SENATE LABOR AND COMMERCE COMMITTEE February 22, 2000 1:38 p.m. MEMBERS PRESENT Senator Jerry Mackie, Chairman Senator Tim Kelly, Vice Chairman Senator Dave Donley Senator Loren Leman Senator Lyman Hoffman COMMITTEE CALENDAR SENATE JOINT RESOLUTION NO. 34 Proposing an amendment to the Constitution of the State of Alaska relating to certain public corporations. -MOVED CSSJR 34 (L&C) OUT OF COMMITTEE PREVIOUS SENATE COMMITTEE ACTION SJR 34 - No previous committee action. WITNESS REGISTER Mr. Ted Popley Legal Counsel for House and Senate Majority State Capitol Building Juneau, Alaska 99801 POSITION STATEMENT: Testified on SJR 34 Mr. Jim Baldwin Department of Law P.O. Box 110300 Juneau, Alaska 99811-0300 POSITION STATEMENT: Testified on SJR 34 ACTION NARRATIVE TAPE 00-5, SIDE A Number 001 CHAIRMAN MACKIE called the Senate Labor and Commerce Committee meeting to order at 1:38 and brought up SJR 34 as the first order of business. SJR 34-CONFIRMATION OF BD MANAGING PERM FUND SENATOR HALFORD, sponsor of SJR 34, said if the framers of the constitution had envisioned the scope of public corporations today they would have included them in the constitution. The framers included cabinet members and regulatory or quasi-judicial boards as well as the University of Alaska. A bill was passed in the mid seventies that allowed the legislature to enforce confirmation by law for deputy directors and people they wanted more control over in the administration, but that bill was found unconstitutional. SJR 34 is within the intent of the original constitution. It makes sense that the legislature have some input in confirming members of the Alaska Railroad Corporation, the Permanent Fund Board, AHFC and AIDA because they are quasi-judicial. There is no balance of power or continuity in the continuation of these boards. The last two governors removed the entire permanent fund board--this is not good public policy for a corporation that is managing $27 billion worth of assets. Number 264 CHAIRMAN MACKIE asked Senator Halford to address section 2 of the work draft. SENATOR HALFORD answered the amendment Senator Pearce is offering clarifies the provision as it applies to a hold-over commissioner, a listed position, if confirmed under one administration has to be confirmed under another administration if they continue in the same job. This is consistent with the separation of powers and clarifies this issue for the future. Number 339 CHAIRMAN MACKIE asked if a governor is reelected and wants to maintain the same cabinet will this effect the existing cabinet or will it only effect a new governor and new cabinet. SENATOR HALFORD responded it is not the intention of the sponsor that it cover the same governor or attorney. A commissioner serving under one governor is a different person serving under another governor--the direction is different and it shows. CHAIRMAN MACKIE commented that the language on the bottom of page 1 does not distinguish whether it is a new governor or a governor that has been reelected. SENATOR HALFORD responded it is not the intent to reconfirm the cabinet of a two term governor, and it should not be a controversial issue at the end of a governor's term. SENATOR KELLY asked if there have been constitutional amendments in the past. SENATOR HALFORD responded yes and it is the only way to do this. The Hammond vs. Bradner case clearly states the existing list is a constitutionally controlled list. SENATOR MACKIE asked if the reason the legislature does not confirm the permanent fund board is because when the constitutional provision for confirmations was created AHFC, the Permanent Fund Corporation and other entities did not exist. SENATOR HALFORD responded yes. SENATOR LEMAN commented he has supported this legislation in the past and feels it is not an overreach of legislative authority. He would like to add another section for inclusion of judges. SENATOR HALFORD stated he would support that amendment but it is probably overreaching for this amendment. By serving fixed overlapping terms a governor can reappoint all members of the permanent fund board, but to replace a board without cause lends itself to easily changing directions for political purposes. Number 627 CHAIRMAN MACKIE reconfirmed it is not the intent of this legislation to have a governor who has been reelected have his people go through the confirmation process again. SENATOR HOFFMAN stated the public is probably the most concerned with the permanent fund board and they are skeptical of what the legislature does and they want as little interference as possible-- so why should the legislature interfere. SENATOR HALFORD agreed the public should be skeptical, but this legislation gives the public the opportunity to vote on a proposal that provides continuity to the board. This will protect the board from being removed with a change of administration. SENATOR HOFFMAN commented if the main issue of the bill is to just protect an existing board the public would probably agree, but this bill asks the legislature to confirm the board. SENATOR HALFORD commented the record for confirmation of executive appointments is about 95%, it is rare that anyone is turned down. If a person is rejected, this is probably a person the public should be worried about. SENATOR HOFFMAN answered he agreed but it will probably seem to the public that the politicians are trying to get more control over the permanent fund. SENATOR KELLY asked if Senator Halford was worried that by adding this amendment it may be considered a revision to the constitution, in the eyes of the supreme court, rather than an amendment. Will sec. 2 jeopardize the effect of sec. 1? SENATOR HALFORD responded he did not think so. This bill does not change the basic principal it just says that when someone carries over to a different governor the process has to be repeated. SENATOR KELLY stated the bill does not say "different" governor, but that can be changed. Number 811 SENATOR HALFORD said it is his intent that confirmation be carried over to a "different" governor. He wishes the supreme court had been more artful in defining "revision." CHAIRMAN MACKIE asked if the amendment in sec. 2 of the work draft would require "each election" instead of "new governor." He would have a hard time supporting the reconfirmation process in the middle of an eight year term. SENATOR DONLEY said he has seen this before--the drafted words were contingent on "new governor." SENATOR LEMAN asked what will happen if there is a transition in the second term of a governor and the lieutenant governor takes office. Would the intent apply to the new governor? SENATOR HALFORD commented he had not thought of this and it bears discussion. CHAIRMAN MACKIE stated the language says, "following a general or special election which votes for the office of governor or [indisc.]." Resigning or death will not result in a special election. SENATOR LEMAN commented the hold-over language is clear, but is this the intent the committee wants. SENATOR KELLY commented he does not know if the public will support sec. 1 of the bill, but he thinks it is important that the people managing $27 billion of state assets, the railroad board and AHFC be confirmed. He thinks sec. 2 weakens the case within the legislature and with the public. SENATOR KELLY asked the purpose of the bill--is it because of just one person the legislature does not like? Sec. 2 weakens sec. 1, and it may look like a legislative power grab in the eyes of the public. CHAIRMAN MACKIE asked why this legislation did not pass the House. SENATOR HALFORD responded it was at the end of session and time ran out. One of the bills went through the process on the Senate side and died in the Rules Committee. In the House the bills died all the way through the process. CHAIRMAN MACKIE commented there has not been a strong argument as to why the framers of the constitution did not include permissive language for something like this. SENATOR DONLEY stated a governor has certain assets and liabilities that need to be blended against the nominees. This is why, speaking on sec. 2, a nominee should be considered based on who the governor is--an important dynamic is relevant in getting the best mix. This type of confirmation procedure clearly meets the pattern of the federal system of government. The reason this was not addressed by the convention in a permissive manner is because in the 1950's these types of corporations did not exist nor were they imagined. CHAIRMAN MACKIE commented he feels a governor should have the people he wants because he is held responsible. Number 1333 MR. TED POPLEY, legal counsel for the Majority, commented he does not know Senator Pearce's intent in sec. 2 as to whether or not it would apply to a two term governor. He reads the bill to say: not limited to new governors--it would apply to any gubernatorial election year. CHAIRMAN MACKIE said the amendment is in a proposed committee substitute (CS) which the committee has the option of not adopting until Senator Pearce has an opportunity to answer the question. CHAIRMAN MACKIE asked Mr. Popley to comment on the issue Senator Leman raised--if a Lt. Governor were to assume office will there be a new confirmation? MR. POPLEY responded there would be no need to reconfirm the board after the death of a governor. MR. JIM BALDWIN, Department of Law (DOL), stated he has not read sec. 2 and he will address sec. 1. One problem with the bill is the overall concept, and another problem is the "nit-picking" drafting problems with the wording which will cause problems later with interpretation. SENATOR KELLY interrupted to ask if the "nit-picking" argument is with SJR 34 or the proposed new language in sec. 1. The meeting stopped for an at-ease so Mr. Baldwin could look at the new language in sec. 1. MR. BALDWIN stated there has been concern from this legislature and prior legislatures about entities like the permanent fund corporation. The debate has been about a need for continuity with the board and not have it removed when there is a new governor. There has also been expressed a need for some type of insulation of the board from political influence. The boards duty is to manage state funds in a reasonable and prudent manor. Confirmation has been defined to be the legislature's opportunity to share the executive power of appointment. This is what Bradner vs. Hammond was about. Bradner vs. Hammond said that the constitution establishes the power of appointment as being an executive power, and in a limited way it allows for the sharing of that power by the legislature. It cannot be shared in any other way unless it is expressly stated in the constitution--it cannot be implied from the constitution. DOL agrees that a constitutional amendment is the way to do this, but the concept of breaking through the insulation of the board by making the appointment subject to the action of two political departments of government breaks down the insulation that was aspired for by the legislature when it created the permanent fund. The one concept that was embodied in the executive article of the constitution was that there should be accountability by one person. The people should have recourse through the governor--he can be held responsible at an election. To make the permanent fund board totally insulated, only removable for cause, means that this state asset can be managed by someone who is not answerable to anyone at all. The constitution is not set up this way, it is set up so the governor will be answerable. Mr. Baldwin cautioned the committee about going too far down the road without considering the possibility of appointments being made in a way so that incompetent or unfit persons are placed in charge of the permanent fund. It can happen and has happened with some of the regulatory boards in the past. The problem of breaking through those "remove for cause" type provisions is not an easy legal procedure. SENATOR DONLEY asked that if the legislature confirms an appointment are there automatic provisions in the statute that will kick in the "only removal for cause" provision. MR. BALDWIN responded no, principal department heads are "removal at pleasure," this is specifically provided for in the constitution. The constitution states: "they can be removed as provided by law," and it also states: This member shall be appointed by the governor so [indisc] confirmation by majority members and may be removed as provided by law. Number 1765 SENATOR DONLEY asked if the legislature passes a law saying the permanent fund trustees cannot be removed except for due cause, will this make it too difficult for a governor to remove them even though he appointed them. MR. BALDWIN responded it could be a problem. CHAIRMAN MACKIE asked how valid is it for the legislature to confirm boards and commissions that are not dealing with significant state assets. MR. BALDWIN responded it is appropriate for the legislature to confirm boards such as hair dressers and barbers because they regulate a profession that performs a service for the public. They are a quasi-regulatory board that regulates how people make a living--this is what the framers of the constitution wanted. Mr. Baldwin said he cannot make a comparison between the hair dressers and barbers board and the permanent fund board in importance, but he is not sure that is what the constitutional framers had in mind. Public corporations were understood at the time the constitution was framed and it was clear they were not to be covered, but it is also true that corporations did not have the same importance they have today. CHAIRMAN MACKIE clarified that this was a debate that took place during the drafting of the constitution. MR. BALDWIN responded yes and he submitted an opinion that was written in 1991 by legislative legal counsel on this issue. CHAIRMAN MACKIE asked if the law is challenged does the opinion show significant legislative intent that can be argued, or is this an opinion on one issue such as the University. MR. BALDWIN stated the question is not how important the board or commission is, it is the function it carries out. Quasi-regulatory and judicial boards are regulating peoples employment and they are affecting the way people make their living. This was the framers decision--how it was to be done. Broadening this says the legislature should share more in the governor's executive appointment and wants executive appointment power. CHAIRMAN MACKIE interjected "confirmation" power not "appointment" power. Number 1925 MR. BALDWIN responded confirmation is a sharing of the power of appointment. Without the legislature having confirmation power, there would just be the governor making appointments, and when the legislature undertakes confirmation power it is sharing in that power. This is what Bradner vs. Hammond stood for. CHAIRMAN MACKIE asked if Mr. Baldwin considered SJR 34 an amendment or revision. MR. BALDWIN's responded the legislature has introduced, by bringing in sec. 2, another subject matter. There is a question as to whether or not you can have more than one subject in an amendment. The legislature has said by rule that a constitutional amendment should be limited to a single subject. You can possibly view this as being addressed to a single subject, but when another subject is introduced it can bring you within the realm of the issue of whether it is a revision or an amendment. The supreme court says amendments are few and simple and limited to a single subject matter. CHAIRMAN MACKIE asked Mr. Baldwin in his opinion is sec. 1 clearly an amendment. He also asked for his opinion about sec. 2. Number 1997 MR. BALDWIN stated in his opinion sec. 1 is probably an amendment. When combining more than one subject in a single resolution it becomes less clear as to whether it is an amendment or resolution. The only way to get an answer to this question is for the supreme court take up a series of cases and rule on them. CHAIRMAN MACKIE asked if Mr. Baldwin likes the language in the proposed CS for sec. 1 more than the original version. Number 2096 MR. BALDWIN stated the second version is somewhat better because it has fewer words which is always better in dealing with the constitution, but he has a problem with the breadth of the language. It will probably apply to the permanent fund corporation without further interpretation because the permanent fund is a corporation. The language in the statute does not say it has a separate independent legal existence, it just says it is a public corporation. AHFC, AIDA and the Railroad Corporation have language in their statutes which says they are a public corporation created with separate, independent legal existence. There is a statute, AS 44.88.19.0B, in AIDA that says it is not part of the state. AIDA's money and property is not state property, it is a separate political subdivision of the state--it owns its own assets. Does the language in this bill do anything when it talks about state assets? These entities are separate and independent because the state wants their debt to be separate from the state treasury. The language says that corporations are managing state assets, and he wonders if the bill does what the sponsor intends. MR. BALDWIN advised the committee to say what is wanted and if the permanent fund is the goal state that, but it will have to be created in the constitution. CHAIRMAN MACKIE commented he thinks Senator Halford is trying to reach things that are in existence now and in the future. Number 2175 SENATOR HALFORD nodded in agreement. MR. BALDWIN read, "or is the governor entering a public corporation established by law that manages significant state assets." He wonders if this means "established by state law," or will there be another public corporation that will manage state assets such as a municipal corporation. This is a vague term and these are questions that need to be addressed. Will this create something that is not wanted? SENATOR HALFORD stated the last consideration included all public corporations and there was not the language "as provided by law." The concern is that all types of things should be picked up in the future that are not anticipated. "Significant state assets as provided by law" was added to avoid this problem. The first draft provides for specific exemptions per [indisc]. The draft for the CS provides for defining what significant state assets are as a category. The drafters of the constitution did not have examples, other than the University, of this magnitude. Number 2357 SENATOR LEMAN asked for a clarification of "significant," does "as defined by law" take care of this issue. MR. BALDWIN responded this does make it easier to apply. He has a problem with saying the assets of AHFC and AIDA are state assets. "Using this language has a lot of drawbacks to it." Tape 00-5, Side B CHAIRMAN MACKIE asked for Mr. Baldwin's opinion on sec. 2. MR. BALDWIN commented that sec. 2 addresses an old opinion that dates back to 1971 or 1972 saying that once a public official has been confirmed he need not stand for confirmation again--the office is a continuous office. If the legislature wishes to amend the constitution to change this legal interpretation they have the power to do this. SENATOR KELLY commented the legislature's attitude is that governor's come and go but the legislature remains. SENATOR HOFFMAN stated that the regional resolution talks about "heads of corporations" confirmed, and the CS talks about "governing entities" (board members). He asked if the legislature will not be confirming heads of corporations under the CS, just the board members? Number 2278 MR. BALDWIN responded he did not know the intent of the drafter but the language of the CS is clearer. SENATOR HOFFMAN asked Mr. Baldwin if his interpretation of the CS is not "heads of corporations" but just the "boards." MR. BALDWIN responded he thought that was correct. CHAIRMAN MACKIE stated, for the record, on the draft CS, deleting language on page 1, line 14 through line 5 on page 2, and renumbering section 3 back to section 2, will accomplish what the committee wants. SENATOR KELLY asked staff to forward a list of public corporations that will come under the auspices of this new confirmation. CHAIRMAN MACKIE asked if there were any objections to removing sec. 2 from the draft CS. This will be approving the new sec. 1 as well the title change. SENATOR KELLY made the motion to adopt the new CS. There being no objection the motion carried. SENATOR LEMAN moved CSSJR 34(L&C) from committee with individual recommendations. There being no objection, the motion carried. With nothing else to come before the committee, CHAIRMAN MACKIE adjourned at 2:35 p.m.