ALASKA STATE LEGISLATURE
SENATE STATE AFFAIRS STANDING COMMITTEE
February 2, 2012
9:02 a.m.
MEMBERS PRESENT
Senator Bill Wielechowski, Chair
Senator Joe Paskvan, Vice Chair
Senator Albert Kookesh
Senator Kevin Meyer
Senator Cathy Giessel
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 130
"An Act establishing in the Office of the Governor an advisory
council for the preservation, restoration, and revitalization of
Alaska Native languages."
- MOVED CSSB 130(STA) OUT OF COMMITTEE
SENATE JOINT RESOLUTION NO. 10
Proposing an amendment to the Constitution of the State of
Alaska relating to deposits to the constitutional budget reserve
fund from surplus oil revenue.
- MOVED CSSJR 10(STA) OUT OF COMMITTEE
SENATE CONCURRENT RESOLUTION NO. 17
Celebrating the 100th anniversary of the Girl Scouts of the
United States of America and proclaiming 2012 as the Year of the
Girl.
- MOVED CSSCR 17(STA) OUT OF COMMITTEE
SENATE BILL NO. 131
"An Act relating to certain investments of the Alaska permanent
fund, the state's retirement systems, the State of Alaska
Supplemental Annuity Plan, and the deferred compensation program
for state employees in certain companies that do business in
Iran, and restricting those investments; and providing for an
effective date."
- MOVED SB 131 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: SB 130
SHORT TITLE: ALASKA NATIVE LANGUAGE COUNCIL
SPONSOR(s): SENATOR(s) OLSON
04/15/11 (S) READ THE FIRST TIME - REFERRALS
04/15/11 (S) STA, FIN
01/24/12 (S) STA AT 9:00 AM BUTROVICH 205
01/24/12 (S) Scheduled But Not Heard
01/31/12 (S) STA AT 9:00 AM BUTROVICH 205
01/31/12 (S) Heard & Held
01/31/12 (S) MINUTE(STA)
02/02/12 (S) STA AT 9:00 AM BUTROVICH 205
BILL: SJR 10
SHORT TITLE: CONT. AM.: BUDGET RESERVE FUND
SPONSOR(s): SENATOR(s) WIELECHOWSKI
01/17/12 (S) PREFILE RELEASED 1/6/12
01/17/12 (S) READ THE FIRST TIME - REFERRALS
01/17/12 (S) STA, FIN
01/24/12 (S) STA AT 9:00 AM BUTROVICH 205
01/24/12 (S) Heard & Held
01/24/12 (S) MINUTE(STA)
02/02/12 (S) STA AT 9:00 AM BUTROVICH 205
BILL: SCR 17
SHORT TITLE: GIRL SCOUTS 100TH ANNIVERSARY
SPONSOR(s): DAVIS
01/17/12 (S) READ THE FIRST TIME - REFERRALS
01/17/12 (S) STA
02/02/12 (S) STA AT 9:00 AM BUTROVICH 205
BILL: SB 131
SHORT TITLE: DIVEST INVESTMENTS IN IRAN
SPONSOR(s): STATE AFFAIRS BY REQUEST
04/16/11 (S) READ THE FIRST TIME - REFERRALS
04/16/11 (S) STA, FIN
01/31/12 (S) STA AT 9:00 AM BUTROVICH 205
01/31/12 (S) Heard & Held
01/31/12 (S) MINUTE(STA)
02/02/12 (s) STA AT 9:00 AM BUTROVICH 205
WITNESS REGISTER
KATYA WASSILLIE, Intern
Senator Bettye Davis
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced SCR 17 on behalf of the sponsor.
JANE ANGVIK, Chair
Girl Scouts of Alaska
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SCR 17.
OLIVIA LARSON, Girl Scout
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SCR 17.
LAURA ACHEE, Director
Administration and Communications
Alaska Permanent Fund Corporation (APFC)
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Answered questions related to SB 131
DAN WAYNE, Legislative Legal Counsel
Legislative Affairs Agency
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding SB 131.
ACTION NARRATIVE
9:02:53 AM
CHAIR BILL WIELECHOWSKI called the Senate State Affairs Standing
Committee meeting to order at 9:02 a.m. Present at the call to
order were Senators Giessel, Kookesh, Paskvan, and Chair
Wielechowski. Senator Meyer arrived shortly thereafter.
SB 130-ALASKA NATIVE LANGUAGE COUNCIL
9:04:05 AM
CHAIR WIELECHOWSKI announced that the first order of business
was SB 130 sponsored by Senator Donny Olson. Previously, the
committee heard eloquent testimony from around the state. All
testifiers stressed the risks faced by Alaska Native languages,
the linkage between language and cultural identity, and the
unique perspective language gives on how different peoples view
and interact with the world. SB 130 would establish a council to
help protect and revitalize Alaska's many Native tongues. The
original version of the bill had a fiscal note from the Office
of the Governor for $387,900 in FY 13 and slightly less in
subsequent years. Version X of the bill will have a lower fiscal
note as a result of changes made in the committee substitute.
The bill has a further referral to the Senate Finance Committee.
9:05:28 AM
SENATOR PASKVAN moved to report the CS for SB 130, labeled 27-
LS0779\X, from committee with individual recommendations and
with a forthcoming fiscal note from the Department of Commerce,
Community and Economic Development.
SENATOR WIELECHOWSKI announced that without objection, CSSB 130
(STA) moved from the Senate State Affairs Standing Committee.
SJR 10-CONT. AM.: BUDGET RESERVE FUND
9:06:25 AM
CHAIR WIELECHOWSKI stated that the next bill before the
committee was SJR 10. This constitutional amendment would cap
the amount of unrestricted oil revenue that can be spent in a
given year at $6 billion, adjusted for inflation, and two-thirds
of the surplus would be put into the Constitutional Budget
Reserve (CBR).
CHAIR WIELECHOWSKI said that the committee heard compelling
testimony from two university experts in support of this
concept. The first was Dr. Scott Goldsmith of the Institute of
Social and Economic Research who has written extensively about
state finances and the need to spend wisely. The second was Dr.
Steven Haycox, an Alaska historian and author of many books. The
bill has a further referral to the Senate Finance Committee. It
is one of many ideas on the table for ensuring that our
financial house in in order as oil production continues to
decline. If passed by the legislature, it would go to the people
of Alaska for a vote. The bill has a modest fiscal note of
$1,500 to cover the cost of providing information about the
amendment on the elections booklet for the 2012 general
election.
SENATOR GIESSEL stated that a constitutional amendment is a
significant action and should address an issue that is durable
over time. She recalled testimony that stated that excess funds
would only exist for the next two to three years in light of
declining oil production. She opined that it was not appropriate
to amend the constitution for something that will only be
relevant for a few years. She also disapproved of tying the
hands of future legislatures.
SENATOR WIELECHOWSKI opined that the intent of the bill is to
put a framework into the future to provide for savings.
SENATOR KOOKESH said that he was inclined to support bills that
required a vote of the people; however, he was uncertain about
what would happen in the next three years.
9:09:37 AM
SENATOR PASKVAN moved [to report the CS for SJR 10, labeled 27-
LS1091\D, from committee with individual recommendations and the
attached fiscal note.]
SENATOR WIELECHOWSKI announced that without objection, CSSJR
10(STA) moved from the Senate State Affairs Standing Committee.
SCR 17-GIRL SCOUTS 100TH ANNIVERSARY
SENATOR WIELECHOWSKI announced that the next bill before the
committee was SCR 17, which proclaims 2012 as the Year of the
Girl and celebrates the 100th anniversary of the Girl Scouts.
The bill was introduced by Senator Bettye Davis. The committee
will take up version M of SCR 17.
SENATOR PASKVAN moved [to adopt the CS for SCR 17, version M, as
the working document before the committee.]
SENATOR WIELECHOWSKI objected for discussion purposes.
KATYA WASSILLIE, intern, Senator Bettye Davis, sponsor of SCR
17, introduced the resolution. She related that the Girl Scouts
of America, founded by Juliette Gordon Low in 1912, now have
about 2.3 million members and 890,000 adults working as
volunteers. Fifty million women are Girl Scout alumnae. In
Alaska there are about 6,000 Girl Scouts and 1,500 volunteers
today. The experience of being a Girl Scout produces growth on
many levels. She described the advantages of being a Girl Scout
and the difference it makes in girls' lives. She shared
statistics about the numbers in the organization. SJR 17
recognizes the positive impact of the Girl Scouts and
commemorates them by proclaiming 2012 the Year of the Girl.
SENATOR KOOKESH asked if Ms. Wassillie was a Girl Scout.
MS. WASSILLIE replied that she was not.
9:13:18 AM
JANE ANGVIK, Chair, Girl Scouts of Alaska, Anchorage, Alaska,
testified in support of SCR 17. She shared statistics of the
organization and advantages of belonging to the group. She
shared types of badges available to Girl Scouts.
9:15:48 AM
OLIVIA LARSON, Girl Scout, Anchorage, Alaska, testified in
support of SCR 17. She shared her experience as a Girl Scout and
urged support of the resolution.
SENATOR WIELECHOWSKI closed public testimony. He requested a
motion to move the bill.
9:17:11 AM
SENATOR PASKVAN moved [to report the CS for SCR 17, version M,
from committee, with individual recommendations and the attached
zero fiscal note.]
SENATOR WIELECHOWSKI announced that without objection, CSSCR
17(STA) moved from the Senate State Affairs Standing Committee.
SB 131-DIVEST INVESTMENTS IN IRAN
9:18:54 AM
SENATOR WIELECHOWSKI announced that SB 131 was again before the
committee. Since the committee heard the bill, the governor made
a surprise announcement that he is asking the Alaska Permanent
Fund Corporation (APFC), Alaska Retirement Management (ARM)
Board, and Department of Revenue (DOR) to divest their holdings
from any companies doing business in Iran. He said he applauds
the governor's support for divesting, but it is not clear
whether he and the agencies he asked to divest currently have
sufficient legal authority to do so. He wished to learn more
about that question and about the fiscal notes the bill received
from the APFC. One of the fiscal notes, for $200,000 in FY 13,
refers to APFC custody and management fees.
9:19:01 AM
LAURA ACHEE, Director of Administration and Communications,
Alaska Permanent Fund Corporation (APFC), Department of Revenue
(DOR), Juneau, Alaska, introduced herself. She offered to answer
questions about SB 131.
SENATOR PASKVAN questioned the transactional cost related to the
bill.
MS. ACHEE explained that two elements relate to the costs; one
is the direct pass through cost that APFC is charged for brokers
buying and selling stocks, and the other is the cost of having
both internal and external staff manage the portfolio. At the
front end is the initial cost of divesting the stocks, and then
there are on-going costs of making sure those stocks are not re-
bought.
SENATOR PASKVAN said he thought those transactional costs were
part of every day, usual costs.
9:22:59 AM
MS. ACHEE countered the idea that APFC would not be doing
anything different. One of the tasks that would be different is
the monitoring of unacceptable stocks on the list to make sure
that they are not purchased. Also, the issue of paying the
brokers is a fixed cost. The management cost is not included in
the fiscal note. She addressed the issue of profits versus
losses, which cannot be estimated. Managers are expecting that
there might be some offers, but those costs are also not
included in the fiscal note.
SENATOR PASKVAN said he thought the investments should be
divested no matter what the cost.
SENATOR KOOKESH wondered if the fiscal note changed due to the
governor's interest.
MS. ACHEE answered said no.
SENATOR KOOKESH asked if the costs will be shared with the
governor.
MS. ACHEE said she has not discussed that situation.
SENATOR KOOKESH wondered how fiscal notes are determined now
that the governor has weighed in.
9:26:43 AM
SENATOR WIELECHOWSKI said that Senator Kookesh made a good
point. He wondered where the $200,000 would come from if the
bill does not pass, now that the governor has stated support.
MS. ACHEE said that discussion would have to happen and the
money would have to be found. She thought the direction of
inquiry was premature.
SENATOR GIESSEL asked if there were other stocks APFC is
prohibited from investing in.
MS. ACHEE said there were none.
SENATOR MEYER pointed out that there are some restrictions. For
example, high risk trading is not done.
MS. ACHEE did not know. A number of years ago the investment
authority was turned over to the APFC.
SENATOR WIELECHOWSKI said he had been told that the Permanent
Fund was divested from Sudanese investments.
MS. ACHEE said that was incorrect.
SENATOR WIELECHOWSKI said he understood that former-Governor
Palin requested that.
MS. ACHEE did not recall that. She assured the committee that
there has never been any divestment for any reason.
9:30:03 AM
DAN WAYNE, Legislative Legal Counsel, Legislative Affairs
Agency, introduced himself.
SENATOR WIELECHOWSKI related his conversation with Legislative
Legal questioning the governor's authority to request or demand
that the Permanent Fund divest from investments.
MR. WAYNE explained that the constitution gives the governor
power under Article 3, Section 16, to force compliance with any
constitutional or legislative mandate, which may make the
governor think he can take action to divest funds from the
Permanent Fund. Mr. Wayne did not think the Permanent Fund
Corporation could act on the request because the constitution
says in Article 9, Section 15, that "the principle of the
Permanent Fund shall be used only for those income producing
investments specifically designated by law as eligible for
Permanent Fund investment."
The legislature has designated by law how that money is supposed
to be invested in AS 37.13.120(a) "when adopting regulations
authorized by this section, or managing and investing fund
assets, the prudent investor rule shall be applied by the
corporation. The prudent investor rule is applied to investment
activity of the fund, means that the corporation shall exercise
the judgment and care under the circumstances then prevailing,
that an institutional investor of ordinary prudence, discretion,
and intelligence exercises in the designation management of
large investments entrusted to it, not in regard to speculation,
but in regard to the permanent disposition of funds, considering
preservation of the purchasing power of the fund over time while
maximizing the expected total return from both income and
appreciation of capital."
He concluded that the legislature has said this is the law to
follow when investing money. SB 131 adds a subsection to AS 37.
13.120 on page 5, Section 3, "the board shall comply with AS
37.10.072," which is the new section that requires divestment.
He opined that without legislative direction, the APFC can't
divest from Iran investments unless it would satisfy the
requirements of the prudent investment rule.
SENATOR WIELECHOWSKI asked Ms. Achee for clarification on the
fiscal note. He wondered how many fund managers were contacted
regarding the need for a fiscal note.
MS. ACHEE replied there were about 20-25 fund managers.
SENATOR WIELECHOWSKI inquired how many thought there would be a
cost.
MS. ACHEE said three fund managers decided SB 131 would require
a cost. One manager gave an estimate for manager fees, but they
were not included in fiscal note, as well as transaction costs.
She emphasized that the amount of $200,000 is not a definite
number, but a rough estimate.
SENATOR WIELECHOWSKI concluded that the fiscal note was based on
the recommendation of one fund manager. He summarized page 2,
lines 5-11, "if an investment in the fund is managed as a
commingled investment or other business structure in which the
fund is not the sole owner, the law does not apply." He asked if
it was a commingled investment.
9:38:06 AM
MS. ACHEE responded that it was not a commingled fund. All
managers that did not suggest that there would be a cost are
separate account active managers that do not fall under either
exclusion in the bill.
SENATOR WIELECHOWSKI understood that the one fund manager
manages about $1.3 billion.
MS. ACHEE clarified that the manager manages $1.4 billion, $1
billion of which is international large capitalized company
stock.
SENATOR WIELECHOWSKI stated that the state pays that manager
about $350,000 per quarter.
MS. ACHEE said manager fees vary. She did not know the number.
SENATOR WIELECHOWSKI asked if Ms. Achee or her lawyers had
looked at subsection (b).
MS. ACHEE said she has and it does not apply.
SENATOR WIELECHOWSKI thought it was a commingled investment.
9:40:46 AM
MS. ACHEE reviewed definitions: an active separate account is an
account where the manager makes decisions based on what is best
for the individual portfolio; passive managers align the
portfolio directly to an index and charge a significantly
smaller fee; commingled funds are blended with other
institutional investors like a mutual fund.
SENATOR PASKVAN requested a definition of basis points. He said
he estimated the transactional costs to be 25 basis points. He
wondered if they could be negotiated lower.
9:42:51 AM
MS. ACHEE defined a basis point as a fraction of a percent. For
example, $200,000 is two basis points of a $1 billion portfolio.
SENATOR PASKVAN asked if the value is 99.8 percent after two
basis points are removed.
MS. ACHEE said that APFC does not approach it that way. She
asked for further clarification of Senator Paskvan's question.
SENATOR PASKVAN assumed a $100,000 investment with a 2 basis
point transactional cost. He asked what amount remained.
MS. ACHEE said it would be the remainder if the stock were to be
sold for full value.
SENATOR PASKVAN restated the question based on a $100
investment. He asked if $99.80 would remain.
MS. ACHEE agreed.
SENATOR PASKVAN explained the rational for his analysis.
9:45:03 AM
SENATOR WIELECHOWSKI asked if there is a section in the contract
with the fund manager that discusses how much it would cost for
a legislative change.
MS. ACHEE did not know.
SENATOR WIELECHOWSKI wondered if the governor could legally
direct investments.
MS. ACHEE deferred to Legislative Legal to answer.
SENATOR KOOKESH asked Ms. Achee to follow up on that question.
MS. ACHEE did not feel comfortable answering the question.
SENATOR PASKVAN also wanted feedback on the question.
SENATOR KOOKESH said it was new ground and he wished to follow
the process.
SENATOR WIELECHOWSKI thanked Ms. Achee for her work. He left the
decision on the bill to the committee.
9:48:01 AM
SENATOR PASKVAN asked when the APFC might respond.
SENATOR WIELECHOWSKI requested more information about the
governor's letter. He related that Mr. Wayne maintained that the
governor's letter did not give the APFC authority to divest. He
also wondered if the governor could give authority for APFC to
divest.
MS. ACHEE said she would try to get an answer as soon as
possible, but it was up to the Department of Law to respond.
SENATOR WIELECHOWSKI said the committee would hold the bill
until further notice.
SENATOR MEYER recalled that the previous governor verbally
requested divestment from Sudan. He also wanted to find out the
governor's legal role. He agreed with the bill's intent from a
policy standpoint. He suggested moving the bill.
SENATOR KOOKESH also agreed to move the bill.
9:50:22 AM
SENATOR PASKVAN moved to report SB 131, version M, from
committee with individual recommendations and the attached
fiscal notes.
SENATOR WIELECHOWSKI added that there are two attached fiscal
notes; one from the Department of Revenue - Treasury, and one
from the Department of Revenue - APFC Operations. A revised
fiscal note concerning APFC custody and management fees may be
forthcoming.
SENATOR GIESSEL said in spite of the governor's support, she was
unsure of the bill. She stated objections to political aspects
of the bill, even though she did not dispute Iran's action. She
noted that Norway makes objective decisions about investments.
SENATOR WIELECHOWSKI agreed that that's the argument against the
bill. He said each individual case should be looked at based on
its own merits. He said Norway has a board that does allow
social investing. For example, Norway does not invest in tobacco
companies. He thought this bill was a unique situation. He
argued in favor of the bill.
9:53:36 AM
SENATOR GIESSEL commented on an investment Norway declined to
make.
SENATOR WIELECHOWSKI announced that without objection, SB 131
moved from the Senate State Affairs Standing Committee.
9:54:03 AM
There being no further business to come before the committee,
Chair Wielecowski adjourned the Senate State Affairs Standing
Committee at 9:54 a.m.