Legislature(2003 - 2004)
04/05/2004 08:00 AM Senate JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 379-PERM FUND BOARD PUBLIC MEMBER REMOVAL MR. MIKE BARNHILL, Assistant Attorney General with the Commercial Section of the Department of Law (DOL), presented SB 379 and explained that this bill would authorize the dismissal of Alaska Permanent Fund Corporation (APFC) board members only for cause and lists the kinds of causes as inefficiency, neglect of duty, misconduct in office, or conviction of a misdemeanor or felony involving moral turpitude. SB 379 provides for due process for board members, which includes a hearing before the governor or a governor's designee, after which the governor of designee will prepare a statement. MR. BARNHILL pointed out that SB 379 is modeled after AS 16.05.280, which pertains to the Board of Game. The bill will provide insulation for board members from partisan politics during a change of administration and provide for continuity in the board, especially important when managing a $28 billion fund. He deferred to Mr. Storer for a more detailed analysis of the policy reasons for this change. MR. ROBERT STORER, Executive Director of the APFC, informed members the APFC board is comprised of six members: two cabinet members, one of which must be the commissioner of revenue; and four appointed members. Board members serve staggered four-year terms, so that one member's term expires every June 30. He estimated that 19 boards in Alaska have protection for board members from removal for cause, including the Alaska State Pension Investment Board. At least on two occasions, governors have replaced five of the six board members upon taking office. APFC believes continuity among the board is important and does not want to run the risk of such a turnover again. He believes it takes at least a few years for a board member to get "their hands around" all of the asset management issues involved in managing a large institutional fund. APFC is looking at sophisticated management approaches that require one to two years of study. He has found that continuity during transition enables new board members to learn more quickly because they are able to leverage the experience of the existing board members. He noted that with a new governor [under SB 379], the board has the potential for two new members immediately, and then a third replacement six months later when that member's term expires. The APFC believes SB 379 is necessary for the long term success of the fund so that continuity and institutional memory are available and so that new board members can leverage that experience. SENATOR OGAN referred to the language on page 1, line 8, and asked if either the misdemeanor or felony must involve moral turpitude or whether any misdemeanor conviction would be cause for removal. MR. BARNHILL said both must involve moral turpitude. SENATOR FRENCH asked if anyone has ever been removed from any state board for conviction of a felony or misdemeanor. MR. BARNHILL said he anticipated that question and asked anyone with institutional memory but no one could recall any board member ever being dismissed for cause for any reason. He noted that Mr. Storer thought one board member was dismissed for cause but did not know whether that was for committing a crime. MR. STORER said his recollection was from a discussion he had some years ago with Jim Baldwin, Assistant Attorney General, and the board member discussed was clearly not related to the APFC or the Alaska State Pension Investment Board. SENATOR FRENCH asked the reason behind restricting the crimes to those of moral turpitude and opined that most crimes involve questions of moral turpitude. He recounted that a dispute recently occurred in Anchorage over whether a teacher who had been found with narcotics in his home should be removed from the classroom, which the teacher eventually was. CHAIR SEEKINS pointed out that language is standard contract language among large business corporations. MR. BARNHILL reminded members that language came from the Board of Fisheries statute, which has been on the books since 1992. CHAIR SEEKINS said he does not have a problem with that language and believes the bill is a great step forward. He complimented Governor Murkowski for his efforts with the legislation and for not replacing the APFC board. Having been an APFC board member, he agreed that continuity is very important and that members should be of high moral character. He believes SB 379 reflects the practice of the current governor. SENATOR OGAN maintained that the people elect a governor who reflects the political philosophy of the majority of the people. The governor routinely appoints cabinet members whose philosophies parallel his own. And, while the governor is the CEO of the state, he shudders to think that a corporation would wipe the slate clean every four or eight years, but that opportunity is his prerogative and perhaps there is a good reason for the change. He hypothesized that the governor might decide that the state should invest in a pipeline using a portion of the permanent fund and that board members who support that philosophy need to be appointed. He said this legislation could tie a future governor's hands and he is not convinced the legislation is necessary. CHAIR SEEKINS pointed out that commissioners and Board of Fisheries members are confirmed by the legislature. He then asked if an investment in the pipeline using the permanent fund would not be allowed without legislative approval because the legislature controls the asset allocation formula. MR. STORER said the legislature controls the limits that can be applied to equities and other types of investments, either through statutory limitations of certain asset classes or by changing the statutory list of the types of investments. He noted, in response to Senator Ogan's hypothetical example, the permanent fund board would still be driven by the prudent expert list - fiduciaries must follow a process to make an informed decision. He added: What I was speaking to was the types of sophisticated investments when you look at now that require years of investments. If I can take that hypothetical question, investing in a pipeline may or may not be within the fiduciary ability of the board in the decision making process so, let's say the board determines that it is outside their fiduciary responsibility, absent legislative direction, and the governor says thou shall invest in a pipeline and the board says no, we can't, we've looked at it and here are the reasons why. Under the current system the governor could replace the board members and put in a board that's less sensitive or has less experience in the magnitude of what it takes to be a fiduciary of a large public fund. I was speaking earlier towards more of the sophisticated investments that we are looking at but there are political implications on both sides of that fence in the hypothetical question. SENATOR FRENCH asked Mr. Barnhill to explain whether the language on lines 10-13, about the opportunity to be heard at a public hearing, is standard language. MR. BARNHILL said that language also comes from the Board of Fisheries language. SENATOR FRENCH asked if a board member would have the right to appeal a decision. MR. BARNHILL said there is no right of appeal but, presumably, once the governor or his designee issues a written decision, the decision could be the basis of a lawsuit. SENATOR OGAN asked if the lawsuit would be for defamation of character. MR. BARNHILL replied that anything can be the basis of a lawsuit. He noted the aggrieved board member could seek reinstatement if the member could demonstrate a violation of due process. The court would fashion the remedy. CHAIR SEEKINS commented, "When I look at it, the history of it until now, on a change of governor there's just been a wholesale change. I don't think that's a good policy." SENATOR FRENCH felt the governor should have the option of removing any board member that has been convicted of a misdemeanor or a felony without having to consider whether that crime involved moral turpitude, even if the crime is shoplifting. He proposed amending the bill to remove the words involving moral turpitude. In response to Senator French's concern, MR. BARNHILL gave with a few examples of felonies involving moral turpitude: · Murder in the first degree · Murder in the second degree · Manslaughter · Assault in the first degree · Assault in the second degree · Kidnapping · Sexual assault in the first, second, or third degree · Incest · Unlawful exploitation of a minor · Robbery in the first or second degree · Extortion · Coercion · Theft in the first or second degree · Burglary in the first or second degree · Arson in the first or second degree · Criminal mischief · Forgery · Falsifying business records · Receiving a bribe · Perjury · Escape · Promoting contraband He felt finding a crime that does not involve moral turpitude would be challenging. SENATOR FRENCH asked if assault in the third degree is on the list. MR. BARNHILL said it is not. CHAIR SEEKINS asked the will of the committee. SENATOR THERRIAULT said he would like more time to look at the list of crimes. CHAIR SEEKINS announced that he would hold SB 379 in committee.