Legislature(2025 - 2026)SENATE FINANCE 532
02/07/2025 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Savings, Reserves, and Investment Funds: Department of Revenue | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
SENATE FINANCE COMMITTEE
February 7, 2025
9:03 a.m.
9:03:29 AM
CALL TO ORDER
Co-Chair Hoffman called the Senate Finance Committee
meeting to order at 9:03 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Mike Cronk
Senator James Kaufman
Senator Jesse Kiehl
Senator Kelly Merrick
MEMBERS ABSENT
Senator Donny Olson, Co-Chair
ALSO PRESENT
Adam Crum, Commissioner, Department of Revenue; Pam Leary,
Director, Treasury Division, Department of Revenue; Zach
Hanna, Chief Investment Officer, Treasury Division,
Department of Revenue; Senator Robert Yundt; Senator Cathy
Giessel.
SUMMARY
PRESENTATION: SAVINGS, RESERVES, and INVESTMENT FUNDS:
DEPARTMENT OF REVENUE
Co-Chair Hoffman reviewed the meeting agenda.
^PRESENTATION: SAVINGS, RESERVES, and INVESTMENT FUNDS:
DEPARTMENT OF REVENUE
9:05:02 AM
ADAM CRUM, COMMISSIONER, DEPARTMENT OF REVENUE, introduced
himself. He noted that the past year was a tremendous year
in investment returns. He said that at FY2024 close, $9
billion of funds in assorted investment accounts gained
$580 million, with long-term funds gaining more than 13
percent. He said Alaska Retirement and Management Board
assets gained $2.8 billion, grown over $43 billion, with 9
percent returns, exceeding actuarial expectations.
PAM LEARY, DIRECTOR, TREASURY DIVISION, DEPARTMENT OF
REVENUE, provided a PowerPoint presentation titled
"Treasury Cash Flow and Investment Fund Update," dated
February 7, 2025 (copy on file).
Co-Chair Hoffman recognized Senator Giessel in the room.
9:06:19 AM
Ms. Leary briefly reviewed slide 2, "Agenda":
? Meet the Treasury Division
? State Cash Management
? Treasury Investment Funds
Ms. Leary turned to slide 4 titled "Department of Revenue
Treasury Division:
The Treasury Division manages over $50 billion in
investments for the
State of Alaska.
? The Division is comprised of 40 experienced
professionals in portfolio management, accounting,
operations, compliance, and cash management. Treasury
staff average tenure is over 10 years and includes
CFAs, CPAs, CTPs and other advanced degrees and
designations.
? Managing multiple funds and state cash flows is
complex and requires a deep understanding of the
investment management and banking systems integrated
into the State accounting system.
? In FY2024, there were 80,000+ trades made on
behalf of hundreds of state accounts that roll
into 45+ investment funds, utilizing 30
investment pools, supported by 130+ investment
managers and 600+ private equity funds.
? Accounting ensures that all trades and costs
are directed and
accounted for in the correct accounts/funds.
? The Middle Office performs 75+ compliance tests
on trades daily and
calculates daily performance for over 45 funds.
? Cash Management processes roughly 100,000
transactions annually for departments to realize
revenue and expenditures in the accounting
system. There are over $15 billion in cash
inflows and cash outflows annually.
? It takes a unique set of skills to manage complex
systems with strong results.
Portfolio Management
• Invests assets for State fiduciaries including the
ARMB
• Assists fiduciaries with asset allocation and
investment policy
• Implements investment policies and produces results
Accounting and Operations
• Asset accounting
• Information technology
• Operations support
Compliance/Middle Office
• Performance reporting and operational efficiency
• Ensures investments meet policies
• Industry compliance and regulations
Cash Management
• Oversees cash receipts & expenditures
• Sets daily cash availability
• Coordinates with portfolio to maximize invested cash
9:09:39 AM
Ms. Leary moved to slide 6, "Managing Alaska's Cash Flows
Inflows
? Tax Revenues Oil and Gas, Excise, Other
? Federal Dollars Grants, Medicaid, FHWA,
Education
? Earnings Reserve Funds
? Agency Receipts Fees, Licenses, Permits
Outflows
? School Education Payments
? Payroll and Pension Payments
? Vendor Payments
? Medicaid Payments
? Dividend Payments
? Grant Payments
? Debt/Credit Payments
Treasury's Cash Management group is experienced in
working with the State's reserves to ensure there is
sufficient cash to meet the State's needs:
? Alaska has significant reserves. According to the
Pew Trust, Alaska's 2024 reserve fund provided 176
days of coverage of our operating budget, the second
highest of all 50 states.
? Uncertainty exists for both revenues and
expenditures.
? Cash flow timing mismatches occur, even with
balanced budgets.
? Revenue shortfalls may occur if forecasted
assumptions are wrong and require sufficient reserves
and appropriations.
9:11:09 AM
Co-Chair Hoffman recognized Senator Robert Yundt in the
audience.
Co-Chair Stedman recognized that the CBR account was one of
the largest in the nation. He countered that the state had
one of the most volatile revenue streams, as it depended on
the price of oil versus taxes such as sales, income, and
property.
Ms. Leary replied that oil volatility was one of the
reasons the Pew Trust recommended larger rainy-day funds.
Ms. Leary turned to slide 7, "Revenue Uncertainty,
Expenditure Uncertainty
Revenue Uncertainty
? Commodity Volatility
Petroleum revenues are projected to be 30 percent of
FY2025 unrestricted General Fund revenues.
Uncertainty exists "in-year" for FY2025 and beyond.
Will always have in-year uncertainty because the
budget is based on in-year oil collections.
? Investment Return Volatility
Investment earnings are projected to be ~60 percent
of FY2025 unrestricted General Fund revenues.
Certainty exists today for FY2025 and FY2026 due to
a lagging Percent of Market Value (POMV) formula.
Uncertainty exists for FY2027 and beyond.
Expenditure Uncertainty
? Expenditures can occur prior to receipt of revenue,
resulting in cash flow timing mismatches:
Federal programs require expenditures before
reimbursement
• i.e., Medicaid, Transportation, etc.
Beginning of year appropriation transfers do not
match incoming revenue
• i.e., State pension payments, transfers to subfunds
for programs.
Seasonal cash flow needs
• i.e., Summer is the peak season for construction
projects and seasonal workers.
9:13:22 AM
Ms. Leary moved to slide 8:
Cash Flow Deficiencies
? Prior to 1985, most unrestricted revenues flowed
into and stayed in the General Fund for expenditure.
Over time, many subfunds were established, resulting
in less cash available to pay day-to-day operating
costs.
? Cash Flow Deficiencies are common and can be managed
by:
Managing the timing of receipts and expenditures.
Borrowing from Budget Reserves, the Earnings Reserve
Account (ERA) or other funds.
Revenue Shortfalls
? A revenue shortfall differs from a cash flow timing
deficiency. A revenue shortfall occurs when revenue is
insufficient to cover General Fund appropriations in
any given fiscal year.
? The legislature includes language annually in the
operating budget appropriating budget reserve funds
for revenue shortfalls.
? The Constitutional Budget Reserve fund (CBRF) has
been used to cover revenue shortfalls historically.
Cash Deficiency Memorandum of Understanding
? Developed in 1994 between DOR, DOA, OMB and LAW.
? Updated as needed.
? Targets $400 million minimum cash threshold in the
General Fund proper.
? Outlines procedures for addressing cash flow timing
mismatches:
- Develop monthly cash projections.
Monitor daily General Fund cash balances. Update
forecasts based on new cash flows.
Execute appropriated transfers from ERA, CBRF, or
others.
Perform temporary fund borrowing (CBRF, ERA,
subfunds) to be repaid by fiscal year end.
In the event of forecasted revenue shortfall:
• Seek legislative action through the Governor to
access additional funds through appropriation from
other Reserve Funds.
• Prioritize disbursements, restrict expenditures.
9:15:23 AM
Co-Chair Stedman asked for clarification related to the
acronyms. He asked about the length of the borrowing period
when needing to cover shortfalls with cash.
Ms. Leary replied that the Constitutional Budget Reserve
(CBR) required a three-quarter vote to access the money.
She shared that recently there had been deficits and funds
had been taken from the CBR to fill shortfalls. She stated
it was called borrowing because the state must repay the
amount borrowed. The current amount owed was around $10
billion to $11 billion.
Co-Chair Stedman asked about the length of the borrowing
timeframe.
Ms. Leary addressed the Earnings Reserve Account (ERA) as
it was the states primary tool for addressing cash
deficits. She relayed that the state had borrowed from the
CBR only once in the last 5 years, which lasted
approximately one month.
Co-Chair Stedman understood that if funds were borrowed
form the CBR, it would be for a brief period, until
revenues caught up to expenditures. He surmised that the
funds would be paid back so that debt did not accumulate
throughout the year.
9:19:10 AM
Commissioner Crum replied in the affirmative. He said that
the intent on the short-term cash borrowing form the CBR
was to fully repay the debt by the end of the fiscal year.
He stated that in the event of a structural deficit, the
department would work with the legislature for legislative
action on the matter.
9:19:43 AM
Ms. Leary looked at slide 9, "Cash Management in Action":
? Cash Management works with all departments of the
State to ensure cash is reconciled and reported.
? Staff analyzes outstanding payments, incoming funds,
cash in suspense and other changes daily to update the
General Fund cash balance forecast.
? Cash is managed as close to the minimum threshold to
maximize investments of the ERA.
When deficits are anticipated, funds have been
initially drawn from the CBRF rather than the ERA.
The number of ERA draws during a year has increased
over time to provide greater flexibility.
ERA draw schedules have changed on average 2 times
per year due to changes in the amount or timing of
revenue forecasts, planned expenditures and
potential federal shutdowns.
In the last 10 years the cash sufficiency balance
has gone below the $400 million threshold on average
10 days per year.
Ms. Leary explained that the chart on the right of the
slide showed forecasted and actual cash for the first half
of the current fiscal year. She said that the chart was
updated daily after the cash management team worked with
department to analyze all anticipated payments and incoming
revenue, as well as any changes expected to the forecasted
numbers.
9:21:23 AM
Commissioner Crum clarified that the department worked
against the appropriated limit of the POMV, set by the
legislature, to make sure that cashflow were maximized.
9:22:03 AM
Ms. Leary pointed out that, to date, $2.5 billion of the
$3.6 billion POMV equivalent, had been drawn. She said that
the state had four more draws to take the remaining
transfer balance.
9:22:30 AM
Co-Chair Hoffman wondered how that would work when there
was an anticipated deficit in the current year.
9:22:45 AM
Ms. Leary replied that it had yet to be determined which
order of accounts the draw would be taken from.
Historically, when the state had deficits in the budget the
funds had come form the CBR first, but not always. She
stated that the order would be determined in real time.
9:23:05 AM
Co-Chair Hoffman asked what would occur if the legislature
did not take action to fill the deficit for FY2025.
9:23:15 AM
Ms. Leary replied that the deficit was scheduled to come
out of the CBR.
9:23:25 AM
Co-Chair Hoffman understood that the draw was scheduled,
but the amount of $200 million had not been approved by the
legislature with the three-quarter vote.
9:23:46 AM
Ms. Leary replied that once the legislature finished its
work on the budget the department would be able to see
whether it had the appropriations to borrow from the CBR on
a temporary basis.
9:24:03 AM
Co-Chair Stedman asked what happened it the three-quarter
vote failed.
9:24:53 AM
Commissioner Crum replied that he hoped the vote did not
fail. He said that the departments spring forecast looked
promising that the gap could be filled. He thought that if
the issue was pending throughout the rest of the session,
OMB and the governor's office would need to come up with a
structural plan. He asserted that he could only help to
manage the cash that was available.
9:25:38 AM
Co-Chair Stedman asked about the term impoundment. He
asked what tools the administration had under the
Impoundment Clause to move forward.
9:26:06 AM
Commissioner Crum replied that he did not know what tools
were available. He offered to get back to the committee.
Co-Chair Hoffman asked if Ms. Leary had anything to add.
9:26:22 AM
Ms. Leary replied that she did not.
9:26:27 AM
Co-Chair Stedman understood that the testifiers might not
be comfortable answering the question. He appreciated the
commissioner getting back to the committee on the
Impoundment Clause.
9:27:02 AM
Ms. Leary finished discussing slide 9:
? Cash Management projects and transfers funds to
maximize the amount that is invested by Treasury
portfolio staff.
ZACH HANNA, CHIEF INVESTMENT OFFICER, TREASURY DIVISION,
DEPARTMENT OF REVENUE, introduced himself. He addressed
slide 11, "Treasury Investment Process":
? Treasury manages assets across the risk spectrum
from low-risk cash-equivalent investments through
higher risk endowment and retirement funds for several
state fiduciaries including the Alaska Retirement
Management Board (ARMB) and the Commissioner of
Revenue.
? Setting investment policies and asset allocations
are key fiduciary duties for these funds. Treasury
staff makes recommendations on the investment policy
and asset allocation of each fund in a transparent and
documented process to multiple State boards and
through a quarterly State Investment Review process
with an independent investment advisory committee.
? Each investment program is designed to balance fund
investment objectives, risk tolerance, and other
attributes including capacity for loss or volatility
over short, medium, and longer time horizons.
? The investment process uses independent capital
market forecasts to arrive at asset allocations and
return and risk expectations.
? For underlying investments, Treasury uses a
combination of low-cost internal asset management and
specialized external asset managers for each asset
class.
9:28:44 AM
Mr. Hanna pointed to slide 12, "Recent Capital Market
Performance":
? U.S. equities have delivered strong cumulative
performance over the past six years, with positive
returns in every year except 2022.
? In 2022, the Federal Reserve sharply increased
interest rates to combat inflation, which led to poor
performance in both equities and fixed-income
investments.
? Throughout this period, capital markets have been
heavily influenced by concerns about inflation,
interest rates, and economic growth.
? Inflation moderated in 2024, and the Federal Reserve
started cutting interest rates, easing the pressure on
economic growth.
? Equity markets have recovered strongly, and both
cash and fixed income now benefit from higher yields.
? For 2024, performance was positive across most asset
classes.
9:29:56 AM
Co-Chair Stedman looked at page 11 and requested a
definition of GeFONSI. He asked about the Illinois Creek
Mine Fund.
9:30:26 AM
Ms. Leary replied GeFONSI was the general fund and other
non-segregated funds. She said there were about 185
different funds, the largest of which was the states
general fund. She said that the Illinois Creek Mine fund
had been created after the bankruptcy of the company that
had been working on the mine. She said the money was held
to fund any kind of reclamation work that might need to be
done in the future. She stated that there were parties
interested in some of the claims in that area.
9:31:36 AM
Co-Chair Hoffman noted that in the past the department had
been investing the Power Cost equalization Fund (PCE) but
that the legislature that moved the fund over to the Alaska
Permanent Fund Corporation, which was why the PCE was no
longer listed as a treasury investment fund.
9:32:02 AM
Mr. Hanna highlighted slide 13, "Treasury Asset Class
Performance":
? State funds invest in commingled asset class
investments managed by Treasury staff and external
managers.
? These asset class investments are used in different
proportions to meet fund investment policies.
? State asset class performance for calendar year 2024
was strong across asset classes.
? Most asset classes also exceeded benchmark
performance for the year and longer time periods
adding additional value.
9:34:05 AM
Co-Chair Stedman felt that the committee spend significant
time solving problems and rarely celebrated successes. He
commented that the treasury department should be proud of
the recent capital market performance.
9:34:49 AM
Commissioner Crum thought that it was important to
recognize that excess returns above benchmark was
tremendous.
9:35:51 AM
Ms. Leary discussed slide 15, "Constitutional Budget
Reserve Fund (CBRF)":
Invested Asset History
? In 1990, voters of Alaska adopted an amendment to
the constitution creating the CBRF.
? The CBRF has been used to fund temporary cash flow
expense/revenue mismatches and to cover budget revenue
shortfalls through appropriation. Appropriations from
the CBRF must be repaid.
? In 2000, the legislature created a subaccount in the
CBRF to be used for funds that will not be needed for
at least five years.
Ms. Leary noted that the CBR was represented in blue on the
graph. The orange area showed the amounts of the sub-
account of the CBR.
9:37:52 AM
Co-Chair Stedman queried the peak amount of the savings and
the current savings.
9:38:03 AM
Ms. Leary replied that in 2014 there was $17.6 billion in
all three of the reserve funds. That total was currently
$2.8 billion.
9:38:25 AM
Co-Chair Stedman reminded the public that the legislature
had built up significant savings prior to 2014. The savings
had declined rapidly since 2014, and it was the work of the
legislature to rebuild the states savings account for
future generations.
9:38:59 AM
Mr. Hanna addressed slide 16, "Constitutional Budget
Reserve Fund (CBRF) He noted that the fund had a
potentially short time horizon and needed principal
protection and high liquidity, since it was the states key
emergency reserve fund. He stated that the balance had been
stable at $3 billion over the previous two years but had
been drawn down to $1 billion the prior three years through
the pandemic. He related that the fund was currently
invested 100 percent in cash equivalents, which was not
typical, and was originally de-risked due to the pandemic
draw downs. He furthered that exiting the period, staff had
intentionally left the funds position in shorter maturity
investments due to the combination of high yield and low
risk when compared to longer maturities. He stated that the
position had created returns over the past three years
since cash equivalents had outperformed core bonds by 600
basis points. Over the longer term the CBR account had
typically had considerably longer bond exposure, and at
times equity exposure. He said 2024 was a good year for the
CBR, despite the modest decrease in short-term interest
rates in the second half of the year. The one-year
performance was 5.59 percent, in excess of the benchmark by
34 basis points, which resulted in $150 million in gains
for the CBR in 2024.
9:40:47 AM
Ms. Leary highlighted slide 17, "General Fund and Other
Non-Segregated Investments (GeFONSI) Invested Asset
History":
? GeFONSI includes the General Fund and Other Non
segregated funds invested in a pooled environment (GF
proper carries a minimum balance of $400 million to
pay the bills).
? GeFONSI II was created in 2018 to target a higher
risk return profile for a subset of funds.
Ms. Leary reiterated that the general fund was the main
account of the state where all cash flows came into, and
out of, and where a minimum floor of $400 million was kept.
There were 185 other accounts and funds that had assets in
the two GeFONSI accounts that were managed together but
accounted for separately. The first GeFONSI was created in
1992, as a way to pool accounts for investments. The second
account was created in 2018, to target a higher risk return
for a subset of those funds. As of June 30, 2024, there was
$3.7 billion in the funds combined. She noted the appendix
on slide 27, that listed the top 30 funds that rolled into
both funds, with balances as of December 31, 2024. The
general fund proper was the largest of the funds at
approximately $1 billion.
9:42:02 AM
Co-Chair Stedman cited slide 27, which showed the SBR at
$224,974,246. He asked whether the legislature could spend
that money in the current years budget.
9:42:10 AM
Ms. Leary replied that there were cash balances in the SBR
that were earmarked to be spent and used for FY2024
expenses. Typically, at the end of any fiscal year the
division went through all the accounting records and would
move the remaining fund balances to where it was supposed
to be used for the year. She said that she reported on the
actual cash balances, whereas the budget and comprehensive
financial statements at the end of the year were based on
an accrual method.
9:43:22 AM
Co-Chair Stedman shared that, due to the confusion of the
definitional process mentioned by Ms. Leary, there had been
talk amongst the legislators that the SBR was unencumbered
cash that could be put in the upcoming budget. He pointed
out that many of the funds were not liquid and were
encumbered. He felt that unencumbered balances should be
sought.
9:43:58 AM
Mr. Hanna displayed slide 18, "General Fund and Other Non-
Segregated Investments (GeFONSI I and II) He said that
both funds had a short-term investment horizon with a
relatively high need for principal and income protection.
He relayed that GeFONSI I was 85 percent cash equivalents
and 15 percent short-term bonds. GeFONSI II was a modestly
higher risk posture with 61 percent cash equivalents, 33
percent short-term bonds, and 6 percent equities. He said
that like the CBR, these bonds had fewer long-term bonds
than they have had historically, which was intentional and
had paid off. Both funds had performed well, both over 35
basis pints in excess of their benchmarks. He announced
that over all the total performance resulted in $180
million in gains during 2024 for the GeFONSI collection.
9:45:36 AM
Ms. Leary pointed to slide 19, "Alaska Higher Education
Investment Fund (AHEIF)
Invested Asset History":
? On September 1, 2012, the AHEIF was capitalized with
a $400 million deposit from receipts of the Alaska
Housing Capital Corporation for use in paying Alaska
Performance Scholarship Awards and Alaska Advantage
Education Grants.
Ms. Leary said that up to 7 percent of the fund could be
appropriated for scholarships; two-thirds went to the
Alaska Performance Scholarship and one-third went to the
Alaska Advantage Education Grants. She stated the HB322
established the Higher education Fund as a separate fund as
of June 30, 2022, and HB 148 passed in the last session and
increased the amounts of the scholarships and grants.
Mr. Hanna discussed slide 20, "Alaska Higher Education
Investment Fund (AHEIF)." He explained that the subsequent
slides discussed funds that had a long-time horizon and a
high ability to bear risk. He said that a high-risk profile
was used with AHEIF to work to achieve the funds spending
objective of up to 7 percent of the previous years
balance. The risk profile was set at the risk equivalent of
70 percent equities, 30 percent bonds. The performance of
the fund over the past year was 24 basis points in excess
of the benchmark, resulting in $44 million in gains. He
added that the 10-year performance had bee 7.26 percent
through a very volatile period.
9:46:50 AM
Senator Kiehl asked if the expected 10-year return was
above 7 percent, and the target was to spend up to 7
percent per year, what would happen to the fund over the
long term.
9:47:09 AM
Mr. Hanna responded that risk was not chosen with the fund,
there was a set asset allocation of 70 percent equities, 30
percent bonds, and as capital market expectation changes
over the time the expected return would go up and down
overtime. He said that ebb and flow, overtime, would be
experienced. He thought that the expectation was reasonable
that over the long-term the nominal return would be in
excess of 7 percent. He related that if the return was not,
and the legislature decided to spend at exactly 7 percent
overtime, the principal would be eroded.
Senator Kiehl echoed that the nominal return was 7 percent.
He asked what would happen to the buying power of the fund
over the 10 years.
Mr. Hanna replied that if the legislature decided to spend
at exactly 7 percent, and returns were at exactly 7
percent, with inflation above zero, the expectation was
that the spending pattern would erode into the real value
of the fund overtime.
9:49:19 AM
Senator Kiehl thought that the matter was a long-term
problem that would need to be addressed by the legislature.
9:49:38 AM
Commissioner Crum interjected that the real rate of return
would be the expected return, minus the inflation at 2.5
percent. The real rate of return overtime was 5.7. The
total value of the fund would decrease overtime. He said
that future conversation on the matter were expected.
9:50:19 AM
Co-Chair Stedman felt that that expected discussion on the
permanent fund might include AHEIF in comparison with the
Alaska Mental Health Trust fund, which drew out 4.25. He
thought looking at the funds side by side would be
illuminating in trying to protect the purchasing power of
the funds going forward.
9:50:58 AM
Co-Chair Hoffman remarked that conversations had occurred
about collapsing all the funds into one fund. He wondered
whether the administration had been considering such a
plan.
9:51:19 AM
Commissioner Crum replied that it was not a consideration.
9:51:27 AM
Co-Chair Hoffman wondered why there was no consideration.
9:51:36 AM
Commissioner Crum replied that there were other priorities
for the administration during this legislative cycle.
9:51:49 AM
Co-Chair Hoffman asked whether the administration would
support the concept.
Commissioner Crum responded that any proposal would have to
be vetted internally.
9:52:11 AM
Co-Chair Hoffman mused that it could be time for the
legislature to put forth a proposal.
9:52:38 AM
Ms. Leary addressed slide 21, "Public School Trust Fund
(PSTF) Invested Asset History":
? The PSTF was established in 1978, replacing the
territorial era public school land grant originally
created by congress in 1915, by a transfer of the
balance from the permanent school trust.
? Following passage of HB 213 in 2018, the fund is now
managed as one fund, under a percentage of market
value method (five percent of the average market value
for the five years preceding the last previous fiscal
year).
Ms. Leary stated that the fund ended FY2024 with $834
million. The fund was established in 1978 and was funded by
one-half of 1 percent of state receipts form the management
of state lands. The find was used to provide an offset to
the K-12 formula funding for education. The fund
contributed $32 million for FY2024 and was expected to
contribute $35 billion in FY 2025 and FY 2026.
9:53:23 AM
Mr. Hanna pointed to slide 22, "Public School Trust Fund
(PSTF)." He explained that the treasury worked to inflation
proof the fund overtime through a combination of investment
policy and spending recommendations. The recommendation the
previous year had been to spend at 4.8 percent; the
recommendation fluctuated. Performance of the fund for 2024
was 24 basis points in excess of the benchmark, which
resulted in $88 million in gains and brought the fund back
to peak assets. The 10-year performance for the fund was
6.98 percent.
9:54:53 AM
Ms. Leary addressed slide 23, "Public Employees Retirement
System (PERS) and Teachers Retirement System (TRS)
Pension and Health Defined Benefit Plans Invested Asset
History":
? The Alaska Retirement Management Board (ARMB) is a
nine-person board and fiduciary of the State's pension
and health systems.
? The defined benefit plans currently experiences net
outflows from the funds.
? The 40-year average return for PERS/TRS was 8.96
percent compared with the actuarial assumed return of
8.19 percent.
9:56:07 AM
Senator Kiehl noted that previous testifiers had noted a
different long-term average. He wondered whether there was
a difference in how DOR calculated the average or had the
previous testifier used a different time period.
9:56:31 AM
Mr. Hanna could not comment on the previous testifier's
numbers. He said that there should be no difference in the
numbers. He thought the difference was mast likely due to
looking at a different time period.
9:57:32 AM
Mr. Hanna highlighted slide 24, "Defined Benefit: Public
Employees Retirement System and Teachers Retirement
Systems He said that the systems represented 83 percent
of treasury assets under management. The systems had
complex asset allocation since they were long-term funds
with a long-term fiduciary board. They had meaningful
allocations to less liquid alternative investments. He said
that the current asset allocation was 43 percent public
equities, 23 percent fixed income, and 34 percent
alternative investments. He relayed those recent returns
had been strong. He related that the 10-year returns
th
through September 30 was 7.91 percent, 41 basis points
over the benchmark. Overall, excess returns had resulted in
over $2 billion in additional value in the systems over the
past 10 years. He said that performance was in the top 3 of
returns when compared with peers. He said that part of the
excess returns could be contributed to the ARM boards
intentional low-cost approach that emphasized internal
management.
9:59:14 AM
Co-Chair Hoffman commented that those individuals who had
the defined contribution package should feel comfortable
with the presentation.
9:59:30 AM
Mr. Hanna spoke to slide 25, "Treasury Investment Result
Summary":
? Treasury Investment performance has been strong:
? Overall performance across all Treasury
investments resulted in $4.5 billion in total
gains and a 9.1 percent overall return for
CY2024.
? Performance for state funds resulted in total
gains of $575 million. Overall state fund
performance of 6.8 percent was strong for lower
risk funds and exceeded benchmarks.
? The ARMB's performance for the State's defined
benefit retirement systems has been in the top-
third of peer public pension performance and has
exceeded benchmarks materially. This has resulted
in $2 billion in excess returns over the past 10
years, ahead of most peer public pensions. Total
nominal gains for 2024 were $2.7 billion.
? Treasury uses low-cost investment management where
appropriate and over half of investments are managed
internally by staff:
? For FY2024, internal investing resulted in
investment management fee savings of $30 million
and excess returns of $137 million.
? Treasury's cost structure is materially lower
than peers. FY2024 fees for the defined benefit
retirement systems were 41 bps compared with a
median of 56 bps for large plans a difference
of over $40 million per year.
? The Treasury Division's work is mission critical,
and the benefits provided in the form of excess
returns, external cost savings, and error prevention
are significant.
10:00:12 AM
Commissioner Crum thanked the committee and agreed to
follow up on the requests from members.
Co-Chair Hoffman discussed the following week's schedule.
ADJOURNMENT
10:01:28 AM
The meeting was adjourned at 10:01 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 020725 DOR S.FIN Treasury Investment and Cashflow Update.pdf |
SFIN 2/7/2025 9:00:00 AM |
|
| 020725 CBRF_SBRF_GeFONSI_12.31.2024.pdf |
SFIN 2/7/2025 9:00:00 AM |