SENATE STATE AFFAIRS COMMITTEE March 13, 1997 3:40 p.m. MEMBERS PRESENT Senator Lyda Green, Chairman Senator Jerry Ward, Vice-Chairman Senator Jerry Mackie MEMBERS ABSENT Senator Mike Miller Senator Jim Duncan COMMITTEE CALENDAR SENATE JOINT RESOLUTION NO. 18 Proposing amendments to the Constitution of the State of Alaska to guarantee the permanent fund dividend, to provide for inflation-proofing, and to require a vote of the people before spending undistributed income from the earnings reserve of the permanent fund; and relating to the permanent fund. SENATE BILL NO. 105 "An Act relating to legislative ethics; relating to the filing of disclosures by certain legislative employees and officials; and providing for an effective date." PREVIOUS SENATE COMMITTEE ACTION SJR 18 - No previous action to record. SB 105 - See State Affairs minutes dated 3/11/97. WITNESS REGISTER Oral Freeman 2743 Third Ave. Ketchikan, AK 99901 POSITION STATEMENT: Testified in support of SJR 18 Ralph Seekins 4611 Maresh Ave. Fairbanks, AK 99701 POSITION STATEMENT: Joe Donahue Select Committee on Legislative Ethics P.O. Box 101468 Anchorage, AK 99510-1468 POSITION STATEMENT: Presented overview on SB 105 Terry Cramer, Legislative Legal Counsel Legislative Legal & Research Services Legislative Affairs Agency 130 Seward St., Suite 409 Juneau, AK 99801-2105 POSITION STATEMENT: Explained provisions in SB 105 Senator Drue Pearce State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Testified on provisions in SB 105 Ben Brown, Staff to Senator Tim Kelly State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Offered information on SB 105 ACTION NARRATIVE TAPE 97-11, SIDE A Number 001 SJR 18 CONST. AM: PERM. FUND INCOME & DIVIDEND  CHAIRMAN GREEN called the Senate State Affairs Committee to order at 3:40 p.m. and brought up SJR 18 as the first order of business before the committee. Number 020 ORAL FREEMAN , a former member of the Board of Trustees of the Alaska Permanent Fund testifying via the teleconference network from Ketchikan, stated he has been a resident of Alaska for 51 years and served in the First State Legislature. He came back to the Legislature in 1972, which was shortly after the first leases on the North Slope were sold and the state collected in excess of $900 million in one day. In a few years that $900 million began to disappear pretty fast and it became apparent to the legislators of that time that some kind of a savings account for future generations was needed and, as a result, the idea of the permanent fund was adopted. Mr. Freeman said he has spent 31 years of his life in state, municipal, appointed and policy making positions, and during that time the one thing he learned was that in a policy-making position you suffer a lot of frustrations, a lot of disappointments, but as far as he is concerned, the permanent fund is one thing that has worked exactly the way it was supposed to. Mr. Freeman commended the sponsors of SJR 18 for bringing forth legislation to write into the constitution the provisions that guarantee the permanent fund dividend and provide for inflation proofing. He said his fear all along has been that if we, the people of Alaska, through the Legislature, ever start spending the permanent fund that it will disappear eventually. He has often said that the dividend program is the life insurance policy of the permanent fund. In 1980, at the time when the total of the permanent fund was $364 million, Mr. Freeman introduced a bill in the Legislature to appropriate $900 million from the general fund and deposit it in the principal of the permanent fund, although he didn't have much hope he would be successful, but he was. The permanent fund more than tripled in size, and it then became apparent that inflation- proofing was important. The next year he introduced another bill to appropriate $1.8 billion from the general fund which also passed and became law. As the fund grew, it became clear to the legislators and the administration that some kind of a set up was needed that was devoted to the proper, conservative, careful management of that permanent fund. Mr. Freeman said he wholeheartedly agrees with the idea of the dividend, as well as the inflation proofing of the fund, because in the first place, the permanent fund is created from money that's collected from the sale of a nonrenewable natural resource that under our constitution belongs to every citizen of the state. Mr. Freeman said he thinks it is the proper time to write into the state constitution the provisions that provide for the dividend and inflation-proofing as they exist right now by statute. He said the main fear of the public is that if monies from the permanent fund are used to run government, the dividend will disappear, so if the provisions to protect the dividend and the inflation proofing are in the constitution, he doesn't think the public will get to concerned about spending undistributed income from the earnings reserve of the fund. Number 225 SENATOR MACKIE commented he has always considered Mr. Freeman as one of the founders of the permanent fund, as well as former Governor Hammond and others that served in that period of time. He then asked if he was suggesting that if the dividend and the inflation-proofing are protected, then as the fund continues to grow and earnings become greater that will allow the opportunity to utilize some of the earnings. MR. FREEMAN reiterated the public's fear that if the Legislature ever starts spending earnings from the permanent fund that are not protected by the constitution, that it will grow and pretty soon the Legislature will be spending all of the permanent fund, but if the those protections are there, he doesn't think the public would have a problem with it. Number 332 RALPH SEEKINS , a former member of the Board of Trustees of the Alaska Permanent Fund Corporation, testifying from Fairbanks via the teleconference network, said during his tenure as a trustee a lot of decisions were made on how that fund should be invested, and billions of dollars moved forth and back with the hope that they would realize the greatest possible return for the people of the state of Alaska. He said he thinks every Alaskan recognizes by virtue of that dividend check that they have a vested interest in the success of that fund, so consequently there is nearly 600,000 people that are watching so see what's done with it, how much its earnings are, and how much it will return to them as individual Alaskans. Like Mr. Freeman, Mr. Seekins said he is convinced that without that dividend program, the fund probably would have been spent by now. He thinks the discussion on how to spend these funds is going to go on forever unless something is done to finally take the decision away from each group of legislators every year, and he thinks the resolution would accomplish what he would like to see done. Mr. Seekins spoke to the impact the dividend has on the people of the state. To some it is like a bonus, but for a lot of people it really makes a difference in the quality of their lives, as well as having a tremendous economic effect on the economy of the state. For that reason, he has repeatedly gone on record as one who would distribute the fund's earnings after inflation-proofing directly to the people in ad infinitum. To take that away from Alaskans, in any respect, would be wrong. Mr. Seekins said he knows that the Legislature and the Governor have in the past, and are continuing to eyeball the earnings reserve and what effect it might have on balancing the budget. He believes it is absolutely unacceptable to even discuss using any portion of the permanent fund's earnings for government programs. He stressed that state government needs to downsize before it would take away the peoples' share of the revenue from the peoples' natural resources. Concluding his testimony, Mr. Seekins said he is very much in favor of letting the people decide whether or not they want to guard their permanent fund. To him, if the dividend check got to $2,000, $3,000, $5,000, $10,000 a year, then he would applaud that because it allows each individual Alaskan to decide how their portion of the revenue from the resources that, according to our state constitution, belong to all of the people. Number 430 SENATOR MACKIE moved SJR 18 be passed out of committee with individual recommendations. Hearing no objection, it was so ordered. Number 450 SB 105 LEGISLATIVE ETHICS CODE REFORM  CHAIRMAN GREEN brought SB 105 back before the committee and stated the committee would continue with the overview on the legislation beginning with Section 32 at the bottom of page 16. JOE DONAHUE , a public member of the Select Committee on Legislative Ethics participating in the meeting via teleconference from Anchorage, presented the following overview, as well as responding to questions from comittee members. SECTION 32. This section relates to advisory opinions. The proposed lnguage in this section allows the committee to issue an advisory opinion to a person who anticipates becoming a legislative employee, 45 days prior to employment. It also allows the committee 60 days to respond instead of 30 days. Mr. Donahue said the cost of getting together and also trying to get legal advice in the 30 days has been quite difficult. Subsection (b) contains language to restrict attendance by a person who requested an opinion, including a legislator, during deliberations in the executive session on the advisory opinion. He added that it is the way the committee has been operating, but it wasn't absolutely clear in the statute. SECTION 33. Current law requires the committee to process complaints, even if against all the members of the legislature or all members of one house, etc., -- things like that that are blanket and would take a lot more collusion than would be a normal situation. This section makes it clear that the committee wouldn't have to do anything with those kind of complaints and can return them to the complainant. It also allows the committee to reinstate a complaint if an employee, who has terminated, is rehired or if a legislator, who has left the legislature, is reelected in less than five years. It makes it clear in terms of the five-year moratorium on going back and looking at potential violations. SECTION 34. The new language clarifies that the complainant must sign a statement that says that they have reason to believe that a violation has occurred and that the person who files it may be called to testify, as well as placing the responsibility on the committee to notify the complainant. Mr. Donahue noted the form the complainant signs already has such a statement, but it isn't clear in the law that was the situation. He added that this is a partial response to some of the complaints the committee has had from legislators and others that there is no strings on the person who files the complaint. CHAIRMAN GREEN asked if there has previously been anonymous complaints. MR. DONAHUE acknowledged there have been, but unless they are signed and sworn to, the committee doesn't deal with them. SENATOR MACKIE voiced his agreement with the proposed language because it strengthens the provision and cuts down on a lot of frivolous, politically motivated type of activity that the committee does not want to deal with. SECTION 35. This section relates to a preliminary exam and dismissal if there is absolutely no merit. Mr. Donahue said they have had cases in the past where, based on either a quick investigation of the written record or something submitted by the subject of the complaint, or even by the materials in the complaint itself that there was really not going to be a need for an investigation, but there might be a need for some preliminary or follow-up investigation for clarity. He noted Ms. Barnett, staff to the committee, has been allowed to do some of that under the direction of the chair, but it hasn't been clear that that preliminary investigation could take place. SECTION 36. This section clarifies that the deliberations, the vote on the dismissal order and the decision on a finding of lack of probable cause can take place and will take place in the confidential executive session. CHAIRMAN GREEN asked if there is a time frame in the process set out for the committee for a specific action on a complaint. MR. DONAHUE answered there isn't a time frame in the statute, although in the past, they have tried to move forward with them as fast as possible. CHAIRMAN GREEN inquired if there is a penalty for an individual who makes a frivolous complaint. MR. DONAHUE replied there isn't a provision for a frivolous complaint, but there is a provision for a fraudulent complaint, which is very different from frivolous. SECTION 37. This section clarifies the procedures if after a finding of probable cause and corrective action, the individual agrees to do the corrective action and then later doesn't. It provides a mechanism where it would could come back to the committee and the committee could go forward with the formal charge. Otherwise, without this, there is a question of the committee retaining any jurisdiction. TAPE 97-11, SIDE B Number 572 SECTION 39. This section relates to discovery. Mr. Donahue said the way it is currently written in statute, it's somewhat confusing as to when discovery takes place. The committee has interpreted it as discovery taking place after probable cause has been determined and has not generally allowed discovery prior to probable cause with a limited exception. This would clear that up and permit the committee to adopt procedures to let it allow discovery earlier in the stages, as well as putting restrictions on how much discovery that would be. He noted it also changes subsection (b) to subsection (h). SECTION 40. This section relates to attendance at executive sessions and the waiver of confidentiality. The proposed language clarifies that all the meetings of the Ethics Committee concerning an individual complaint that are closed to the public, i.e. the confidential deliberations, are also closed to the legislators unless they are a committee member. As has been the committee's practice, it allows the committee to call in the subject of the complaint and give the opportunity to present their side of the story or to talk to committee, but they would not stay in for the deliberative process itself. SECTION 41. This section requires the committee to put a timetable on when someone must finish whatever corrective action and whatever sanctions the committee recommend to the Legislature. Mr. Donahue said the statute was silent on this, and the committee had bad experiences of failing to place any deadlines. This will make it statutory that there be deadlines and it will allow fines if they are met. SECTION 42. This section is an additional timetable for after the Ethics Committee makes a recommendation for sanctions to the Legislature. It is requiring the legislators to let the committee know what timetable they agreed to so that if it has to come back to the Ethics Committee for failure to comply, then they will know where they are. Mr. Donahue advised that the current law is totally silent on any deadlines for sanctions or corrective actions. SECTION 43. This section relates to recommendations where the violator is a legislative employee. The current code says that the recommendation is to go to the appointing authority, and the proposed language clarifies who the appointing authority is in each instance, and the companion SECTION 44 will define the appointing authority. Mr. Donahue said this is to let legislators be the supervisor of their legislative employees, but in Legislative Budget & Audit, that director is the supervisor, and that who the corrective actions or the recommended actions would go to in each case. SECITON 45. This section relates to recommended sanctions. The current law is totally silent as to what kinds of sanctions there might be. Mr. Donahue said the committee, in its deliberations without breaching any confidentiality, went to a lot of creative brainstorming to come up with sanctions. This would give at least some idea to both the public, the potential subject of the complaint and the committee and its members of some of the kinds of the sanctions that might be available. Some of these sanctions would also include fines. SECTION 46. This section relates to financial disclosure by legislators, legislative directors, public members of the committee, and certain legislative employee. Mr. Donahue pointed out that under the current law legislators and legislative directors are required to annually file the financial disclosure statement with APOC, but the employees are not, and this will require that employees who are at Range 19 and above who are handling a lot of constituent dealings and have more responsibility to file the statement. He noted the old legislative ethics bill that was in place before 1993 had a similar provision for Range 19 and above. Number 512 BEN BROWN , staff to Senator Tim Kelly, pointed out that Section 46 is the provision that created the fiscal note and the fiscal impact in the bill because APOC will have to employ additional staff to handle the disclosures from the Range 19 employees and above. MR. DONAHUE noted that the concept of adding the Range 19 employees is added to the next three sections of the bill. CHAIRMAN GREEN asked if the bill contains a definition for "certain legislative employees." TERRY CRAMER , Legislative Legal Counsel, Legislative Affairs Agency, directed attention to Section 53, paragraph (15) which defines "legislative employee who is required to disclose." She added that the old ethics law did not apply to employees who were compensated below Range 18, so far as she knows there has never been a requirement that "run of the mill" legislative employees filed financial disclosure statements, so this is new in that respect. Singling out employees paid at a higher range has been done in the past. Number 485 SENATOR MACKIE asked if this would apply to anyone that works for any branch of the Legislature that is a Range 19 and above, and MS. CRAMER answered that it would. MR. BROWN said in the fiscal note it is estimated that this provision will add 192 new filers every year and then a turnover of about 20 filers a year. SECTION 47. This section relates to deadlines for filing of disclosure statements and it adds the Range 19 and above employees to the reporting deadline, as well as changing the deadline from April 15 to February 15. Mr. Donahue said this is part of an effort to make all of the reporting dates the same time period and earlier in the legislative session so anyone who wants to review what has been filed will have a chance to do so before the session is over. SECTION 48. This section provides for a penalty for late filing. Mr. Donahue said that currently there is no penalty for a late filing. A fine makes more sense than finding the individual in violation of the statute and then trying to figure out a sanction for it. MS. CRAMER clarified that Section 48 relates to filing financial disclosure statements. The more general penalty for not filing disclosure statements to the Ethics Committee is found at Section 51. SECTION 49. This section adds the Range 19 and above employees and the public members of the Ethics Committee to those who would forfeiture nominations to their office if they failed to file. SECTION 50. This section would allow a person to file a late disclosure, but the individual would be subject to a fine or to having a complaint filed against them, in theory. SECTION 51. This section permits the Ethics Committee to impose fines for late disclosures and give a price range not to exceed $2.00 per day to a maximum of $100 for each disclosure. If the committee finds that the late filing was inadvertent, the maximum fine is $25. MR. DONAHUE expressed concern that by using the term "inadvertent" it may be opening up a gray area because it means somebody has got to determine what's inadvertent and what's not. SENATOR PEARCE recommended leaving out the "inadvertent" language, and, if the committee decided the higher fine wasn't necessary, it could then impose a lower fine; the committee would still have the latitude. Number 387 SENATOR MACKIE moved as Amendment No. 1, on page 26, beginning on line 18, delete the sentence "However, if the committee finds that a late filing was inadvertent, the maximum fine the committed may impose under this subsection is $25." Hearing no objection, the Chairman stated the amendment was adopted. SECTION 52. This section makes a change to the definition of "immediate family" and it applies back to the contracts on leases section and the section on nepotism. These changes conform with 24.60.080(g) of this same bill. Number 368 SENATOR PEARCE asked if the family definitions are consistent throughout the ethics bill so that disclosure requirements are the same as gift requirements. MS. CRAMER responded they are not, and she thinks it is a deliberate choice on the part of the previous Legislature that considered this bill. The definition of family member is more inclusive in the gift area. But for the kinds of financial relationships that would be coming up in a contract area or a nepotism area, it's a more limited definition of family so that the prohibitions that those sections impose are applied to a more limited group of people. SENATOR MACKIE noted there are a number of different areas in the bill relating to family, and he suggested double checking to see that there is some consistency in the definition of family for disclosure, gifts, reporting or wherever it is applied. MS. CRAMER said she would check to be sure how family member is used in the bill and in existing statute. SECTION 53. Mr. Donahue said this section adds the Range 19 employees and the public members of the committee to those that are required to file the financial report to the Alaska Public Offices Commission, as well as adding "spousal equivalent" to the list of those whose income must be reported. SECTION 54. This section provides an effective date of January 1, 1998. SENATOR MACKIE suggested it would be less confusing for the committee members if any additional amendments to the bill be dealt with individually before adopting a final committee substitute. Number 208 CHAIRMAN GREEN thanked Mr. Donahue for his participation in the meeting before adjourning the committee at 5:05 p.m.