HOUSE FINANCE COMMITTEE March 5, 1998 1:40 P.M. TAPE HFC 98 - 54, Side 1. TAPE HFC 98 - 54, Side 2. TAPE HFC 98 - 55, Side 1. CALL TO ORDER Co-Chair Hanley reconvened the House Finance Committee meeting to order at 1:40 P.M. PRESENT Co-Chair Hanley Representative Kelly Co-Chair Therriault Representative Kohring Representative J. Davies Representative Martin Representative G. Davis Representative Moses Representative Foster Representative Mulder Representative Grussendorf ALSO PRESENT Representative Ivan Ivan; Dan Spencer, Chief Budget Analyst, Office of Management and Budget, Office of the Governor; Annalee McConnell, Director, Office of Management and Budget, Office of the Governor; Margot Knuth, Assistant Attorney General, Department of Law; Jeff Logan, Staff, Representative Joe Green; Jim Sourant, Staff, Representative Brian Porter; David Pree, Staff, Representative Joe Ryan; Richard Thwaites, Private Attorney, Alaska Trust Corporation, Anchorage; Mike Mosesian, (Testified via Teleconference), Anchorage; Steve Noey, Alaska Trust Corporation, Anchorage. SUMMARY HJR 36 Proposing amendments to the Constitution of the State of Alaska relating to redistricting of the legislature, and repealing as obsolete language in the article setting out the apportionment schedule used to elect the members of the first state legislature. CS HJR 36 (FIN) was reported out of Committee with a "do pass" recommendation and a fiscal note by the Office of the Lt. Governor dated 1/23/98. HJR 44 Proposing amendments to the Constitution of the State of Alaska relating to redistricting of the legislature. CS HJR 44 (FIN) was reported out of Committee with "individual recommendations" and with fiscal notes by the Department of Law dated 2/18/98 and the Office of the Lt. Governor dated 2/18/98. HB 290 An Act relating to motor vehicle license plates for ranchers, farmers, and dairymen. CS HB 290 (TRA) was reported out of Committee with a "no recommendation" and with a fiscal note by the Department of Administration dated 2/25/98. HB 321 An Act relating to trusts, to the prudent investor rule, and to standards of care applicable to personal representatives, conservators, and trustees; and providing for an effective date. HB 321 was HELD in Committee for further consideration. HB 370 An Act making an appropriation for relief of the 1997 fishery disaster in Bristol Bay and on the Kuskokwim River; and providing for an effective date. CS HB 370 (FIN) was reported out of Committee with "individual recommendations". HB 461 An Act making supplemental and special appropriations; and providing for an effective date. CS HB 461 (FIN) was reported out of Committee with a "do pass" recommendation. HOUSE BILL 461 "An Act making supplemental and special appropriations; and providing for an effective date." DEPARTMENT OF CORRECTIONS Co-Chair Hanley distributed Amendment #3. [Copy on file]. He stated that Judge Hunt has ordered the Department of Corrections to reduce current jail capacity by 500 people bringing it down to emergency status. The plan as proposed by the Department is to use more Community Residential Center (CRC) beds. Amendment #3 would add enough money into the Department's budget to meet Judge Hunt's request for this fiscal year. ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGMENT AND BUDGET, OFFICE OF THE GOVERNOR, distributed a handout titled "FY98 Costs To Be In Compliance With Cleary Order as of May 1, 1998 (Through June 30, 1998)". [Copy on file]. Representative Mulder criticized that this information had not been available for a Corrections Subcommittee meeting this morning. He requested a detailed breakout of the $40 thousand general fund dollars to be used for CRC beds. MARGO KNUTH, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, advised that once there are over 500 prisoners placed in Arizona, the State is required to provide a probation officer on the premise to deal with grievance procedures. She added that the "gratuity" amount was a "term of art" which means in-mate wages. In-mates are put to work and they are paid a small stipend. Ms. Knuth continued, the projected $55 dollars per day prisoner cost is actually $2 dollars a day less than the current rate. Exceeding a specified number allows that the state be eligible to qualify for a discount. Ms. Knuth and Representative Mulder discussed the handout and costs associated with it. Representative Mulder asked where the new CRC beds would be located. Ms. Knuth stated there would be 32 beds in Anchorage, 20 in Fairbanks, 20 in Nome and 10 in Bethel. The 10 beds in Bethel are already in process. The cost breakout is for 72 beds which excludes Bethel. Co-Chair Therriault asked about the one-time set-up costs and if there were any used supplies which might be available. Ms. Knuth stated that the tents had been sold a couple of years ago. She was not aware of any organization from which the State could borrow equipment now needed by the Department of Corrections. Ms. Knuth clarified that the $40 thousand general fund dollars and the $25.7 thousand federal fund dollars for CRC beds would be the Department's supplemental request in addition to funds on hand. Representative J. Davies asked if the State would be eligible to receive a discounted rate in Arizona for all prisoners or just the amount over 500. Ms. Knuth explained that the price break would be only for the additional prisoners over the first 500. Representative Mulder MOVED to adopt Amendment #3. There being NO OBJECTION, it was adopted. DEPARTMENT OF FISH AND GAME Representative Grussendorf MOVED to adopt Amendment #4. [Copy on file]. The amendment addresses the request by the Department of Fish and Game for costs associated with the Sitka herring roe on kelp fishery for fiscal year ending 6/30/98. Co-Chair Hanley pointed out that the costs would be paid by the people having the testing done. There being NO OBJECTION to Amendment #4, it was adopted. Co-Chair Hanley MOVED that Section (J) from work draft 0- LS1638\B, Cramer, 3/05/98, remain in Amendment #3. There being NO OBJECTION, it was adopted. Co-Chair Therriault MOVED to report CS HB 461 (FIN) out of Committee with individual recommendations. There being NO OBJECTION, it was so ordered. CS HB 461 (FIN) was reported out of Committee with a "do pass" recommendation. HOUSE BILL NO. 370 "An Act making an appropriation for relief of the 1997 fishery disaster in Bristol Bay and on the Kuskokwim River; and providing for an effective date." Representative Moses MOVED to adopt Amendment #1. [Copy on file]. Co-Chair Hanley OBJECTED for the purpose of discussion. Representative Moses explained that Amendment #1 corrected a misprint in the legislation. Co-Chair Hanley WITHDREW his OBJECTION. There being NO further OBJECTION, it was adopted. Co-Chair Therriault MOVED to report CS HB 370 (FIN) out of Committee with individual recommendations. Representative Kohring OBJECTED. Representative Kohring noted that he philosophically opposed the legislation. He commented that state government should not be in the business of subsidizing village activity. Representative Kohring suggested that there are alternative ways to assist people in economic distress. A roll call vote was taken on the motion. IN FAVOR: J. Davies, G. Davis, Foster, Grussendorf, Kelly, Moses, Hanley, Therriault OPPOSED: Kohring, Martin Representative Mulder was not present for the vote. The MOTION PASSED (8-2). Representative Kohring offered to help assist these areas by contacting non-profits and churches for support. CS HB 370 (FIN) was reported out of Committee with "individual recommendations". HOUSE BILL NO. 290 "An Act relating to motor vehicle license plates for ranchers, farmers, and dairymen." JEFF LOGAN, STAFF, REPRESENTATIVE JOE GREEN, stated that HB 290 would clarify that a person, defined in AS 01.10.060 to include a corporation, company, partnership, firm, association, organization, business trust, or society, as well as a common person, be eligible for agricultural plates issued by the Division of Motor Vehicles (DMV). Representative J. Davies asked if certain corporations would be eligible for the plates through passage of the legislation. Mr. Logan replied that they would if they met the other qualifications listed in the bill. Representative J. Davies questioned the need for allowing a lower rate in this classification. MIKE MOSESIAN, (TESTIFIED VIA TELECONFERENCE), ANCHORAGE, stated that the intent of the original law was to address the short growing season. He suggested that it would be unfair for the farmer to be required to pay the same fee paid for commercial use. He believed this bill would provide more farmer incentives. Representative G. Davis asked if these vehicles could be used for anything else in off-season and would they be required to be insured as a commercial vehicle. Mr. Mosesian replied that the vehicle would be used for hauling agricultural supplies. Representative Foster MOVED to report CS HB 290 (TRA) out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CS HB 290 (TRA) was reported out of Committee with "no recommendation" and with a fiscal note by the Department of Administration dated 2/25/98. HOUSE JOINT RESOLUTION NO. 36 Proposing amendments to the Constitution of the State of Alaska relating to redistricting of the legislature, and repealing as obsolete language in the article setting out the apportionment schedule used to elect the members of the first state legislature. Co-Chair Therriault spoke to changes made to Page 3, Line 19, resulting from Committee concerns. The change keeps the 60-day requirement which could be problematic. Co- Chair Therriault noted that Amendment #2 would address that concern. [Copy on file]. It would guarantee the transition from one plan to the next. Co-Chair Therriault MOVED to adopt Amendment #2. (Tape Change HFC 98- 54, Side 2). Co-Chair Therriault explained the intent addressed concerns in those areas of the State which could loose representation because their population had declined. That could result in litigation to keep the old plan in place for two years. Representative Mulder questioned if the timing would cause concern for the Court system. Co-Chair Therriault noted that the Court established a plan with minor flaws to work as an interim plan. Representative J. Davies voiced concern that should there be a legal challenge and if that challenge was resolved 30 days before the election, then which plan would the election be held under. Co-Chair Therriault responded that the Courts have moved the primary date back in previous years to accommodate all the time lines. In working with the Division of Elections, the Court could make it work. There being NO OBJECTIONS to Amendment #2, it was adopted. Representative J. Davies MOVED to adopt Amendment #3. [Copy on file]. Co-Chair Therriault OBJECTED. Representative J. Davies stated that Amendment #3 would address an issue raised by Assistant Attorney General Baldwin. It would allow the redistricting board to take into account and deduct non-resident military personnel and dependants. Co-Chair Hanley opposed the amendment, which he felt would be unconstitutional. Representative Mulder added that from the Hickel vs. Southeast Conference case in 1992, the Court found it impossible to accurately identify non-resident military personnel. Representative Martin echoed his opposition. Representative J. Davies WITHDREW the MOTION to adopt Amendment #3. There being NO OBJECTION, it was withdrawn. Representative Mulder MOVED to report CS HJR 36 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. CS HJR 36 (FIN) was reported out of Committee with a "do pass" recommendation and with a fiscal note by the Office of the Lt. Governor dated 1/23/98. HOUSE JOINT RESOLUTION NO. 44 Proposing amendments to the Constitution of the State of Alaska relating to redistricting of the legislature. Co-Chair Therriault noted that the Committee would be working with the 0-LS0528\I, Glover, 3/3/98, version of the proposed legislation. Co-Chair Therriault MOVED to adopt Amendment #6. [Copy on file]. Discussion followed among Committee members regarding deletion of the language, "until sixty days after adoption and final adjudication of the succeeding redistricting plan and proclamation of redistricting". There being NO OBJECTION, Amendment #6 was adopted. Representative Gary Davis asked the outcome of the final redistricting plan referenced on Page 4, Line 6 - 13. Co- Chair Therriault noted that passage of Amendment #6 would remove the confusion. Co-Chair Therriault spoke to the fiscal note as provided by the Department of Law. Representative J. Davies understood that the fiscal note had been submitted because there would be costs in obtaining pre-clearance which would require expertise and time. JIM SOURANT, STAFF, REPRESENTATIVE BRIAN PORTER, thought that the fiscal note would not be relevant with passage of Amendment #6. Co-Chair Therriault explained that the mechanism for drawing the lines would be changed, not the requirements of who is eligible to vote. He also questioned the need for the fiscal note. Representative J. Davies commented that the base of the fiscal note was to address preclearance which would guarantee that there are no problems before the changes are implemented. This would be an expense which would occur in any case when a significant change has been made. Co-Chair Therriault reiterated that a change in the method of drawing the lines would not require a preclearance. Representative Mulder suggested that the bill's fiscal note could be changed on the House Floor or in Conference Committee. Representative Mulder MOVED to report CS HJR 44 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. Representative J. Davies OBJECTED. Representative J. Davies believed that the approach taken with the province of the justice system could be a large mistake. He suggested that this system would encourage politicizing among the Supreme Court Judges with far reaching consequences. He stated that he strongly opposed the legislation. Representative Martin acknowledged that the legislation could be interuptive to the political process, causing chaos. A roll call vote was taken on the motion to MOVE the bill from Committee. IN FAVOR: Foster, Kelly, Mulder, G. Davis, Hanley, Therriault OPPOSED: Grussendorf, Kohring, Martin, Moses, J. Davies The MOTION PASSED (6-5). CS HJR 44 (FIN) was reported out of Committee with a "do pass" recommendation and with fiscal notes by the Department of Law dated 2/18/98 and the Office of the Lt. Governor dated 2/18/98. HOUSE BILL NO. 321 "An Act relating to trusts, to the prudent investor rule, and to standards of care applicable to personal representatives, conservators, and trustees; and providing for an effective date." DAVID PREE, STAFF, REPRESENTATIVE JOE RYAN, stated that the Uniform Prudent Investor Act would reverse common law rules that restrict the investment powers of trustees. The new act would require a trustee to invest as a prudent investor would, using reasonable care, skill and caution in light of the objectives and risk tolerance of the individual trust. Diversification of assets is an obligation. Trustees can delegate investment responsibilities to experts. Within the scope of these powers and duties, trustees can choose to invest in any kind of asset that meets the objective of the specific trust. Co-Chair Therriault acknowledged that the bill would add new verbiage as recommended by the Uniform Law Commission. RICHARD THWAITES, PRIVATE ATTORNEY, ALASKA TRUST CORPORATION, ANCHORAGE, testified in support of the legislation. The purpose of the Uniform Act was to bring Alaska in line with the rest of the states. Like the Uniform Commercial Code, which made businesses able to deal from one state to another, the bill would allow fiduciaries in each of the states to rely on consistency in Alaska Law. The Alaska Law currently, is not the Uniform Act. The Uniform Prudent Investor Act changes and unifies the investment standard throughout the country by providing more flexibility. The new act would allow the fiduciary to select the standard appropriate for the beneficiary. (Tape Change HFC 98- 55, Side 1). Mr. Thwaites continued, the legislation would standardize the language while at the same time providing the leeway necessary to allow the trustee to customize the investment plan for a particular person. Representative Kelly questioned language used on Page 3, Line 4, asking if it would become more "risky" when more wealth was involved. Mr. Thwaites commented that the risk would have to be in line with the amount of money available. The normal investment standard would require only a fractional share of high-risk investment versus the other. "Other resources of the beneficiaries" relates to situations where there might be children in a family with developmental disabilities. There could be a greater distribution to the child with the disability. The language opens the flexibility for the fiduciary to make those kinds of decisions on distribution. Representative Kelly questioned the language on Page 4, Line 16. Mr. Thwaites noted that language indicated in section (a) that the trustee "shall" not "may" exercise reasonable skill and caution in selecting an agent. Representative Kelly asked if section (b) would relate to section (d). Would the agent need to be bonded. Mr. Thwaites explained that in the bank licensing process, most of the probate codes require bonding unless the entity acting as the fiduciary is either exempt from the statute or they have some other type of insurance protection. Representative Kelly understood that section (c) would require that someone bonded would be obligated. Representative Kelly inquired if the current prudent standards are now a problem. Mr. Thwaites replied that they have been. There have been in some estates, certain assets which were not trust quality, and they were required to be liquidated, against the families wishes. That action resulted because the prudent standards, which currently exist, require the fiduciary to have a certain number of assets to qualify, even though the family might want the assets to be maintained. Representative J. Davies asked about the prohibition of the review. Mr. Thwaites noted that the bill would require a standard of care for the fiduciary to review decisions. If there is a conflict between trusts, the proposed act would provide more freedom to make exceptions under the right case. Independent approval should be obtained. Mr. Thwaites added that the legislation would require that there be an evaluation if a conflict exists. They would be required to look at the beneficiaries of both trusts to make sure that there was equal treatment. Representative J. Davies reiterated concern that by being the manager of a trust, under the prudent person rule, there is a duty to manage both trusts for the benefit of the beneficiaries. If a person was in the business of selling one trust for another, there would be an apparent conflict of interest which could result in a determent in one trust and a benefit to the other trust. Mr. Thwaites explained that the conflict concern before was too strict; this legislation has chosen to give the discretion and liability to the trustee. Mr. Thwaites continued, common law has reinforced stricter standards. Most of the conservative fiduciaries around the country have a list of trust quality assets, which excludes common trust funds and mutual funds. In response to Representative Mulder, Mr. Thwaites said that the settler of a trust could establish specific standards in the trust that are wider than what was contained under the prudent man rule. That has been narrowed over the years. The typical minimum rate charge in Alaska to manage a trust account is around $1000 dollars per year or .75% of the account value, whichever is greater. STEVE NOEY, DIRECTOR, ALASKA TRUST COMPANY, ANCHORAGE, voiced support for the purposed legislation. Representative J. Davies pointed out that language on Page 2, Line 11-14, indicates that the prudent investor rule is the default rule; it would be expanded or eliminated by provisions of the trust and the trustee would not be liable. He voiced concern with the possibility of eliminating the prudent investor rule. Mr. Thwaites stated that any court would repeal that rule if it was not appropriately requested. Representative J. Davies asked if there were situations, which might not be prudent. He struggled with use of the word "eliminated". Mr. Thwaites ascertained this was how the standard had been developed. The term fiduciary means that you look after the other party's interest more than you would look after your own. The bill addresses only the investment standards. The legislation is an attempt to open the door, providing as much flexibility as possible, for the planners. HB 321 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 3:55 P.M. H.F.C. 12 3/05/98