HOUSE FINANCE COMMITTEE March 19, 1998 1:50 P.M. TAPE HFC 98 - 70, Side 1. TAPE HFC 98 - 70, Side 2. CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 1:50 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 Doug Griffin, (Testified via Teleconference), Alcohol Beverage Control Board (ABC), Anchorage; Cliff Stone, Staff, Representative Alan Austerman; Representative Alan Austerman; Mary Gore, Staff, Senator Mike Miller; Byron Mallott, Executive Director, Alaska Permanent Fund Corporation; Jim Kelly, Director of Communications, Alaska Permanent Fund Corporation. SUMMARY HB 317 An Act relating to investments of the Alaska Permanent Fund Corporation. HB 317 was reported out of Committee with a "do pass" recommendation and with a fiscal note by the Department of Revenue. HB 411 An Act relating to issuance of a winery license in a local option area. CS HB 411 (FIN) was reported out of Committee with "no recommendation" and with a fiscal note by the Department of Revenue dated 3/18/98. SB 261 An Act relating to the Special Olympics World Winter Games to be held in Anchorage in the year 2001; establishing a reserve fund for the games; providing certain duties and authority for the Alaska Industrial Development and Export Authority regarding financing for those games; and providing for an effective date. CSSB 261 (FIN) was HELD in Committee for further consideration. HCR 9 Proposing amendments to the Uniform Rules of the Alaska State Legislature relating to committee meetings; and providing for an effective date. HCR 9 was HELD in Committee for further consideration. HOUSE BILL NO. 411 "An Act relating to issuance of a winery license in a local option area." Co-Chair Therriault distributed a copy of new amendment for HB 411, 0-LS1583\A.1, Ford, 3/19/98. [Copy of File]. CLIFF STONE, STAFF, REPRESENTATIVE ALAN AUSTERMAN, noted that Representative Austerman does support the language of the amendment. Co-Chair Therriault asked if the community of Port Lions would exercise "option F" added by the amendment. DOUG GRIFFIN, (TESTIFIED VIA TELECONFERENCE), ALCOHOL BEVERAGE CONTROL BOARD, ANCHORAGE, noted that he had received a copy of the amendment and that the ABC Board would support addition of that language. Co-Chair Therriault MOVED to adopt Amendment #1. There being NO OBJECTION, it was adopted. Representative Foster MOVED to report CS HB 411 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CS HB 411 (FIN) was reported out of Committee with "no recommendation" and with a fiscal note by the Department of Revenue dated 3/18/98. SENATE BILL NO. 261 "An Act relating to the Special Olympics World Winter Games to be held in Anchorage in the year 2001; establishing a reserve fund for the games; providing certain duties and authority for the Alaska Industrial Development and Export Authority regarding financing for those games; and providing for an effective date." Co-Chair Therriault explained that during previous Committee discussion, the intent was to add language to the legislation clarifying that the State would limit it's moral obligation to the first $4 million dollars of currency raised and expended on the special Olympic effort. MARY GORE, STAFF, SENATOR MIKE MILLER, addressed Committee concerns regarding how the funds would increase the overall budget. She assured members that the particular segment of the operating agreement between the game organizing committee clearly stipulates that the budget is to remain at $8 million dollars. The $4 million State dollars would be the entire cost to the State. Ms. Gore acknowledged that the investment would be a risk to the State. In order to be awarded this bid, Senator Miller, Representative Phillips and Governor Knowles had to agree that the Legislature would provide moral obligation by being the financial backer for the games. Providing the guarantee, Alaska was awarded the bid, although, the final agreement has not yet been signed. It will be signed with Jim Palmer of BP Exploration and Carl Mars, who will then take the agreement to Washington D.C. and present it to Senator Stevens. Ms. Gore emphasized that it is the intent that this agreement will not cost the State any money. Co-Chair Hanley commented that the bill does not specify that the State's contribution would be limited to $4 million dollars. He understood that the intent was to receive $4 million dollars in in-kind contributions. Co- Chair Hanley stressed that the language of the bill needs to be coherent with the intent and that the $4 million State dollars should be clearly specified. Ms. Gore replied that the understanding with Special Olympics International (SOI) is that the State Legislature would be the "backend guarantor" of the event. Co-Chair Hanley reiterated that the language needs to clearly specify the amount the State is responsible for. Ms. Gore reported that the International Committee would like to guarantee that any Olympic committee, SOI or the hosting city will not go into the "hole" as a result of the event. Co-Chair Hanley understood, although, he continued to disagree with the proposed legislation's verbiage. Co-Chair Therriault recommended that the wording specify that the total budget not exceed $8 million dollars. Co- Chair Hanley pointed out that there is no language specifying the in-kind monies. Representative Mulder noted that Alaska Industrial Development Export Authority (AIDEA) supports the legislation and is willing to be the "stake holder". Representative Grussendorf requested a copy of correspondence received by Senator Miller's office, November 1997, from Special Olympic International (SOI). Ms. Gore suggested inserting language from the SOI Charter, placing it on Page 3, Line 7 and Line 30, and Page 4, Line 1. She advised adding language: "Of the total operating budget of $8 million dollars". Representative Mulder recommended adding an additional reference: "As pertained in Article #10 of the Special Olympic International Charter". Representative Mulder MOVED the proposed conceptual amendment. There being NO OBJECTION, it was adopted. Co-Chair Hanley asked who would receive the money. Ms. Gore explained that it would go to the organizing committee. A Reserved Established Fund was created in the case that there would be a government who wanted to financially participate by donating funds to the organizing committee, but were not able to give it to a nonprofit, those funds could then be directly deposited into the reserve. That fund would be used as a portion of the State's $4 million dollar appropriation. Co-Chair Therriault noted that the bill would be held in Committee until the committee substitute was received back from the legal drafters. CSSB 261 (FIN) was HELD in Committee for further consideration. HOUSE BILL NO. 317 "An Act relating to investments of the Alaska Permanent Fund Corporation." BYRON MALLOT, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND CORPORATION (APFC), stated that HB 317 was supported by the APFC Board of Trustees. The bill would increase from 50% to 60% the Board's investment authorization in common stocks. He noted that virtually all the literature on capital markets theory and practice indicates that equities provide a vastly superior long-term rate of return compared to other financial assets, albeit with increased short and intermediate term volatility. HB 317 would give the Board of Trustees the flexibility to increase the Fund's investments in equities to a level comparable to its peers. Currently, the Permanent Fund has a smaller fund allocation for equities than most other larger institutional funds, including the State of Alaska's retirement fund. Mr. Mallott urged the Committee's support of the legislation. He provided a packet entitled: Alaska Permanent Fund Corporation - The Case for HB 317. [Copy on File]. Representative Mulder commented that the fiscal note does not indicate the offset costs associated with the State's investment. JIM KELLY, DIRECTOR OF COMMUNICATIONS, ALASKA PERMANENT FUND CORPORATION, agreed, adding that for every $100 dollars the fund earns, it will cost $1.50 in management fees. The fiscal note covers those costs. Representative Mulder thought that APFC had been overly critical in their fiscal analysis, which he felt would instead be a positive impact. Mr. Kelly reiterated that the fiscal note indicates the increased management fees. Co-Chair Hanley agreed that the fiscal note should indicate the anticipated revenue. Co-Chair Therriault recommended that an analysis provide back up information regarding the anticipated revenue. (Tape Change HFC 98- 70, Side 2). Co-Chair Hanley questioned how the percentage of anticipated profit was determined. Mr. Kelly replied that the Daily Supplemental Report indicates the daily amount of money the PFC has invested in the stock market. Mr. Mallott added that the data was based on the market value opposed to cost value. Co-Chair Therriault inquired if fund advisors anticipate that it would increase to 60% right away. Mr. Mallott responded that during the annual planning process, the fund's asset allocation is determined on an annual basis. Representative Foster MOVED to report HB137 out of Committee with individual recommendations and with the revised fiscal note. There being NO OBJECTION, it was so ordered. HB 317 was reported out of Committee with a "do pass" recommendation and with a fiscal note by the Department of Revenue. HOUSE CONCURRENT RESOLUTION NO. 9 Proposing amendments to the Uniform Rules of the Alaska State Legislature relating to committee meetings; and providing for an effective date. Co-Chair Therriault distributed the work draft committee substitute #0-LS0579\B, Cook, 3/18/98, for CSHCR 9 (FIN). [Copy on File]. The language of the draft would allow for a legislator to participate in a meeting and vote via teleconference. He noted that the sponsor of the bill, Representative Rokeberg was agreeable to that language and would testify on the proposed change at a later scheduled meeting. HCR 9 was HELD in Committee for further consideration. PERMANENT FUND INTERNSHIP PROGRAM Mr. Mallott advised that Robert Snickerhoff, a young Native born Alaskan had been named the Chief Investment Officer for the San Diego County Pension Investment Fund. Mr. Snickerhoff began his career at the Alaska Permanent Fund Corporation as an intern. Mr. Kelly added that the program is still on going and there continues to be opportunities for students to apply. There are ten companies participating at this time. The internships usually last for three months and the students are able to work with the best companies in the business. He commented that about 25% of the students have been placed with full-time work with participating companies. ADJOURNMENT The meeting adjourned at 2:45 P.M. H.F.C. 7 3/19/98 p.m.