Legislature(1993 - 1994)
04/20/1994 09:45 AM Senate FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE April 20, 1994 9:45 a.m. TAPES SFC-94, #73, Side 2 (375-000) SFC-94, #75, Side 2 (000-end) CALL TO ORDER Senator Steve Frank, Co-chair, convened the meeting at approximately 9:45 a.m. PRESENT In addition to Co-chair Frank, Senators Rieger, Kerttula, and Sharp were present. Senator Kelly joined the meeting after it was in progress. Senator Jacko was absent from the meeting. ALSO ATTENDING: Benjamin Brown, aide to Representative Toohey, sponsor to HB 327; Pete Jeans, Real Estate Investment Officer, Alaska Permanent Fund Corp.; Jim Kelly, Research & Liaison Officer, Alaska Permanent Fund Corp.; Larry LaBolle, aide to Representative Richard Foster, sponsor of HB 407; Juanita Hensley, Chief, Driver Services, Division of Motor Vehicles, Department of Public Safety; Terry Brenner, private citizen; Mike Greany, Director, Legislative Finance Division; representatives of the media, aides to committee members and other members of the legislature. SUMMARY INFORMATION CSHB 498(FIN): An Act providing for exploration incentive credits for activities involving locatable and leasable minerals and coal deposits on certain land in the state; and providing for an effective date. Withdrawn from the agenda. HB 327: An Act extending the termination date of the Board of Veterinary Examiners; and providing for an effective date. Benjamin Brown, aide to Representative Toohey, sponsor to HB 327, testified in support of the bill. HB 327 was REPORTED out of committee with a "do pass," and a zero fiscal note for the Department of Commerce & Economic Development. HB 373: An Act relating to investments of the permanent fund involving equity interests in and debt obligations secured by mortgages on real estate; and providing for an effective date. Pete Jeans, Real Estate Investment Officer, and Jim Kelly, Research & Liaison Officer, Alaska Permanent Fund Corp., testified in support of HB 373. Discussion was had by Senators Kerttula, Rieger, Kelly, Sharp and Co-chair Frank regarding real estate investments and the Senate version of the bill. HB 373 was HELD in committee. HB 407: An Act relating to issuance of commemorative gold rush motor vehicle license plates. Larry LaBolle, aide to Representative Richard Foster, sponsor of HB 407, testified in support of the bill. Juanita Hensley, Chief, Driver Services, Division of Motor Vehicles, Department of Public Safety, answered questions and addressed the fiscal note. Terry Brenner, private citizen, spoke in support of new plates and suggested changes to the small plates on motorcycles and trailers. A letter of intent was drafted to address those concerns. SCSHB 407(FIN) was REPORTED out of committee with a "do pass," a letter of intent, and zero fiscal note for the Department of Public Safety. CSSB 67(FIN): An Act amending provisions of ch. 66, SLA 1991, that relate to reconstitution of the corpus of the mental health trust and to the manner of enforcement of the obligation to compensate the trust; and providing for an effective date. Scheduled but not heard. HB 327: An Act extending the termination date of the Board of Veterinary Examiners; and providing for an effective date. CO-CHAIR FRANK invited Benjamin Brown, aide to Representative Toohey, sponsor of HB 327, to join the members at the table. BENJAMIN BROWN said that HB 327 simply extended the Board of Veterinary Examiners for four years and made no other changes to their statutory authority or composition other than extending their life span to 1997. SENATOR RIEGER said he had heard no complaints regarding this Board. Senator Kerttula remarked that individuals practiced veterinary services long before they were licensed by the state. SENATOR KERTTULA MOVED for passage of the corrected version of HB 327 from committee with individual recommendations. HB 327 was REPORTED OUT of committee with a "do pass," and a zero fiscal note from the Department of Commerce & Economic Development. Co-chair Frank, Senators Kerttula, Sharp and Rieger signed "do pass." HOUSE BILL NO. 373: An Act relating to investments of the permanent fund involving equity interests in and debt obligations secured by mortgages on real estate; and providing for an effective date. Co-chair Frank announced that HB 373 was before the committee. He invited Pete Jeans, Real Estate Investment Officer, and Jim Kelly, Research & Liaison Officer, both of the Alaska Permanent Fund Corporation, to join the members at the table. JIM KELLY said the purpose of the bill was to allow the Permanent Fund to purchase up to 100 percent interest in real estate, which was now limited to 40 percent. He noted that the Board of Trustees completely supported this change, and the bill had passed the House with only one opposing vote. The bill also passed out of Senate Judiciary unanimously. He said the Permanent Fund had about $1 billion invested in real estate out of a $15.1 billion fund. This equated to a seven percent investment in real estate. Fifteen years ago the legislature had given the fund a real estate investment limit of 15 percent. The Board of Trustees had further limited real estate investments to 10 percent, give or take a percent or two. Passage of HB 373 would enable the Fund to achieve the 10 percent investment in real estate. Mr. Kelly gave two reasons that the Permanent Fund chose real estate for investments. One, to minimize portfolio risk, and two, to maximize return on investments. The real estate portfolio had been a good performer over the long term with an 8.17 percent return over the last ten years. It was in the top five percent among institutional investors in the country. The Permanent Fund was in the top ten of the largest institutional investors and one of the very best in the country. In the last two quarters, real estate had been the best performer. HB 373 would help the Board do a better job in real estate investments. In answer to Senator Kerttula, in regard to overseas investment loss, Mr. Kelly said that of March 14, there had been a $1.5 billion investment in overseas stock which was now worth $1.7 billion putting that investment $200M above water in non-US equities. Senator Rieger commented that international markets had held well in the last few weeks, and felt it was one of the best diversifications the Fund had done. PETE JEANS said that the 40 percent rule in regard to real estate had worked well for the past 10 years. But one of the problems that had come up in the last few years was that more pension funds were getting involved in real estate, and by only holding 40 percent, the Fund was in a minority position in all holdings. It was an issue of control. If the Fund decided to sell a property, and the partners were not convinced to sell, the property must be held. It tied the hands of the Fund in over 200 properties. He felt the Fund needed to be able to control its own destiny and had proved itself with a history of success. He said, however, there was still the intention to co-invest. Senator Rieger agreed that in a real estate partnership it was the worst position to not have the power to affect decisions, and spoke in support of the Fund receiving this alternative. In answer to Senator Kerttula, Mr. Kelly said that an REIT was stock secured by real estate. He felt they were overpriced and the Fund had not invested in any. Mr. Kelly went on to answer another question by Senator Kerttula, saying that there were three real estate investments in Alaska; the Frontier Building in Anchorage, the Goldbelt Building in Juneau, and the Port Plaza in Ketchikan. In regard to the Frontier Building, the Fund only held the mortgage, did not own the building, and was not involved in negotiating leases. Mr. Kelly explained that there was no limit on the amount of investments that could be done in Alaska but the Board felt that Alaska did not have the opportunity for much institutional real estate. Senator Kelly requested a copy of the Senate version of HB 373, CSSB 245(STA). Recess 9:50am Reconvene 10:05am Senator Kelly said that a provision was added to the State Affairs version that said the Board of Directors had a fiduciary responsibility to the people of the state. It seemed clear but Senator Rieger wanted that language added to the statute. He went on to say that this version said the Fund could own up to two-thirds of a project not to exceed $100M in any one project. He cited testimony in the State Affairs Committee that said control was the issue not necessarily 100 percent ownership. In answer to Co-chair Frank, Mr. Kelly said that Tyson's Corner in Washington D.C. was the single, biggest project invested in by the Fund. It was a shopping center, and the Fund owned 38 percent with an investment of $150M. He said that he could not imagine the Board of Trustees ever allowing the Permanent Fund to invest $500-600M in one property. End SFC-93 #73, Side 2 Begin SFC-93 #75, Side 1 Mr. Kelly spoke in opposition of placing a $100M limit on each investment. He said the Fund needed the option of getting out of a bad deal when it was in a bad deal and getting into a good one when it could. Instead of increasing safety, this limitation added risk. In answer to Co-chair Frank, Mr. Kelly said the Board did not want a limit. Senator Kelly commented that these investors did not invest those amounts of money in their own lives and why should they be given the authority to do it with the Fund's. To everyone's amusement, Co-chair Frank cited the legislature that dealt with a billion dollar budget. Mr. Jeans said that on every real estate investment, there had been a buy-sell provision, and it had never been exercised because of its legality. He noted that provision was used to pull partners to the table to talk but the partners always knew the Fund could not go to 100 percent which caused a loss of negotiating power. Co-chair Frank suggested that language be added to HB 373 that would allow the Fund to invest to 100 percent on a project for the purpose of exiting a real estate investment. Mr. Jeans was not in total support of that suggestion but agreed that anything was better than the present situation. Co-chair Frank and Senator Kelly suggested additional language be drafted using CSSB 245(L&C) as a base document. Senator Rieger agreed with the concept of increasing holdings in order to exit a real estate investment. Mr. Kelly said that CSSB 245(L&C) would be acceptable to work with except for one exemption. He said a provision regarding fiduciary duties required a title change from HB 373, and asked it be removed so the title could remain the same. Senator Rieger said that a legal opinion would be requested regarding the title. In answer to Senator Kelly regarding how large a project the Fund could invest, Mr. Jeans said that a resolution was presented to the Board once a year that detailed what could be done in real estate, including specific limits. He said that process would not change and limits would continue to be put on real estate investments. Co-chair Frank announced that HB 373 would be HELD in committee. CS FOR HOUSE BILL NO. 407(STA): An Act relating to issuance of commemorative gold rush motor vehicle license plates; and providing for an effective date. Co-chair Frank announced that HB 407 was before the committee. He invited Larry LaBolle to join the members at the table. LARRY LABOLLE, aide to Representative Foster, sponsor of HB 407, said the bill established a commemorative plate for the Gold Rush Centennial. In answer to Senator Kelly, Mr. LaBolle asked Juanita Hensley to speak to the cost of the plate. JUANITA HENSLEY, Chief, Driver Services, Division of Motor Vehicles, Department of Public Safety, said the $30 fee would be the same as most vanity plates. She said the Department did not have any objection to $30 or $50. She cited the hot rod plate fee in last year's legislation by Senator Kelly was $50. Senator Sharp MOVED amendment 1 which would insert the words "in consultation with the Alaska Gold Rush Centennial Task Force" on page 1, line 8, giving some oversight to the Task Force. No objection being heard, it was ADOPTED. In answer to Senator Kelly, Ms. Hensley said that the plates would cost approximately $15,400 and revenue would be $30,000. Senator Rieger asked if this bill could be used to make a new design for regular Alaskan license plates. Senator Kelly said that would be a floor amendment. Ms. Hensley said the State Affairs version in the House would have allowed the state to design a new license plate. The House Finance Committee later went back to the original bill. In answer to Senator Kelly, Ms. Hensley said that Alaska required two plates per car. Senator Rieger agreed that might be a floor amendment but felt the Commemorative Gold Rush license plate would make a good standard plate for the next couple of years and would relieve boredom. Mr. LaBolle said Representative Foster had not been opposed to the State Affairs version which did accomplish that. Discussion followed regarding CSHB 407(STA). Senator Rieger MOVED for adoption of CSHB 407(STA) "K" version. No objection being heard, it was ADOPTED. Co-chair Frank MOVED for adoption of amendment 2 which would leave the words "The Last Frontier" on the plates. No objection being heard, it was ADOPTED. Ms. Hensley pointed out that the Department had already ordered the plates for 1995 so the effective date of the bill would be September 1, 1996. She offered a new fiscal note for this version of the bill. She said the first half- year would generate revenue of $66.5 and operating costs of $45.0. FY97 showed $135 revenue and operating costs of $90.1 for the full year. She said operating costs were based on the department's estimate that 25 percent of registered owners would want the new design. Senator Sharp MOVED amendment 1 that had been ADOPTED earlier in the meeting. Senator Rieger questioned giving the Task Force much say considering this new version of the bill. Senator Sharp confirmed that the Task Force would only provide suggested designs and the Commissioner would make a final decision. Senator Rieger REMOVED his objection. No further objection being heard, it was ADOPTED. Senator Sharp MOVED for passage of CCSHB 407(FIN) as amended out of committee with individual recommendations. No objection being heard, it was REPORTED OUT of committee with a "do pass" and a zero fiscal note for the Department of Public Safety. Co-chairs Frank and Pearce, Senators Kelly, Rieger, and Sharp signed "do pass." A letter of intent was ADOPTED after the following testimony and included with the bill. Co-chair Frank apologized to Terry Brenner, private citizen, who had wanted to testify on HB 407 and now invited him to join the members at the table. TERRY BRENNER spoke in support of HB 407. He pointed out that the colors blue and gold of the Alaska flag had been used since 1948. There had been two exceptions, the totem and the bear, which were both excellent plates. He felt the license plate was an important symbol of the state as a person travels. It was widely read and should reflect the taste of the state in general. He wanted to encourage any commemorative plate be expanded to include light trucks and motorcycles. He toured extensively on motorcycles around the country and had been mistaken for an Oregon resident several times. He reiterated his support of HB 407 and the commemorative plate becoming the standard one. Ms. Hensley returned to the table and explained that HB 407 would not include the small license plates used on motorcycles, or trailers. They were so small, it was hard to include any additional information. In answer to Co- chair Frank, Ms. Hensley said that the colors could be reversed so not to be confused with Oregon. After consideration, she suggested the department might just use a different color because the plate numbers needed to reflect easily. Mr. Brenner suggested the possibility of a change in lettering like the 1966 plate. He agreed that the design could not be included on the smaller plates. Co-chair Frank asked if a letter of intent could be included in the bill asking the Department of Public Safety to consider changing the colors of the smaller plates to distinguish them from other states. Ms. Hensley said she saw no problem with that. She also stated that more designs were being considered to be offered as vanity plates. Co-chair Frank MOVED for adoption of a letter of intent to be included with SCSHB 407(FIN). No objection being heard, it was ADOPTED. (Earlier in the meeting the bill had been REPORTED OUT of committee.) SCHEDULED BUT NOT HEARD: CS FOR SENATE BILL NO. 67(FIN): An Act amending provisions of ch. 66, SLA 1991, that relate to reconstitution of the corpus of the mental health trust and to the manner of enforcement of the obligation to compensate the trust; and providing for an effective date. WITHDRAWN FROM THE AGENDA: CS FOR HOUSE BILL NO. 498(FIN): An Act providing for exploration incentive credits for activities involving locatable and leasable minerals and coal deposits on certain land in the state; and providing for an effective date. ADJOURNMENT The meeting was adjourned at approximately 10:45 a.m.