Legislature(2009 - 2010)CAPITOL 106

01/29/2009 08:00 AM STATE AFFAIRS

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08:05:33 AM Start
08:06:12 AM HB5|| HB45|| HB92
09:45:16 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
<Bill Hearing Postponed>
Heard & Held
<Bill Hearing Rescheduled from 01/27/09>
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Heard & Held
<Bill Hearing Rescheduled from 01/27/09>
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Heard & Held
<Bill Hearing Rescheduled from 01/27/09>
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HB   5-DIVEST INVESTMENTS IN SUDAN                                                                                            
HB  45-DIVEST INVESTMENTS IN SUDAN                                                                                            
HB  92-DIVEST INVESTMENTS IN SUDAN                                                                                            
8:06:12 AM                                                                                                                    
CHAIR  LYNN announced  the  order of  business  was the  combined                                                               
hearing of:                                                                                                                     
HOUSE BILL NO. 5, "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 companies  that do                                                               
business in Sudan, and restricting those investments."                                                                          
HOUSE BILL  NO. 45,  "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 companies  that do                                                               
business in Sudan, and restricting those investments."                                                                          
HOUSE BILL  NO. 92,  "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 companies  that do                                                               
business  in  Sudan,  and   restricting  those  investments;  and                                                               
providing for an effective date."                                                                                               
CHAIR LYNN  announced that  public testimony  would not  be heard                                                               
until the next hearing on the aforementioned bills.                                                                             
8:08:20 AM                                                                                                                    
DIRK  MOFFATT,  Staff,  Representative  Bob  Lynn,  Alaska  State                                                               
Legislature,  presented HB  5 on  behalf of  Representative Lynn,                                                               
prime sponsor.  He read his testimony as follows:                                                                               
     On December 31,  2007, President Bush signed  in to law                                                                    
     U.S.  Senate  Bill  S.2271,  the  Sudan  Accountability                                                                    
     Divestment Act, and  it became Public Law  110-174.  In                                                                    
     Section  3   of  the  Public  Law   110-174,  the  U.S.                                                                    
     Government  gives support  and authority  to the  state                                                                    
     and local  governments to divest investments  in Sudan.                                                                    
     In  Section 7  of  the same  law,  the U.S.  Government                                                                    
     encourages other countries  to adopt similar divestment                                                                    
     measures  to stop  Sudan from  committing genocide  and                                                                    
     oppressing  its people.    This is  the  first time  in                                                                    
     history  that  the U.S.  Government  has  passed a  law                                                                    
     recognizing genocide while it's still occurring.                                                                           
     In Sudan,  the situation  is dire.   More  than 400,000                                                                    
     people  have been  killed,  an  additional 2.5  million                                                                    
     have  been   forced  from   their  homes,   and  untold                                                                    
     thousands  of women  and children  have been  raped and                                                                    
     abducted  since  Sudan   began  sponsoring  attacks  on                                                                    
     innocent  civilians  on  Darfur.    Alaska  should  not                                                                    
     invest   money  in   ...  Sudan   until  the   Sudanese                                                                    
     Government ends its policy of genocide.                                                                                    
     HB 5 mandates targeted  divestment and prohibits future                                                                    
     divestment  of  the  state-managed  PFD  [and]  pension                                                                    
     fund[s]  in  targeted  companies that  do  business  in                                                                    
     Sudan.   The overall  objective of this  legislation is                                                                    
     to  pressure  Sudan  economically  until  it  ends  its                                                                    
     genocide in  Darfur.  The  State of Alaska can  do this                                                                    
     with  slim to  no  impact on  our  fund manager's  wise                                                                    
     investment   mandate   to    invest   principle   while                                                                    
     maximizing  total  return.    Alaska  has  very  little                                                                    
     invested  in Sudan,  and it's  important  to note  that                                                                    
     none of the targeted companies in Sudan are American.                                                                      
     U.S.  Senator Sam  Brownback said,  "We've said  often,                                                                    
     'never again,' and  taken up the pledge of  'not on our                                                                    
     watch.'   We also need to  take of the pledge,  'Not on                                                                    
     our dime.'"   To date, 27 states  already divest assets                                                                    
     from companies  doing business  with the  government of                                                                    
     Sudan.   Alaska is  the forty-ninth  state to  join the                                                                    
     Union;  it  should  not  be  the  last  to  say  no  to                                                                    
     genocide, "Not on our dime."                                                                                               
8:11:39 AM                                                                                                                    
REPRESENTATIVE  GATTO  asked how  one  judges  when genocide  has                                                               
MR. MOFFATT  responded that genocide  [in Sudan] was  declared by                                                               
the  United  States  Government,  and  it  will  be  the  federal                                                               
government that declares when it no longer is happening.                                                                        
8:12:27 AM                                                                                                                    
REPRESENTATIVE SEATON  expressed his concern that  the intent and                                                               
scope of the bill be clarified for the record.                                                                                  
CHAIR LYNN  responded that  the bill is  strictly limited  to the                                                               
government of  Sudan.  If  the U.S.  were to declare  genocide in                                                               
another  nation,  that  would  be   a  matter  to  be  considered                                                               
8:16:11 AM                                                                                                                    
REPRESENTATIVE JOHNSON directed attention  to language on page 2,                                                               
beginning on  line 5, which read:   "The board shall  prepare and                                                               
update on  a quarterly basis  a scrutinized companies list."   He                                                               
asked if  it would  be possible  for a  copy of  that list  to be                                                               
given to the committee "in advance."                                                                                            
MR. MOFFATT said he would endeavor to make that happen.                                                                         
8:17:10 AM                                                                                                                    
REPRESENTATIVE WILSON directed attention  to the language on page                                                               
2, lines 18-22, which read:                                                                                                     
      (b) A company may not be included on the scrutinized                                                                      
     companies list if                                                                                                          
          (1) its primary purpose in Sudan is to provide                                                                        
     humanitarian goods  or services,  services of  a purely                                                                    
     clerical  or reporting  nature, or  food, clothing,  or                                                                    
     consumer   goods  that   do  not   include  oil-related                                                                    
     activities,  mineral  extraction activities,  or  power                                                                    
     production activities"                                                                                                     
REPRESENTATIVE WILSON asked if that includes guns.                                                                              
CHAIR LYNN  asserted that the whole  idea behind the bill  is not                                                               
to punish the people the bill would be aimed at helping.                                                                        
REPRESENTATIVE  WILSON  expressed  concern   that  the  bill  not                                                               
promote the  delivery of  weaponry to  those responsible  for the                                                               
MR.  MOFFATT  responded that  the  companies  that would  not  be                                                               
targeted would  be companies that  provide services, such  as gas                                                               
stations, to the people of Sudan.   He stated his belief that the                                                               
sponsor does  not support the importation  of military "material"                                                               
into Sudan.   In  response to  a follow-up  question, he  said he                                                               
would find the section in the bill that would support that.                                                                     
8:19:45 AM                                                                                                                    
REPRESENTATIVE   PETERSEN   noted   that  there   is   background                                                               
information  in the  committee packet  which includes  a list  of                                                               
companies that would be divested if HB 5 were to pass.                                                                          
REPRESENTATIVE  SEATON   directed  attention  to   a  legislative                                                               
research report  in the committee  packet, report  number 09.109,                                                               
dated January  23, 2009.   The Alaska Permanent  Fund Corporation                                                               
and other state  stock holdings subject to  divestment are listed                                                               
in a chart on page 4 of the report, he noted.                                                                                   
8:20:58 AM                                                                                                                    
REPRESENTATIVE LES GARA, Alaska  State Legislature, testifying as                                                               
co-prime  sponsor of  HB 45,  said that  he and  Chair Lynn  have                                                               
worked  for  a   considerable  time  on  the   issue  before  the                                                               
committee, and it doesn't matter so  much which of the bills move                                                               
forward, as long as  one of them does.  He said  it would be fine                                                               
for HB 92 to move ahead.                                                                                                        
REPRESENTATIVE  GARA,  in  response  to  Representative  Wilson's                                                               
previous  question, said  there is  a specific  exemption in  the                                                               
bill that  states that the  permanent fund cannot be  invested in                                                               
companies involved  in the  supply of  military equipment  to the                                                               
Sudanese Government.   He indicated that this has to  do with the                                                               
reference  to   "mineral  extraction  activities,"   because  the                                                               
Sudanese Government  basically gets  money for its  military from                                                               
its oil extraction.                                                                                                             
8:23:05 AM                                                                                                                    
REPRESENTATIVE  GARA, regarding  the  request for  the list  that                                                               
would  be  used  by  the Permanent  Fund  Corporation,  confirmed                                                               
Representative  Seaton's  observation  that  the  companies  that                                                               
would be  impacted by the  bill are listed in  the aforementioned                                                               
legislative research  report, and the effect  of divestment would                                                               
be on  less than one-tenth of  one percent of the  permanent fund                                                               
holdings.    He  stated, "The  [Alaska]  Retirement  [Management]                                                               
Board doesn't invest  in any of these companies  ..., and they've                                                               
been sympathetic  to this  effort all  along; it's  the Permanent                                                               
Fund  [Corporation] that  has  disagreed  with us  so  far."   He                                                               
added, "But  we don't  have the list,  because the  bill requires                                                               
that the ...  Permanent Fund [Corporation] create the  list."  He                                                               
said the corporation  could borrow a third-party  list being used                                                               
by other  states.  He noted  that there are 30  other states that                                                               
are in the process of divesting from Sudan.                                                                                     
REPRESENTATIVE  GARA stated  that  probably  over 400,000  people                                                               
have  been killed  by  genocide  in Sudan,  and  now  there is  a                                                               
problem   of   displacement.     People   are   being  put   into                                                               
concentration camps  where they  are dying.   The  United Nations                                                               
(UN) has  been trying to  stop the genocide,  but it can  only go                                                               
into a country with that country's consent.                                                                                     
CHAIR  LYNN  clarified  that  it   was  last  year  when  related                                                               
legislation had  no support from the  Permanent Fund Corporation.                                                               
He said  he has not had  a conversation with those  involved with                                                               
the  corporation to  determine  its present  attitude toward  the                                                               
current related bills.                                                                                                          
REPRESENTATIVE GARA  remarked that short of  having the agreement                                                               
of the  Permanent Fund  Corporation, proponents  of the  bill now                                                               
have the  investment expertise and  support of the  Department of                                                               
REPRESENTATIVE GARA  addressed the question  asked by many  as to                                                               
why the bill is limited  to investments in companies that support                                                               
the Sudanese  Government.   He said, "Many  of those  other areas                                                               
are  debatable.   Some  aren't.   But  the  Sudanese situation  -                                                               
that's genocide  - and we  draw the line  at genocide."   He said                                                               
there is  debate as to  whether China  is a productive  member of                                                               
the international  community or  not.   He mentioned  problems of                                                               
feasibility.   He related that  U.S. Congress has  already banned                                                               
United States companies  from operating in Sudan, so  there is no                                                               
worry  about the  impact to  American companies  or the  American                                                               
CHAIR LYNN remarked  that the previous and  current President and                                                               
U.S. Congress  have all  agreed that the  situation in  Darfur is                                                               
REPRESENTATIVE  GARA said  the  list of  companies  is small  and                                                               
manageable.  U.S. Congress has  already set policy and encouraged                                                               
states  to  move  ahead  with  divestment.    He  indicated  that                                                               
divesting  from  Sudan works  not  only  from the  standpoint  of                                                               
policy and feasibility, but also from a humanitarian standpoint.                                                                
8:29:17 AM                                                                                                                    
REPRESENTATIVE  SEATON  asked  if  after  the  initial  quarterly                                                               
report  there  would  have  to  be a  search  through  all  stock                                                               
holdings done on a quarterly basis.                                                                                             
REPRESENTATIVE GARA replied that the  quarterly report could be a                                                               
short  letter.     He  said   the  bill  would   disallow  direct                                                               
investments in particular companies.                                                                                            
8:31:08 AM                                                                                                                    
REPRESENTATIVE  GARA,   in  response  to   Representative  Gatto,                                                               
credited activist  groups such as the  Sudan Divestment Taskforce                                                               
and savedarfur.org  for doing  "the yeoman's  work" on  the issue                                                               
and  bringing  it  to  the  attention of  the  legislature.    He                                                               
directed attention to language [on  page 2, beginning on line 5],                                                               
which read as follows:                                                                                                          
     The  board  shall prepare  and  update  on a  quarterly                                                                    
     basis a  scrutinized companies list or,  in good faith,                                                                    
     rely  on a  scrutinized  companies  list generated  and                                                                    
     duplicated on  a quarterly basis by  another entity the                                                                    
     board determines has suitable expertise.                                                                                   
REPRESENTATIVE GARA said the goal of  that part of the bill is to                                                               
point out the various ways the information can be acquired.                                                                     
REPRESENTATIVE GATTO remarked on how  extensive the list of those                                                               
involved in  this issue is.   He expressed concern  regarding the                                                               
difficult   nature  of   enforcing   divestiture  without   every                                                               
investment somehow becoming connected to each other.                                                                            
REPRESENTATIVE  GARA   emphasized  that  the  bill   targets  the                                                               
companies that  work directly with the  Sudanese Government, such                                                               
as Sinopec  and the China  National Gas  Company.  He  noted that                                                               
one company  that had been on  the list has been  removed from it                                                               
because it divested and donated  its mineral extraction equipment                                                               
to relief efforts in Sudan.                                                                                                     
REPRESENTATIVE WILSON  said she supports  the intent of  the bill                                                               
but questions how it can be  carried out.  She talked about human                                                               
nature  in finding  loopholes to  laws.   She said  she does  not                                                               
understand  why U.S.  Congress did  not take  charge rather  than                                                               
leaving  it to  each state  to  come up  with its  own rules  and                                                               
REPRESENTATIVE GARA responded that  there are statutes to prevent                                                               
fraud but it still occurs.  He  stated that passing a bill is not                                                               
going to  stop genocide in  Darfur; however, it might  force some                                                               
companies   out  of   the  country   who  support   the  Sudanese                                                               
Government, and  that would be  a good  thing.  He  surmised that                                                               
most  of  the  other  states formulating  divestment  policy  are                                                               
relying  on similar  lists;  no one  is hiring  a  huge staff  to                                                               
monitor which companies  are doing business in  Sudan, and Alaska                                                               
should  not  either.   Representative  Gara  reiterated that  the                                                               
resulting  loss  of revenue  for  the  permanent fund  investment                                                               
would be  only a small percentage  of the money generated  by the                                                               
REPRESENTATIVE  WILSON   mentioned  footnotes   7  and  8   in  a                                                               
legislative  research  report  in  the HB  45  committee  packet:                                                               
report number  09.118, dated January  27, 2009.   She ascertained                                                               
that  there would  be a  representative from  the Permanent  Fund                                                               
Corporation invited  to testify in  an upcoming hearing  and said                                                               
she would wait until then to  express her concerns related to the                                                               
aforementioned footnotes.                                                                                                       
8:41:43 AM                                                                                                                    
REPRESENTATIVE SEATON brought  attention to the bill  title of HB
45, which read as follows:                                                                                                      
     "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                                                                  
     companies that  do business  in Sudan,  and restricting                                                                  
     those investments."                                                                                                      
REPRESENTATIVE  SEATON  said he  wants  to  know if  a  quarterly                                                               
report  would be  required from  the retirement  systems, annuity                                                               
plan, and deferred compensation program.                                                                                        
REPRESENTATIVE GARA replied  that he does not think  there is any                                                               
language in the  bill that would require such a  report, but said                                                               
he would look into  that.  He said the intent  is not to regulate                                                               
mutual funds  or investments in mutual  funds.  In response  to a                                                               
follow-up comment  from Representative Seaton, he  confirmed that                                                               
the bill  would ban  "the boards  of the  two big  entities" from                                                               
directly  investing in  corporations that  do business  in Sudan;                                                               
... it  would not  affect mutual  funds at all.   In  response to                                                               
another question  from Representative Seaton, he  reiterated that                                                               
the   bill  specifies   that  it   would  only   affect  targeted                                                               
investments in Sudan - those related  to the genocide.  The bill,                                                               
if passed into law, could not  be interpreted in a way that would                                                               
"broaden the  investment prohibition  aspect to  other situations                                                               
around the world ...."                                                                                                          
REPRESENTATIVE   SEATON  asked   Representative   Gara  to   give                                                               
assurance  that   the  administration  could  not   broaden  this                                                               
legislation  once passed  into law,  without coming  back to  the                                                               
legislature for specific legislation.                                                                                           
REPRESENTATIVE GARA  confirmed that  is correct.   He  added, "In                                                               
our  bill,   the  list  of  companies   are  called  'scrutinized                                                               
companies,' and that's defined as  the Sudanese companies on page                                                               
5 of the bill."                                                                                                                 
REPRESENTATIVE SEATON  said he wants  assurance from  the sponsor                                                               
of each bill that this is the case.                                                                                             
CHAIR LYNN  suggested perhaps Representative  Seaton may  want to                                                               
formulate an amendment to address his concern.                                                                                  
8:48:23 AM                                                                                                                    
REPRESENTATIVE GATTO commented that there  are a lot of places in                                                               
which  genocide  occurs, such  as  Cambodia,  but the  bill  only                                                               
addresses Sudan.   He questioned  freeing just part of  the world                                                               
from terrorism.   He reiterated  that he supports the  concept of                                                               
the bill, but thinks it may  be like running down a rabbit trail.                                                               
He asked  if the legislation is  fashioned to make a  point or to                                                               
"accomplish something on a global basis."                                                                                       
REPRESENTATIVE GARA  invited Representative Gatto to  view a film                                                               
or witness material  related to the Darfur genocide.   He said he                                                               
thinks doing  so will  show that  "the other  evils of  the world                                                               
aside, it's  appropriate to do  something about this one."   This                                                               
issue is  tied for first place  in the category of  things worthy                                                               
of acting upon, he concluded.                                                                                                   
8:52:01 AM                                                                                                                    
REPRESENTATIVE  PETERSEN   observed  that  it  was   an  historic                                                               
occasion  when  the  President and  U.S.  Congress  declared  the                                                               
situation in Darfur as genocide.   He explained that it had never                                                               
been  declared  before  while  it was  occurring.    He  directed                                                               
attention  to language  on page  6, line  24, which  supports Mr.                                                               
Moffatt's  previous statement  that either  the President  of the                                                               
United States or U.S. Congress will  make the decision as to when                                                               
the genocide has ended.                                                                                                         
CHAIR LYNN thanked  Representative Gara for his  tireless work on                                                               
the bill.                                                                                                                       
8:54:22 AM                                                                                                                    
PATRICK  GALVIN, Commissioner,  Department of  Revenue, presented                                                               
HB 92  on behalf of  the House Rules Standing  Committee, sponsor                                                               
by request  of the governor.   He  talked about the  joint effort                                                               
being made by  the sponsors of HB  5, HB 45, and HB  92 to oppose                                                               
the activities of  the government of Sudan in  the Darfur region.                                                               
He  echoed the  remark of  previous  testifiers that  this is  an                                                               
unprecedented situation  where genocide is being  labeled as such                                                               
by  the  government  of  the  United States  and  by  the  United                                                               
Nations,  while  it is  occurring.    He relayed  the  governor's                                                               
belief that that  situation "provides us with  a moral imperative                                                               
to act."   One way to take action is  through divestment of funds                                                               
from  businesses   involved  in  activities  which   support  the                                                               
government of Sudan.                                                                                                            
COMMISSIONER GALVIN  said last year  the department  testified in                                                               
support of  the concept of  a similar bill but  expressed concern                                                               
regarding the mechanism  that was being proposed.   He explained,                                                               
"We wanted  to be able to  achieve the goal and  to maximize that                                                               
result,    while   also    minimizing   costs    and   unintended                                                               
consequences."   With that in mind,  he said, HB 92  was crafted.                                                               
The goal  of HB 92 is  to achieve the divestiture  of the state's                                                               
funds  from  companies  involved with  the  Sudanese  Government,                                                               
while also  minimizing costs.   He  pointed out  that there  is a                                                               
zero  fiscal  note  in  the   committee  packet.    He  said  the                                                               
department supports the directive  of the legislature, as carried                                                               
out through  the accounting mechanism  of the  department, rather                                                               
than  burdening the  investment managers.   He  said HB  92 would                                                               
achieve the same result in a much less costly manner.                                                                           
8:58:11 AM                                                                                                                    
COMMISSIONER   GALVIN   stated   that  the   administration,   in                                                               
consultation with  the Department of  Law, has found it  does not                                                               
have  the  discretion to  implement  a  divestiture policy  alone                                                               
under   the  current   rules  and   statutes   that  govern   the                                                               
commissioner of the Department of  Revenue, the Alaska Retirement                                                               
Management (ARM) Board, and the  Permanent Fund Corporation.  The                                                               
proposed  bill, HB  92, is  needed in   order  to implement  this                                                               
policy,  he  said.    In   response  to  Representative  Seaton's                                                               
previously expressed  concern, he said  the language of HB  92 is                                                               
limited  to the  situation in  Sudan and  specific companies;  it                                                               
does not provide any sort of  gateway for other issues to be used                                                               
as an investment decision-making process in the future.                                                                         
9:00:16 AM                                                                                                                    
COMMISSIONER  GALVIN,  in  regard  to  [Representative  Wilson's]                                                               
question related to weapons  manufacturers, directed attention to                                                               
page 2,  line 28,  which specifies the  companies to  be targeted                                                               
would  be  those  that  conduct or  have  direct  investments  in                                                               
business operations  in Sudan.   He noted that the  definition of                                                               
"business  operations" is  found at  the  bottom of  page 3,  and                                                               
includes  "the   production  of  military  equipment",   and  the                                                               
definition of "military  equipment", found on the  bottom of page                                                               
4,  is  "weapons, arms,  military  supplies,  and equipment  that                                                               
readily  may be  used for  military  purposes".   In response  to                                                               
[Representative Gatto's] previously  stated concern regarding how                                                               
the legislature  will be  able to determine  it has  achieved the                                                               
desired  result  and  can  lift the  requirement  that  would  be                                                               
imposed  by  the proposed  legislation,  noted  that there  is  a                                                               
repeal of the statute on page 6,  line 18.  He explained that the                                                               
repeal could take place as  a result of two different situations,                                                               
both of which rely upon  actions of the President and/or Congress                                                               
in recognizing  that the situation  in Darfur has changed  and is                                                               
no longer one that requires this type of policy.                                                                                
9:02:29 AM                                                                                                                    
COMMISSIONER  GALVIN  said  the   department  proposes  that  the                                                               
commissioner   of  the   Department  of   Revenue  take   on  the                                                               
responsibility to generate for the  state the aforementioned list                                                               
of  companies.    That  list  would  initially  be  generated  by                                                               
December 31,  [2009], and  be renewed each  year on  December 31.                                                               
The  intent is  to stigmatize  companies  who are  placed on  the                                                               
list;  however, each  company will  be  given notice  that it  is                                                               
going to be placed on the list  and has, within 90 days, a chance                                                               
to  provide information  to convince  the state  why the  company                                                               
should not be on the list.  The  list would be made a part of the                                                               
department's  daily monitoring  of the  state's investments.   He                                                               
stated his  belief that the  Permanent Fund Corporation  would be                                                               
able to  monitor the list  and provide the Department  of Revenue                                                               
with compliance reports on a regular  basis.  He pointed out that                                                               
this  would be  a daily  activity, which  is in  contrast to  the                                                               
quarterly report mentioned in the other bills.                                                                                  
9:04:48 AM                                                                                                                    
COMMISSIONER  GALVIN  said it  is  accepted  among all  the  bill                                                               
sponsors that  the targets for  the divestiture policy  are those                                                               
funds  that  the  state  fully  controls, which  he  said  is  an                                                               
important  distinction within  "our  investment  portfolio."   He                                                               
     There  are certain  funds  -- if  we  are investing  in                                                                    
     what's generally  referred to  as an index  fund, where                                                                    
     we're trying to  match a particular index,  then we are                                                                    
     basically handing over the types  of companies that are                                                                    
     going  to be  in that  to  those that  would match  the                                                                    
     index.   And  we're not  able to  specifically identify                                                                    
     companies and  say these  are going  to be  excluded if                                                                    
     the whole purpose is to match the index.                                                                                   
     Similarly, if  we're into what's  referred to as  a co-                                                                    
     mingled fund or co-managed  fund, where there are other                                                                    
     owners besides  the state in  that fund, we  don't have                                                                    
     the contractual  right to direct where  the investments                                                                    
     are going to be.  And  so, it would only be those funds                                                                    
     that  we solely  have  responsibility for  that we  can                                                                    
     direct our manager  to take certain steps  to divest or                                                                    
     not to invest in particular companies.                                                                                     
     And  this  would go  to  even  some of  the  investment                                                                    
     options   that   are   provided   for   the   [deferred                                                                    
     compensation]  (DC)  programs  and other  similar  type                                                                    
     situations where  we are  providing a  particular fund.                                                                    
     If it's where  the state is solely  managing that fund,                                                                    
     then we will  have the opportunity to  tell the manager                                                                    
     that  we  do not  want  them  to  have funds  in  these                                                                    
     particular companies, and they would comply with that.                                                                     
9:06:41 AM                                                                                                                    
COMMISSIONER GALVIN said  reference has been made to  the size of                                                               
the impact of  the bill.  He  said there are proxies  by which to                                                               
measure this, and there are a  number of entities that have taken                                                               
on this task and generated lists.   Furthermore, there is a small                                                               
group of companies that have  provided the service of identifying                                                               
those  companies  and  providing  similar lists.    He  said  the                                                               
department  can   use  that  information  with   respect  to  its                                                               
investments within the ARM Board  in particular to find out "what                                                               
would pop up."   Having done so with information  through the end                                                               
of  calendar  year 2008,  he  reported,  there are  roughly  $3.5                                                               
million [that would  be divested], which is, in  the grand scheme                                                               
of  things,   a  small  percentage  of   the  total  investments.                                                               
Although  that may  be a  small number,  he said,  the department                                                               
believes that  both the message  and the purpose  of stigmatizing                                                               
the companies is an important function for the State of Alaska.                                                                 
9:08:48 AM                                                                                                                    
COMMISSIONER GALVIN said there have  been comments made regarding                                                               
the Permanent  Fund Corporation's view  on this issue.   Speaking                                                               
as  a   trustee  of   the  permanent   fund,  he   expressed  his                                                               
appreciation  of  Mr.  Burns,  the   executive  director  of  the                                                               
Permanent Fund Corporation  Board, and said the man  has been put                                                               
in a difficult position.  He  explained that Mr. Burns is working                                                               
on behalf of  the trustees, and the position of  the trustees has                                                               
always  been to  avoid  this type  of  social investment  policy.                                                               
Commissioner Galvin  said Mr. Burns  was just carrying  that out.                                                               
He said  he appreciates that  Mr. Burns' concern has  always been                                                               
with regard  to unintended  consequences and costs.   He  said he                                                               
thinks  Mr. Burns'  efforts on  this issue  have been  in keeping                                                               
with the  policy of  the Permanent Fund  Corporation.   He stated                                                               
his belief that the trustees  would likely support HB 92, because                                                               
of [the  zero fiscal  note] and  the moral  imperative associated                                                               
with it.                                                                                                                        
9:10:16 AM                                                                                                                    
JERRY BURNETT,  Deputy Commissioner, Department of  Revenue, said                                                               
the  department looks  at  [HB 92]  as a  compliance  issue.   He                                                               
related  that the  department's  custodial bank  is State  Street                                                               
Bank,   and  that   bank  has   a  contractor   currently  called                                                               
RiskMetrics   Group,   a   company    that   has   produced   the                                                               
aforementioned list  for other states.   Mr. Burnett said  such a                                                               
list  would  be a  starting  point  for  the department.    Next,                                                               
letters would be sent to  [the companies being targeted], because                                                               
of due process,  and they would have the  previously mentioned 90                                                               
days  in which  to  respond.   The official  list  would then  be                                                               
completed after that 90 days.   That list would then apply to the                                                               
ARM Board,  the commissioner  of the  Department of  Revenue, and                                                               
the Permanent Fund [Corporation], he said.                                                                                      
MR. BURNETT, in response to  a prior question from Representative                                                               
Seaton regarding  the state's Defined Contribution  (DC) plan and                                                               
Supplemental  Benefits System  (SBS), said  the DC  plan that  is                                                               
unique  to  the  State  of  Alaska  is  comprised  of  investment                                                               
options.   He  said the  department would  have the  authority to                                                               
direct  its  managers   not  to  invest  with   regard  to  those                                                               
investment options; however, it would  not have that authority in                                                               
the  case of  co-mingled funds.    Instead, it  would notify  the                                                               
managers, let them know who is on  the list, and ask - not direct                                                               
- them to divest.                                                                                                               
9:12:31 AM                                                                                                                    
REPRESENTATIVE  SEATON named  some  funds,  including the  Alaska                                                               
Target  25 Trust  and  the Alaska  Long-Term  Balance Funds,  and                                                               
asked if  they would be examples  of those for which  "we control                                                               
the investment."                                                                                                                
MR. BURNETT  said he would  have to  look those up,  because they                                                               
may be made up of "components which are a mix."                                                                                 
9:13:52 AM                                                                                                                    
COMMISSIONER  GALVIN, in  response to  a follow-up  question from                                                               
Representative Seaton, said, for example,  that the nature of the                                                               
state's  relationship with  Brandeis  International  may be  such                                                               
that it has a separate account within its fund.  He continued:                                                                  
     If that  is one  where we have  basically joined  in as                                                                    
     just  one  investor in  a  pool  of investors  in  that                                                                    
     particular fund, then  it would be one,  as Jerry said,                                                                    
     that we would be providing  them notice and asking them                                                                    
     to divest.   If  it's one where  we have  a contractual                                                                    
     relationship   that   would   provide   us   with   the                                                                    
     opportunity to direct them, then  we would be directing                                                                    
REPRESENTATIVE SEATON asked  the department to bring  to the next                                                               
hearing  a  listing  of  the  funds  and  a  description  of  the                                                               
characteristics of those funds.                                                                                                 
COMMISSIONER  GALVIN said  the  department  would pull  something                                                               
MR. BURNETT said the department would look into that.                                                                           
9:15:40 AM                                                                                                                    
CHAIR LYNN asked  Commissioner Galvin to explain why HB  92 has a                                                               
zero fiscal note.                                                                                                               
COMMISSIONER GALVIN answered:                                                                                                   
     It  goes primarily  to that  question  of passive,  co-                                                                    
     mingled, and  then the  nature of  the reporting.   Our                                                                    
     design is  to try to make  it - as we  both indicated -                                                                    
     something that  would fall into our  compliance shop as                                                                    
     opposed  to  something that's  going  to  fall out  and                                                                    
     become a burden  on other parts of our  operation.  And                                                                    
     then the issue with the co-mingled:   if we were put in                                                                    
     a position where we would  have to actually pull out of                                                                    
     investment  vehicles simply  to be  able to  provide us                                                                    
     with the  control necessary  to implement  this policy,                                                                    
     then that  would have a cost.   And so, those  are both                                                                    
     recognized in the other fiscal notes.                                                                                      
9:16:53 AM                                                                                                                    
MR. BURNETT  added that there  is an ongoing  compliance function                                                               
through  which the  department gets  compliance reports  from the                                                               
custodial bank  on a regular  basis, and  this would be  added to                                                               
that.   He indicated that no  further staff would be  required to                                                               
just look at one more factor.                                                                                                   
CHAIR LYNN asked  if there is any  language in either HB  5 or HB
45 that the department would like to add to HB 92.                                                                              
COMMISSIONER  GALVIN responded  that the  department has  done so                                                               
already  and  produced a  bill  that  it believes  maximizes  the                                                               
intent of providing the divestiture,  while meeting the structure                                                               
of  the state's  investment situation  so  that the  bill can  be                                                               
carried out in the least costly manner.                                                                                         
CHAIR  LYNN  stated his  intent  for  Alaska  to  do as  much  as                                                               
possible regarding this  issue; it does not matter  which bill is                                                               
used as the vehicle, he said.                                                                                                   
9:19:11 AM                                                                                                                    
REPRESENTATIVE WILSON  observed that in the  committee packet the                                                               
bill  sponsor has  included a  comparison of  the bills,  and the                                                               
changes made  in HB 92  are highlighted.   She asked if  the list                                                               
that is made is given at no cost.                                                                                               
MR.  BURNETT  answered  that  he  is  not  certain  of  the  cost                                                               
structure  or  how  it  would  be  incorporated  at  this  point;                                                               
however, he  said the list would  not increase the total  cost of                                                               
"our compliance effort."                                                                                                        
COMMISSIONER GALVIN clarified that the  list will be generated by                                                               
the commissioner of the Department  of Revenue.  Lists from other                                                               
entities will  be used as a  guide, he said.   The list currently                                                               
being produced  by RiskMetrics Group  will be used as  a starting                                                               
REPRESENTATIVE  WILSON  directed  attention  to  the  legislative                                                               
research report, dated 1/27/09, and asked  if HB 92 takes care of                                                               
the concerns mentioned in footnotes 7 and 8.                                                                                    
COMMISSIONER GALVIN  said the  department believes  it does.   He                                                               
offered further details.                                                                                                        
9:22:12 AM                                                                                                                    
REPRESENTATIVE PETERSEN said  he would like the  bill, if passed,                                                               
to be implemented as soon as possible.                                                                                          
COMMISSIONER GALVIN,  in response,  said the sponsor's  intent is                                                               
to implement the bill as soon  as possible; however, it would not                                                               
be immediate, because of the compliance notice.                                                                                 
9:23:21 AM                                                                                                                    
REPRESENTATIVE GATTO  observed that  HB 92 describes  the meaning                                                               
of business  and direct investment  and business operations.   He                                                               
then  turned to  page 4,  and  noted that  [paragraph (3)]  lists                                                               
specifics  defining  the  government  of  Sudan.    He  expressed                                                               
concern that  the language  would not  allow the  divestment from                                                               
Sudan to happen in an uncomplicated manner.                                                                                     
9:26:11 AM                                                                                                                    
COMMISSIONER  GALVIN returned  that it  is the  precision of  the                                                               
definitions to  which Representative Gatto referred  that is what                                                               
will make HB 92 implementable.                                                                                                  
9:30:01 AM                                                                                                                    
REPRESENTATIVE JOHNSON directed attention  to page [5], line [2],                                                               
[subparagraph   (B)],  which   states  that   military  equipment                                                               
"includes  radar systems  or  military-grade transport  vehicles,                                                               
supplies,  or  services sold  or  provided  directly to  a  force                                                               
actively  participating   in  armed  conflict  in   Sudan".    He                                                               
described  a  scenario  in  which   the  United  States  supports                                                               
Southern Sudan in a hypothetical  war against Northern Sudan, and                                                               
pointed out  that that  may result  in Alaska  not being  able to                                                               
invest in a  company that makes helicopters that  are involved in                                                               
the hypothetical war.  He suggested  a need for the definition of                                                               
Sudan to be clarified.                                                                                                          
COMMISSIONER GALVIN  responded that  he believes the  language of                                                               
the  bill  addresses  that  concern.    He  said  he  would  show                                                               
Representative  Johnson   where  that   language  appears.     He                                                               
explained that the ultimate definition  is business that supports                                                               
the government of  Sudan; therefore, if the U.S.  were to provide                                                               
military equipment to  Southern Sudan, it would  be excluded from                                                               
the definition of the government of Sudan.                                                                                      
REPRESENTATIVE JOHNSON said he plans to look into that.                                                                         
9:32:55 AM                                                                                                                    
REPRESENTATIVE SEATON directed attention  to the language on page                                                               
2, line  28, which read,  "companies that conduct or  have direct                                                               
investments in  business operations  in Sudan."   He  pointed out                                                               
that it  does not say, "with  the government of Sudan."   He said                                                               
he wants to ensure clarity.                                                                                                     
COMMISSIONER GALVIN  responded, "We'll make sure  that that's the                                                               
9:34:40 AM                                                                                                                    
MICHAEL   J.   BURNS,    Executive   Director,   Permanent   Fund                                                               
Corporation,  Department  of   Revenue,  confirmed  the  previous                                                               
statement  made by  Commissioner Galvin  that the  Permanent Fund                                                               
Corporation  Board's  longstanding  position  is  against  social                                                               
investing.   He  noted that  the  board will  be discussing  this                                                               
issue in its upcoming meeting on February 18 and 19.                                                                            
MR.  BURNS   emphasized  that  the   board  will  abide   by  the                                                               
legislature's  policy  in this  matter.    He indicated  that  he                                                               
thinks the  bill does as  good a  job with regard  to definitions                                                               
and geography.   Regarding index  funds and co-mingled  funds, he                                                               
said, "It  would be expensive for  us and very awkward  for us to                                                               
try to control those processes."   He suggested the committee may                                                               
want to consider exchange traded  funds, which he explained are a                                                               
small, but  focused type of  index fund.   When those  stocks are                                                               
purchased,  he  said,  "You  buy  the  basket  -  you  don't  buy                                                               
individuals in there."                                                                                                          
MR.  BURNS  relayed  that  the   most  important  issue  for  the                                                               
corporation  relates to  how the  commissioner  would come  forth                                                               
with  the aforementioned  list and  the  responsibility that  the                                                               
corporation would have to monitor  whether its investments comply                                                               
with the  list.  He  stated, "We really don't  want to be  in the                                                               
list  business.   We're  busy  enough trying  to  make the  right                                                               
9:39:00 AM                                                                                                                    
COMMISSIONER GALVIN, in response to  Chair Lynn, said he does not                                                               
feel the committee needs to wait  until the board meets before it                                                               
hears these  bills again.   He  said he  would bring  forward any                                                               
concerns before the committee's next meeting.                                                                                   
9:40:07 AM                                                                                                                    
REPRESENTATIVE  WILSON referred  again  to footnote  [7], to  the                                                               
last  sentence,   which  read,  "Gary  Bader,   chief  investment                                                               
officer, Alaska Department of Revenue,  expressed his belief that                                                               
Alaska  funds  would  likely perform  substantially  worse  after                                                               
divestment."  She asked if Mr. Burns would like to comment.                                                                     
MR. BURNS remarked that that is the first time he has seen that.                                                                
COMMISSIONER GALVIN  noted that Gary  Bader works for him  as the                                                               
chief  investment  officer  for  the treasury.    He  stated,  "I                                                               
believe what  he was referring to  was that the structure  of the                                                               
bill  that was  introduced  last year  dealt  with requiring  the                                                               
state to basically  pull out of a number of  our co-managed funds                                                               
and potentially our index funds,  and that that, in itself, would                                                               
result in a  potential loss of investment revenue."   In response                                                               
to Chair Lynn, he confirmed that  Mr. Bader had been referring to                                                               
last year's  bill.   He added  that he is  not sure  where "those                                                               
comments"  are from,  but speculated  they might  have been  from                                                               
personal conversations  held by  a staff  member with  Mr. Bader;                                                               
therefore, he  said, they  are not  on-the-record but  are simply                                                               
9:42:34 AM                                                                                                                    
REPRESENTATIVE PETERSEN  asked Commissioner Galvin to  clarify if                                                               
he thinks the  exchange-traded funds should be added  to the list                                                               
of mutual-type funds over which there is no control.                                                                            
MR.  BURNS  said  he  does  not   think  that  type  of  fund  is                                                               
specifically referenced,  and he said  he would like to  get back                                                               
to the committee on the subject.                                                                                                
9:43:15 AM                                                                                                                    
REPRESENTATIVE SEATON  related that  he is much  more comfortable                                                               
with   the  process   that  the   Commissioner  of   Revenue  has                                                               
established regarding the  list and the 90-day  period that would                                                               
be given to the companies to come into compliance.                                                                              
9:43:54 AM                                                                                                                    
CHAIR LYNN said he is encouraged  by what he has heard during the                                                               
testimony  on  HB  5,  HB  45,  and HB  92.    He  expressed  his                                                               
willingness  to  work  together  with the  governor  to  get  the                                                               
desired legislation passed.                                                                                                     
COMMISSIONER GALVIN expressed his thanks to Chair Lynn for                                                                      
bringing the issue forward.  He stated that the governor and her                                                                
entire administration feel strongly about the issue.                                                                            
[HB 5, HB 45, and HB 92 were held over.]                                                                                        

Document Name Date/Time Subjects
HB005-REV-APFC-01-26-09.pdf HSTA 1/29/2009 8:00:00 AM
HB 5
HB045-REV-APFC-01-26-09.pdf HSTA 1/29/2009 8:00:00 AM
HB 45
HB5-DOR-TRS-1-20-09.pdf HSTA 1/29/2009 8:00:00 AM
HB 5
HSTA - (HB-5) 1-26-09 Sponsor Statement HB 5 Divestment.doc HSTA 1/29/2009 8:00:00 AM
HB 5
HSTA - HB 5 News Articles.pdf HSTA 1/29/2009 8:00:00 AM
HB 5
HSTA - HB 5 Divestment Letters of Support.pdf HSTA 1/29/2009 8:00:00 AM
HB 5
HSTA - HB 5 Sectional Analysis.pdf HSTA 1/29/2009 8:00:00 AM
HB 5
HB45-DOR-TRS-1-20-09.pdf HSTA 1/29/2009 8:00:00 AM
HB 45
HSTA - HB 45 Sectional Summary.PDF HSTA 1/29/2009 8:00:00 AM
HB 45
HSTA - HB 45 SNCJ--Sudan Divestment.pdf HSTA 1/29/2009 8:00:00 AM
HB 45
HSTA - HB 45 Sponsor Statement.doc HSTA 1/29/2009 8:00:00 AM
HB 45
HSTA - HB 45 Sudan Divestment--Research report.pdf HSTA 1/29/2009 8:00:00 AM
HB 45
HSTA - HB 92 Compliance Procedures Sudan Divestiture Legislation Comparison HB92.pdf HSTA 1/29/2009 8:00:00 AM
HB 92
HSTA - HB 92 Letter - Galvin - Sudan hearing letter HB92.pdf HSTA 1/29/2009 8:00:00 AM
HB 92