Legislature(2003 - 2004)
03/02/2004 08:00 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 422-BUDGET RESERVE FUND INVESTMENT Number 0060 CHAIR WEYHRAUCH announced that the first order of business was HOUSE BILL NO. 422, "An Act repealing the special subaccount established in the constitutional budget reserve fund; relating to the powers of the Department of Revenue for the investment of amounts in the constitutional budget reserve fund; and providing for an effective date." TOMAS H. BOUTIN, Deputy Commissioner, Office of the Commissioner, Department of Revenue, stated he would address the four questions about HB 422 that Representative Berkowitz had emailed to the Department of Revenue. The first question that he addressed related to the current and projected returns for the Constitutional Budget Reserve Fund (CBRF), and the returns for the subaccount that HB 422 would be eliminating. Mr. Boutin stated that the Department of Revenue usually doesn't get together and make projections for the funds. He pointed out that the Department of Revenue does make projections on returns for the general fund and the CBRF in the Revenue Sources Book. He said the last time that the Department of Revenue did an official projection on the CBRF was for the Fall 2003 Revenue Sources Book. Citing the information on page 7 of the Revenue Sources Book, Mr. Boutin stated that the three-year return on the subaccount has been 1.8 percent and has shown "textbook volatility," which can be expected from an account that has higher risk. He stated that the three-year annualized report for the CBRF showed that the account had a 5.9 percent return. Number 0260 MR. BOUTIN addressed the question regarding when the [CBRF] account would be completely "down" and require entry into the subaccount. He noted that the  fall revenue forecast shows the entire CBRF running out in May 2007. Mr. Boutin explained that Commissioner [William] Corbus had made a presentation recently in Fairbanks on [the status of] the entire CBRF. Mr. Boutin stated that the department prepared the handout for that presentation and that he had some copies available. He noted that [the one-page handout included in the committee packet, which shows two CBR subaccount graphs] explained in detail how the CBRF is forecasted today to "run down." CHAIR WEYHRAUCH stated that the annual return rate for the subaccount cited in the annual report 2003 seemed aberrant and he asked why that was. MR. BOUTIN stated that equities had really taken off recently, which is reflected in the rate. He cited the subaccount graphs in the packet and noted that the subaccount went below the initial investment shortly after its inception and has just recently recovered and risen above the initial $400 million investment. Number 0412 MR. BOUTIN addressed another question, regarding the amount of money that the Department of Revenue felt was prudent to require as a minimum balance for the CBRF, and how they derived that balance. He stated that the number the administration is using is a $1-billion minimum balance. He explained that $400 million is required just for cash flow purposes, and the other $600 million is a result of the price volatility of oil. He said that the Office of Management & Budget (OMB) decided on the $600-million figure. Number 0506 MR. BOUTIN addressed the final question previously submitted by Representative Berkowitz, relating to the state's bond rating and how it would be affected by the passage of HB 422. He said that the transfer of funds from the subaccount to the CBRF would have no impact on the bond rating, especially since this particular move would have the entire fund at a fixed income, which suggests more liquidity. He said that he talked with "government finance associates" and asked them about the credit rating implications that HB 422 would carry with it. He said that government finance associates didn't see any impact on the state's bond rating. Number 0646 REPRESENTATIVE BERKOWITZ asked for further clarification on the $1-billion figure that the administration was using as the minimum amount needed for the CBRF. He said that he had been to the Conference of Alaskans and he saw no direct relationship illustrated between the $1-billion figure and anything else. He stated that at the Fiscal Policy Caucus, it seemed that it was determined that $1.5 billion was a better number. Representative Berkowitz said that some people want to link the minimum balance in the CBRF to general fund spending, so there would be a cushion that is rationally related to the state's expenditures. Number 0702 MR. BOUTIN explained that where there was a zero aggregate draw from the CBRF throughout the year, there would still be a need for $400 million for cash flow purposes. He explained further that early on in the fiscal year, the state borrows from the CBRF to pay for fire suppression and federal projects. He added that when the state is reimbursed by the federal government, it then replenishes the money borrowed. He said that this is a typical year, except for the recent oil prices, and $100 million was just reinvested in the CBRF, and there is expected to be another $100-million deposit made into the CBRF this fiscal year. MR. BOUTIN referred to [the second page - entitled, "General Fund Cash Sufficiency With CBRF Borrowing" - of a seven-page handout included in the committee packet], which he said was prepared for the Conference of Alaskans by the Department of Revenue. He used that graph to illustrate how the account is drawn from and replenished and why the need for a $400-million balance for cash flow purposes is a reasonable number. He further explained that the OMB came up with the $600-million figure by assessing the 80 percent confidence level for oil price volatility. He said that it determined that a $600- million balance was necessary to account for a one-year change in oil prices and the time necessary for the legislature to deal with an oil price shock. He said that these factors were the reasons the $1-billion minimum was set, adding that it wasn't linear programming or operations research, just pretty simple calculus that established that number. Number 0951 REPRESENTATIVE BERKOWITZ asked if there were any statistics pertaining to the performance of the CBRF or the subaccounts for the current year. MR. BOUTIN indicated that the most current figures that he has are found in the graph with the end date of December 31, 2003. He stated that the subaccount had earned a 19.17 percent profit for that year. REPRESENTATIVE BERKOWITZ asked if Mr. Boutin had the current balances of each account. MR. BOUTIN said that he didn't have that information with him. CHAIR WEYHRAUCH asked if the May 2007 projections mentioned earlier would be extended, since the account has been getting such a high return. Number 1041 MR. BOUTIN estimated that in the upcoming spring forecast, the rates will look better than the fall forecast, unless there was a drastic plummet in oil prices. He said that he didn't want to "forecast a forecast," but he felt that because of that, the May 2007, depletion forecast could potentially be pushed back a little. He pointed out that the depletion date wasn't that sensitive to earnings on the CBRF, stating that it is sensitive to expenditures versus revenues. Number 1112 CHAIR WEYHRAUCH asked if there were going to be any additional fees for management of this money. MR. BOUTIN responded that the Department of Revenue manages about $18 billion, most of which is pension funds. He stated that they manage $6 billion of fixed income "in house." He said that other types of investments, real estate, private equity, and equity are managed by external sources. He said that the Department of Revenue will save $125,000 by moving this account to a fixed income account and keeping it "in house" CHAIR WEYHRAUCH asked if the Department of Revenue would need to add more employees to manage the larger amount of money. MR. BOUTIN stated that the Department of Revenue, Treasury Division, has recently become the student loan money manager [for the state] and has looked to add a fixed income analyst position because of that. CHAIR WEYHRAUCH explained that he had inquired about hiring additional staff because, based on his experience, usually when a bill is passed that takes thousands of dollars to manage there is a need to hire more people. Chair Weyhrauch said that he wanted clarification that that wouldn't be the case, although the Department of Revenue would be dealing with millions of dollars. Number 1224 REPRESENTATIVE SEATON commented on what he felt was an underlying concern from the committee, stating he feels that because the rate of return was so high this last fiscal year, the committee is attempting to be "market timers" and assume that it will continue to do as well. He stated that they weren't in a position to do that. MR. BOUTIN agreed and said, "We are not market timers." Number 1289 REPRESENTATIVE HOLM asked for clarification about the statement Mr. Boutin made earlier regarding the cash flow needing to be $400 million and the OMB needing $600 [million]. Citing [the fourth page of the previously mentioned] packet prepared for the Conference of Alaskans by the Department of Revenue, Representative Holm asked why the figures represented there were different - $700 million from the OMB and $300 million for cash flow. He stated that he didn't see a reason that the $400- million figure was needed. Representative Holm backed this point up further by noting pages 10 and 11, of the same document, seemed to show that the balance never falls more than $150 million below zero. He asked why the Department of Revenue sought $400 million for cash flow purposes, when the information presented doesn't support that. MR. BOUTIN responded that he didn't feel that there was a true science to forecasting the market. He said that if someone was going to argue that $1 billion wasn't the right minimum balance amount, but $900 million or $1.1 billion is instead, he doubted that there would be that much of an argument from the Department of Revenue. REPRESENTATIVE HOLM asked, "So its not that critical of a number then?" MR. BOUTIN responded that it was critical to have a balance; if there was no balance it would effect the credit rating that Representative Berkowitz was inquiring about in earlier testimony. He said that he didn't think that a transfer like the one that is suggested in HB 422 would effect the credit rating, stating that the credit rating agencies are much easier to predict than oil volatility. Number 1443 CHAIR WEYHRAUCH asked if June 30, 2004, should be the effective date of HB 422. MR. BOUTIN responded that because the Department of Revenue doesn't have the management fees for the subaccount in the budget for fiscal year 2005, the sooner that HB 422 can become effective, the better. He stated that the way a fund is run, the money is tapered out of the fund; therefore, it will take some time and there will probably be some costs absorbed in fiscal year 2005. Those costs will increase the longer HB 422 is not in effect. CHAIR WEYHRAUCH asked if HB 422 should have an immediate effective date. MR. BOUTIN stated that if HB 422 had an immediate effective date, it would give the Department of Revenue more flexibility. He stated that flexibility is always a good thing when managing money. Number 1510 CHAIR WEYHRAUCH asked if having the title read: "An Act repealing the special subaccount under the authority of the Constitutional Budget Reserve Fund." would be more appropriate than the current title, since the subaccount is not created in the fund as a constitutional matter. MR. BOUTIN said that he hadn't looked at the title from that perspective, but that Chair Weyhrauch was correct. He added that, during the last hearing on HB 422, Chair Weyhrauch asked if the effect needed could be done as an executive order. He stated that he had spoken with Jim Baldwin, the Assistant Attorney General, and Mr. Baldwin answered that this wasn't an executive branch management issue, but a fund established by law, so a change in statute was necessary. REPRESENTATIVE BERKOWITZ asked if Mr. Boutin was aware of any analysis that has been done that would project what would occur if the bulk of the CBRF was deposited into the Permanent Fund. Number 1640 MR. BOUTIN said he wasn't aware of any analysis done on that matter. Number 1652 REPRESENTATIVE GRUENBERG asked if it would give the Department of Revenue the flexibility it needed if the legislature granted the department the authority to access the subaccount, without repealing AS 37.10.430, subsection (c). Number 1756 MR. BOUTIN stated that the Department of Revenue's motivation was based on the fact that the CBRF was regularly being drawn from, which doesn't suggest to the Department of Revenue that the money should be invested in any other account than fixed income. He stated that although the subaccount is earning a higher rate at this time, the Department of Revenue is not a market timer, and so, based on the use of the fund, it makes more sense to have that money in a fixed account. He used the example that the CBRF would never be invested in real estate because the fund isn't being used in that way. He said that the Department of Revenue currently has long-term investments, but he doesn't see the CBRF as a fund where long-term investments are appropriate. REPRESENTATIVE GRUENBERG stated that Mr. Boutin's logic was flawless, if the Department of Revenue proceeds from that premise. He said that if the department maintains the premise that they try to maintain a balance in the CBRF, the reasoning is flawed. He stated that by keeping the statute on the books but granting the Department of Revenue access to the money, it would give the Department of Revenue the flexibility it needed. He stated that he thought the statute should exist if there were policy changes in the future. Number 1925 MR. BOUTIN replied that regardless of the balance in the CBRF, the fact that there are drawdowns from the account suggests that it has to have high liquidity, and HB 422 allows for that liquidity. REPRESENTATIVE GRUENBERG said that he feels that it would be in the Department of Revenue's best interest to maintain the flexibility of having the subaccount there, but having access to it, rather than eliminating it. He asked Mr. Boutin why the Department of Revenue felt it was necessary to foreclose the subaccount and eliminate the ability for the department of Revenue to make discretionary decisions. MR. BOUTIN said that he didn't see the utility in maintaining the subaccount, based on the way the fund is used. He said that he felt that it was better to invest the CBRF in a manner that is appropriate to how [the state] uses it. He stated that if, in the future, the CBRF is used differently, it will be another issue; however, that doesn't seem to be on the horizon right now. Number 2117 REPRESENTATIVE BERKOWITZ commented on the statements made about the need for the CBRF based on the cash flow inequalities throughout the fiscal year. He said he felt that there wouldn't be a cash flow problem if there was a balanced fiscal regime. He followed up that comment by illustrating the three cases that could come about, involving the CBRF. He stated that the first case would be where the CBRF has a lot of money and the subaccount would prove useful. The second case would be where there is a $1-billion CBRF and the money needed for cash flow purposes is covered by the $1-billion minimum. The third case would be where the CBRF was approaching zero and the assets in the subaccount would be liquidated. He then asked why this legislation needed to be introduced at all, since the Department of Revenue was going to manage the entire CBRF in the best interest [of the state] given the constraints at the time. Number 2210 MR. BOUTIN responded that, like a private company, the Department of Revenue has a need for cash. He stated that the cash inflows and outflows are not balanced, so cash needs to be available [to cover that imbalance]. He clarified that the $1- billion minimum would include the subaccount, and he said that in order to account for the cash flow and the price shocks, that money should be readily available in fixed income, rather than in real estate or equities, for example. REPRESENTATIVE BERKOWITZ stated that it wouldn't be prudent for the Department of Revenue to manage the fund in liquid assets if the fund was going to be drawn from. He voiced his opinion that repealing this statute [as proposed by HB 422] would have no bearing on how the Department of Revenue manages the fund. He added that the statute exists for direction of the fund during flusher times. Number 2324 REPRESENTATIVE GRUENBERG turned to Section 3 of the bill. He asked if [the department] would need statutory authority in order to transfer some of the money out of the fund, or whether that authority would be inherent. MR. BOUTIN responded that when language has been carefully drafted by attorneys, he should not attempt to try to change it on the spot. He added that he is not certain what problem Representative Gruenberg is addressing and he would want to read the language and consider if "it does the same thing under all circumstances." CHAIR WEYHRAUCH noted that the bill will have further consideration in the House Finance Committee. Number 2435 JAMES ARMSTRONG, Staff to Representative Bill Williams, Alaska State Legislature, testified on behalf of the House Finance Committee, sponsor, which is co-chaired by Representative Williams. Mr. Armstrong suggested having a trigger mechanism that would "collapse" the subaccount into the main account when the main account falls below a certain number, such as "$300 million for cash flow purposes." He observed, "I mean, if the stock market does 10 percent the next four years, it could make $160 million." CHAIR WEYHRAUCH said that seems to conflict with what Mr. Boutin previously indicated, regarding the need to work with money managers and the efficiencies that may be inherent in the ability to give notice and react to the state's fiscal situation. He stated that if this were contained in a longer- term investment portfolio, then there certainly wouldn't be the flexibility that Mr. Boutin and the state is looking towards. He mentioned a trigger mechanism that could happen in an instant in a catastrophic market situation. Number 2505 REPRESENTATIVE BERKOWITZ responded that the trigger mechanism is there. He explained that if prudence dictates that the fund be drawn to zero, then it will be drawn to zero. If, in the course of drawing it to zero, the assets of the subaccount have to be liquidated, then that's what is going to happen. He reiterated that he does not see the need for HB 422. He expressed his opinion that this proposed legislation signals a pessimism on the part of the administration about its ability to solve the fiscal gap. CHAIR WEYHRAUCH responded that he doesn't think it signals that at all. For example, he said, if there is a five-year investment portfolio with a penalty for early withdrawal, it does the citizens and the CBR no good to use the early withdrawal to pay a penalty. He noted that the statute was passed during flush times and a long bull market. He indicated that any pessimism is not reflective of the administration but is reflective of reality. REPRESENTATIVE BERKOWITZ disagreed. He stated that the reality of the situation is that [the legislature] is going to solve the fiscal gap one way or the other. He said that the current administration has said that it wants a $1-billion minimum in the CBR. He stated that if the administration wants that minimum - an amount that he said he thinks is too low - then there is no need to invade the subaccount. Furthermore, if the subaccount is not invaded, then it should be invested in a way that prudence dictates. Representative Berkowitz clarified as follows: In a lot of ways, all this subaccount does - and I was there for the debate - [is it] authorizes prudent investment rather than simple liquidity. That's what the change inherent in the subaccount is. And ... it just seems to me that if there's a need to invade the principle of the subaccount, that's what's going to happen. And they don't need the authority that's inherent in repeal of a statute. But they need ... the existence of the statute for flusher times, in order to authorize better yielding investments. CHAIR WEYHRAUCH said a lot of people have discussed how to cushion the budget. He said, "It's case by case, person by person." Number 2643 REPRESENTATIVE SEATON said: If we're talking about a five-year investment horizon for this account, [and] we look back at the last three years' average return of 1.8 percent, I don't care how good one year was in that horizon, that has not been a good investment for us compared to what they've done with the regular fund. So, we can pick a year and say, "Oh, it was great - 10.2 percent in one year, " but when you look at the three-year annualized, it's terrible. And so, why [would we] say, "Do we want to maintain that investment?" It's supposed to be in higher yield, which would mean higher risk generally; especially it's higher risk if you're saying that at some point during that time, prudent investing is going to mean you have to liquidate some of it when it's not the appropriate time. So, it seems to me that we have our prudent investor here from [the] Department of Revenue, that manages the retirement accounts and everything else, saying that with the direction that the CBR is used [and] with the projections of what the CBR is going to there for, it's easier -- we're listening to our investors saying its not prudent to have this subaccount invested in longer-term strategy, because no longer are we looking at the CBR; we're not looking at replacing the $5 billion or $7 billion that we owe the CBR. If we had a structure that was putting that money back into the CBR, we would be talking about something quite different. I haven't heard that from anyone in the legislature - that we are reconstituting and "re-depositing" money into the CBR in any significant amount. So, it seems to me that we have to listen to our prudent investors who are coming to us and saying that they don't figure a five-year time horizon when we have a shorter-than-five-year use of that fund horizon, currently .... REPRESENTATIVE BERKOWITZ noted that Mr. Boutin is not the investor - that's not what he does. He noted that the committee has not seen forward-looking projections. He said, "If we're here in a fiduciary capacity, looking at what the expectations are going to be for the subaccount as opposed to the main account, I think we ought to see what the forward-looking projections are." He said it is not prudent or fiscally responsible for the legislature to take a backwards look at the past three year's biggest bear markets seen in "our lifetime" and make a determination that that's what the long-term effects are going to be. Number 2780 MR. BOUTIN stated that the commissioner of [the Department of revenue] is the fiduciary for "this account." The projection that is used to decide how the account will be used is the fall revenue forecast. He noted that in several weeks there will be a spring revenue forecast. He said, "The information that we have, I have shared with you, and I think it's all here." CHAIR WEYHRAUCH said there has been some indication that an immediate effective date would be beneficial. Number 2826 CHAIR WEYHRAUCH moved [Amendment 1], to modify Section 4 [on page 2, line 3], to make the bill effective immediately. CHAIR WEYHRAUCH noted that Representative Berkowitz had objected. REPRESENTATIVE BERKOWITZ said he doesn't see "the emergency in an immediate effective date." He strongly suggested that if an effective date is chosen, it should be to a trigger point in the CBR, not tied to a "date certain." Number 2875 CHAIR WEYHRAUCH offered his understanding that if an Act has an immediate effective date, it takes a two-thirds vote of the legislature [to pass]; however, if it doesn't have an immediate effective date, it would take effect 90 days after passage. REPRESENTATIVE BERKOWITZ said, "After the signature." CHAIR WEYHRAUCH noted that even if the immediate effective date failed, "this" effective date would effect sooner than if there were no effective date. REPRESENTATIVE BERKOWITZ responded, "If the effective date prevails on the floor." Number 2918 REPRESENTATIVE SEATON noted, "Part of what we're trying to do is ... to allow an orderly phase-out of these longer-term investments." He stated that he is not sure how the effective date will influence that. Number 2927 MR. BOUTIN said the department would direct the manager to begin "getting out as they see appropriate." He indicated that the management fees for fiscal year (FY) 2005 were not included. Even if the bill is enacted, he said, the department would still not be through with its management fee responsibility by July 1 and would have to find the money for approximately 60 days "as we take her out of it." CHAIR WEYHRAUCH said it sounds like the department could implement its management responsibilities, whether the effective date is immediate or July 1. MR. BOUTIN concurred. CHAIR WEYHRAUCH withdrew Amendment 1. Number 2975 REPRESENTATIVE BERKOWITZ asked, "What precludes you from directing the fund managers to do just that anyway?" [Not on tape, but taken from the Gavel to Gavel recording on the Internet, was Mr. Boutin's response as follows: "Well, as we understand existing statute, we have this ... sub fund invested at a five-year time horizon, which suggests to us mostly equity. And so, we believe that precludes us from doing ... now what this bill would allow."] TAPE 04-25, SIDE B Number 2959 REPRESENTATIVE COGHILL turned to [page 1, line 11, Section 2 of the bill], which shows that [AS 37.10.430(c)] would be repealed. AS 37.10.430(c) read as follows: (c) A special subaccount is established in the budget reserve fund (art. IX, sec. 17, Constitution of the State of Alaska). Money in the subaccount shall be invested to yield higher returns than might be feasible to obtain with other money in the budget reserve fund. In establishing or modifying the investment policy for the subaccount in the constitutional budget reserve fund, the commissioner of revenue shall assume that those funds will not be needed for at least five years. Income earned on money in the subaccount shall be retained in the subaccount by the department. REPRESENTATIVE COGHILL offered his understanding that [that statute] is a directive that states that the department shall assume that the funds will not be needed for at least five years. He noted that if it is not repealed, the directive would remain. He added, "So, that would definitely change your management style." MR. BOUTIN said he believes that's certainly true. REPRESENTATIVE GRUENBERG turned to a one-page memorandum included in the committee packet, from Tam Cook [director of Legislative Legal and Research Services]. It is a legal opinion [regarding Section 1 of the bill]. He indicated that he had spoken with Mr. Boutin about the memorandum. Representative Gruenberg stated that he sees no need for Section 1, because "you have that authority anyway." Number 2916 REPRESENTATIVE GRUENBERG moved to adopt Amendment 2, which would strike Section 1 of the bill [and renumber the other sections accordingly]. CHAIR WEYHRAUCH note that [Section 1] would be unnecessary if Section 2 is enacted. REPRESENTATIVE GRUENBERG responded that it's unnecessary anyway. MR. BOUTIN concurred. CHAIR WEYHRAUCH asked if there was any objection to Amendment 2. He clarified Amendment 2. Number 2865 CHAIR WEYHRAUCH objected to Amendment 2 for discussion purposes. REPRESENTATIVE GRUENBERG, in response to a question from Representative Coghill, clarified that Section 1 is found on page 1, lines 5-10 of HB 422. Number 2844 CHAIR WEYHRAUCH withdrew his objection. He asked if there was further objection. REPRESENTATIVE SEATON asked if a title change would be required. Number 2831 REPRESENTATIVE GRUENBERG responded that he would allow the bill drafter to change the title, if necessary. CHAIR WEYHRAUCH, in response to Representative Seaton's question, said, "It may, depending on how discussion goes on this amendment." Number 2820 REPRESENTATIVE GRUENBERG said, "Part of my amendment is to authorize any title change necessary." Number 2812 CHAIR WEYHRAUCH asked again if there was any objection to adopting Amendment 2 [with the authorization for a title change]. There being none, it was so ordered. Number 2789 CHAIR WEYHRAUCH moved to adopt Amendment 3 [AS 37.10.430(c), with handwritten changes], as follows: (c) Money in the budget reserve fund (art. IX, sec. 17, constitution of the State of Alaska) may be invested to yield higher returns than might be feasible to obtain with other money in the budget reserve fund. In establishing or modifying the investment policy for money in the constitutional budget reserve fund, the commissioner of revenue shall assume that those funds may be needed to meet cash flow needs and prudent financial management of the state's budget. Number 2768 REPRESENTATIVE BERKOWITZ objected. He pointed out that the fund is not all money, but is also made up of equities and bonds, for example. CHAIR WEYHRAUCH suggested that the word "fund" could be used instead of the word "money". REPRESENTATIVE GRUENBERG said, "Yeah, it would be the CBR fund." CHAIR WEYHRAUCH read the Amendment 3, as amended, to incorporate the foregoing suggestion, as follows: The budget reserve fund (art. IX, sec. 17, Constitution of the State of Alaska) may be invested to yield higher returns than might be feasible to obtain with other money in the budget reserve fund. In establishing or modifying the investment policy for the constitutional budget reserve fund, the commissioner of revenue shall assume that those funds may be needed to meet cash flow needs and prudent financial management of the state's budget. CHAIR WEYHRAUCH stated that that language comes from a letter of intent from the House Finance Committee sponsor statement. REPRESENTATIVE GRUENBERG pointed to the part of Amendment 3 that read, "yield higher returns than might be feasible to obtain with other money in the budget reserve fund." He suggested that the word "money" be changed to "assets". CHAIR WEYHRAUCH agreed. He asked if there was further discussion on Amendment 3, [as amended]. Number 2699 REPRESENTATIVE BERKOWITZ moved to adopt another amendment to Amendment 3, to change the words "may be" to "shall be". REPRESENTATIVE GRUENBERG offered his understanding that that was the intent of the original [AS 37.10.430(c)]. CHAIR WEYHRAUCH objected for purposes of discussion. He opined, "I think we want to optimize returns so that we can meet the state's budget, while getting a reasonable return on investment. And that leaves us a lot more discretionary with the managers of the fund and their fiduciary duty, as opposed to tying their hands by ... giving them a ... specific directive ...." REPRESENTATIVE HOLM said it seems to him that "we're" not particularly interested in getting the greatest investment, but rather in making the fund liquid. He posited that "shall" would defeat the purpose of what the bill is trying to accomplish. Number 2614 REPRESENTATIVE SEATON said: I disagree with agreeing that the shorter-term and longer-term alignments within the department of the management of those funds is where that should be; that if we are in a situation where there is more money in the CBR and revenues project, say, [an] eight-year horizon at some time, then it's perfectly logical of them to do it. So I think the "may" is (indisc. - overlapping conversation). CHAIR WEYHRAUCH requested that Representative Berkowitz withdraw his amendment so that the committee could adopt [Amendment 3, as amended], at which point, he suggested, Representative Berkowitz could "amend to add the 'shall'." REPRESENTATIVE BERKOWITZ said he would do that. Number 2533 CHAIR WEYHRAUCH asked if there was further objection to [Amendment 3, as amended]. REPRESENTATIVE BERKOWITZ objected. CHAIR WEYHRAUCH, in response to a request for clarification from Representative Seaton, read the second half of [Amendment 3, as amended]. REPRESENTATIVE GRUENBERG pointed to "the commissioner of revenue shall assume that those funds". He suggested that "funds" should be changed to "assets". CHAIR WEYHRAUCH agreed to the change for purposes of consistency. He said, "I'll take that as a friendly amendment." REPRESENTATIVE GRUENBERG asked about Chair Weyhrauch's choice of the term "cash flow needs". He asked if there might be other needs, as well as cash flow needs, that the committee should include. He also remarked that he thinks the "special account" should be kept. REPRESENTATIVE SEATON said he agrees with the elimination of the subaccount and allowing the department to invest prudently. He mentioned the structure and the time horizon. He said he thinks the committee needs to "take a look at this and get it structurally correct." Number 2451 CHAIR WEYHRAUCH announced that Amendment 3, [as amended], and HB 422 would be set aside. REPRESENTATIVE BERKOWITZ said it's clear at this point that he is an advocate of the subaccount, but it seems that the "primary rub against it has to do with the five-year look forward, and that's the offending sentence." CHAIR WEYHRAUCH told Mr. Boutin that although this process seems frustrating, it will save time on the House floor. Number 2424 MR. BOUTIN stated that he doesn't see the utility in having a subaccount in the CBR at this stage. He noted that "all of this money is invested under the prudent investor rule." Number 2407 CHAIR WEYHRAUCH announced that HB 422 was heard and held.