Legislature(2003 - 2004)

04/22/2004 08:40 AM House STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 544 - PERM FUND BOARD PUBLIC MEMBER REMOVAL                                                                                
CHAIR WEYHRAUCH announced that the  first order of business would                                                               
be House Bill  544, "An Act providing that public  members of the                                                               
Board of  Trustees of the  Alaska Permanent Fund  Corporation may                                                               
be removed only for cause; and providing for an effective date."                                                                
Number 0027                                                                                                                     
REPRESENTATIVE  SEATON moved  to adopt  the committee  substitute                                                               
(CS)  for HB  544, Version  23-GH2142\D, Cook,  4/15/04, as  work                                                               
CHAIR WEYHRAUCH objected for discussion purposes.                                                                               
Number 0034                                                                                                                     
MIKE  BARNHILL,   Assistant  Attorney   General,  Commercial/Fair                                                               
Business  Section, Civil  Division (Juneau),  Department of  Law,                                                               
presented  HB 544  on behalf  of  the House  Rules Committee,  by                                                               
request of the  governor.  He stated that [HB  544] would provide                                                               
that  public members  of  the  Board of  Trustees  of the  Alaska                                                               
Permanent Fund Corporation may be  removed only for cause.  Under                                                               
current law, he explained, a board  member can be removed for any                                                               
reason,  including  partisan  reasons.     Mr.  Barnhill  offered                                                               
examples of cause [found on page 1,  lines 7-9 of Version D].  He                                                               
summarized the  steps of  removal as  outlined in  the bill.   He                                                               
explained that  "the reason why  we do  this" is to  insulate the                                                               
board, which manages  $28 billion in state assets.   He explained                                                               
that [HB 544]  would ensure continuity.  Mr.  Barnhill noted that                                                               
there  is a  list [included  in  the committee  packet] that  his                                                               
office  prepared  in 1980,  listing  all  the felonies  involving                                                               
moral turpitude.   He indicated  that his office has  generated a                                                               
more updated list since then.   In conclusion, he stated that the                                                               
language of the bill is  patterned after similar language for the                                                               
Alaska Board of Fisheries in AS 16.05.280.                                                                                      
Number 0275                                                                                                                     
ROBERT  D.  STORER,  Executive Director,  Alaska  Permanent  Fund                                                               
Corporation   (APFC),  Department   of  Revenue,   revealed  that                                                               
"several   boards  representing   several  administrations   have                                                               
supported this  statutory change  to ...  protect the  board from                                                               
removal for cause."  He noted  that the board is comprised of six                                                               
members,  of  which two  are  cabinet  members who  would  change                                                               
automatically with administration changes.   The other four board                                                               
members  are  appointed  by  the governor  and  serve  four  year                                                               
staggered terms.  He continued as follows:                                                                                      
     Prior to  ... several  administrations, a  new governor                                                                    
     has  come  in  and  replaced  five  of  the  six  board                                                                    
     members.   Now, I can't  say that it  disadvantaged the                                                                    
     fund's management,  but I would  suggest that  the fund                                                                    
     now is far  more mature, in terms of  how it implements                                                                    
     its  assets  strategies -  the  kind  of investment  it                                                                    
     makes  - versus  when  that occurred.   And  investment                                                                    
     knowledge,  institutional   memory,  a   continuity  of                                                                    
     education  we believe  is very  important, and  this is                                                                    
     why board members support this.                                                                                            
     We're   now   looking    at   contemporary   investment                                                                    
     strategies that can  take over ... two  years of study.                                                                    
     That doesn't mean that you  adopt these strategies, but                                                                    
     it's  important that  you study  what other  large plan                                                                    
     sponsors are  doing, so that  you're well aware  of why                                                                    
     they adopted ... the intricacies of these strategies.                                                                      
MR. STORER stated  that he finds that new board  member learn far                                                               
more quickly  if there is  some institutional memory  that exists                                                               
in the board.   He indicated that better questions  are asked and                                                               
[those senior  members of the  board] remember how  the decisions                                                               
were  made   originally.    He   indicated  that  there   are  19                                                               
individuals [on boards] who are  protected for removal for cause,                                                               
including the Alaska  State Pension Investment Board.   He stated                                                               
that this issue  is important and institutional  memory is needed                                                               
in order to make better, more informed investment decisions.                                                                    
Number 0496                                                                                                                     
REPRESENTATIVE   GRUENBERG  directed   attention   to  the   term                                                               
"misconduct in  office" on page 1,  line 7, and asked  if that is                                                           
defined anywhere.                                                                                                               
MR. BARNHILL answered that it is not defined in the bill.                                                                       
REPRESENTATIVE GRUENBERG  asked if  the term is  defined anywhere                                                               
in state statute or common law.                                                                                                 
MR. BARNHILL said he would have to find out.                                                                                    
REPRESENTATIVE GRUENBERG  assumed that  the term  "misdemeanor or                                                           
felony  involving moral  turpitude"  means  only misdemeanors  or                                                           
felonies involving moral turpitude.                                                                                             
MR. BARNHILL answered that's correct.                                                                                           
REPRESENTATIVE GRUENBERG  opined, "I think  that if we  are going                                                               
to be  referencing some fairly  obscure statute in  the elections                                                               
code, we  should have that defined  in here."  He  indicated that                                                               
he  may offer  an  amendment to  that effect,  and  he asked  Mr.                                                               
Barnhill if he would have any problem with such an amendment.                                                                   
MR. BARNHILL  answered no.   He noted  that the  Senate Judiciary                                                               
Standing Committee  decided to "delete the  words involving moral                                                               
turpitude."   He commented that that  is also fine.   He reminded                                                               
the committee that a list had  been provided to define the terms.                                                               
He said,  "If a board  member gets  convicted of any  crime, that                                                               
should constitute reason for cause."                                                                                            
Number 0668                                                                                                                     
CHAIR WEYHRAUCH professed,  "This is really a  potential huge can                                                               
of worms, politically  and substantively, I think  - doing this."                                                               
He illustrated, "Moral turpitude with  respect to ... child abuse                                                               
is not necessarily moral turpitude  with respect to the knowledge                                                               
necessary to  manage a permanent  fund, but  it may be  an excuse                                                               
... or a reason  to remove someone if you didn't  want them."  He                                                               
said being  charged with a crime  may result in a  huge political                                                               
embarrassment, particularly  regarding something like  bribery or                                                               
theft.  He continued as follows:                                                                                                
     Let's say  you're accused  of that  crime.   Of course,                                                                    
     nobody  wants to  be convicted  before they  have their                                                                    
     day  in court.   But  you  have somebody  accused of  a                                                                    
     serious crime,  but before the  removal is  final, they                                                                    
     have to go through this  huge due process hearing, this                                                                    
     huge public  spectacle embarrassing both the  person on                                                                    
     the  board, potentially  the governor,  the members  of                                                                    
     the fund, the  staff.  You know, I just  -- if you guys                                                                    
     want this, you might get  it, but you better be careful                                                                    
     what you wish for.                                                                                                         
Number 0752                                                                                                                     
MR.  BARNHILL  responded  that  Chair  Weyhrauch's  concerns  are                                                               
legitimate.  He  stated that what he thinks is  most important to                                                               
the  administration is  that it  narrows removal  for cause.   He                                                               
said,  "If  the committee  feels  that  it's important  to  leave                                                               
'involving moral  turpitude' in there,  we're fine with that.   I                                                           
mean, that's why we drafted it in there - to make it narrow."                                                                   
CHAIR  WEYHRAUCH responded,   "The  policy goal  here is  to keep                                                               
continuity - keep people on the  board and not ... throw them out                                                               
because of political  whim.  On the other hand  ..., to keep that                                                               
continuity,  you want  some cause.    But if  there's cause  that                                                               
exists, maybe  it's best to just  get rid of them,  without going                                                               
through this cumbersome political trial."                                                                                       
Number 0833                                                                                                                     
MR. STORER proffered  that "those facts are not lost  on us."  He                                                               
said the conclusion  essentially was that the  board members have                                                               
historically been  high profile individuals throughout  the state                                                               
who  have   been  under  a   lot  of  scrutiny  prior   to  their                                                               
appointment.  He said that is  the downside risk.  He emphasized,                                                               
"The importance of  this is from the  investment management point                                                               
of view and that continuity, and  not making decisions -- it is a                                                               
double edged  sword, and we  believe the latter issues  I've just                                                               
observed  material outweighs  that  potential risk  on the  other                                                               
Number 0859                                                                                                                     
REPRESENTATIVE SEATON stated:                                                                                                   
     Under the  definition of moral  turpitude, I  guess the                                                                    
     promoting  gambling, now  - of  course this  is once  a                                                                    
     person  is  a   member  -  but  if  we   had  pull  tab                                                                    
     legislation  that came  up and  ...  someone voted  for                                                                    
     that, then  they would be  guilty under this?   I mean,                                                                    
     ...  there seems  to be,  under  this definition,  some                                                                    
     funny things.                                                                                                              
MR.  BARNHILL  said  the  answer's   no.    He  said,  "Promoting                                                               
gambling's  a  criminal offense  and,  if  we  pass a  bill  that                                                               
authorizes, for  instance, gaming  or legal gambling,  that would                                                               
be exempted from a criminal offense."                                                                                           
Number 0908                                                                                                                     
REPRESENTATIVE GRUENBERG said he  strongly supports the bill, but                                                               
wants to think about it.                                                                                                        
Number 1000                                                                                                                     
MR. STORER, in  response to a question  from Representative Holm,                                                               
noted that  he thinks the  permanent fund's broad  market returns                                                               
are  comparable  to the  [Standard  &  Poors  (S&P)] index.    He                                                               
indicated  there has  been excess  returns of  between 3/4  and 1                                                               
percent.  He stated that he  has worked with virtually all of the                                                               
board members who have been with  the permanent fund.  He assured                                                               
the committee  that "when  you're a fiduciary  for a  large fund,                                                               
you take that  role very seriously."  He stated  that the history                                                               
and tradition of the permanent  fund is "incrementalism" and long                                                               
evaluation and study; therefore, he  would envision changes to be                                                               
incremental, rather than sweeping.                                                                                              
REPRESENTATIVE SEATON stated that part  of the problem he sees in                                                               
the bill  is its  legalistic manner.   He suggested  changing the                                                               
language [beginning on page 1, line  6] to read, "only for cause,                                                           
including inefficiency,  neglect of  duty, misconduct  in office,                                                           
and may not be removed simply for political convenience."                                                                       
CHAIR WEYHRAUCH interjected that he  had to leave momentarily and                                                               
was, therefore, handing the gavel over to Representative Holm.                                                                  
Number 1186                                                                                                                     
VICE-CHAIR  HOLM suggested  that  Representative  Seaton add  his                                                               
idea in  the form of  a committee substitute  to be heard  in the                                                               
next hearing of HB 544.                                                                                                         
Number 1194                                                                                                                     
MR.   BARNHILL,   in    response   to   Representative   Seaton's                                                               
aforementioned  suggestion,  stated  that there  is  actually  no                                                               
provision  in the  bill for  an appeal.   He  said, "It's  just a                                                               
hearing."  He clarified, "Because  of the decision, the aggrieved                                                               
board  member  -- they  wouldn't  appeal  from that;  there's  no                                                               
provision  in here  for administrative  appeal -  they'd probably                                                               
have  to sue  the state."   In  regard to  putting a  decision in                                                               
writing,  he noted  that there  is supreme  court precedent  that                                                               
says  that   administrative  decisions  should  be   detailed  in                                                               
writing.  He  added, "So, I think that's important  to leave that                                                               
in  there,  otherwise you  get  into  an  area of  arbitrary  and                                                               
capricious decision-making by an  administrative agency.  I don't                                                               
really think we want to do that."                                                                                               
REPRESENTATIVE SEATON  stated that  the point of  the bill  is to                                                               
let administrations  know that "they  do not have  the authority,                                                               
for political  reasons, to remove  people, if  there has to  be a                                                               
removal  for  cause."   He  questioned  whether listing  all  the                                                               
causes may  restrict the  ability too  much or  raise the  bar so                                                               
much that it becomes a very contentious issue.                                                                                  
[HB 544 was heard and held.]                                                                                                    

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