Legislature(2003 - 2004)
05/15/2003 08:45 AM Senate JUD
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* first hearing in first committee of referral
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+ teleconferenced
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ALASKA STATE LEGISLATURE
SENATE JUDICIARY STANDING COMMITTEE
May 15, 2003
8:45 a.m.
MEMBERS PRESENT
Senator Ralph Seekins, Chair
Senator Scott Ogan, Vice Chair
Senator Gene Therriault
Senator Hollis French
MEMBERS ABSENT
Senator Johnny Ellis
COMMITTEE CALENDAR
SENATE JOINT RESOLUTION NO. 3
Proposing amendments to the Constitution of the State of Alaska
relating to an appropriation limit and a spending limit.
MOVED CSSJR 3(JUD) OUT OF COMMITTEE
SENATE JOINT RESOLUTION NO. 18
Proposing amendments to the Constitution of the State of Alaska
relating to limiting appropriations from and inflation-proofing
the Alaska permanent fund by establishing a percent of market
value spending limit.
HEARD AND HELD
SENATE BILL NO. 170
"An Act relating to the Code of Criminal Procedure; relating to
defenses, affirmative defenses, and justifications to certain
criminal acts; relating to rights of prisoners after arrest;
relating to discovery, immunity from prosecution, notice of
defenses, admissibility of certain evidence, and right to
representation in criminal proceedings; relating to sentencing,
probation, and discretionary parole; amending Rule 16, Alaska
Rules of Criminal Procedure, and Rules 404, 412, 609, and 803,
Alaska Rules of Evidence; and providing for an effective date."
HEARD AND HELD
SENATE BILL NO. 171
"An Act relating to certain suits and claims by members of the
military services or regarding acts or omissions of the
organized militia; relating to liability arising out of certain
search and rescue, civil defense, homeland security, and fire
management and firefighting activities; and providing for an
effective date."
SCHEDULED BUT NOT HEARD
CONFIRMATION HEARINGS:
Marianne Stillner - Select Committee on Legislative Ethics;
William Granger - Board of Governors of the Alaska Bar
CONFIRMATIONS ADVANCED
PREVIOUS ACTION
SJR 3 - See Judiciary minutes dated 3/19/03 and 5/9/03.
SJR 18 - See State Affairs minutes dated 5/1/03 and 5/6/03.
SB 170 - See Judiciary minutes dated 4/15/03 and 4/24/03.
WITNESS REGISTER
Senator Dyson
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of SJR 3.
Mr. Bob Storer, Executive Director
Alaska Permanent Fund Corporation
Department of Revenue
PO Box 110400
Juneau, AK 99811-0400
POSITION STATEMENT: Supported SJR 18.
Mr. Bob Bartholomew, Chief Operating Officer
Alaska Permanent Fund Corporation
Department of Revenue
PO Box 110400
Juneau, AK 99811-0400
POSITION STATEMENT: Supported SJR 18.
Mr. Dean Guaneli, Chief Assistant Attorney General
Legal Services Section
Department of Law
PO Box 110300
Juneau, AK 99811-0300
POSITION STATEMENT: Commented on SB 170.
ACTION NARRATIVE
TAPE 03-48, SIDE A
SJR 3-CONST AM: APPROPRIATION/SPENDING LIMIT
CHAIR RALPH SEEKINS called the Senate Judiciary Standing
Committee meeting to order at 8:50 a.m. Present were Senators
Ogan and French. Senator Therriault arrived momentarily. The
first order of business to come before the committee was SJR 3.
SENATOR FRENCH moved to adopt CSSJR 3(JUD), version H.
SENATOR OGAN objected for purposes of discussion.
SENATOR DYSON, sponsor of SJR 3, said this version was the
result of recommendations from the Office of Management and
Budget. There is a list of things that are excluded and they
deleted the one about program receipts. The escalator would now
be the CPI plus one quarter of the change in population and
divides by two for the average. The growth that would be allowed
would be something less than the CPI. Any growth in the budget
above that requires a three quarter vote of the Legislature.
One of his constituents asked him what the penalty was for a
government that ignored this. He said he was open to
suggestions.
CHAIR SEEKINS said both Finance Committee chairs consider this
to be a very serious matter. They said their intent, once they
receive the bill, would be to hold public hearings on it
throughout the interim and bring a constitutional amendment back
next session that would take into consideration all of the
different economic factors, which he thought was a wise plan.
SENATOR OGAN commented that if you change the vote to a 7/8
majority, you essentially empower two or three members of the
Senate as a mini-minority to hold everyone else hostage.
SENATOR DYSON countered with the argument that it gives a small
number of people the power to stop more spending and that is a
powerful tool.
SENATOR OGAN responded that was the philosophy of the
constitutional budget reserve (CBR) and it's had the opposite
effect, depending on who the minority is.
SENATOR DYSON pointed out that page 2, line 21, said if the
expenditures are more than appropriated, the governor can reduce
them. He assumed, if there are attempts to circumvent the
spending cap, that various public interest groups would be in
court to seek an injunction.
SENATOR FRENCH said he was interested in how this would impact
the state budget and wanted to look at 1992 general fund
spending and apply this formula. The difficulty with any
mechanical approach is if you make it too tight, you're always
jumping around the exceptions and if you make it too loose, it
doesn't work.
SENATOR THERRIAULT said that the Finance Committee could send
the bill back to the Judiciary Committee after they run the
spreadsheets. He then motioned to pass CSSJR 3(JUD) from
committee with individual recommendations. There was no
objection and it was so ordered.
9:06 to 9:08 at-ease
CONFIRMATION HEARING
VICE CHAIR OGAN announced that Marianne Stillner was up next for
confirmation to the Select Committee on Legislative Ethics.
9:11 to 9:15 - at ease
MS. MARIANNE STILLNER participated via teleconference and stated
that she felt she had a responsibility to donate some of her
energy and ability to a broader purpose than herself. She
thought it would be very interesting and challenging to serve on
the Select Committee.
SENATOR OGAN asked her to comment on her nursing education.
MS. STILLNER responded that she got her undergraduate degree at
the University of Detroit and became a public health nurse in
inner city areas of Detroit and Oakland, California and on the
Windford Indian Reservation. She got her Masters in Child
Psychiatric Nursing at Boston University, working as a
psychiatric nurse practitioner for the Yukon-Kuskokwim Health
Corporation. She explained that she moved around a lot, because
of her husband's career in the medical field and public health
service and advised that she is neutral politically.
SENATOR OGAN asked why she thought her name was forwarded.
MS. STILLNER replied that a friend, Ellen Campbell, suggested
her name to Judge Carpeneti. She added that she was challenged
by the thought of looking at human behavior in the gray areas.
SENATOR THERRIAULT asked if she had any thoughts on ethics
statutes in general and their application to the Legislature.
MS. STILLNER assumed he was referring to the statutes that were
sent to her on the various codes of ethics, which she felt was a
good source for referral in problem solving.
SENATOR THERRIAULT asked how she thought the codes should be
applied within the capitol building and what kind of filters she
would run allegations through in her own mind.
MS. STILLNER replied that she imagined it would be somewhat
similar to how she deals with applicants and students at the
university. There are protocols, rules and statutes that provide
the foundation and the boundaries and within that there has to
be a very objective approach to making decisions about
behaviors.
SENATOR THERRIAULT asked if she could think of an instance, when
she was a nurse, that was not anticipated, but she still had to
make things work.
MS. STILLNER replied yes and those things happen frequently.
SENATOR THERRIAULT said that there was a particular problem in
applying ethics statutes to the Legislature. He wanted someone
who understood the process that gets legislators to a decision
at the end of the day and who could make a fair decision when
passing judgment.
MS. STILLNER replied that she could be fair and didn't have any
preconceived ideas about any of the legislators.
SENATOR FRENCH asked why she didn't come in to see them today
since she lives at Auke Bay.
MS. STILLNER replied that she was in yesterday, but that today
she has two meetings. This is also her last day at the
university for the summer and she is leaving town this
afternoon.
SENATOR FRENCH asked if she had been involved in legislative
matters at all or worked on a political campaign.
MS. STILLNER replied no.
SENATOR FRENCH asked if she was comfortable sitting in judgment
of people.
MS. STILLNER replied that it isn't a very pleasant task, but she
has done it. She had served on a grand jury in Bethel Alaska.
SENATOR THERRIAULT moved to pass Ms. Stillner's name to the full
body for consideration. There were no objections and it was so
ordered.
9:26 - 9:28 a.m. - at ease
SJR 18-CONST. AM: PF APPROPS/INFLATION-PROOFING
VICE CHAIR OGAN announced SJR 18 to be up for consideration.
MR. BOB STORER, Executive Director, Alaska Permanent Fund
Corporation, said they have always felt that inflation proofing
was an important issue in the Permanent Fund to make sure that
all generations benefit equally from it. To date, the fund has
been fully inflation proofed. The board has unanimously
recommended memorializing inflation proofing in the
constitution. They propose doing that by adjusting how much can
be appropriated in any single year to no more than five percent
of the total fund. That computation is based on five percent of
the five-year moving average of the market value of the Alaska
Permanent Fund Corporation. This formula is consistent with
about 70 percent of the foundations and universities across the
country. They believe they can earn a real rate of return over
time of five percent in excess of inflation.
He explained that the status quo only inflation proofs the
principal of the fund and it consists of royalty mineral money,
revenues, special appropriations and inflation proofing. The
Legislature has always inflation proofed the fund and the three
components are almost all equal. Right now the principal is
about $22 billion. They want to limit the amount that can be
appropriated from the real income of the fund over time. "Under
the status quo, the entire earnings reserve can be appropriated
and that can vary from year to year."
In other years, when the earnings reserve comprised about 25
percent of the fund, a quarter of the fund could have been
appropriated, but if that happened in the last couple of years
when the earnings reserve was actually negative, then there
would be nothing available for appropriation. He said that the
earnings reserve right now is about $2 billion, which is a
product of the last six weeks.
MR. STORER explained that there is more stability with this
methodology than using a realized income basis for what is
available for appropriation and the dividend is computed from
realized income. They are very comfortable saying they could do
this consistently.
SENATOR OGAN said he heard that the average draw on the
Permanent Fund was about four percent.
MR. STORER replied that on average, that's a reasonable
statement, but that it is a volatile number.
MR. BOB BARTHOLOMEW, Chief Operating Officer, Permanent Fund,
said the way the fund has been invested has changed a lot over
the last 20 years.
When the fund was first invested, it was 100 percent
in bonds and almost all of the earnings of the fund
was cash flow interest income. The formula was
designed to work that way. Twenty years later, we're
in stocks that have a lot of their return through
capital appreciation. We do get dividends, but the
majority of the return comes from the growth in the
value of the stock....So, early on when we say that
the payout for the dividend was roughly about 4
percent of the fund, all our income was coming in in
cash and we were paying it all out. Today, that
percentage is dropping because a lot of the growth
comes from the appreciation of assets and we don't
sell our assets. We hold on to real estate for a long
time; stocks that are in the index fund - we just hold
the index fund. We might hold it for 10 or 12 years.
All of that appreciation that's happening in assets
does not go into the dividend formula today. So that
dividend formula, how much cash income we have is a
percentage of our total income, is just dropping. By
switching to the payout of market value, we're
computing, and we recommend, that all the
distributions from the fund take into account the
entire fund and the change in value, which is both
your cash flow and your appreciation.
MR. STORER added that the fund is about 26 years old and was
created after the bear market of 1973 - 74. Very few public
funds were invested in the stock market. Basically, the thinking
was fixed income and then cobbled from there to go into equities
in the early 80s and international equities in around '88 - '89.
With equities you can expect a higher return, but more
volatility from year to year.
Using a smooth payout of the market value actually
creates less volatility than the realized income
methodology that we use right now - which goes to the
fifth item, which is predictability. What we have
learned and what we think is advantageous to decision
makers, be it the Permanent Fund or the Legislature,
is the look back provision. We are stating that it
should be the moving average of the five years of the
five prior fiscal years. The advantage to decision
makers in the Legislature [is that] when you come into
session in January, you will know exactly how much
money is available, be it for dividend, government,
etc. You will have that knowledge right there.
For those of us at the fund managing the assets, one
of the main things you try to do with the hidden costs
of the fund is transaction costs. When you're trading
your portfolio, if you think of it right now, we won't
know how much will be appropriated for the dividend
until the computation is completed on June 30. Three
weeks later, we'll have to have about one billion
dollars liquidated and moved over to the Department of
Revenue for processing in the dividend division. We
strive very hard to mitigate the effects of
transaction costs as much as possible. If we have
greater predictability on that fact, we will have the
knowledge to be able to address the liquidation in
some systematic way which will further reduce the
costs associated with liquidating those kinds of
assets....
SENATOR OGAN asked if they go with the five percent, what would
last year's dividend be versus what it's projected to be.
MR. STORER replied that they looked at that question and came up
with two answers. One is that there would be no change in the
dividend if the formula for computing the dividend remains the
same. There are two formulas, one based on realized income and
then one based on the POMV approach. They have strongly
encouraged the Legislature to change the formula of the dividend
in a manner consistent with this as well, although he is not
advocating that at this time.
He estimated that by using the 50/50 split the dividend would be
larger than it is currently until 2010 due to the market
volatility. But, the $1963 dividend from a couple of years ago,
would have been smaller.
SENATOR THERRIAULT said the calculation of the dividend is a
completely separate issue than what he is proposing. He is just
proposing a smoothing method for the cash that is available.
MR. STORER replied that is correct.
SENATOR THERRIAULT said because of the market valley we are in,
if they switched the dividend calculation to a smoother model,
it would result in higher...
TAPE 03-48, SIDE B
...it would not allow the valley to be as deep.
MR. STORER replied that is correct; it would smooth out and
lines would cross at 2010.
SENATOR THERRIAULT asked what surety he could give them.
MR. STORER answered that they do a lot of modeling of the
probabilities of achieving a goal. Every quarter they take all
the known information about the fund and look forward 10 - 15
years. They model it through 326 different permutations of
different returns, inflation, etc. They also look at a 90
percent probability of it occurring at ten percent probability,
etc. He is suggesting a median case of all the permutations.
MR. BARTHOLOMEW added that under current formulas and with the
recent extreme volatility, the earnings reserve could go to
zero. If that happens, there is no assurance; there could be a
zero distribution. The POMV, as proposed, would assure a payout
every year. There is actually more assurance and more
predictability with the proposed change.
MR. STORER added that although predictability is important, one
of the key things about this proposal is the discipline it
brings during the bull market phases. Imposing the limit in the
bull markets leaves reserves for the bear market times and one
can comfortably distribute a predictable amount of money however
the Legislature deems appropriate.
SENATOR FRENCH asked if they had adopted the POMV model at the
outset of the fund, how big would the fund be today.
MR. STORER replied that the key to the answer is that there was
only one year in which the fund was 100 percent in fixed income
and they paid out more than five percent. "The fund would be the
same size."
MR. BARTHOLOMEW said the main difference would be that we
wouldn't have the risk of going to zero on June 30 that we have
now. He elaborated that the fund made $1.1 billion in April and
that's why we've gone from almost no dividend up to there being
enough money for a dividend. "That's the kind of volatility you
don't want to have subject to your payout method."
MR. STORER added that we have benefited from an extraordinary
bull market during the entire period and the real earnings have
been in excess of six percent during that whole period as well.
SENATOR FRENCH said this assumes that the fund makes eight
percent per year. In years that make less than eight percent,
with a five percent payout, he asked whether that would make the
fund go down.
MR. STORER answered yes; they are assuming that they can earn
about eight percent over time and that historically inflation
has been about three percent. That's how they came up with the
figures for demonstration purposes. We are in a period now where
our returns are negative and inflation is modestly up he said.
SENATOR FRENCH asked what a period of deflation would do to the
model.
MR. STORER replied that there have been two extremes back
through 1926: one is deflation and the other is higher
inflation.
Both would have an impact on the fund. The higher
inflation period, at least the last time commodities
rose and so there would probably be higher income
coming to the state....One of the keys in portfolio
construction is diversification. So, we have about
half of the fund invested in equities and the balance
is in primarily high quality fixed income securities
and real estate. If deflation was over a short period
of time, then we would not be able to achieve our
goal, I believe. We'd make money in bonds, but there
would be an impact on the stock market. But then the
assumption is that we would come out of that and we
would achieve our goals again. If you go back to the
extreme of the depression, then you're going to have a
5 or 10-year problem. We can't get around that
aspect....
MR. BARTHOLOMEW thought Senator French's point was one of the
key policy decisions facing the Legislature when they are
looking at this proposal. For the benefit of assuring there will
be a payout every year, the fund is taking on the risk that in
some short term period it could get spent down a little bit,
with the idea that it would be built back up in the future. The
benefit of that is that you don't have a $22 billion fund that
provides nothing to the state and what would that mean to the
economy and to the citizens.
SENATOR FRENCH asked if using this model would moot the Attorney
General's pending decision on what earnings are.
MR. BARTHOLOMEW said that opinion would have an affect until
November 2004.
SENATOR THERRIAULT asked them to comment on the proposal to
simply freeze the statute that was first put into place when the
fund was invested only in bonds.
MR. STORER responded that with regard to the dividend payout,
it's not really compatible with contemporary investment
thinking. It would create a problem longer term.
SENATOR THERRIAULT asked him to comment on the potential
scrutiny from the IRS.
MR. STORER replied that there were a lot of discussions in the
80s about the taxability of the fund. To keep a low profile, one
of the things they did was make it distinct that the Permanent
Fund Corporation managed the assets of the fund and that any
appropriations would occur on a year to year basis through the
legislative process. The corporation was constructed in a way to
keep that autonomy as well. Legal opinions have always said
there is a risk if the dividend was memorialized in the
constitution so it was not for a government purpose.
CHAIR SEEKINS inserted that he intended to hold SJR 18 through
the interim for further work.
MR. STORER commented that he didn't think that SJR 18 increased
the risk of the fund being attacked by the IRS. However, SJR 19
talks about placing a dividend commitment into the constitution
and would present a question.
SENATOR THERRIAULT said he understood and agreed with him.
CHAIR SEEKINS said they would hold SJR 18 for further work.
CHAIR SEEKINS announced that the next order of business was a
confirmation hearing for Mr. William Granger.
CONFIRMATION HEARING
MR. WILLIAM GRANGER, nominee for the Board of Governors of the
Alaska Bar Association, said this would be his second term and
that he currently works for Wells Fargo Bank.
SENATOR THERRIAULT asked what his duties at the bank were.
MR. GRANGER replied that he is a senior vice president in loan
administration.
SENATOR FRENCH asked him to comment on his interest in
continuing with the Board of Governors for the Alaska Bar
Association.
MR. GRANGER said the last three years were challenging and that
the body is charged with not only discipline type matters for
the bar at large, but the continuing education and support of
the group as a whole in the area of rules and regulations and
dealing with other groups such as Alaska Legal Services, the pro
bono program and the Catholic Social Services Immigrations
program. He said he is also a trustee for the Alaska Bar
Foundation and that coordinating and assisting other groups in
fulfilling their missions is very interesting.
SENATOR FRENCH said he used to be a DA and he frequently heard
about the speed or lack thereof in adverse bar actions against
license holders who were accused and sometimes convicted of
criminal violations. He asked him to comment on the speed with
which the Bar Association acts in adverse actions.
MR. GRANGER replied that he has been reasonably pleased with the
efficiency and speed of the bar, but a couple of recent cases
have dropped through the cracks. He thought that often they
operate through committees and subcommittees that are manned by
volunteers and that might need some tweaking, but overall he
thought they were doing a good job.
SENATOR FRENCH said he thought public confidence in the Bar
Association would be increased if adverse bar actions were
completed ahead of the appeals process of a criminal
prosecution.
MR. GRANGER responded that maybe it is easier for the bar to
take action like that after the conviction rather than prior to
it.
SENATOR FRENCH agreed with him, but said he didn't know if it
was the right thing to do to wait a long time after the trial.
MR. GRANGER added that in those cases, the people are not
practicing anyway.
SENATOR OGAN moved to forward Mr. Granger's name to the full
body for consideration. There were no objections and it was so
ordered.
SB 170-CRIMINAL LAW/SENTENCING/ PROBATION/PAROLE
CHAIR SEEKINS announced SB 170, version A, to be up for
consideration. He said there were several proposed amendments.
MR. DEAN GUANELI, Chief Assistant Attorney General, said the
amendments they have brought forward are a result of discussions
they had with both the Senate and the House and offer a number
of improvements.
CHAIR SEEKINS said that for them to take any action at this
time, they would have to delete sections 1, 2, 3, 4, and 5,
which are the most controversial parts of the bill that need a
lot of work.
SENATOR FRENCH concurred saying that any change they make in the
law of self-defense has to be made very carefully. Some parts of
the bill are able to move forward this year.
SENATOR OGAN moved a conceptual amendment to delete sections 1 -
5, ending on page 3, line 6. There was no objection and it was
so ordered.
CHAIR SEEKINS said he reviewed section 6 and asked about a
person being made aware of their rights at the point of booking.
SENATOR OGAN said he thought it was a little bit of a bullying
tactic on the part of law enforcement to not allow an attorney
to represent a person, especially if they are under age,
inexperienced or mentally incapacitated in some way.
SENATOR THERRIAULT asked Mr. Guaneli how the system would work
for a minor or a person with diminished mental capacity and
whether there are additional protections.
MR. GUANELI explained that parents of minors have to be
contacted. In the case of a mentally diminished person,
especially if it is a serious crime, the judge decides whether
to admit any confession. Our laws don't give law enforcement the
obligation of deciding at the outset whether they have mental
problems.
SENATOR THERRIAULT said they are talking about the issue of
whether the person has the right to say they want an attorney or
that a person outside of the room has the right to say they want
their son represented by an attorney.
MR. GUANELI said they believe it ought to be the right of the
person, and some third party should not have the right to
interject him or herself into that situation.
SENATOR THERRIAULT said under current law, if a parent has an
attorney show up when his son or daughter is being questioned,
he has to be shown into the room.
MR. GUANELI agreed saying it is the right of the attorney to see
the prisoner.
CHAIR SEEKINS asked if anything in section 6 eliminated that
right.
MR. GUANELI replied that section 6 makes all of those rights the
right of the prisoner to exercise.
CHAIR SEEKINS asked if that came under AS 12.25.150(b).
MR. GUANELI said that is correct. The right to telephone or
otherwise communicate with an attorney is a right under current
law (page 3, line 8); the right to telephone or otherwise
communicate with a relative or friend is also a right. "What
changes is, under number 3, the bill says you have a right to
visit with an attorney if you request it. The current statute
says it's the right of the attorney."
TAPE 03-49, SIDE A
SENATOR OGAN said he still has trouble with denying anyone the
right to talk to an attorney, especially because of a previous
remark made by Mr. Guaneli about anyone who commits a crime is
mentally ill.
CHAIR SEEKINS said they were running out of time and would hold
the bill for further hearings. There being no further business
to come before the committee, he adjourned the meeting at 10:35
a.m.
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