SB 127-EXEC. BRANCH ETHICS: FINANCIAL INTERESTS  5:18:47 PM CHAIR RALPH SEEKINS announced SB 127 to be up for consideration. He asked Senator French to describe the approach he took to define unethical conduct with regard to the potential violation of AS 39.52.110(b) of the current statute. He asked him to compare SB 127 with SB 186. SENATOR HOLLIS FRENCH said both bills tend to clear up a loophole that the former Attorney General Renkes case brought to light. SB 186 takes out the word "substantial" and says there is no impropriety. Both bills say there is no impropriety if the action or influence would have an insignificant effect. 5:21:26 PM SB 127 takes the question of interests that are insignificant or possessed by the public or large class of persons. SB 186 leaves it alone in Section 1. Two of the sections are very similar and of the two approaches SB 186 is right because it includes financial interest. If a person has stock in a company that is going to build a gas pipeline and also owned a home in Fairbanks and that person voted to build the pipeline, the value of every house in Fairbanks would go up and that would be okay. But the value of the person's stock would also go up and it's important to differentiate the two. The person could be charged with two violations but would be acquitted on the first charge because everyone has that same interest. 5:25:29 PM SENATOR FRENCH said he has difficulty interpreting how Section 2, Paragraph 4 of SB 186 would work. He asked Chair Seekins to explain. CHAIR SEEKINS said determining the value of a stock of a company by percentage is difficult. Zero percent of nothing is still nothing. Most people can determine how many dollars something is. If a public officer owns 50 percent of a stock and the value is less than $10,000 than it is no impropriety. SENATOR FRENCH said if the public officer owns one-half of one percent of a high value stock it could be worth ten million dollars. That would be impropriety. CHAIR SEEKINS added that would be an equity interest in the business worth less than $10,000. SB 186 is attempting to establish equity value in dollars. SENATOR FRENCH asked whether a person would have to meet all the requirements of Section 2, Paragraph 4 subparagraphs (A)-(H) in order to be exempt from liability. CHAIR SEEKINS said yes. He said unless a person "jumps through all the hoops", s/he must do something about it. 5:27:43 PM SENATOR FRENCH voiced agreement with the section. He said SB 186 looks to be better drafted than SB 127. CHAIR SEEKINS voiced the difference between SB 127 and SB 186 was in the dollar value. SENATOR FRENCH agreed. It sounds like the only place that would have an application is not in a stock, it's as if you owned a slice of Joe's Tire Company in Fairbanks and you think, with the gas line coming you're going to sell a bunch of tires. And if you own a little tiny slice it's not a factor but if you own a big slice it might get to be one. 5:29:38 PM CHAIR SEEKINS said that's true. But what is a slice? It could be a conceptual company. We have to have some real things to look at. That's the hard part of trying to set up a bright line. When we shine the light on it there should be more than a hallucination. It has to be something real to take a look at. And that's what I'm trying to boil it down to is something that has three dimensions. The hard part in trying to set this is where to put it and how to define it. SENATOR FRENCH said it is a good and thorough series of hoops. Chair Seekins announced a recess at 5:30:51 PM. Chair Seekins reconvened the meeting at 6:43:03 PM. CHAIR SEEKINS advised before the break the committee was discussing the similarities and differences between SB 127 and SB 186. 6:43:27 PM SENATOR FRENCH noted another difference is on Page 2, lines 3 and 4. SB 186 has an exception for those interests held in a blind trust and interests where the public officer does not have management control over the financial interests. CHAIR SEEKINS stated in order to set up a blind trust a person would have to have assets in excess of $1,000,000. There could be a potential conflict of interest but it would not necessarily have to preclude the public officer from making decisions if they did not have their hands on the investment. In the case of a public officer advising their superior of a conflict of interest there may be a way to arrange their financial interests so that the public officer could continue working on the particular project for the state. He said SB 186 attempts to find a balance for the public officer to continue making decisions for the State of Alaska. He asked Barbara Richey to explain how it is done currently. 6:46:26 PM MS. BARBARA RICHEY, chief assistant attorney general, Department of Law (DOL), introduced herself as the head of a section called Opinions, Appeals, and Ethics. CHAIR SEEKINS asked the course when a person discloses a potential violation of ethics or conflict of interest. MS. RICHEY said often the inquiries come via the designated ethics supervisors. Ethics are very fact specific so they gather all of the facts first. They research the situation both factually and legally and do an advisory opinion. CHAIR SEEKINS said Section 17 of SB 186 states even the personnel board may order the same type of divestiture or establishment as part of their remedy. He said a person could go to their designated ethics supervisor and the supervisor at that time could advise them on how to avoid the conflict. MS. RICHEY noted a good example was Attorney General David Marquez, when he was being considered for possible appointment as attorney general, made disclosure of all of his personal financial interests and asked for a review and an opinion. 6:50:18 PM SENATOR FRENCH said management control was a rational approach so long as the asset in question wasn't one that the public officer put in to the account. CHAIR SEEKINS asserted once that person puts it into a brokerage fund it becomes managed by someone else. 6:52:51 PM SENATOR THERRIAULT said he doesn't believe people should have to divest themselves of their holdings, especially if they have owned them long term. SENATOR FRENCH stated the issue is not whether they own it or not, the issue is whether they use their public office to influence the investment. 6:54:44 PM CHAIR SEEKINS speculated a public officer would be compelled under the law to seek the advice of their designated supervisor. MS. RICHEY agreed. CHAIR SEEKINS continued the designated supervisor has the right to tell the public officer what to do with their holdings and that person either accepts the recommendation or doesn't perform the job. MS. RICHEY said correct or they could be reassigned. The concept is to lie out options because situations differ. 6:56:48 PM MS. RICHEY commented discretionary managed accounts occur where the broker makes investments without prior knowledge. However, the investor receives monthly reports and can check accounts via the Internet. CHAIR SEEKINS asked whether the process of an ethics advisor is discoverable. MS. RICHEY answered notices of potential violation and requests for advice is currently confidential. CHAIR SEEKINS asked whether it could be discoverable if a case was brought. MS. RICHEY responded it would depend on whether the subject was willing to waive confidentiality. CHAIR SEEKINS clarified there would be a traceable history if charges were brought. MS. RICHEY agreed. 6:59:52 PM CHAIR SEEKINS advised Senator French that SB 186 has hurdles but the bill also requires the subject to get advice. SENATOR HUGGINS commented the contents of the bill appear reasonable. MS. RICHEY added another part of the process is that any notices, declaration of potential violation, as well as any actual violations, the designated ethics supervisors on a quarterly basis report all of those to the attorney general's office. They are all reviewed and if something is questionable it is followed up on. There is also a report to the personnel board, which is made public. 7:02:38 PM CHAIR SEEKINS asked the number of public employees that fall under the rule. MS. RICHEY stated all of them including members of boards or commissions that are formed by statute. SENATOR FRENCH explained the last difference between SB 127 and SB 186 is the definition of official action. CHAIR SEEKINS asked Senator French to explain how that would be in effect. SENATOR FRENCH said the impetus for the re-definition came out of the (former Attorney General) Renkes affair. He said he wants to make sure employees know most of the things they do during the course of the day is official action. MS. RICHEY commented the current definition of "official action" is very broad. Senator French's proposal is more articulate. 7:06:26 PM MS. RICHEY said overall she was comfortable with the current definition of official action. SENATOR FRENCH asserted (former Attorney General) Renkes felt some things he did was not "official action" and so the current definition seems open to confusion. CHAIR SEEKINS said he does not have a problem with the effort to re-define things so that people are clearly informed of the parameters. A lot of potential ethics violations can result from someone not having a clear understanding of the parameters. 7:10:27 PM SENATOR FRENCH concluded the comparison of the two bills. CHAIR SEEKINS said his intent is to reach an agreement between the two bills and move one forward.