HOUSE STATE AFFAIRS STANDING COMMITTEE February 25, 1997 8:05 a.m. MEMBERS PRESENT Representative Jeannette James, Chair Representative Ethan Berkowitz Representative Fred Dyson Representative Kim Elton Representative Mark Hodgins Representative Ivan Ivan Representative Al Vezey MEMBERS ABSENT All members present. COMMITTEE CALENDAR *HOUSE BILL NO. 81 "An Act relating to the members of the board and staff of the Alaska Permanent Fund Corporation." - HEARD AND HELD *HOUSE CONCURRENT RESOLUTION NO. 8 Creating the Deferred Maintenance Task Force. - MOVED HCR 8 OUT OF COMMITTEE *HOUSE CONCURRENT RESOLUTION NO. 7 Proposing an amendment to the Uniform Rules of the Alaska State Legislature relating to notice of committee meetings held during the first week of a first regular session. - MOVED HCR 7 OUT OF COMMITTEE *HOUSE BILL NO. 67 "An Act relating, for purposes of eligibility for a permanent fund dividend, to an absence from the state while on an unpaid sabbatical under the longevity bonus program; and providing for an effective date." - HEARD AND HELD *HOUSE BILL NO. 112 "An Act amending the definition of `political party' except as the definition of the term applies to the regulation of contributions and expenditures in state and municipal election campaigns, an amendment that also has the effect of changing the definition of `political organization' as applied to the regulation of games of chance and contests of skill." - MOVED HB 112 OUT OF COMMITTEE *HOUSE JOINT RESOLUTION NO. 5 Proposing an amendment to the Constitution of the State of Alaska relating to freedom of conscience. - SCHEDULED BUT NOT HEARD (* First public hearing) PREVIOUS ACTION BILL: HB 81 SHORT TITLE: PERMANENT FUND BOARD MEMBERS & STAFF SPONSOR(S): REPRESENTATIVE(S) JAMES JRN-DATE JRN-PG ACTION 01/22/97 122 (H) READ THE FIRST TIME - REFERRAL(S) 01/22/97 122 (H) STATE AFFAIRS, FINANCE 02/20/97 (H) STA AT 8:00 AM CAPITOL 102 02/20/97 (H) MINUTE(STA) 02/25/97 (H) STA AT 8:00 AM CAPITOL 102 BILL: HCR 8 SHORT TITLE: DEFERRED MAINTENANCE TASK FORCE SPONSOR(S): REPRESENTATIVE(S) PHILLIPS, Foster JRN-DATE JRN-PG ACTION 02/07/97 264 (H) READ THE FIRST TIME - REFERRAL(S) 02/07/97 264 (H) STATE AFFAIRS 02/10/97 297 (H) COSPONSOR(S): FOSTER 02/25/97 (H) STA AT 8:00 AM CAPITOL 102 BILL: HCR 7 SHORT TITLE: AMEND UNIFORM RULES:COM. MEETING NOTICE SPONSOR(S): REPRESENTATIVE(S) GREEN JRN-DATE JRN-PG ACTION 01/22/97 121 (H) READ THE FIRST TIME - REFERRAL(S) 01/22/97 121 (H) STATE AFFAIRS 02/25/97 (H) STA AT 8:00 AM CAPITOL 102 BILL: HB 67 SHORT TITLE: LONGEVITY BONUS SABB'TCL:PFD ELIGIBILITY SPONSOR(S): REPRESENTATIVE(S) RYAN JRN-DATE JRN-PG ACTION 01/15/97 66 (H) READ THE FIRST TIME - REFERRAL(S) 01/15/97 67 (H) STATE AFFAIRS, LABOR & COMMERCE, FIN 02/25/97 (H) STA AT 8:00 AM CAPITOL 102 BILL: HB 112 SHORT TITLE: AMEND DEFINITION OF "POLITICAL PARTY" SPONSOR(S): REPRESENTATIVE(S) VEZEY JRN-DATE JRN-PG ACTION 02/03/97 219 (H) READ THE FIRST TIME - REFERRAL(S) 02/03/97 220 (H) STATE AFFAIRS 02/25/97 (H) STA AT 8:00 AM CAPITOL 102 WITNESS REGISTER PATRICK LOUNSBURY, Legislative Assistant to Representative Jeannette James State Capitol, Room 102 Juneau, Alaska 99801-1182 Telephone: (907) 465-3743 POSITION STATEMENT: Provided testimony on HB 81. JAMES BALDWIN, Assistant Attorney General Governmental Affairs Section Civil Division Department of Law P.O. Box 110300 Juneau, Alaska 99811-0300 Telephone: (907) 465-3600 POSITION STATEMENT: Provided testimony on HB 81 and HB 112. SPEAKER GAIL PHILLIPS Alaska State Legislature State Capitol, Room 208 Juneau, Alaska 99801-1182 Telephone: (907) 465-2689 POSITION STATEMENT: Sponsor of HCR 8. REPRESENTATIVE JOE GREEN Alaska State Legislature State Capitol, Room 118 Juneau, Alaska 99801-1182 Telephone: (907) 465-4931 POSITION STATEMENT: Sponsor of HCR 7. JEFFREY A. LOGAN, Legislative Assistant to Representative Joe Green State Capitol, Room 118 Juneau, Alaska 99801-1182 Telephone: (907) 465-4931 POSITION STATEMENT: Provided testimony on HCR 7. REPRESENTATIVE JOE RYAN Alaska State Legislature State Capitol, Room 420 Juneau, Alaska 99801-1182 Telephone: (907) 465-3875 POSITION STATEMENT: Sponsor of HB 67. DEBORAH VOGT, Deputy Commissioner Office of the Commissioner Department of Revenue P.O. Box 110400 Juneau, Alaska 99811-0400 Telephone: (907) 465-2300 POSITION STATEMENT: Provided testimony on HB 67. GAIL FENUMIAI, Election Coordinator Central Office Division of Elections Office of the Lieutenant Governor P.O. Box 110017 Juneau, Alaska 99811-0017 Telephone: (907) 465-5347 POSITION STATEMENT: Provided testimony on HB 112. KEN JACOBUS, Legal Counsel Republican Party of Alaska 425 "J" Street, Suite 920 Anchorage, Alaska 99501 Telephone: (907) POSITION STATEMENT: Provided testimony on HB 112. ACTION NARRATIVE TAPE 97-19, SIDE A Number 0001 The House State Affairs Standing Committee was called to order by Chair Jeannette James at 8:05 a.m. Members present at the call to order were Representatives James, Berkowitz, Dyson, Elton, Hodgins, and Ivan. Member absent was Vezey. HB 81 - PERMANENT FUND BOARD MEMBERS & STAFF The first order of business to come before the House State Affairs Standing Committee was HB 81, "An Act relating to the members of the board and staff of the Alaska Permanent Fund Corporation." CHAIR JEANNETTE JAMES called on Patrick Lounsbury, Legislative Assistant to Representative Jeannette James, to present the bill. Number 0069 PATRICK LOUNSBURY, Legislative Assistant to Representative Jeannette James, stated he was here to tell the truth about HB 81 and the Alaska Permanent Fund. He explained on January 3, 1959 Alaska became the 49th state, and the state's constitution, which was approved by a public vote three years prior to statehood, became law. In 1969, the state received $900 million in bonuses from the Prudhoe Bay oil lease sale. The total unrestricted General Fund revenue was $112 million. In 1974, construction began on the Trans Alaska Pipeline System. In 1976, the voters approved by a margin of 75,588 to 38,518 for a constitutional amendment to establish the Permanent Fund. In 1980, the legislature created the Permanent Fund Corporation and approved a $900 million special appropriation to the corpus of the fund. The legislature also passed a bill that increased from 25 percent to 50 percent the Permanent Fund share in certain mineral earnings to be deposited. The legislature also approved the first version of a Permanent Fund Dividend Program-later to be ruled unconstitutional by the United States Supreme Court-while the first billionth barrel of oil rolled through the pipeline. In 1981, the legislature made a second appropriation to the Permanent Fund of $1.8 billionth. In 1982, the first Permanent Fund Dividend Check was sent to the citizens in the amount of $1,000. Also, at the request of the Board of Trustees, inflation proofing was adopted. In 1983, the Permanent Fund made its first investment in the stock market. In 1984, the assets of the corporation reached $5 billionth. In 1986, the fifth billionth barrel of oil rolled through the pipeline. In 1987, the corporation celebrated its tenth birthday with an historical rate of return of 11.5 percent. In 1989, the Permanent Fund grew to $10 billion and the legislature allowed for the non-domestic exchange of securities. In 1991, the eighth billionth barrel of oil rolled through the pipeline. In 1993, the market value of the Permanent Fund was $15 billion. In 1995, the stock portfolio of the Permanent Fund stretched to over $7 billion. In 1996, the legislature approved another appropriation of over a billion dollars to the fund. In 1997, the Permanent Fund breached over $20 billion. MR. LOUNSBURY further stated that continuity and stability were critical and vital to the fund's existence. House Bill 81 was an act relating to the board and to the staff of the Permanent Fund Corporation. It was designed to create continuity within the board and allowed for any Governor to remove members for cause. MR. LOUNSBURY explained Sec. 1 increased the board members from six to seven. The Governor would be allowed to appoint one public member at his discretion. MR. LOUNSBURY explained Sec. 2 required that at least one member would have competence and experience in investment portfolio management. MR. LOUNSBURY explained Sec. 3 was a technical change to conform with the increase in the number of public members in order that two members did not expire in the same year. Mr. Lounsbury stated, "This provision would allow the Governor to still stack the deck in the course of his term." MR. LOUNSBURY explained Sec. 4 was the heart of the bill. It allowed the Governor to remove trustees for cause. The term "cause" was defined as incompetency, misfeasance or malfeasance. Mr. Lounsbury referred the committee members to a letter dated, January 30, 1997 from a former chairman of the board, John T. Kelsey, and read, "The problems presented to new board members in the matter of `learning the system' and becoming comfortable with making important decisions of major proportions affect almost all citizens of the State of Alaska. Further, making major decisions without proper education on the operation of such a large fund could be damaging to future earnings that might very well impact budget consideration in the twenty-first century. Removing all board members, or even a majority of them, and appointing new members is unfair to those newly seated and could well adversely affect the state." MR. LOUNSBURY explained Sec. 5 was new. It required that the Governor base his decision to appoint new members solely on the best financial interest of the fund-otherwise it was an ethical violation. MR. LOUNSBURY explained Sec. 6 provided that the executive director served at the pleasure of the board for a two year period. MR. LOUNSBURY explained Sec. 7 required that each member of the board should have a fiduciary responsibility to the fund. MR. LOUNSBURY stated, in conclusion, that identical legislation passed the Alaska State Legislature with bi-partisan support last year. It passed the Senate with a vote of 16 to 4, and it passed the House of Representative with a vote of 35 to 1. In addition, the Board of Trustees urged the Governor not to veto the bill. Mr. Lounsbury stated, "Madame Chair, if this Administration continues to oppose this particular legislation, I would maintain that this Administration is open and ready for business, as usual." Number 0637 REPRESENTATIVE KIM ELTON commented he was confused about the term "cause." He assumed that a trustee who missed two out of every three meetings, for example, could be removed for cause. He asked Mr. Lounsbury what were the standards applied towards cause? MR. LOUNSBURY replied a past chairman of the board also mentioned what Representative Elton described-missed meetings. The term "cause" meant in HB 81 incompetency, intentional or unintentional failure to perform ones duties. Number 0720 REPRESENTATIVE ELTON stated he did not have a problem maintaining the integrity of the board, if the trustees were doing their expected duties. He wondered, however, if the Governor determined the cause or if the chairman of the board determined the cause. He assumed from the language in the bill that the Governor determined the cause. Number 0753 MR. LOUNSBURY replied, "Madame Chair, that's correct." The Governor would determine the cause. The Hickel Administration and the Knowles Administration wiped out the entire board except for one person. He declared, "It's just not good business to wipe out the board, put the burden on the new members, and maybe the one other member to keep this machine rolling." Number 0783 REPRESENTATIVE ELTON wondered if it would be a case of cause if the board was wiped out entirely. He reiterated there was a loose determination of cause, which was the only part of the bill that bothered him. Number 0819 CHAIR JAMES asked Representative Elton what was loose? Governor Knowles' excuse for cause could have been that Governor Hickel filled the board with political appointees, for example. House Bill 81 would preclude either Hickel or the current Governor from removing them all. The law specifically addressed cause as intentional or unintentional failure to perform one's duties. In addition, it would be up to the Governor to define the failure and to pursue a legal challenge. Number 0892 REPRESENTATIVE ELTON replied the final determination would be made by a judge who was not involved with the system. This created a situation where the best judgement of the trustees and the best judgement of the Governor would be second guessed by the best judgement of a judge. Number 0987 CHAIR JAMES wondered if Representative Elton would choose to not have the provision "for cause," therefore, creating the potential for the two situations to repeat themselves again. She asked Representative Elton which was the best way to protect the Permanent Fund? Number 1003 REPRESENTATIVE ELTON replied he would want the Governor to be responsible for making the decision because he answered directly to the people of the state of Alaska. Number 1029 MR. LOUNSBURY stated he found that the board usually took action unanimously. Last year, the board unanimously urged the Governor not to veto the bill. He had also spoken to six other prior trustees who all felt that this bill was in the best interest of the state. Number 1068 REPRESENTATIVE ETHAN BERKOWITZ explained the term "for cause" was a legal bone of contention, therefore, there was a lot of legal history and precedence attached to the term. Number 1088 CHAIR JAMES stated there were other provisions in statute that addressed the removal of the board members for cause as opposed to serving at the pleasure of the Governor. The question was whether or not it was a rational and prudent decision for it to be that way. Number 1115 REPRESENTATIVE BERKOWITZ asked Mr. Lounsbury to distinguish the term "best interest" from the term "financial best interest." Number 1138 MR. LOUNSBURY replied an interesting example was brought up during the tobacco tax hearing in the House State Affairs Standing Committee, whereby, it was stated that the Permanent Fund had about $65 million worth of Phillip Morris stock. He said, "We can all have our thoughts on how and where and why to invest our money-- turns out those are good stocks and that would be in the best financial interest of the fund." Number 1184 REPRESENTATIVE BERKOWITZ asked Mr. Lounsbury to distinguish the term "financial best interest" from the term "fiduciary duty." Number 1191 MR. LOUNSBURY replied the terms "fiduciary duty" and "financial best interest" went hand in hand. It was like a realtor's fiduciary responsibility to his clients and to the lending institutions. The trustees, therefore, had a fiduciary responsibility to the Permanent Fund, to the corporation and in turn to the state of Alaska. Number 1219 REPRESENTATIVE BERKOWITZ commented that the evolution of the term "fiduciary duty" was related to investment in South Africa during the 70's and 80's where the concept got away from a strict return on investment and began to incorporate broader social concerns. He asked Mr. Lounsbury if he would incorporate any of those developments into this definition? Number 1239 MR. LOUNSBURY replied, "Madame Chair, not being a member of the Board of Trustees, I would have a tough time answering that." Number 1267 JAMES BALDWIN, Assistant Attorney General, Governmental Affairs, Section, Civil Division, Department of Law, explained that the Governor vetoed an identical bill last year. Therefore, he wanted to review some of the points raised last year. "I thought I had you going with me on some of them, but the bill moved out of committee and received a very favorable vote on the House," he said. The most important point was the removal for "cause." "If you want to do this, it may require a constitutional amendment and the reason that I arrive at that conclusion is by looking at Article III, Sec. 26 which talks about the appointment of boards and commissions." It was the only place that provided the ability of the legislature to remove for cause. He explained that the Permanent Fund Board was created by statute to administer a constitutionally established fund. Thus, there was a strong argument to be made that the only way to provide removal for cause would be through a constitutional amendment. The power of appointment was an executive power unless given to the legislature. He cited the confirmation process as an example. The Permanent Fund Board was not a quasi-regulatory or judicial body, therefore, there was no provision for confirmation in the constitution or for removal for cause. He cited the court case of Bradner v. Hammond where, the Alaska Supreme Court ruled that unless there was a specific provision in the constitution allowing the legislature to encroach upon the power of appointment, it would not be authorized; it was not within the state's constitutional framework. "It's a hard thing to hear about the limitations on legislative power, but I think I need to convey that to you today." Number 1464 MR. BALDWIN further explained that the Administration had problems removing a board member for cause. When a board member received a salary or a property right, it was very, very difficult to remove him. "It can be so difficult that it is nearly impossible," he declared. It required a trial like proceeding, usually in front of an independent fact finder. It was also a protracted and an expensive process. It was not as simple as writing a letter as HB 81 indicated. In addition, the board members received a per diem payment of around $300. He was not conceding here on the record, however, that the per diem was a property right. Number 1566 MR. BALDWIN further stated that the Governor answered to all of the people for his appointments because he stood for election. "He's the one that has to pay the price if he makes a bad decision." That was how the system was set up and he did not want the Governor's executive powers further eroded by the bill. Number 1601 MR. BALDWIN further stated that the standards for cause were vague. The statutes under the Board of Game, the Board of Fish and other regulatory boards were fairly specific in regards to the grounds for cause. Whereas, HB 81 was very broad. He referred the committee members to page 2, lines 17-20, and read, "(2) misfeasance or malfeasance in office, which included the failure of the trustee to exercise prudent judgement in the affairs of the corporation or intentionally taking action for reasons other than the financial best interest of the corporation." MR. BALDWIN further stated that the term "financial best interest" had yet to be defined. And, it probably would not be known until it went through a few court decisions. "I don't know if that's going to service the best interest of the fund or not. Lawyers and judges attempting to define this when perhaps that should be done in the legislature." Number 1650 MR. BALDWIN referred to Sec. 6 and explained it was designed to solve a problem when there was difficulty removing a high level person due to a philosophical difference during the change from one Administration to the next. MR. BALDWIN further stated that the employees of the board were exempt. Therefore, it was difficult to remove them if not done correctly. "That's just a fact of life in employment law. It's a rapidly changing area of our law, and one where the courts are inclined to recognize the rights the people have in their job even though they may be in the exempt service." The attempt in HB 81 was to allow for the removal "at pleasure," which was the Administration's understanding of what it meant to be an exempt employee. He also said, "I think the intent here is to say it doesn't matter what. You can be out the door at 4:00 and I'm here to say that it just isn't that simple. It isn't going to do away with litigation and courts protecting the rights of people." Number 1729 MR. BALDWIN further addressed the issue of investment responsibility. He explained there were a lot of people at the corporation who did things in connection with investment. There were three or four who directly make investment policy and a lot of other people who implemented the policies. He wondered if the bill was discussing those who made policies or those who implemented them. It was broad enough to cover both. He reiterated the intent was unclear. He did not have a solution to the problem at this point, however. Number 1771 MR. BALDWIN further addressed the philosophical problem of fiduciary responsibility to the fund. He referred the committee members to page 3, lines 12-14, and read, "Each board member has a fiduciary duty to the fund, and each member shall perform official actions solely in accordance with that duty." He stated it sounded good and mirrored the language in Title 37 and Title 14 regarding the responsibilities of the pension investment board. It was also very similar to the responsibilities of the employees in the Department of Revenue in regard to the General Fund. However, there were a few concepts being mixed together. Fiduciary responsibility not only included the fund, but the beneficiaries as well. And, in this case the board members would be responsible to the state while the bill indicated that the board members were responsible to the fund. "It seems a little confusing. Who is the beneficiary here. Who do you owe your duty to. Is it just to continue the Permanent Fund, or is your fiduciary responsibility owed to the state." He reiterated, "Maybe, what you want to accomplish here would best be accomplished in a constitutional amendment that would tackle some of those issues as well. If you want to establish the Permanent Fund as a trust, which seems to be the underlying theme here, by bringing in all these references to fiduciary obligations, then it seems to me that would be a better approach in the form of a constitutional amendment with a constitutionally established board with a constitutionally established for cause removal or confirmation or for whatever the legislature wants." Number 1915 CHAIR JAMES stated that she was willing to work with the Administration to solve some of the concerns raised by Mr. Baldwin today. She did not want the Administration to follow and argue the bill again. She would look at the constitutional issue further. She did not recall that issue being discussed last year. CHAIR JAMES further stated that the Permanent Fund was the biggest and most important asset of the state. Therefore, continuity was needed for the board and removal for no particular reason should not be allowed. She also believed that at least one person on the board should have extensive knowledge regarding investment portfolio management. She also believed it was important to run the board in a smooth and efficient way. "Pulling people out for various reason can be harmful." She also believed, however, that the process to remove someone could also be destructive. She asked Mr. Baldwin what his real intent was on the bill? Number 2055 MR. BALDWIN replied the Administration did not support the bill, in its current form. The Administration was willing to work on the fringe provisions and was willing to try to find common ground surrounding the for cause issue. In addition, the Governor stated in his veto message that the constitution presented a major problem which was the main reason for the veto. Number 2113 CHAIR JAMES commented she did not understand why "for cause" was such a problem. She asked Mr. Baldwin if it was a personal thing? Did he not want to remove people and replace them? Or, Was it a constitutional problem? "We certainly can put forth a resolution to make a constitutional amendment. That's not out of the question, if that's what's required." Number 2145 MR. BALDWIN replied there were two levels of discomfort surrounding the issue of for cause. The first level was the constitutional concern. And, the second level was the near impossibility of removing someone from a board. He reiterated, "It becomes a quasi- judicial proceeding. It becomes one in which the individual is entitled to due process of law, a public hearing, a record and it's long and protracted." It would appear that if a board member was found for malfeasance, he or she should be removed immediately. TAPE 97-19, SIDE B Number 0001 CHAIR JAMES replied she found it hard to believe that the state would have such a terrible person ever serving on the board in the first place. This was a very prestigious board and she did not expect the same types of problems as other boards faced, such as, the Board of Fisheries. "This is not so political as that. In fact, this ought not to be as political as that. This ought not be political at all." Number 0042 MR. BALDWIN agreed that the people currently serving on the Board of Trustees and those that had served in the past were of the highest caliber. He was concerned about the future, however. Number 0105 REPRESENTATIVE BERKOWITZ stated the Governor should be flattered of the confidence shown for his appointments today. It appeared "for cause" was at one end of the spectrum of dismissal and "at will" was at the other end of the spectrum. He asked Mr. Baldwin what was in between? Number 0120 MR. BALDWIN replied what existed now was in between. The Governor could remove at will. The removal was done publicly and in writing. It was the middle ground reached when the corporation was created. Number 0140 CHAIR JAMES commented that the Governor did not have to say "why," however. Number 0145 MR. BALDWIN replied, according to existing law, the Governor had to state the reason for the removal in writing. MR. BALDWIN also explained that the Governor knew his appointments would be protected by the removal of the for cause provision, but it did not affect his view about the bill. Number 0168 REPRESENTATIVE BERKOWITZ asked Mr. Baldwin how the removal of the board members by Governors Hickel and Knowles affected the return on the investments? Number 0179 MR. BALDWIN replied, "I don't think it affected it at all. The Permanent Fund operated under the theory that the best people were hired. The board ultimately made the policy, and the policies were implemented by advisors, employees, and account managers. "I think you'd see the permanent fund return going steady up." Number 0211 REPRESENTATIVE BERKOWITZ asked Mr. Baldwin, if there was a conflict of investment strategy between a board and an incoming Governor, for example, would that conflict rise to a level of cause based on financial best interest? Number 0223 MR. BALDWIN replied, "I don't know." The statute did not say; it was too vague. Number 0237 REPRESENTATIVE ELTON said that Mr. Baldwin commented the additional language in Sec. 6 clouded the issue of exempt service, and he also questioned the language added in Sec. 7. He wondered if Mr. Baldwin suggested that Sec. 6 and Sec. 7 were not necessary. He saw the sections as fringe elements. Number 0292 MR. BALDWIN replied it was a policy decision to interpret the service "at pleasure" concept. It was at odds with and was redundant to a two year duration. The bottom line was that one served at the pleasure of the board, and left when the board said so. The bill implied a covenant that went along with employment and good faith dealings. Therefore, there would be legal problems. Number 0394 CHAIR JAMES stated that serving at the pleasure of a board was a deterrent to hiring the best person. Whereas, a two year contract would allow for the hiring of a good person. Furthermore, the language in the bill said that the board "may" enter into a two year contract. CHAIR JAMES further stated now that the fund was at $20 billion, it should be run more like a business than a political entity. She declared, "That's my whole problem with this issue." Number 0499 MR. LOUNSBURY stated that the fringe elements were in line with the board's philosophy-to remain objective to the safety of its principle and to maximize the total return on its investment. The board also believed that the corporation should always act to assure the level of investment risk was prudent and that it did not jeopardize the primary objective which related to the fiduciary responsibilities. He further stated any Governor that decimated a board was the person acting irresponsibly. He also believed that the state constitution wanted a strong Governor. The conversation today was an erosion of power. That was the bottom line. The bill was to prevent any Governor from jeopardizing the Permanent Fund. Number 0570 REPRESENTATIVE BERKOWITZ stated that something more sweeping was needed to be done to protect the interest of the Permanent Fund by making sure that every board members was truly the best available candidate. "Perhaps we should contemplate an entirely different scheme for selecting them." Number 0597 CHAIR JAMES asked Mr. Baldwin if he would get back to her in a few days with some suggestions. She reiterated she would look further at the constitutional issue discussed today. There was public support for continuity on the board. So, let's work together. "I don't want to face another veto," she stated. Number 0734 REPRESENTATIVE ELTON suggested taking a careful look at Sec. 6 and Sec. 7. He was concerned about the delineation of investment responsibilities addressed in Sec. 6. He was also concerned that adding a layer that had not been tried before would complicate the exempt service factor. In addition, the new language in Sec. 7 also added confusion. He reiterated that Chair James look further at Sec. 6 and Sec. 7 because they created unnecessary baggage and questions. Number 0801 CHAIR JAMES replied that Sec. 6 was extremely important to secure the type of person that the board would want to hire. Number 0819 REPRESENTATIVE ELTON suggested taking out the first part of the sentence only. CHAIR JAMES replied she would consider his suggestion. Number 0829 MR. BALDWIN explained the board was in town now. He would take these issues back to the board. Number 0838 CHAIR JAMES stated she would yield to their concerns, as well, and take their suggestions. CHAIR JAMES announced for the record that Representatives Berkowitz and Elton had to leave due to another meeting. HCR 8 - DEFERRED MAINTENANCE TASK FORCE The next order of business to come before the House State Affairs Standing Committee was HCR 8, Creating the Deferred Maintenance Task Force. CHAIR JAMES called on Speaker Gail Phillips, sponsor of the bill, to present the resolution. Number 907 SPEAKER GAIL PHILLIPS, Alaska State Legislature, stated that deferred maintenance was the result of years of unmet maintenance of Alaska's public facilities. She was referring not just to buildings, or to the university campus; but to roads, harbors, and airports-everything that the state considered an asset. Meeting the maintenance needs was not about building a skywalk from the court building to the capitol, she cited. It was about a capitol building that leaked every spring causing severe damage to the building. It was about docks that were rotting and falling into harbors. It was about an infrastructure that needed mending. It was those types of needs that needed to be taken care of all across the state. The cost estimates placed Alaska's unmet maintenance needs at well over $1 billion. "I happen to personally think it'll be more closely to $2 billion." SPEAKER PHILLIPS further stated that the resolution would establish a legislative task force to make recommendations to the Governor and to the legislature on how to address the unmet maintenance costs. The task force would be made up of five members from the House and five members from the Senate. The Speaker of the House and the President of the Senate would also serve as non-voting members. The task force would be specifically charged with the following: 1) To review and evaluate existing reports and publications about deferred maintenance recommendations previously made; SPEAKER PHILLIPS stated that over the last few years several of the Administrations had concentrated on this issue, therefore, a lot of work had already been done, and all of the reported needed to be compiled. She cited work had already been done for specific areas, such as, the university. SPEAKER PHILLIPS continued to list the duties that the task force would be charged with. 2) To identify and evaluate all current and deferred maintenance needs; 3) To solicit public comment on the topic from all over the state; 4) To submit a report of their findings and recommendations to the Governor and to the legislature by the convening of next session; and, 5) To forward recommendations about the funding. SPEAKER PHILLIPS explained the recommendations about the funding would be the second part of the task force. SPEAKER PHILLIPS continued by stating that the task force would begin work as soon as the members were appointed. In conclusion, she announced the Governor agreed with the concept and pledged his support from his office and from all of his commissioners. She also announced that she had received written and spoken support from the Truckers Association, the Associated General Contractors of Alaska, and the Laborers International Union of North America, AFL-CIO illustrating the wide-spread support from around the state. Number 1090 CHAIR JAMES stated she admired the courage of Speaker Phillips for bringing this issue forward. "It is a huge, huge task; and it's like climbing a mountain with no shoes." Number 1098 REPRESENTATIVE FRED DYSON asked Speaker Phillips if most of the work would be done during the interim? SPEAKER PHILLIPS replied most of the work would be done during the interim. In addition, she also explained a zero fiscal note was attached. The work would be done by the appointed legislators and their staff. And, there would be public teleconference hearings across the state. Number 1124 REPRESENTATIVE DYSON asked Speaker Phillips if the travel expenses incurred and the per-diem would come out of the legislative budget? SPEAKER PHILLIPS replied, "Right." Number 1148 REPRESENTATIVE IVAN IVAN wondered if the report would need to be done by the convening of the second session of the Twentieth Alaska State Legislature. He asked Speaker Phillips if he was correct? Number 1160 SPEAKER PHILLIPS replied, "Right. Right. With recommendations not only on what the needs are but how we're going to pay for them." Number 1175 CHAIR JAMES called for a motion to move the bill out of the committee. Number 1178 REPRESENTATIVE HODGINS moved that HCR 8 move from the committee with the attached fiscal note(s) and individual recommendations. Number 1200 REPRESENTATIVE DYSON stated that he had spent most of his life working as an engineer so he understood the importance of the resolution. He was apprehensive that the Chair would appoint him to the task force. "And, if it was going to happen during the interim, I was going to object to the passing of the bill out of self interest." REPRESENTATIVE DYSON further stated that the resolution was long overdue. "We in the maintenance business say, `pay me now or pay me later' and, in fact, its do the work now or do an awful lot more work at less convenient times in the future." He commended the efforts of Speaker Phillips. Number 1239 CHAIR JAMES stated that when she dealt with this issue no one wanted to talk about the money part. So, she suggested bonding as a solution. However, the solution was met with adversity for fear of going into debt. "My point is we are already in debt, if we do a bonding package or some other package, that allows us to pay our debt." CHAIR JAMES stated there was no objection to the motion. House Concurrent Resolution 8 was so moved from the House State Affairs Standing Committee. HCR 7 - AMEND UNIFORM RULES:COM. MEETING NOTICE The next order of business to come before the House State Affairs Standing Committee was HCR 7, Proposing an amendment to the Uniform Rules of the Alaska State Legislature relating to notice of committee meetings held during the first week of a first regular session. CHAIR JAMES called on Representative Joe Green, sponsor of HCR 7, to present the resolution. Number 1334 REPRESENTATIVE JOE GREEN, Alaska State Legislature, explained that Mr. Jeffrey A. Logan would present the resolution today. Number 1349 JEFFREY A. LOGAN, Legislative Assistant to Representative Joe Green, explained the need for HCR 7 was to allow for committee meetings to be scheduled the first week of session. The resolution was the result of trying to schedule a meeting during the first week of session which was denied by the Office of the Chief Clerk in accordance with the Uniform Rules. "It is not our intent in any way to criticize or condemn the Clerk's office because they do a wonderful job and they have gone beyond and above the call of duty to help us on a number of occasions. It's just that that's where the action took place." As a result, the sponsor went to Tamara Cook, Director, Legislative Legal and Research Services, Legislative Affairs Agency, to discuss the matter. She stated that the concern had been a problem for a number of years and suggested that he take care of it. MR. LOGAN explained the issue further. On the preceding Thursday, a notice had to be given to the Clerk's office. But, the chair would not necessarily be the same when the hearing took place because the Committee on Committees report was not adopted until the first day of session. Therefore, the chair on the preceding Thursday was not the chair on the first legislative day, and the chair on the first legislative day had already missed the preceding Thursday deadline. Thus, the resolution asked for a 24 hours notice of a meeting during the first week of session. He noted that the five day notice would still be maintained. Number 1601 CHAIR JAMES called for a motion to move the bill out of the committee. Number 1613 REPRESENTATIVE IVAN moved that HCR 7 move from the committee with attached fiscal note(s) and individual recommendations. There was no objection, HCR 7 was so moved from the House State Affairs Standing Committee. HB 67 - LONGEVITY BONUS SABB'TCL:PFD ELIGIBILITY The next order of business to come before the House State Affairs Standing Committee was HB 67, "An Act relating, for purposes of eligibility for a permanent fund dividend, to an absence from the state while on an unpaid sabbatical under the longevity bonus program; and providing for an effective date." CHAIR JAMES called on Representative Joe Ryan, sponsor of HB 67, to present the bill. Number 1700 REPRESENTATIVE JOE RYAN, Alaska State Legislature, explained there was a companion bill to HB 67 in the Senate. Last year, a bill was passed to allow for the elderly to take a sabbatical, once every five years for up to one year, for medical care. However, as a result, they lost their eligibility for their Permanent Fund dividend and had to reestablish their eligibility upon return. Therefore, HB 67 added another provision to the statutes to allow for a person to take a sabbatical from the state for no more than once every five years without loosing eligibility for the dividend. It was tailored specifically for those that were on a justified sabbatical. "It was one of those things where a society that's not mean spirited makes allowances for youth and for the elderly." The state also benefitted by saving money because they did not receive their longevity bonus while on a sabbatical. Number 1836 CHAIR JAMES asked Representative Ryan to define the term "sabbatical?" Number 1846 REPRESENTATIVE RYAN replied it was defined in AS. 47.45.035. Number 1876 CHAIR JAMES commented that this provision opened it up so that every man, woman and child could take a sabbatical every five years and not lose their residency for their permanent fund dividend. She asked Representative Ryan if that was his intent? Number 1889 REPRESENTATIVE RYAN replied a sabbatical was for senior citizens. "It's not for everybody and his brother. It's for the elderly." Number 1947 CHAIR JAMES stated that the text in the bill did not indicate it was an unpaid sabbatical leave under the longevity program. Number 1966 REPRESENTATIVE RYAN replied the bill allowed for a new reason to be eligible to leave the state without loosing one's permanent fund dividend. Number 1980 CHAIR JAMES asked Representative Ryan wasn't it true that anybody could have an unpaid sabbatical? REPRESENTATIVE RYAN replied that one had to be a longevity bonus.... CHAIR JAMES replied that was not indicated in the text of the bill. Number 1990 REPRESENTATIVE RYAN explained he was referencing the bill that was passed last year that allowed for a sabbatical. Number 2012 CHAIR JAMES replied the problem with the bill was that it would benefit a select group of people. Other people took sabbaticals, not just senior citizens. Therefore, she wondered how this provision would not be discriminatory. Number 2090 REPRESENTATIVE RYAN replied it was a policy decision. "That's why we're here. We set up the program and pass the laws for eligibility and so forth. And, it's up to us to feel, if we do, that this is a good thing to do; to allow these elderly people to take this once-every-five-year sabbatical and not loose their permanent fund and not have to come back and reestablish eligibility, or we decide that, no, we don't want to do that." The bill proposed that the state allowed for the sabbatical. Number 2142 CHAIR JAMES stated that she received the longevity bonus. Therefore, she would be affected by the bill. She declared a conflict of interest. Number 2163 REPRESENTATIVE RYAN replied, "We won't hold that against you." CHAIR JAMES replied she did not like the bill anyway so it was not a problem. She reiterated the bill was discriminatory. She wanted to review it further to see if there was a constitutional problem. Number 2198 REPRESENTATIVE IVAN stated he was also concerned about the intent of the bill. TAPE 97-20, SIDE A Number 0000 CHAIR JAMES stated the bill was honorable, and she liked to do things for the senior citizens. However, she would like to get a legal opinion from Legislative Legal Services to see if the bill passed constitutional muster. Number 0091 DEBORAH VOGT, Deputy Commissioner, Office of the Commissioner, Department of Revenue, explained that the bill established an additional allowable absence for the Permanent Fund dividend program. The longevity bonus program allowed for an unpaid sabbatical, while HB 67 made the same sabbatical an allowable absence for the Permanent Fund program. The person would continue to be paid the dividend even though he or she would be out of the state for an entire year. That was what the Department of Revenue objected to; it did not establish parity between the programs. MS. VOGT further explained that the issue could be fixed to parallel the longevity bonus program in regulations. MS. VOGT further stated that the department shared the same concerns that Chair James expressed of the bill benefitting a small, select group of people not shared by the larger population. She did not know if that presented a legal problem, however. There were other allowable absences narrow in scope, such as, the Peace Corps. She reiterated HB 67 presented a question of equity. The record reflected the arrival of Representative Al Vezey at 9:28 a.m. Number 0354 CHAIR JAMES asked Ms. Vogt if the allowable absence of "(F) other reasons which the commissioner may establish for regulation;" was where the department would address the issue in regulations? Number 0380 MS. VOGT replied, "Yes." The department would not make it an allowable absence, however. It would make it an eligibility requirement for those who came back. Number 0394 CHAIR JAMES wondered if the seniors would get paid their permanent fund while they were gone. MS. VOGT replied, "That's exactly right." CHAIR JAMES said she still did not understand the term "sabbatical." Number 0453 MS. VOGT replied for the purposes of the longevity bonus program it was a long vacation. A sabbatical meant, during one's working years, a paid absence from work. According to AS 47.45.035 a sabbatical was limited to once every five years. Therefore, one could just take a vacation. Number 0523 CHAIR JAMES announced she wanted to look at this issue further. The thought behind the bill made a lot of sense. The permanent fund program was for residents of the state; for people who were here now. The longevity bonus program was originally for people who were here before statehood. It made sense to give the people on the longevity bonus a chance to leave the state for one year and upon return be able to get their longevity bonuses. However, allowing one year just for senior citizens created a problem with residency. She reiterated she would look at the issue further. Number 0656 MS. VOGT stated that once a person under the longevity bonus lost his eligibility he could never get it back. Number 0668 CHAIR JAMES replied, "That's the problem. That's why we had to do that for the longevity bonus." MS. VOGT further stated that under the permanent fund program a person could be gone for a year, return, then reestablish one's eligibility and get paid for future years. CHAIR JAMES stated that a senior citizen could possibly loose two years, depending on the timing, of the permanent fund. CHAIR JAMES announced she would hold the bill over to Thursday, February 27, 1997. HB 112 - AMEND DEFINITION OF "POLITICAL PARTY" The next order of business to come before the House State Affairs Standing Committee was HB 112, "An Act amending the definition of `political party' except as the definition of the term applies to the regulation of contributions and expenditures in state and municipal election campaigns, an amendment that also has the effect of changing the definition of `political organization' as applied to the regulation of games of chance and contests of skill." CHAIR JAMES called on Representative Al Vezey, sponsor of HB 112, to present the bill. Number 0755 REPRESENTATIVE AL VEZEY explained that HB 112 was an endeavor to change the nature of the general election for statewide offices. Currently, the system included a primary election and then "I would characterize this thing-a lottery-that followed that." There had been candidates elected to statewide offices, most notably to governor, that had received as little as 36 percent of the votes. It had been a long time since anyone received more than 42 percent of the votes. One of the reasons was because current election law encouraged groups of people who wanted to call themselves a political party to run a candidate for governor. "That is our measurement of how we establish a political party for most of Alaska Statutes." House Bill 112 would change that by creating another option to establish a political party. It did not take away the right of people to get together and run a candidate for governor and qualify as a political party, but rather the bill provided an alternative for groups to be recognized as a party. He explained that the figure 10,000 was equivalent to approximately 3 percent of the votes, in the last general election. In addition, the party did not have to run a candidate for governor to retain its qualification, and it was hopeful that if the bill became law as many as three parties would no longer feel a need to throw a candidate into the general election. Number 0934 REPRESENTATIVE IVAN asked Representative Vezey if this would allow the undeclared or undecided voters to form a political party? Number 0951 REPRESENTATIVE VEZEY replied, "Not declaring a party affiliation under this bill would not classify those people as a member of a political party." However, if they wished to create a party called "undeclared" or "independent" and they got 10,000 registered voters then it would become a political party. There would still be on the voter registration card a category, by default, called "undeclared." Number 1041 JAMES BALDWIN, Assistant Attorney General, Governmental Affairs Section, Civil Division, Department of Law, explained that the definition of a "political party" involved substantial litigation in the past, particularly over the 3 percent requirement. He cited the Vogler case where the threshold was reduced from 10 percent to 3 percent. It was possible to add another threshold, but he believed the legislature should create a record to justify the 10,000 registered voter requirement. "It just isn't something that, I think, that can be done arbitrarily and successfully defended." There needed to be a compelling interest on the part of the state to impose such a limitation, and it needed to be the least restrictive. He did not know how the sponsor arrived at the 10,000 figure, but until that was put into a record, there wasn't much to defend. MR. BALDWIN further stated there was the issue of political affiliation disclosure. He cited a federal case, NAACP v. Button where it was found that there was a strong First Amendment right to keep one's political affiliation private. In addition, the largest percentage of the registered voters in Alaska were non-partisan or no-party. He assumed that was because Alaskans did not like to disclose their party affiliation publicly. Therefore, one unintended result would be to require a disclosure of one's party affiliation in order to qualify for the second prong of the proposed definition. MR. BALDWIN further stated, in its current form, the department did not support the bill. Number 1250 CHAIR JAMES asked Mr. Baldwin if he had any suggestions? If the bill said "registered voters or 3 percent of the last election," for example, what would that do? It still made a person disclose his or her party affiliation. What if a person did not have to do disclose it every time, for example? Number 1280 MR. BALDWIN replied there was a problem tracking political affiliation. Voter registrations were open and available to the public. They were a valuable tool to the political parties and to campaigns. "One option that could be considered would be some limited way of making this information confidential perhaps to the administration that's making that determination as to whether or not they met the basic threshold." Consequently, the political parties would not have access to the information that they valued. Number 1358 GAIL FENUMIAI, Election Coordinator, Central Office, Division of Elections, Office of the Lieutenant Governor, stated the division believed that this new definition of a political party would be an additional expense and be administratively burdensome. Presently, the division tracked party affiliation of only the recognized parties. She cited: Democrat, Republican, Alaskan Independence, Green, Undeclared, Non-Partisan, and Other. The voter registration system was not set up to handle a wide variety of other political party affiliations that somebody could put down if they checked the "other" category. At present, they were all lumped together into this category. She reiterated this bill would cause some problems for the division. Number 1429 REPRESENTATIVE HODGINS asked Ms. Fenumiai if she saw any advantages of the bill if the logistics were in place? Number 1438 MS. FENUMIAI replied she could not see any other advantage other than creating another avenue for a group of people to become a political party. Number 1458 KEN JACOBUS, Legal Counsel, Republican Party of Alaska, was the first person to testify via teleconference in Anchorage. He supported HB 112. He called it a good idea and it should be passed. A small political party should not have to undertake the expensive gubernatorial campaign each election to retain its status. He agreed with Mr. James Baldwin that a legislative record was needed. MR. JACOBUS further stated that the parties would oppose any confidentiality of the records. He referred the committee members to a memorandum dated January 29, 1997, from Mr. Jack chenoweth, Legislative Counsel, and stated consideration should be given to making a uniform definition of a "political party" throughout the Alaska Statutes. There were two definitions now, and if the bill was enacted there would be three. Moreover, the Republican Party of Alaska had a problem with the issue of defining a political party for the purpose of campaign financing. The legislature should consider input from all of the political parties to ensure that the parties did not have any problems. Number 1571 CHAIR JAMES asked Mr. Jacobus if he would comment on the issue of the constitutionality of the bill addressed earlier by Mr. James Baldwin? Number 1580 MR. JACOBUS replied the NAACP v. Button case dealt with disclosure of the membership records of the NAACP which was a different issue. "I don't think you're really going to run into a problem because a political party will have two ways now in order to exercise its right to political affiliation." He cited the 3 percent route and the 10,000 route. The 10,000 route was a free choice because registered voters needed to be obtained. "I don't see that it's a big problem, myself." Number 1648 CHAIR JAMES called for a motion to move the bill out of the committee. Number 1650 REPRESENTATIVE DYSON moved that HB 112 move from the committee with the attached fiscal note(s) and individual recommendations. There was no objection, HB 112 was so moved from the House State Affairs Standing Committee. ADJOURNMENT Number 1670 CHAIR JAMES adjourned the House State Affairs Standing Committee meeting at 9:53 a.m.