HOUSE FINANCE COMMITTEE January 27, 1998 1:43 P.M. TAPE HFC 98 - 8, Side 1 TAPE HFC 98 - 8, Side 2 CALL TO ORDER Co-Chair Gene Therriault called the House Finance Committee meeting to order at 1:43 p.m. PRESENT Co-Chair Therriault Representative Kohring Representative Davies Representative Martin Representative Davis Representative Moses Representative Foster Representative Mulder Representative Grussendorf Representative Kelly Co-Chair Hanley was absent from the meeting. ALSO PRESENT Senator Dave Donley; Patrick Eggers, Alaska State Firefighters Association; Richard Duncan, Alaska State Firefighters Association; Margot Knuth, Assistant Attorney General, Department of Law; Jim Sampson, Fairbanks; Jim Kelly, Alaska Permanent Fund Corporation; Peter Bushre, Chief Financial Officer, Alaska Permanent Fund Corporation; Sandy Perry-Provost, Special Assistant, Department of Public Safety; Mike Corkhill, Anchorage. SUMMARY HB 308 "An Act making a supplemental appropriation to the Alaska Permanent Fund Corporation; and providing for an effective date." HB 308 was HELD in Committee for further consideration. HB 334 "An Act relating to wavier of tuition and fees for certain family members of a police officer killed in the line of duty; and providing for an effective date." CSHB 334 (FIN) was REPORTED out of Committee with a "do pass" recommendation and with a fiscal impact note by the University of Alaska. SB 63 "An Act providing for automatic waiver of juvenile jurisdiction and prosecution of minors as adults for certain violations of laws by minors who use deadly weapons to commit offenses that are crimes against a person, and relating to the sealing of the records of those minors." SB 63 was HELD in Committee for further consideration. SENATE BILL NO. 63 "An Act providing for automatic waiver of juvenile jurisdiction and prosecution of minors as adults for certain violations of laws by minors who use deadly weapons to commit offenses that are crimes against a person, and relating to the sealing of the records of those minors." SENATOR DAVE DONLEY provided members with a new proposed committee substitute for SB 63, work draft 0-LS029\K, 1/27/98 (copy on file). He explained that the language in subsection (3) of the proposed committee substitute should be amended on page 2, line 11. He suggested that "a crime against a person punishable as a felony" be deleted and "class B felony and the felony is a crime against a person" be inserted. Co-Chair Therriault MOVED to ADOPT work draft 0-LS029\K, 1/27/98, as the version before the Committee. There being NO OBJECTION, the motion was adopted. Co-Chair Therriault MOVED to ADOPT a verbal Amendment #1 to delete "a crime against a person punishable as a felony" and insert "class B felony and the felony is a crime against a person". There being NO OBJECTION, the motion was adopted. Senator Donley explained that the committee substitute would limit the applicability of the automatic waiver to approximately three cases a year. A second class B felony offense committed with a deadly weapon, not a dangerous instrument, would be added. Co-Chair Therriault explained that the Department of Health and Social Services determined that three additional cases a year would be waived. Representative Davies provided members with Amendment # 2 (copy on file). He explained that the amendment would clarify that "a crime against a person" modifies class A and unclassified felonies. He observed that this is the current interpretation by the Department of Law. He asserted that serious crimes are currently being waived under existing law. He observed that there is an over the counter version of aspirin in Canada, 222, which contains the controlled substance codeine. Under the proposed committee substitute, a minor could be automatically waived in to adult court for giving a 222. Representative Davies MOVED to ADOPT Amendment #2. Senator Donley spoke against the amendment. He emphasized that the original legislation intended that waiver of unclassified felonies would not be dependent on being a crime against a person. He noted that Senator Halford, the original sponsor, is opposed to the amendment. Co-Chair Therriault clarified that a minor would have to be under the age of 19 and deliver a controlled substance to a person whom is at least three years younger to be impacted by the amendment. MARGOT KNUTH, ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, DEPARTMENT OF LAW spoke against the amendment. In response to a question by Representative Davies, Ms. Knuth observed that the Department of Law and the Department of Health and Social Services interprets "a crime against a person" to modify both unclassified and class A felonies. She asserted that the change would be beyond the scope of the bill's title. Senator Donley observed that the original legislation was the result of a conference committee compromise. He noted that the original Senate version was not limited to a crime against a person. The House version was limited to a crime against a person. He maintained that the compromise did not limit unclassified felonies to crimes against a person. Class A felonies were limited to crimes against a person. Ms. Knuth stated that the title indicates that the legislation is an Act providing for automatic waiver of juvenile jurisdiction and prosecution of minors as adults for certain violations of laws by minors who use deadly weapons to commit offenses that are crimes against a person. The amendment would expand automatic waiver to unclassified felonies that are not crimes against a person. Senator Donley argued that the title difficulty is only based on an interpretation from the Department of Law. He stated that he could equally argue the other side based on the conference committee history. He maintained that the conference committee intent was clear. Co-Chair Therriault OBJECTED to the adoption of Amendment Ms. Knuth noted that there are other unclassified offenses that are not crimes against a person. She observed that, in addition to controlled substances in the first degree that tampering with the pipeline would be an unclassified offense that is not a crime against a person. She reiterated that unclassified felony offenses, that are also crimes against a person, are appropriate for an automatic waiver. She stressed that the Department of Law has not considered the propriety of automatic waiver for unclassified felony offenses that are not crimes against a person. Senator Donley emphasized that prosecutors can use discretion by charging a lesser offense. Representative Davies maintained that based on cases that have been waived since 1997, waivers are occurring on offenses below the level of concern addressed by the legislation. Senator Donley stressed that the legislation would not require a prior history of serious crimes to seek the automatic waiver. He maintained that there is a serious problem in the juvenile justice system of repeat offenders of violent crimes. He asserted that current waivers are the result of a history of violent crimes. He did not think that less serious crimes are waived without a history of offenses. Ms. Knuth emphasized that the safe guard of the juvenile criminal system should not be based on the ability of prosecutors to under charge offenses. She maintained that prosecutors should be allowed to enforce the law in the form that it is legislated. Senator Donley stressed that prosecutors commonly use discretion. He noted that it is difficult to craft laws that cover every possible scenario. Ms. Margot acknowledged that there are cases were prosecutors use discretion. She noted that prosecutors might decide to use a lesser plea to avoid a trial that would further victimize the victim. Representative Kelly noted that one of the reasons the state of Alaska has open court is to protect the rights of the accused. He asserted prosecutors would not prosecute the case of a minor who gave his sister aspirin with codeine. He emphasized that the amendment would give prosecutors the ability to go after the "really bad kid." Ms. Knuth noted that the House Finance Committee is the last committee of referral for the legislation. She emphasized that the amendment represents a substantive change of law. She expressed concern that the issue has not been addressed in any other hearings and is not reflected in the title of the bill. Representative Davies spoke in support of Amendment #2. He reiterated that the discretion to waive juveniles into adult court already exists. Co-Chair Therriault noted that he would hold the bill to determine if the amendment would present a title problem. SB 63 was HELD in Committee for further consideration. HOUSE BILL NO. 334 "An Act relating to wavier of tuition and fees for certain family members of a police officer killed in the line of duty; and providing for an effective date." Representative Kelly spoke in support of HB 334. He provided members with a proposed committee substitute, work draft 0-LS1380\E, 1/27/98 (copy on file). He reviewed changes incorporated by the work draft. He observed that the proposed committee substitute would clarify that the tuition waiver would be for undergraduate studies. The proposed committee substitute also added a retroactive clause. SANDY PERRY-PROVOST, SPECIAL ASSISTANT, DEPARTMENT OF PUBLIC SAFETY estimated that two or three dependents would be eligible under the retroactive clause. Co-Chair Therriault MOVED to ADOPT, work draft 0-LS1380\E, 1/27/98. There being NO OBJECTION, the motion was adopted. PATRICK EGGERS, ALASKA STATE FIREFIGHTERS ASSOCIATION spoke in support of the legislation. He asked that firefighters, who face daily peril in their jobs, be included in the legislation. He observed that no dependents of firefighters would be covered under the retroactive clause. RICHARD DUNCAN, ALASKA STATE FIREFIGHTERS ASSOCIATION provided members with information on the deaths of the following Alaskan firefighters killed in the line of duty: Hugh Rudolph, Thomas Dunnigan, Harry Newell, Donald Hyde, Charles Whitehorn, and Christine Pennington (copy on file). JIM SAMPSON, JUNEAU spoke in support of HB 334. He observed that John Kevin Lamm, a Fairbanks police officer was recently killed while on duty. On behalf of Mr. Lamm's dependents, he expressed his appreciation for the legislation and urged its adoption. Representative Foster MOVED to ADOPT Amendment #1 (copy on file). Amendment #1 would add spouses and dependents of firefighters, killed in the line of duty, to HB 334. Co- Chair Therriault OBJECTED for the purpose of discussion. (Tape Change, HFC 98 - 8, Side 2) Co-Chair Therriault observed the difficulty of "drawing a line." He questioned where the line should be drawn. Representative Kelly stated that he would draw the line based on the scope of a person's duties. He compared a security guard that is working to protect the assets and patrons of a bank, to military personnel, police officers and firemen that are protecting society at large. Co-Chair Therriault and Representative Davis expressed concern that the legislation could become too inclusive. Representative Martin stressed that the State needs to encourage people that are willing to sacrifice themselves, daily, for the citizens on the street and in the neighborhoods to live safely. Co-Chair Therriault WITHDREW his OBJECTED. There being NO OBJECTION, the motion to adopt Amendment #1 was passed. Representative Grussendorf MOVED to ADOPT Amendment #2 (copy on file). Amendment #2 would add village public safety officers (VPSO) to HB 334. He emphasized that village public safety officers are the police in rural areas. He observed that a VPSO officer was killed in an ambush on his way to investigate a domestic violence assault, in 1986. No village public safety officers have been killed in the line of duty since that time. There being NO OBJECTION, Amendment #2 was adopted. Representative Mulder MOVED to ADOPT Amendment #3. Amendment #3 would adopt a title change to reflect the amendments adopted by the Committee. He stressed that the title should be tightened to prevent addition. Representative Kelly spoke in support of Amendment #3. There being NO OBJECTION, Amendment #3 was adopted. MIKE CORKHILL, ALASKA POLICE OFFICERS ASSOCIATION, ANCHORAGE testified via the teleconference network in support of HB 334. He spoke in support of expanding the legislation to cover other police officers such as village public safety officers. He asked if an unborn child would be covered by the legislation. He suggested that clarification be made that current, not former, spouse be covered by the legislation. He expressed concern regarding residential requirements. He noted that police officers can be hired by municipal agencies from outside the State. He felt that an officer working in Alaska should not be excluded from the benefits of the legislation. Co-Chair Therriault observed that an unborn child would be covered as the officer's dependent. Representative Mulder MOVED to report CSHB 334 (FIN) out of Committee with the accompanying fiscal note. CSHB 334 (FIN) was REPORTED out of Committee with a "do pass" recommendation and with a fiscal impact note by the University of Alaska. HOUSE BILL NO. 308 "An Act making a supplemental appropriation to the Alaska Permanent Fund Corporation; and providing for an effective date." JIM KELLY, DIRECTOR OF COMMUNICATIONS, ALASKA PERMANENT FUND CORPORATION testified in support of HB 308. He observed that the Permanent Fund performed better than expected in the current fiscal year. Assets under management grew from $22.1 to $23 billion dollars between June and December 1997. This growth is in addition to the $747 million dollars that were paid in dividends. Mr. Kelly noted that the Fund's total return was flat to modestly positive during the last three months. The first quarter of the fiscal year the Fund earned a period return, not annualized, of 5.04 percent. He noted that U.S. equities performed at 8.84 percent. This equals an annualized return of more than 35 percent. He observed that manager fees are based on the value of assets under management. When the Fund goes up in value, the manager fees increase. Mr. Kelly noted that the Board has put mitigating factors into place that has reduced the growth of manager fees. A greater percentage of equity assets were moved into passive index accounts. Fees for passive management are just a fraction of active management fees. He added that there was a temporary movement of billions of dollars of equity assets into a passive transition account during the Fund's restructuring. Restructuring was undertaken to accomplish the Board-directed shift in asset allocation into passive management, international equities and emerging markets. He explained that most of this restructuring took place in the last quarter. Mr. Kelly observed that the Fund experienced a number of positive outcomes from restructuring. Significant capital gains have been realized. The net income for the Permanent Fund during the first half of the year was $1.5 billion. A net income of $2.1 billion dollars is projected for the year. Mr. Kelly cautioned that future expectations are not as high. He did not think that the kind of returns institutional and individual investors have been earning in the past few years would continue. The Fund is expecting single digit returns from all asset classes for the intermediate-term, with the exception of small-cap U.S. stocks which the Fund's investment consultant, Callan Associates, projects at an average of 10.1 percent for the next five years. He emphasized that expectations are also for increased short-term volatility. He stressed that the Corporation requests that SB 200 be amended and reduced to $4,494 thousand dollars. He estimated that this would provide sufficient corporate receipts to pay managers for the remainder of the year. He asserted that money budgeted for manager fees will be used solely for manager fees. If there is a surplus the unused corporate receipts will lapse. Mr. Kelly observed that fees for the first six months total $11,079,800. The supplemental will allow an additional $14,106,200 for the last two quarters of the year. For every dollar of net income the Fund earns this year, manager fees will cost 1.19 cents. Co-Chair Therriault noted that the fee structure was negotiated down for a saving. PETER BUSHRE, CHIEF FINANCIAL OFFICER, ALASKA PERMANENT FUND CORPORATION explained that custody fees were negotiated down by $625 thousand dollars. The supplemental request is for manager fees. Contract negotiations have reduced a number of manger fees during the current fiscal year. Custody fees and manager fees are both paid with corporate receipts. Co-Chair Therriault asked if savings in custody fees were taken into consideration in the shift of authorization. Mr. Bushre replied that a portion of the savings was taken into consideration. A portion was also used to cover deficits in other categories. Mr. Kelly noted that the Alaska Permanent Fund Corporation is committed to lapse funds left over from manager fees. He observed that the funds left over from custody fees have not been obligated in other categories at this time. He noted that the year is only half over. In response to a question by Co-Chair Therriault, Mr. Bushre observed that the request is for the last quarter of the fiscal year. Representative Davies reiterated that any remaining funds will be lapsed. Mr. Kelly agreed that any corporate receipts authorized to pay manager fees would not be shifted to other categories, but would be lapsed back to the Fund. Representative Martin maintained that the current arrangement is working well. He stressed that managers should be paid for their success, but cautioned that manager fees should not become a vehicle for supplemental funding. Co-Chair Therriault clarified that the intent is to scrutinize expenditures, even if they are corporate receipts. He stated that it does not make sense to lapse money if it can be shifted over to reduce other costs. He asked for more information regarding the $625 thousand dollars that were saved in custody fees. Mr. Bushre clarified that $625 thousand dollars is a projected surplus in the custody fee budget for FY 99. The supplemental request is for FY 98. He added that new contracts have recently gone into effect. There are some savings as a result of the new contracts. HB 308 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 2:59 p.m. House Finance Committee 5 1/27/98