SB 19-EXEC. BRANCH ETHICS:INTERESTS & ACTIONS  CHAIR HOLLIS FRENCH announced SB 19 to be up for consideration and asked for a motion to adopt Version M committee substitute (CS), labeled 25-LS0160\M. 1:35:02 PM SENATOR CHARLIE HUGGINS so moved. There being no objection, CSSB 19, Version M, was before the committee. CHAIR FRENCH explained that the bill, relating to executive branch ethics, rewords AS 39.52.110(b). The idea is to prohibit an executive branch employee from taking official action on behalf of his or her personal investments and benefiting from that action through the use of their official position. On page 2, line 2, subparagraph (C)(i) through (viii) lays out the different ways an employee would be prohibited from taking official action. Section 2 expands the definition of "official action" to better capture executive branch employees' day-to-day work and clarify that the activities mean official action with respect to an investment the employee may have in an outside business. 1:37:47 PM CHAIR FRENCH related that the current subsection (a) lays out the general duty of a public officer and the new subsection (b) lays out a series of exceptions. The exception in paragraph (1) states that if the action or influence is insignificant or it would have a conjectural effect, then it is not a violation. Chair French hypothesized that an executive branch employee could own and take action on $1 million in IBM stock without violating the law because the action would have an insignificant or conjectural effect on the value of that stock. Likewise, the exception outlined in paragraph (2)(A) says that if the public officer's personal or financial interest is generally owned by the public, then it is not a violation to take action on that investment. Thus, a public official who takes action to increase the size of his or her Permanent Fund dividend would also increase the size of all other dividend recipients. Similarly, if a public officer were to take an action to route the gas pipeline close to his or her home, it would effectively increase the value of all homes in the area so the action would not run afoul of the law. On page 2, line 1, paragraph (2)(B) lays out an exception if the public officer's personal interest is insignificant. Chair French noted that definition is probably not perfect, but it would be difficult to do better. On page 2, line 2, paragraph (2)(C) addresses financial interest with respect to a business. He noted that that particular section, which has the subheadings (i) through (viii) has been problematic in the past. CHAIR FRENCH asked Mr. Jones to comment on the bill. 1:40:54 PM DAVID JONES, Assistant Attorney General, Civil Division, Department of Law (DOL), said he hadn't seen Version M so his comments would be directed to the original bill. MR. JONES expressed concern with the percentage ownership standard saying it could be difficult to calculate a one percent interest given the variety of stock classifications. He argued that, in terms of ethics, the significant interest standard is preferable. It won't matter to the DOL or to the public whether the interest amounts to one percent or 50 percent; what matters is whether or not the interest is significant. He suggested that the $5,000 standard would be a better measure than the one percent ownership standard. MR. JONES posed the hypothetical situation of funding a child's lemonade stand and noted that because he has a 100 percent interest in the stand he would be prohibited from taking action to benefit that child's business even though his investment might only have been $50. He argued that it's not the percentage ownership that matters to the public; it's whether it's a significant interest and it seems that the $5,000 standard would be preferable, he said. CHAIR FRENCH asked if he had language to suggest if he was proposing that the standard be listed in something other than dollar terms. He noted that the significance standard had been removed in SB 19 because it wasn't defined very well and created problems two years ago. MR. JONES clarified that he was suggesting that a flat dollar measure is preferable to the either or standard, which is either a dollar amount or a one percent interest in the value of a company. CHAIR FRENCH used the lemonade stand example and asked why it would ever be valued at more than $5,000. MR. JONES replied it would not. CHAIR FRENCH questioned how someone could run afoul of the statute if it was written as proposed. MR. JONES acknowledged that there probably wouldn't be stock in a lemonade stand, but if a person owned a controlling interest in the lemonade stand or more than one percent of the value of the stand, then that would seem to run afoul of subparagraph (2)(B) and (2)(C)(i) and (ii), on page 2, lines through 19. CHAIR FRENCH asked if his concern could be addressed if language was adopted in sub-subparagraph (i) on page 2, line 5 to say that the controlling interest in the business is worth more than $10,000. MR. JONES agreed that would make sense, but he'd also like the reference to one percent interest in a business in sub- subparagraphs (ii) and (iii) to be deleted so there is just a dollar standard. CHAIR FRENCH asked if it is difficult to value some businesses and relayed that he was reluctant to simply toss out the percentage of ownership standard. MR. JONES theorized that for some businesses there would always be some difficulty in determining valuation. But the process is further complicated if a percentage valuation is required. For example, would stock options be included or excluded from the percentage interest calculation. Although it wouldn't always be simple, a flat dollar figure would always be simpler. 1:47:35 PM SENATOR LESIL McGUIRE said the concern she has with removing the percentage relates to options to buy and to new or speculative companies where the valuation hasn't been established. Someone could use his or her official title to steer activity in a direction to gain substantial personal benefit, but not be measured by the $5,000 measure. MR. JONES acknowledged that is possible, but the root of the trouble is substantiality and using the one percent measure might not achieve the goal. A flat dollar figure is more likely to achieve the goal, he said. 1:49:10 PM CHAIR FRENCH asked Mr. Jones to send proposed language to his office so the committee could make a reasoned decision. MR. JONES agreed to suggest language and further advised that he would comment on the CS on Wednesday. 1:50:16 PM SENATOR BILL WIELECHOWSKI asked whether his comments were on behalf of the administration. MR. JONES said yes. SENATOR WIELECHOWSKI asked if the administration supports the bill with the amendment he is suggesting. MR. JONES replied he is not authorized to indicate the Governor's position on the bill. He is authorized to speak on the effects of the bill as well as any enforcement challenges. 1:51:13 PM DON ROBERTS, a Kodiak citizen, introduced himself and said when he began preparing his testimony about ethics he came to the conclusion that this is more about fairness in the decision making process and helping legislators and others avoid conflict-of-interest situations that are likely to be encountered. Having done advocacy work for eight or nine years he has determined that the whole system is unfair in that a single person can't be heard above the din of money and power. He suggested the committee look at how an average person can influence legislation before the law is enacted instead of finding out about a new law after the fact. The problem isn't that legislators are unethical; it's more that they are unfair. Finally, he asked that borough and city governments to be included because there are problems at that level as well. CHAIR FRENCH recognized the bill drafter. 1:54:34 PM DAN WAYNE, Legislative Counsel, Legal and Research Services Division, Legislative Affairs Agency, introduced himself. SENATOR GENE THERRIAULT referenced page 2 and questioned the need for the language in subparagraph (B) because the language in subparagraphs (A) and (C) seems to encapsulate it all. MR. WAYNE responded he couldn't say. Subparagraph (B) has a function, but it might work without it. SENATOR THERRIAULT referenced page 2, line 8 and suggested inserting language about "fair market value" since the term "value" is somewhat subjective. MR. WAYNE replied any term relating to value is somewhat subjective. Using total value leaves it to the person who is trying to comply with the law to make an interpretation or get an opinion from the Personnel Board. Then if a complaint is lodged the Personnel Board would make an interpretation just as it does for any subjective question. SENATOR THERRIAULT commented he would like to screw that kind of thing down as tightly as possible. He questioned why page 2, line 14, shouldn't be any officer in the business rather than just an elected officer. Finally, he noted that page 2, line 5, talks about owning a controlling interest and he would suggest that that could be subjective as well. SENATOR THERRIAULT said he highlighted those issues because some needed to be more specific and another needed a broader interpretation. CHAIR FRENCH asked if he was musing or did he have specific language to suggest. SENATOR THERRIAULT said he was musing, but he believes the committee should be more specific in how to place value. Fair market value can be tracked if the company is publicly traded and assets of a business can be appraised based on a fair market valuation. With regard to an elected officer, he said it should be any officer, elected or not. CHAIR FRENCH questioned whether that wouldn't be captured by the language on page 2, line 19, which addresses an employee of the business. He questioned whether a person could be an officer without being an employee. SENATOR THERRIAULT replied an employee is different and implies remuneration of some sort. Using his family business as an example, he said he doesn't believe that "employee of the business" would automatically sweep everyone in. 2:00:02 PM SENATOR WIELECHOWSKI advised that the definition of "business" includes for profit and non-profit businesses. MR. WAYNE noted that that definition was used in drafting the bill. CHAIR FRENCH addressed Senator Therriault's first question and read the definition of "personal interest" into the record to demonstrate that it's a little broader than financial interest. Sec. 39.52.960. Definitions. (18) "personal interest" means an interest held or involvement by a public officer, or the officer's immediate family member or parent, including membership, in any organization, whether fraternal, nonprofit, for profit, charitable, or political, from which, or as a result of which, a person or organization receives a benefit; SENATOR THERRIAULT agreed. 2:01:42 PM SENATOR WIELECHOWSKI added that subparagraph (B) on page 2 is a catch all. The other provisions wouldn't necessarily apply to non-profits, but subparagraph (B) would capture them. CHAIR FRENCH hypothesized that a Boys and Girls Club board member could drive a state decision to steer money to that club and said that they aren't deriving any personal gain, but it still isn't right. CHAIR FRENCH announced he would set SB 19 aside and the proposed amendments would be reviewed on Wednesday.