HOUSE BILL NO. 139 "An Act providing an exemption from the state procurement code for the acquisition of investment- related services for assets managed by the Board of Trustees of the Alaska Permanent Fund Corporation." 9:13:23 AM Co-Chair von Imhof discussed housekeeping. She assured the committee that the bill would not move from committee during this meeting. 9:14:06 AM JULI LUCKY, STAFF, SENATOR NATASHA VON IMHOF, spoke to the Committee Substitute (CS). She noted that there was no Explanation of Changes document as the CS entirely replaced the previous bill. She related that the bill would still provide an exemption for certain contracts to provide investment related supplies or services to support the operations of the Alaska Permanent Fund Corporation. The bill also required a written determination of the following three factors: That the contract is in the best interest of the Alaska Permanent Fund Corporation That the contract is consistent with the responsibilities of the board of trustees of the Alaska Permanent Fund and the corporation under AS 37.13.120 That the contractor is qualified to provide the supplies or services Ms. Lucky related that the language had been worked out between the sponsor and the corporation to provide sideboards on the broad exemption found in the previous version of the bill. 9:15:13 AM Senator Wielechowski thought that the CS made the bill worse. He stated he was told the reason for the bill was to be able to react to immediate circumstances. He thought the CS broadened the scope to investment related supplies and services and had no immediacy requirement; furthermore, there was no requirement that any documentation be provided to justify any determination. He thought it was a bad policy to give a corporation with so much capital the ability to issue sole source contracts without oversight. He relayed that he was working on amendments to the legislation. Co-Chair von Imhof solicited comments from Ms. Lucky. Ms. Lucky deferred to the bill sponsor, or representatives from the Alaska Permanent Fund Corporation (APFC). She said that the corporation and drafted the language for the CS and could speak to the intent. Co-Chair von Imhof called upon invited testimony. 9:16:46 AM ANGELA RODELL, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND CORPORATION, spoke to the CS. She explained that the bill raised the standard under which the corporation could procure and incorporated the concept of fiduciary duty. She noted that fiduciary duty meant that the board could be held personally liable for acts that were in breach of fiduciary duty; the state could seek damages from personal financial accounts in order to recover damages. She expressed appreciation for the committee and any support for the CS. 9:18:15 AM Senator Olson asked whether Ms. Rodell was aware of the sunset provision in the bill. Ms. Rodell stated that there was no sunset provision in the CS. Senator Olson referenced Senator Wielechowski's concern about sole-source contracts. Ms. Rodell thought it was important to remember that APFC was subject to the public records act. All the contracts would be subject to the act requirements and payments under legislative budget appropriation. She reminded the committee that there would be opportunities to discuss contracts before they were awarded. 9:19:37 AM Senator Olson asked whether Ms. Rodell would be opposed to striking the work supplies from the legislation. Ms. Rodell responded that the corporation would not be opposed to an amendment striking the word supplies from the CS. 9:20:05 AM Senator Hoffman stated that he had received the CS minutes ago, he requested more time to review the legislation before adopting it as a working document. He requested that committee members be able to compare the CS to the previous bill version. 9:20:39 AM Senator Bishop asked Ms. Rodell whether there was a dollar limit of what could be executed under the CS. Ms. Rodell stated that there was no dollar limit in the CS, but there would be in the sense that the budget was approved and appropriated by the legislature. Co-Chair von Imhof asked Ms. Rodell how the bill would help the corporation. Ms. Rodell explained to the committee that the Permanent Fund was no longer invested in the way it was at its inception. The asset allocation had expanded and become more diverse in securities form private equity, to real estate, to public equity, to bonds. Over years, the corporation had taken more of the responsibility in-house rather than allowing third parties to invest on its behalf. She asserted that in-house management allowed for the alignment of the goals of the state with the corporations strategy, while reducing costs. The purpose of the exemption was to try to seek all the tools necessary to pursue services in the most timely, cost-effective manner possible. She specified that the procurement code could be cumbersome to getting work done in a timely manner. She asserted that the legislation would give the corporation the ability to seek services and be exempt from the code. 9:23:06 AM Senator Bishop asked whether the CS was more restrictive than other quasi-state agency policy. Ms. Rodell stated that it was the corporations view that the bill created a higher standard than what other boards (AIDEA, AHFC, ARM) were currently held to because she would be required to make a written determination whether a contract was in the best interest of the fund. If it was found that she had violated the standard, the state could pursue her personal assets to recoup damages. 9:24:35 AM Senator Wielechowski pointed out that every corporation had a fiduciary duty, and such lawsuits to recoup damages were very rare. He asked whether Ms. Rodell would support an amendment limiting exemptions to emergency investment services. Ms. Rodell responded in the negative. Senator Wielechowski asked whether Ms. Rodell would support the committee codifying in state law the AHFC and AIDEA regulations that applied in emergency procurement situations. Ms. Rodell answered in the negative. 9:25:26 AM Senator Hoffman referenced Line 9 of the bill, which specified that contracts must be in the best interest of the fund. He summarized Ms. Rodells testimony that what was in the interest of the fund might not be in the best interest of the state. He thought the legislators had to protect what was in the best interest of the State of Alaska. He wondered whether this could put the legislature and the corporation at cross purposes. Ms. Rodell reiterated that the corporation's duty was to the fund, and not to the state, and at times the situation could be conflicted. She used an example that it might not be in the best interest of the fund to make certain distributions to the state to help with the economy because it would prohibit the long-term investment returns and could violate the standard of care and the corporations duty to diversify. She emphasized that the corporation was mandated through statute to consider the fund first. 9:27:49 AM Co-Chair von Imhof set the bill aside. She noted that the CS would not be adopted. She stated that the CS had been sent to members two days prior and expressed her displeasure that committee members had not reviewed the CS prior to the meeting. She categorized the hearing as a show. 9:28:12 AM Senator Wielechowski took exception to Co-Chair von Imhof's statement that the hearing was a show. Co-Chair von Imhof felt that the issues raised at the table could have been discussed prior to the meeting. She contended that time was limited, and the committee had 3 bills left to consider.