HOUSE STATE AFFAIRS STANDING COMMITTEE April 15, 1999 8:05 a.m. MEMBERS PRESENT Representative Jeannette James, Chair Representative John Coghill Representative Scott Ogan Representative Jim Whitaker Representative Bill Hudson Representative Beth Kerttula Representative Harold Smalley MEMBERS ABSENT All members present COMMITTEE CALENDAR * HOUSE BILL 157 "An Act relating to absences from the state while serving on oceangoing vessels of the United States merchant marine for purposes of eligibility for permanent fund dividends; and providing for an effective date." - MOVED HB 157 OUT OF COMMITTEE * HOUSE BILL 156 "An Act relating to investments by the Alaska Permanent Fund Corporation; and providing for an effective date." - MOVED CSHB 156(STA) OUT OF COMMITTEE HOUSE BILL 132 "An Act relating to allowable absences from the state for purposes of eligibility for permanent fund dividends; and providing for an effective date." - HEARD AND HELD HOUSE BILL 16 "An Act transferring to the Department of Health and Social Services the authority to license all assisted living facilities; eliminating the authority of the Department of Administration to license assisted living facilities; and providing for an effective date." - SCHEDULED BUT NOT HEARD * HOUSE BILL 144 "An Act relating to access to public buildings or public facilities by legislators and to audits of public buildings or public facilities." - SCHEDULED BUT NOT HEARD HOUSE BILL 159 "An Act granting certain employees in correctional facilities status as peace officers under the public employees' retirement system." - CANCELED HOUSE BILL 179 "An Act eliminating the Alaska Public Offices Commission and all campaign contribution and expenditure limits; repealing lobbying and conflict of interest statutes administered by the Alaska Public Offices Commission; relating to the definition of 'lobby,' 'lobbying,' and 'lobbyist'; repealing the required annual financial disclosures program administered by the Alaska Public Offices Commission; repealing the conflict of interest statutes administered by the Alaska Public Offices Commission; relating to reporting of campaign contributions and expenditures; amending the definition of 'contribution,' 'group,' and 'political party'; changing the residency requirements for candidates for public offices; and providing for criminal penalties for violation of these provisions." - CANCELED (* First public hearing) PREVIOUS ACTION BILL: HB 157 SHORT TITLE: PFD ALLOWABLE ABSENCES SPONSOR(S): REPRESENTATIVES(S) SANDERS, Harris Jrn-Date Jrn-Page Action 3/24/99 555 (H) READ THE FIRST TIME - REFERRAL(S) 3/24/99 555 (H) STA, FIN 3/30/99 (H) STA AT 8:00 AM CAPITOL 102 3/30/99 (H) 4/15/99 (H) STA AT 8:00 AM CAPITOL 102 BILL: HB 156 SHORT TITLE: PERMANENT FUND INVESTMENTS SPONSOR(S): RULES BY REQUEST OF BUDGET AND AUDIT Jrn-Date Jrn-Page Action 3/24/99 555 (H) READ THE FIRST TIME - REFERRAL(S) 3/24/99 555 (H) STA, FIN 4/15/99 (H) STA AT 8:00 AM CAPITOL 102 BILL: HB 132 SHORT TITLE: PERMANENT FUND ALLOWABLE ABSENCES SPONSOR(S): REPRESENTATIVES(S) COWDERY BY REQUEST Jrn-Date Jrn-Page Action 3/11/99 428 (H) READ THE FIRST TIME - REFERRAL(S) 3/11/99 428 (H) STA, FINANCE 3/23/99 (H) STA AT 8:00 AM CAPITOL 102 3/23/99 (H) ASSIGNED TO A SUBCOMMITTEE 3/23/99 (H) MINUTE(STA) 4/15/99 (H) STA AT 8:00 AM CAPITOL 102 WITNESS REGISTER REPRESENTATIVE JERRY SANDERS Alaska State Legislature Capitol Building, Room 414 Juneau, Alaska 99801 Telephone: (907) 465-3476 POSITION STATEMENT: Presented HB 157. DEBORAH VOGT, Deputy Commissioner Department of Revenue P.O. Box 110405 Juneau, Alaska 99811 Telephone: (907) 465-2300 POSITION STATEMENT: Provided information on HB 157 and HB 156. She expressed concerns on both bills. NANCI JONES, Director Permanent Fund Dividend Division Department of Revenue P.O. Box 110460 Juneau, Alaska 99811 Telephone: (907) 465-2323 POSITION STATEMENT: Provided information on HB 157 and HB 156. She expressed concerns on both bills. HAROLD HOLTON, Representative Seafarers International Union 721 Sesame Street, suite 1-C Anchorage, Alaska 99503 Telephone: (907) 561-4988 POSITION STATEMENT: Testified in support of HB 157. ROCKY LATTA, member Seafarers Union 6704 Lunar Drive Anchorage, Alaska 99504 Telephone: (907) 552-0370 POSITION STATEMENT: Testified in support of HB 157. EDEN LATTA, member Seafarers Union 6704 Lunar Drive Anchorage, Alaska 99504 Telephone: (907) 333-9984 POSITION STATEMENT: Testified in support of HB 157. JOHN GLENN Seafarers Union 3513 Creekside Drive, Number 12 Anchorage, Alaska 99504 Telephone: (907) 333-2900 POSITION STATEMENT: Testified in support of HB 157. KAREN BRAND, Vice President Alaska State Chamber of Commerce P.O. Box 91896 Anchorage, Alaska 99509 Telephone: (907)278-2722 POSITION STATEMENT: Testified in support of HB 157. EDDIE BURKE, Lesislative Administrative Assistant to Representative Sanders Alaska State Legislature Capitol Building, Room 414 Juneau, Alaska 99801 Telephone: (907) 465-3476 POSITION STATEMENT: Provided information on HB 157. ERIC WOHLFORTH, Chairman Board of Trustees Alaska Permanent Fund Corporation Wolforth, Vassar, Johnson, and Brecht 900 West Fifth Avenue, Suite 600 Anchorage, Alaska 99501 Telephone: (907) 276-6401 POSITION STATEMENT: Testified in Support of HB 156. JIM KELLY, Director of Communications Alaska Permanent Fund Corporation P.O. Box 25500 Juneau, Alaska 99802 Telephone: (907) 465-2059 POSITION STATEMENT: Testified in Support of HB 156. TOM MAHER, Legislative Assistant to Representative Gail Phillips Alaska State Legislature Capitol Building, Room 411 Juneau, Alaska 99801 Telephone: (907) 465-6873 POSITION STATEMENT: Provided information on HB 156. PETER TORKELSON, Researcher to Representative Cowdery Alaska State Legislature Capitol Building, Room 204 Juneau, Alaska 99801 Telephone: (907) 465-6848 POSITION STATEMENT: Provided information on HB 132. REPRESENTATIVE COWDERY Alaska State Legislature Capitol Building, Room 204 Juneau, Alaska 99801 Telephone: (907) 465-6848 POSITION STATEMENT: Sponsor of HB 132 Testified that he doesn't have a problem with every individual providing proof of residency. ACTION NARRATIVE TAPE 99-24, SIDE A Number 001 CHAIR JEANNETTE JAMES called the House State Affairs Standing Committee meeting to order at 8:05 a.m. Members present at the call to order were Representatives James, Coghill, Whitaker, Kerttula and Smalley. Representatives Hudson and Ogan arrived at 8:10 and 9:05 a.m. respectively. CHAIR JAMES announced the hearing on HB 159, "An Act granting certain employees in correctional facilities status as peace officers under the public employees' retirement system," will not be heard today because the fiscal note won't be available until Monday. [Canceled prior to the meeting]. HB 157-PFD ALLOWABLE ABSENCES Number 001 CHAIR JAMES announced the first item up is HB 157, "An Act relating to absences from the state while serving on oceangoing vessels of the United States merchant marine for purposes of eligibility for permanent fund dividends; and providing for an effective date." Number 024 REPRESENTATIVE JERRY SANDERS presented HB 157 noting that it was brought forward for several reasons and that he has a lot of backup for the specifics of the situation. He said there are currently 13 exemptions to the permanent fund dividend program and that he would like to add one more to take that hex off [laughter]. He pointed out that there's a very small number of people that this will be made available to. And all these people meet all of the other conditions of the permanent fund other than the 180 days and it's only because they are out working, they're on ships and they have to be gone. It's for merchant mariners who live and reside in the state of Alaska and who have their families here, and who are out of the state for more than 180 days a year. REPRESENTATIVE SANDERS said the merchant marines are often equated with the military, especially in times of war. He mentioned that he worked on river boats on the Mississippi and Ohio Rivers and was gone for nine weeks and was in port six or seven days while loading - so he probably spent nine months outside Texas. He said no one could have convinced him that he wasn't a Texan because his family was there, he paid rent, and so on. Therefore, he can relate to the mariner's concerns. CHAIR JAMES noted Representative Hudson's arrival. Number 103 [Seafarers Recruitment Video - five minutes]. Number 231 DEBORAH VOGT, Deputy Commissioner, Department of Revenue, reiterated the department's stand on additions or subtractions to the allowable absence list are in the hands of the legislature. She said the department has two concerns, the first is that allowable absences be administrable and that there be clear lines around what is and what is not allowed so that staff (from the very beginning of the process up through review and appeals) can determine who is and who is not eligible. She said she believes the second function, which is appropriate for the department, is to raise equity consideration. MS. VOGT noted that the merchant mariner proposal is an administrable absence. She said, as she understands it, the Coast Guard can tell the department who is and who is not a merchant mariner. She noted that the Seafarers Recruitment Video would qualify as a vocational program and that a person who is a student (at that program) would qualify for an allowable absence today. The issue is whether that person would continue to qualify if he or she took a career in the merchant marine. MS. VOGT emphasized that the way this legislation is drafted, the family members would not also qualify and that's an important distinction between it and other absences. If the point is that the person's family and ties are all in Alaska then that's the way it should be drafted. Most of the absences (student, military, and so on), family members of the person who does qualify are also eligible for dividends. She said it was a large part of HB 2, which was brought up last year, to reinstate that absence because a court decision had denied eligibility for spouses. Number 286 CHAIR JAMES asked how many appeals are based on allowable absences. MS. VOGT responded that she believes most appeals deal with allowable absences. She indicated the question of intent is difficult - did you maintain your intent to remain or to become a resident - did you harbor the intent to become an Alaskan when you arrived here (indisc.--noise) or were you really coming for vacation and then decided to stay. CHAIR JAMES asked what percentage of activity is on appeals. Number 326 NANCI JONES, Director, Permanent Fund Dividend Division, Department of Revenue, replied (between review and appeal) approximately 16 staff members handle approximately 25,000 cases during the application period (March 31 through the next March - one year). Number 342 HAROLD HOLTON, Representative, Seafarers International Union, came before the committee and read the following testimony: I'd like it clear that I'm here on behalf of all merchant seaman, who are denied their permanent fund dividend. I was born in Ketchikan, raised in Ketchikan, Petersburg, and Juneau, upon my completion of six years in the Marine Corps, I came back to Alaska and became a state trooper for a short period of time. I was a salmon tender captain for 15 years, before becoming a union Representative. The Seafarers opened an office in Anchorage, almost two years ago to the day. Our objective is to recruit Alaskans to go to our unlicensed apprenticeship program in Piney Point, Maryland, and give them an opportunity to obtain good paying jobs with good benefits when they complete the program. I first became alerted to the fact that merchant seaman [seamen] were being denied their permanent fund, by a merchant seaman from a different union. His name was Ross Perrine from Palmer, and he owns a home, has an Alaska driver's license, voter registration card, et cetera. He's been denied the fund since the inception. I went to one of our ships, and found that a boatswain on the Tote ship Northern Lights has also experienced the same problems. His name is John Glenn and he will be testifying this morning. Number 368 My recruiting effort has taken me around a lot of the state, and in my interviews with young people, I seem to have their interest in the program until the question of the permanent fund dividend comes up, then I am told they are no longer interested. I thought to myself, and have shared this view, if these people seemed awfully shortsighted, and until I really thought about it, this is probably the only steady money they have ever seen, and are reluctant to let it go under any circumstance. These merchant seamen being denied do not have a choice when they sail, as to whether they can sail in Alaska or not. Sailing is based on a seniority system, and believe it or not, our Alaska routes, are in high demand. The ones that have the Alaska routes Ross and John are denied because they are not physically in state a minimum of 180 days. All of our Alaskans that have been accepted to Piney Point because they are Alaska residents. I would hate to discourage good young people, (short sighted as they may be) from enjoying such a career opportunity. Right now we have 18 Alaskans who have graduated from Pitney Point, and we presently have two in school. Besides the 18 graduates, we have created a "riding maintenance" gang. These merchant seamen go on oil tankers and do preventative maintenance. We hired 10 riding gang a year ago, and all have done an outstanding job. When they have a year of sea time, they will be sent back to Piney Point and upgraded to able-bodied seaman. We will start training and working a new crew. This crew averages $3,200.00 per month, with full benefits. Two of these merchant seamen have recently put money down on homes in the Wasilla area. They also will be denied their permanent fund dividend. Number 405 An article in the Anchorage news, last Monday the 12, did an article on our first native Alaskan. This has generated such a positive response it is hard for me to keep up with it. The first day it generated about 20 calls, and yesterday I received 71 inquiries. This has resulted in six tests being given yesterday, and six more scheduled on Friday, plus two in Soldotna, one in Anchor Point, two in Kodiak, two in Ketchikan, and several from Willow. These numbers are candidates that are qualified. In my estimation, we are not talking about any more than 200 merchant seamen over a ten-year period although I hope for many more than that. This concludes my statement and I urge you to support HB 157. Number 420 CHAIR JAMES announced that the Senate State Affairs Standing Committee will be hearing the Senate's version of HB 157 this afternoon [SB 119 PFD ALLOWABLE ABSENCES]. Number 433 ROCKY LATTA, member, Seafarers Union, testified via teleconference from Anchorage noting that his son Eden has struggled for a period of time. When Eden saw Congressman Young's letter on the merchant marine program, it changed his life. He said his son recently made a down payment on a home in Girdwood and is looking forward to a bright future with the International Seafarers Union. Mr. Latta said, while Representative Young is trying to start the fire, by working toward building a viable merchant marine industry in Alaska, it seems the state is pouring water on this effort by negating the permanent fund [dividend]. He added that the merchant seaman have high-paying jobs that offer opportunities for advancement. MR. LATTA stated, "I read ... the legislature is trying to push Alaska jobs for Alaskans and I think if we allow the permanent fund [dividend] we're going to get more members in the union who live in Alaska and they're going to spend their paychecks in Alaska. Currently most of the folks that are delivering goods to Alaska are from the state of Washington, California and the East coast, they do not spend their money here. It just seems to me what's happening, and I like Harold [Holton] did 20 years in the United States Marine Corps, reminds me when I was a young kid back at Camp Pendleton, we use to go down to San Diego, and ... signs that used to be on the door of establishments, 'No dogs or sailors allowed,' and I kind of feel to some respect that's the way we're treating our folks here that are merchant marines. It appears to me to be a double standard when you look at some of the other 13 groups of people who are allowed to receive the permanent fund [dividend ]. Please do not treat Eden like a guest in this state, this is his home, he lives here, he spends his money here." Number 480 EDEN LATTA, member, Seafarers Union, testified via teleconference from Anchorage. He noted that he attended the training program in Maryland and was recently upgraded to an able-bodied seaman. He said he was denied his permanent fund dividend because he spent 130 days outside the state (working on a ship) and feels like an outsider because the state is denying him the dividend. Mr. Latta noted that he has lived in Alaska for 10 years, he loves it here, and can't imagine living anywhere else. MR. LATTA said he understands the military is eligible for permanent fund dividends unless they are sent overseas. He mentioned that he has a Department of Defense identification card, that the merchant mariners go through drills, they do everything with the military, they even had the military riding with them. In addition, the merchant seamen are placed in danger (which is the same as the military) when they go through the chemical biological radiation defense drills every week. He also mentioned that the ship was damaged from mortar rounds in Somalia. Therefore, he doesn't see where this is much different from the military. Number 518 JOHN GLENN, Seafarers Union, testified via teleconference from Anchorage in support of HB 157 noting he has been in Alaska since 1985. He met the allowable absence when it was six months, but now that it has gone up to eight months, it's hard for him to qualify. When he's off the ship, he's in Alaska with his wife and grandchildren. Mr. Glenn pointed out that he has been denied his dividend since 1992 and has been appealing truthfully every year. MR. GLENN further stated that he has four months of home-time in Alaska and is a permanent employee of Northern Lights which is operated by TOTE (Totem Ocean Trailer Express). He also mentioned that he has completed the appeals form with the required dates but hasn't heard from the division. Mr. Glenn stated, "Whenever I receive information from the Permanent Fund Dividend Division, it's impossible for me to follow it. I'm just like Eden because one time I answered the permanent fund people, I told them that this is my home, this is where I hang my hat, and it's where I spend my money. Even if I have a family over in Washington, I live here ... and I think there's only a few of us up here. I would say 90 percent of the crew on the ships right now are from a different state. But I don't see any difference between me and a wife of a military person that's overseas - no time in Alaska and he doesn't even spend the money up here. I live here and I intend to stay here. And we are also part of the military defense with the country ... because we do carry cargos to go to the Persian Gulf." Number 572 KAREN BRAND, Vice President, Alaska State Chamber of Commerce, Anchorage, came before the committee. She said the Alaska State Chamber of Commerce fully supports HB 157. She read a position statement that was adopted by the chamber last fall, "Efforts to provide more opportunities for local hire and quality, professional skill developments are hampered by the continued disqualification of merchant mariners from getting their permanent fund dividend." She said HB 157 gives the merchant mariners that opportunity and inspiration to pursue a career as a merchant mariner. Ms. Brand emphasized that the permanent fund dividend would serve as an incentive for Alaskans to retain their residency in Alaska rather than moving outside to start a career at sea. She said it would resolve the inequities for Alaskans who make their living employed at sea (on the freighters and tankers) which service Alaska. REPRESENTATIVE SMALLEY asked how many individuals would be impacted by HB 157. REPRESENTATIVE SANDERS replied that, in the next ten years, it should be less than 200. EDDIE BURKE, Legislative Administrative Assistant to Representative Sanders, added that there are currently 28 people in the system that would actually be impacted. Number 614 REPRESENTATIVE HUDSON asked why aren't the spouses and dependents included. REPRESENTATIVE SANDERS said his understanding is that the spouses and dependents stand on their own. CHAIR JAMES noted that the merchant mariners live in Alaska and have family here. Number 635 MR. HOLTON (Representing Seafarers International Union) stated, "The situation that we're creating, is we're creating resident Alaskans. If indeed somebody is transferred to Seattle, they're not resident Alaskans and they wouldn't come under our program. We want it very clear, if a resident is qualified they're qualified on their own merit." He reiterated that Ross Perrine's family has lived in Palmer for several years, they receive the permanent fund dividend, however he is not qualified because he is outside too long. Mr. Holton noted that John Glenn's route is only from Anchorage to Tacoma and goes nowhere else. (He spends one day in Tacoma loading the ship, the rest of his time he's on the sea headed to Alaska or Tacoma). He indicated that there's a line there that Mr. Glenn crosses that he can't say that he's in Alaska and that's where he gets into problems, and Ross Perrine is the same (delivering oil out of Valdez). REPRESENTATIVE WHITAKER said his concern is that we are creating a differential between military families and the families of merchant mariners. He stated that it's a well-known law in the permanent fund dispersement system that military families that come to Alaska, or are transferred out of Alaska, and "by golly," they remain Alaskans until they are out of the military because they have a cursory Alaskan residence. The notion is correct that if you have a family in Alaska, you're an Alaskan and if your job takes you out-of-state and you're coming back that's just fine. He noted that he will not hold HB 157. However, it doesn't address, and it's not the intent of this bill to address that other problem. Number 674 CHAIR JAMES announced that the discussion on HB 157 will continue after hearing testimony on HB 156. HB 156-PERMANENT FUND INVESTMENTS CHAIR JAMES announced HB 156, "An Act relating to investments by the Alaska Permanent Fund Corporation; and providing for an effective date," is before the committee. Number 684 ERIC WOHLFORTH, Chairman, Board of Trustees, Alaska Permanent Fund Corporation, appeared before the committee, noting that the Board of Directors, after close study and long preparation, approved HB 156. He pointed out that HB 156 is necessary to modestly expand the board's investment position so that they can, with a prudent degree of risk, take advantage of market opportunities and increase the permanent fund yield. Number 699 JIM KELLY, Director of Communications, Alaska Permanent Fund Corporation, testified that HB 156 modernizes the statute [AS 37.13.120] because the world has changed since these statutes were written (in 1980) and that the trustees need to be responsive in managing the state's and the Alaskan's money to take advantage of the opportunities that are there and to deal with the challenges that they have. He stated that, "The change we've asked for isn't the moon, it's a conservative request, it continues the tradition of the 'legal list.' It would, however, give us the chance to add some incremental value to our returns we think, and it would allow us to better protect the portfolio. I'd like to have you look at the fund as we look at it, as the Board of Trustees and the staff, and the managers, and we see it as a long-term institution. And so when we make decisions we try to make them with a very long horizon, not a two year, a four year, or a ten year, not even a 20-year, but a generational type of horizon." MR. KELLY provided information which shows the rates of returns you'd get in the various asset classes over long periods of time. [The report, "The Case for Increased Investment Flexibility: HB 156, APFC (Alaska Public Fund Corporation) Presentation to House State Affairs, April 15, 1999," is available in the committee packet]. Following is his testimony: You see that over the 70-year period, from 1925 to 1995, that your dollar would have turned into $13.00 if you had invested in the Treasury Bill. That same dollar would have turned into $1,114.00 if had been in ... a S&P 500 company. The Next page shows that chart graphically and there's a big difference in the amount of money that compounds over time in those asset classes. We've seen a bit of that in our own limited 15-year life and, over this period of time that the fund has been in the stock market, your fund has earned almost 18 percent which is about twice what we expected to make going forward in the stock market. But that's an excellent return historically - and fixed income has been 10 percent to a fund about 12 percent over the last 15 years compounded. Long-term total returns, 15 years ended December 31, 1998 Total Fund Fixed Income U.S. Stocks 12.16% 10.15% 17.69% Non-U.S. Stocks Real Estate 10.54% (Last 5 yrs.) 8.67% Number 732 This bill is sort of the son of the daughter of a bill that was originally introduced by the trustees that by the LB&A [Legislative Budget and Audit] Committee, at the request of the trustees two years ago, that bill asked for an allocation limitation relief. We wanted to be able to invest up to 60 percent of the fund in stocks instead of the 50 [percent] that we're limited with now. And this is just to show you that bill wasn't acted on in 1997, it was passed by the House in 1998, and it didn't get any action in the Senate however. And just to show you what the impact of that non-action was [next page], in 1997 our stock portfolio earned 31 percent, our fixed income portfolio earned 9.52 [percent] in 1998 you can see that it was 23.62 verses 9.90. And the third column there shows the difference. So in other words, if we'd had the money in stocks instead of bonds, we could have earned 21 percent more on each dollar. And in 1998, 13.7 percent more, multiply that times the 10 percent of the fund that could have been invested in stocks, you end up with some pretty large numbers, $324 million in 1997 left on the table, $444 million last year, three quarters of a billion dollars of money not in our pockets that could have been - that's the opportunity (indisc.). That wasn't acted on because people have a concern and a legitimate concern about risk, and when you go out there and you reach for higher return you have higher risk and there is an understanding of that at the Permanent Fund Corporation, but it's the job of the fund managers to try to manage that risk. We know as - right now the board, when they leave at nine o'clock, later today they're going to make the decision about the asset allocation for the fund for the next year. They do that on the basis of their expectation about what they're going to be able to earn in each one of the asset classes. And if we've gone through this exercise this year with our consultant Callan Associates, we see that we are expecting over the next five-year period lower rates of return in all the asset classes and a higher range of variability. Maybe they're going to be higher, maybe they're going to be lower, but it's more risk than there has been in the past and we understand that. But there's ways to deal with risks, and one of the ways to deal with risk is by looking at it from a long-term horizon. Now in a given year, over this 70-year period that I referred to earlier, you might have a year where you made a 150 percent return in small company stocks, or you might have lost 80 percent of that value over that period of one year. But then over a 5-year period you can see that the range is much less. And what's really interesting - if you look over a 20-year period, and if you look at small stocks versus say corporate bonds, it actually turns out over a 20-year period, any 20-year period in this 70 years, there's actually more risk in being in corporate bonds than there was in stocks. The worst case was better in stocks than it was in bonds. But that's one way that deal with risk is by hanging with it for a long time and suffering through those bad years. Now this bill doesn't address this one in particular, although it's a topic you'll hear about in other venues, that how we distribute - how you choose to distribute money from the fund for dividends or for any other purpose has an impact on the investment decision-making. The trustees, for a long time, have been looking at a percent of market value distribution of income. We call it "POMV" distribution, percent of market value. Right now we're paying a percent of income. The dividend is based on a 50 percent of realized income. If you want the fund to be long-term, if you want to be able to (indisc.) of the higher kinds of returns you can take advantage of, you want to have the distribution parts of the scheme (indisc.) in-sink with your investment part. A Distribution based on market value does provide greater stability, it's sort of the difference between the way the chart looks one year and the way it looks on 20 years, you really reduce the range of the possible outcome. So we think we can manage the risk that way as well. Number 793 Then the next few charts [Projected PF Realized and Total Rates of Return Based on the Fund's 1998 Asset Allocation and the 1999 Callan Capital Market Assumptions] are ... the $770 million dollars is an opportunity cost over the last two years. If you look going forward - this is a chart that we use as we're developing our asset allocation plan for the current year and it's a bunch of numbers, but the one underlined in red says that we're putting 34 percent of your fund in stocks over the next year, that's the plan, and 14 percent in non-U.S. stocks, and 42 percent in bonds, 10 percent in real estate. That will give us a 7.75 [percent] in the circle rate of return. The next page shows what if you kicked up the stocks 5 percent, which this bill, that's before you now would allow. That 7.75 [percent] return becomes 8.22 [percent], so that's 47 basis points, that doesn't seem like much, but remember it. The next one is ... if you allowed 10 percent, which this bill doesn't do, but if you chose to make that decision you would pick up another 47 bases points to 8.69 [percent]. Number 806 The next chart shows you what does that mean. These are rows that I've taken off of our projection sheet - this is over a 20-year period, so between now and 20-years from now, how much income would the fund have made. Under the status quo, with a 50 percent ceiling, we would earn $66.8 billion. If we were earning that extra 3.8 percent in stocks, on 5 percent of the portfolio, that would increase the income by $6.5 billion, roughly $200 million a year. And if we went to the 10 percent, it would go up to $80 billion, a $13 extra-billion over 20 years. That's quite a bit of money. And lastly, there's a chart that you can look at any time you want to on our Web site [www.apfc.org] which is noticed on the bottom of the page there. But it shows you where your fund is invested from day-to-day and it's over $26 billion as of two-days ago. But the important part about this chart is that, if you look at the percentages invested in U.S. Equities and Non-U.S. Equities, we had just exceeded 50 percent, so that means we're going to have to sell some stocks. Take it out of the stocks and put it into bonds because that's what the law says. Daily Unaudited Position as of April 13, 1999 Fixed Income $10,752,900,00 41% U.S. Equities 9,727,800,00 37% Non-U.S. Equities 3,560,700,000 14% Real Estate 2,035,100,000 8% Alaskan CSs 190,000,000 1% TOTAL $26,266,500,000 100% That is the big picture that I would like you to think about when you look at the exact changes that we've got before you. We do have the legal counsel who drafted the bill analysis, and between myself and he, I'm sure we can answer any questions you have about the particulars of the bill, but we would very much urge you to support the bill to help us do a better job in managing your fund. Number 829 CHAIR JAMES said the constitution makes it perfectly clear that the income on the "permanent fund" is the "general fund," and is intended for appropriation. She further stated, "And we keep saying that the permanent fund is $26 billion, the permanent fund is only $19 billion, and the rest of it is in the earnings reserve, which should be according to the constitution - general fund. So, you know when we keep telling the folks there's $26 billion, aren't we being a little untruthful." MR. KELLY replied no, the constitution says that all the income from the permanent fund shall be deposited in the general fund unless otherwise provided by law. He further explained that the lawmakers of 1982 provided that that income will be deposited within the permanent fund in the earnings reserve account, so $26 billion is in the permanent fund and none of that money is currently in the general fund; $7 million of that dollars are available for appropriation to the general fund, $19 billion is not, the principal cannot be appropriated. He noted that's the difference. CHAIR JAMES added that many Alaskans believe that none of that money can be spent without their vote. She asked Mr. Kelly to explain what is protected and what isn't in the permanent fund. TAPE 99-24, SIDE B Number 001 MR. KELLY continued, "...It's on our Web site [www.apfc.org], it's in our printed publications. We made a presentation to Senate Finance Committee last week in relation to the development of a fiscal plan - that was the big point that we made. I agree it's something that people need to know and we'll be glad to say it every chance we get that the income of the permanent fund is available for appropriation by the legislature, that's the way it was designed and that amount is everything that's is not principal, and the principal is $19 billion." Number 053 REPRESENTATIVE KERTTULA indicated that she would like to offer an amendment which simply allows the Alaska Permanent Fund Corporation an extra 5 percent for that investment flexibility, so it would go from 50 to 55 percent. She mentioned the testimony about how the previous years the board has sought to raise the ability to invest on their stocks from 50 to 60 percent. MR. WOHLFORTH said, "As much as I'd like to say yes we'd welcome the additional authority, I'm fearful of jeopardizing the opportunity of getting even the 5 percent that we've asked for. That's my apprehension." CHAIR JAMES said that would be taken into consideration. [Hearing on HB 156 will continue after the consideration of HB 157]. HB 157-PFD ALLOWABLE ABSENCES Number 115 CHAIR JAMES called the committees attention back to HB 157,"An Act relating to absences from the state while serving on oceangoing vessels of the United States merchant marine for purposes of eligibility for permanent fund dividends; and providing for an effective date." She stated for the record: First of all we keep finding ourselves boxed-in in making decisions in the state of equity, and much of the time ... are based on something - other decision that we've made prior, that maybe wasn't a good idea. I believe I will vote to pass your bill out, I just want to put these things on the record and my concerns about this and it has to do with the administration of the permanent fund dividend program and the problems that we have because of absences. And we want to be sure, when we have a permanent fund dividend, that we include Alaskans, true Alaskans, Alaskan residents, but it's very difficult to define what an Alaskan resident is. And certainly, if they qualify for an Alaska residence, and their family is here, and they live here, and they don't really live anywhere else, but they're working somewhere else - bringing in money from some place else to spend here in the state, I think we should feel pretty inclined to say, "Well that's okay." It's been a real problem trying to determine what these valid absences are, and every year - we have another bill coming up later in the meeting here which is the same thing -- they're talking about people who are in private industry, we've heard that bill before, because state employees are allowed to be away for more than 180 days, but private sector employees are not, so that's an inequity. So how do we fix it, do we say the state employees aren't eligible either - and now we're level again? Do we back down to get level, or do we continue to go forward to get level? I just wanted to make that comment for the record because it's a dilemma for me. And in fact is, we ended up - as I recall the circumstances - I got a lot of telephone calls and letters and (indisc.--paper shuffling) from a lot of folks in this state when we denied the Peace Corps folks and that happened in the Senate - or the other body last year, because we're adding more folks in, and if you're going to add somebody in, we'll take somebody out. I mean that business of just adding on more and more absences is a real problem. I don't know what the answer is, I just wanted to let you know it is a concern of mine. Number 183 And I wish it were that we could really define Alaska residence better in a way so we didn't have this deadline, "If you're gone for more than 180 days, I'm sorry you're out," because the number of days doesn't tell us whether they're Alaskan or not, it doesn't do it. I share with Representative Whitaker's concern about the military, I have a huge percentage of the people in my district are military, I'm not going to go out and try to make something that's going to make them mad, but on the other hand we know there are military that come here and decide to be an Alaskan because of the permanent fund dividend. Having said all those kinds of things, you have to take a second thought as to whether or not the dividend program is really what we want for Alaska. Whether or not people are becoming Alaskans because of the dividend or not, and just exactly how big a dividend we could have without causing that kind of ruckus. You know we can have people move in with seven or eight children and the size of the dividend of now is the real problem. So, I don't have any answers, I only have concerns, and I don't have any positions either, I still only have concerns, but I wanted to put all those things on the record - that the more we open this up, and 200 folks are not very many considering, and certainly they ought to be entitled. And I certainly will support their entitlement on this issue, but the whole thing has me very concerned about the future of Alaska and who our residents are, and why they're here. And those are very important issues to me and I take these things very seriously. Number 224 REPRESENTATIVE HUDSON stated, "All I'm suggesting is that this is the policy call that we have to make and while I'm sympathetic to this particular group [merchant mariners], we have to know that there's a whole, whole bunch of others who maybe have lost their job in Alaska, ... that's the policy call that we all have to make, and so everybody knows right up front that that's what we're dealing with." CHAIR JAMES noted Representative Ogan's arrival. Number 278 REPRESENTATIVE HUDSON moved to report HB 157 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, it was so ordered. HB 156-PERMANENT FUND INVESTMENTS CHAIR JAMES called the committee's attention back to HB 156, "An Act relating to investments by the Alaska Permanent Fund Corporation; and providing for an effective date." Number 295 TOM MAHER, Legislative Assistant to Representative Gail Phillips, pointed out that the sponsor's statement outlines the Legislative Budget and Audit (LB&A) Committee's oversight responsibilities for investment and lending entities of the state. He said HB 156 was introduced at the request of LB&A and was presented to them on March 23, after a brief discussion and that it passed unanimously. REPRESENTATIVE OGAN said he doesn't understand HB 156. CHAIR JAMES remarked that's probably because he wasn't here to hear Jim Kelly's [Alaska Permanent Fund Corporation] presentation. MR. MAHER explained that the corporation attempted to increase their asset class or stocks by (he believes) 10 percent last year and that a lot of legislators were uncomfortable with that. He said this legislation does a number of things: It gives them a 5 percent flexibility among all their asset classes, between equity, bonds, and allows them, depending on market conditions to move that around. He stated, "They're the experts, quite frankly in this, our committee felt very comfortable with giving them this 5 percent rather than a 10 percent. ... We felt that this was a reasonable action to take for the permanent fund. We think it's very serious when we make changes to any investment policies of the permanent fund and hope that through the entire review, including the Finance Committees, that we will all feel more comfortable with this. The details of how it all works, there's materials in the [committee] packet ... our committee felt comfortable with these minor changes." MR. MAHER continued, "One other point, we've had a lot of talk, and Mr. Kelly when he was here, they quite often speak in how this 5 percent would be applied to stocks and what the return would be had we done that. My understanding is that this 5 percent could be moved anywhere where they need it. So perhaps it would be equities at this time, perhaps at a later date it would be something else that modernizes the way can react to market trends." Number 381 REPRESENTATIVE KERTTULA offered Amendment 1, page 6, line 20, delete "50", insert "55". She pointed out that this would increase the flexibility, so that if the board felt it prudent, they would have another 5 percent. Representative Kerttula stated, "They don't have to do this, but I think that they've shown an excellent record of management and after talking with Mr. Kelly yesterday, his figures are that if we had had something like this in place already, we would have had about another $300 million this year. And if we look at it in the long-term perspective, as a corporation does, this is just one more tool." REPRESENTATIVE KERTTULA referred to the information that she provided noting that large corporations and universities invest typically from 55 to 65 percent of their assets in equity and are currently using this kind of investing. So, it really is just another tool and it is well within the range of the university endowments. On a side note, the state PERS [Public Employees' Retirement System] ... doesn't have asset allocation limitations and it's been doing well during the last few years. REPRESENTATIVE KERTTULA noted that she has concerns as well. After talked with Mr. Kelly, what if the market (indisc.) and it's that long-term perspective that they follow and this is just one other tool that would allow them to have a little more flexibility - not that they have to do it by any means, but it gives them that ability if necessary. Number 417 CHAIR JAMES asked Mr. Maher what Representative Phillips position would be on this amendment. MR. MAHER replied Representative Phillips preference is as HB 156 was presented to the committee. CHAIR JAMES said she has a lot of faith in the Permanent Fund Corporation Board of Trustees and Callan Associates and is impressed with the financial wizard-ability and is willing to give them this flexibility, however she doesn't want to do anything that might kill the bill. REPRESENTATIVE HUDSON noted that since it is permissive, he believes that we have to place our trust into the analysts because they have the public's best interest in mind for the maintenance, growth and stability of the fund. In response to the question, will this kill the bill [HB 156], he said the Fiance Committee can amend it from 10 percent back to 5 percent. CHAIR JAMES said one of the problems is that when the price of the stock that they're holding goes up, sometimes the board has to sell prematurely in order to keep under the cap. This would give them a little more flexibility to go up even though they're not capping that as their goal of the 55 percent. She said it makes sense to give this flexibility. Number 499 REPRESENTATIVE WHITAKER commented that the financial wizards are wonderful to trust, and of course the permanent fund financial wizards have earned our trust and beyond that, we can trust the time trend dynamics that's associated with the equities market. He further stated that it is there, it is proven, and we've come through a terrible crash in the late 20's the early 30's and we still have tremendous growth. It's that dynamics that he trusts, so it's a move that the committee needs to take. CHAIR JAMES agreed with Representative Whitaker's comments. REPRESENTATIVE KERTTULA said that's exactly what Mr. Kelly was pointing out, that there was going to have to be some sales. MR. MAHER mentioned a lot of the LB&A committee members are previous members, which did introduce the legislation taking the 10 percent out. CHAIR JAMES asked if there was an objection to the amendment. Number 529 REPRESENTATIVE COGHILL objected. He said he believes the request is reasonable and the other flexibility which goes into this more than makes up for it. He further stated, "The best (indisc.) nondomestic in carrying different properties that are non-developed, there's an expansion of that. Before we go any further, I think that we need to let them exercise what's already here and so I'd be really cautious on even going that further because we're now looking at a flexibility that allows ownership in a greater degree and nondomestic entity that I'm not too sure where that goes and I don't know what the limits of that are. The other thing is there's real estate that is non-developed being allowed in this and those are pretty good expansions. So I think the risk goes up plenty enough as it is, and I would just speak against it for those reasons." Upon a roll call vote, Representatives Hudson, Smalley, Kerttula, Whitaker and James voted in favor of adopting the amendment and Representatives Ogan and Coghill voted against the amendment. Therefore, the amendment passed by a vote of 5-2. CHAIR JAMES said she has faith in the Finance Committee. Number 558 REPRESENTATIVE HUDSON moved to report CSHB 156(STA) out of committee with individual recommendations and the accompanying fiscal note. There being no objection, it was so ordered. HB 132-PERMANENT FUND ALLOWABLE ABSENCES Number 585 CHAIR JAMES announced HB 132, "An Act relating to allowable absences from the state for purposes of eligibility for permanent fund dividends; and providing for an effective date," is the next item up. Number 592 REPRESENTATIVE COGHILL moved to adopt CSHB 132, version H, Cook, 4/8/99, as the working document before the committee. There being no objection, it was so ordered. REPRESENTATIVE OGAN noted that the deputy commissioner of the Department of Administration, an assistant attorney general, and the sponsor met with the subcommittee. He stated, "After lengthy discussion decided that, add the language there of domicile in the state and then let the case law - that's pretty clear in the courts - define what domicile is, which is a tighter description of residency. If that would satisfy possible loopholes of people making false claims, 'Well, my employer make me work out-of-state for awhile, it was beyond my control.' ... The thing that wasn't resolved was, what do we do when somebody is self-employed, and so if you're self-employed, or you're a principal in a corporation ... there might be a loophole there where people could say, 'Well, gee my boss made me work outside for awhile ... the person is on the payroll but he's his own boss. That's probably the only down-side to this. Then we ... removed the retroactivity clause in 1997 and we also added, at Representative Smalley's request, to include Peace Corps." REPRESENTATIVE HUDSON asked why the retroactivity provision was removed. REPRESENTATIVE OGAN said he believes the sponsor's constituent received a dividend for that particular year. CHAIR JAMES suggested asking Nanci Jones, Department of Revenue, about that. Number 642 REPRESENTATIVE WHITAKER expressed his frustration with HB 132. CHAIR JAMES remarked that she, and other folks, share his frustration on this issue. REPRESENTATIVE SMALLEY noted that HB 132 looks at those individuals that are actually residents of the state, but because of their employment situation are out of the state. He said, from a policy standpoint, he feels comfortable with it. REPRESENTATIVE HUDSON said he has a concern with being "required" to be outside the state of Alaska, because the department will have to determine when somebody "has" to be outside. He mentioned that people want to know how they can become a resident of the state of Alaska to be eligible for the dividend. REPRESENTATIVE OGAN commented that there is a danger of bills turning into Christmas trees. CHAIR JAMES asked why the peace corps was put back in when it was removed last year. Number 698 PETER TORKELSON, Researcher to Representative Cowdery, stated that, "We've really tried to sidestep the military issue, although I understand that it's part of the larger policy question. On the Peace Corps, the original language in the bill (Representative Smalley noted) was such that it probably would have included members of the Peace Corps, but it was questionable. And the AG's [Attorney General's] office expressed their intent that if you're going to include them just say so, let's avoid the legal hairball of trying to decide afterwards what you really meant. And that's where the Peace Corps came from essentially, and with Representative Smalley's concerns the committee chose to move that way." REPRESENTATIVE OGAN said he told Representative Smalley that it would be included in the committee substitute that it will fly or not fly based on the will of the committee. Number 718 DEBORAH VOGT, Deputy Commissioner, Department of Revenue, noted that (in the context of the legislation [HB 157] which was earlier considered with respect to the merchant marines) the way this legislation is now drafted [HB 132], a person in the merchant marines would probably qualify under this exemption. The difference is that the spouse and family of the person would probably also qualify because the general allowable absence for accompanying a person who is on an allowable absence would apply to a person who is out-of-state at the direction of his or her employer. She said it's something the committee might want to think about real seriously. MS. VOGT said, "As I have heard the justification for folks being sent outside for employment purposes, it's always been in the context of people who really do maintain a home here, their family is here, and so on, and they leave for a short period of time for employment and then return, but their families don't move. The way this is currently drafted, we would be presented with the situation of people who took their families with them and perhaps stayed for a number of years - coming back to work in Alaska for the mandatory, I believe the bill does require that the person work in Alaska for some part of the year, ... what I'm pointing out is that this broadens considerably the pool of people that are going to be asking to come within the exemption and it's going to be real hard for us to find ... where to draw the line." CHAIR JAMES said she also sympathizes with that issue. She then referred to page 2, line 19, and asked Representative Ogan what are the residency requirements and how do they differ from the domiciled. in addition to satisfying the residency requirements, the individual is domiciled in the state; and Number 756 REPRESENTATIVE OGAN said he believes the residency requirements are based on Title 1, which doesn't specifically mention anything about domicile. He indicated Legal [and Research Services Division] throws up red flags when the legislature starts talking about residency because it's usually litigated. CHAIR JAMES asked Representative Ogan to read Title 1. REPRESENTATIVE OGAN read: Residency - a person who establishes residency in the state by being physically present in the state with intent to remain in the state indefinitely to make a home in the state. He said this is AS 10.055: A person demonstrates intent under (a) of this section (that was (a) of the section) by maintaining principle place of abode in the state for at least 30 days or longer. Or if a longer period is required by law or regulation and by providing proof of intent. As may be required by law or regulation which may include proof that the persons claiming residency outside the state or obtaining benefits and (indisc.) claiming residency outside the state. REPRESENTATIVE OGAN further noted that under Title 16, place of abode is basically a house, or was interpreted by the courts actually to be a mobile home. He mentioned that Fish and Wildlife Protection had a hard time convicting people who have mobile homes parked year-round in the state because they were maintaining a Title 16 residency to obtain lowcost hunting and fishing licenses and free hunting tags. He emphasized that domicile is a much higher standard. Representative Ogan continued, "We had originally attempted to put some of the descriptions of domicile into the statute and - that was a request we - the case law is very clear and well established on what domicile is and we felt that all we had to do is just mention domicile as a higher standard and I can explain the differences if you'd like." Number 795 CHAIR JAMES said she has a problem with the word "intent," because she doesn't know how a person's intent can be measured. REPRESENTATIVE OGAN read [Black's Law Dictionary], "A domicile is a person's legal home, that place where a man, or woman I assume, has his true fixed and permanent home and principal establishment into which whenever he is absent he has the intention of returning," that's a case law Smith vs. Smith. CHAIR JAMES said that, unless you're in the military, that you're required by law to go where you're told. She asked how required do they have to be, is it just being asked to go, and if you don't go you lose your job, how do we measure required? Number 816 MR. TORKELSON replied, "I believe the draft is fairly clear that as the condition of employment - which would mean at the threat of losing your job, which isn't maybe like the military but it certainly could be a pretty coercive situation for some people." MR. TORKELSON said a representative from the Department of Revenue said perhaps the whole family could go out and stay for a number of years and come back for certain periods of time. He stated, "I suppose well that's possible. The intent of the subcommittee was that with domicile it would be a pretty tough standard to show. You've got your whole family out there, your kids are going to school in another school, or not going to school at all. ... That you're really domiciled here, I think that's the point that domicile does - a true and permanent home and it includes a number of things you can show including the existing regulatory definition that defines it as - one of the evidence for domicile - is where you store your household goods. So, I'm not sure that it would be quite as broad as is (indisc.--fading)." Number 820 REPRESENTATIVE HUDSON mentioned he has seen so many different descriptions by statutes of residency. For a student loan it takes so many years, he believes for a fishery's loan it takes two years, to vote it only takes 30 days and shows an intent. He emphasized that the state had a large lawsuit with the employees of the Alaska Marine Highways System where they were claiming that they were being disenfranchised because they were sailing on the system and they chose to live in Seattle, the policy is pretty clear. He said, "I think the policy is whether or not we want to make that first leap - which is going beyond the required absences outside the state of Alaska. I don't know how you'd be able to determine - for example if the guy was a contractor..." TAPE 99-25, SIDE A Number 001 REPRESENTATIVE HUDSON continued, "Add ornaments on this Christmas tree." MR. TORKELSON noted that the question has come up in the context of the bill previously heard [HB 157]. He said he would like to make a distinction. In that policy call a select class of employees were chosen and given, if that bill passes, were giving that entitlement to select classes. He said, "This does not distinguish among different classes of employees, we recognize that all employment is equally valuable to the state. The money that you bring in whether you're the other type of employee or contractor, is just as valuable. So from a policy perspective I'm not sure that perhaps leaps have to be made." REPRESENTATIVE HUDSON asked if the previous discussion would fall into the same category. CHAIR JAMES added, overlapping. REPRESENTATIVE HUDSON noted that it will absorb them as well so, if you had this you wouldn't need that and you would expand it to... CHAIR JAMES remarked, but if you have this [HB 132] you also include their family. CHAIR JAMES further noted that their family has to stand on their own and in HB 132 they still have to come back to the state (indisc.--simult. speech) every year. Every year they have to work in the state of Alaska for part of the qualifying year. She said that might exclude some of the merchant mariners, but if they're sailing out of the state they would return to Alaska every year for a certain extent. Chair James said, "It [HB 132] does say that they have to be domiciled in the state, that might protect them from taking their family and leaving their family somewhere else." Number 064 MS. VOGT stated, "In the merchant marine legislation which was considered [HB 157] was specifically drafted to address the issue of the spouses and the dependents. In the allowable absences, currently listed as number 12 in the statute, which is accompanying another eligible resident who is absent for a reason permitted under the subsection as the spouse, minor dependent, or disabled dependent of the eligible resident, that's the allowable absence (that we have now) that applies to every other allowable absence." MS. VOGT continued, "In the merchant marine statutes that we considered this morning, the language was inserted to say that accompanying eligibility only went for reasons' 1-3 and 5-12, leaving out reason number 4, which was the merchant marine. And so I would say if this legislation [HB 132] that we're now considering also passed, which does not exclude that allowable absence for spouses, we would have to say that it was intended that spouses be included. And so if a person went, for example for a construction contract, outside for eight months ... and took the family with him or her, then that family would qualify under the way this is currently drafted." CHAIR JAMES said, if that's the case, if you take your family along, then the family would be excused as well. MS. VOGT replied right. Number 116 CHAIR JAMES asked if the family can stay out during that period of time. REPRESENTATIVE OGAN said he assumed that the individual maintains the domicile in the state and that this exemption only applies to the individual, it's not a condition of the family's employment to live there, it's an option for them to go and wouldn't qualify. MS. VOGT pointed out that the department would have a difficult time because the separate allowable absence for the spouse or dependent of a person who is on an allowable absence would appear to cover that spouse. She explained that the allowable absence that HB 132 is talking about is the employee, but the other allowable absence, currently number 12, is toward the spouse of a person who is an allowable absence. She said she believes that person would qualify as an eligible spouse even though they weren't required to leave the state. (12) for employment if in addition to satisfying the residency requirements, the individual is domiciled in the state; and the employer certifies in writing that the absence was a condition of the employment and that the individual was required to work in the state for part of the qualifying year; Number 182 REPRESENTATIVE COWDERY said he doesn't have a problem with having every individual, whether it's family, provide the same proof as the individual who has the job if that would help matters. Number 199 NANCI JONES, Director, Permanent Fund Dividend Division, Department of Revenue, explained that the law currently states that in this situation, if HB 132 were to pass, then the person's family would only be obligated to come back every two years for 72 hours. The individual who's trying to qualify under this employment has the obligation to come back in the state and work part of that time in the state. She mentioned that person can go back and forth, and the family could remain out there which is one of the problems. CHAIR JAMES said the individual must be domiciled in the state, does that change that at all. MS. JONES responded that the division has a slight difficulty with the domicile competing with the definition of residency - that you have this kind of higher order. She noted that it is still based on intent - domicile is saying that you have a higher intent that you show means that you actually have a house in Alaska, and residency - you're saying the same thing. Ms. Jones said it is a fuzzy line that the division will have to deal with if this legislation passes. Number 226 MS. VOGT agreed that domicile in the common law has a stricter meaning than residency. She said, "The issue that we discussed in the subcommittee is that for permanent fund dividend purposes we use a lot of the attributes of domicile to determine PFD (permanent fund dividend) residency. There may still be a slight shading of difference - a person can only have one domicile, a person can have more than one residence. And certainly under, even Title 1 in the PFD, we require the principle place of abode to be Alaska, but they get fuzzy when a person is in the military or a student for a number of years and they really don't maintain a physical home in Alaska but they are still qualified. It adds something to add the word domicile, but it's still going to be a difficult question of proof to determine if a family goes outside for a number of years and still owns a home in Anchorage, they rent it out on a long-term lease, I don't know how we're going to decide that kind of a case." Number 256 REPRESENTATIVE COGHILL said he attended some of the subcommittee meetings. Part of the inequity, as he understands it, started with the State of Alaska having the ability to have employees out of the state for a period of time [page 2, line 15, (10)]. He said he believes there is a problem and that we can certify a state employee a lot easier that we can almost any other kind for state purposes, but for these purposes. serving as an employee of the state in a field office or other location; REPRESENTATIVE COGHILL continued, "There are several things in this that trouble me. One of them is that we end up having to become discerners of intent and that's bad policy. It's almost like when somebody brings a bill before a committee and we question their motives, and really that's what we're putting in statute saying we are reserving the right to judge your intentions and then there are certain proving factors to that intention. I find that kind of troublesome because I am one that doesn't like the state doing that. I'd rather have a nice clear line that says if you're out of the state 180 days you don't get it. And, even though I've got a military base right in the middle of my district, I also have trouble with the military exemption." REPRESENTATIVE COGHILL emphasized that either you should be here or you shouldn't be here. However, he has the dilemma of if they are fellow Alaskans, he doesn't want to just cut them off. He further stated, "That's the problem that we've got ourselves into here and I'm, for one, really reluctant to pass this bill out [HB 132] and I let the other one go [HB 157] without comment, but my point was made when that precedent of letting that bill out started this one, and we'll probably have 20 more that come up. And I think, like the peace corps, it was taken out for a good reason, they're just not here, you know. And I think we're going to have to now be a discerner if an employer is telling the truth or not when he certifies, and that could be a cause of litigation ... was that a bogus certification, and now they become open to a civil liability - all for a dividend check. And so I'm really cautious, I really want to see equity, but my thinking would be to take this section out and take section 10 out and go home. I just had to put that on the record that I'm really having a struggle with the precedent of what we're saying here and I think Mr. Hudson made a really good point in what we're doing is we're shifting the whole philosophy and so, at this point I am really reluctant to move this." Number 338 MS. VOGT said she would like to address a couple of issues and one of them is the issue of intent for the requirements that the employers certify that, under the conditions of employment, that the individual be outside. The question is going to arise, "But did you have to have that job." Certainly volunteering to join the military is a voluntary act and once you're in the military your desires are no longer your own. She said the peace corps really focuses on this issue because there was discussion about whether the peace corps would come under this exemption because once you're in the peace corps, which is a voluntary choice, then the peace corps tells you where you go. Some members of the committee [HB 132 subcommittee] said, "Well, but that's a voluntary choice to go volunteer in the peace corps," others said, "But the peace corps tells you where you go," and for that reason the language was added so that there's no question. Ms. Vogt said, "But you can see the dilemma that it raises for us, then what do we do with Americorps or VISTA [Volunteers in Service to America] once you've made the choice to volunteer - you're assigned where you're assigned. And so it's that kind of issue that is going to come up." MS. VOGT stated that, "The other point I wanted to make about the peace corps was the reason that it was removed from the allowable absence lists last year was really largely because folks focused it on the inequities that it raises - that it came about with a suggestion to add volunteering for FEMA [Federal Emergency Management Agency] to the list because we pay volunteers, we pay VISTA, then folks recognize that, well we don't pay most volunteers, we don't pay VISTA, we don't Americorps, we don't volunteering for religious organizations for doctors without (indisc.). All the other kinds really laudatory reasons that Alaskans leave the state, and so it was decided then that it was more fair not to pay the peace corps then to try to find a line between what kinds of volunteering service we would choose to pay and what we wouldn't pay." CHAIR JAMES said she understands the dilemma. Number 397 REPRESENTATIVE HUDSON asked for a list of positions (for employees which are receiving the permanent fund dividend) outside the state. MS. VOGT pointed out that the folks who are on sabbatical from the university system should be treated as employees of the state since they are still employed by the university. She noted that they used to be paid under another allowable absence which was in regulation. Ms. Vogt said, since that wasn't incorporated into the statute last year (that people on sabbatical would no longer be paid) then the area was raised that they are employees of the state, so that's one category that comes within that definition. REPRESENTATIVE HUDSON asked if sabbaticals are required or are they by choice. MS. VOGT said she believes sabbaticals are by choice (indisc.--simult. speech). REPRESENTATIVE HUDSON remarked that you apply for it. CHAIR JAMES commented, "Take a year off." MS. VOGT noted the point is that they are continually paid because they are still employed. REPRESENTATIVE COGHILL recommended that HB 132 be held because he believes it needs to be amended. [HB 132 was held for further consideration]. ADJOURNMENT Number 460 There being no further business before the committee, the House State Affairs Standing Committee meeting adjourned at 10:00 a.m.