directly attributed to general fund moneys to the state. Number 534 REPRESENTATIVE G. DAVIS stated from a cost benefit standpoint the program might break even. The grant required CSED to do extra controls that might cost extra if the program was a state program. Employees would still be needed. Number 545 MS. DERR pointed out in the second year, CSED gained $621,000. She stated the $250,000 from the first year grant was basically for set up charges. As the study progressed, the pay collections increased. Number 550 MS. GAY commented in the first year report extrapolated from the existing data, estimated potential collections could reach $7.5 million by expanding the program to the universe of employers. (REPRESENTATIVE OLBERG rejoined the meeting at 9:30 a.m.) Number 555 CHAIRMAN VEZEY stated he would forward the letter to MS. DERR again. He said the committee would try to bring HB 482 up again on Saturday. ADJOURNMENT CHAIRMAN VEZEY, having no more business before the committee, adjourned the meeting at 9:33 a.m.