Okay, I'm going to call this meeting of the House Finance Committee to order, let the record reflect that the time is currently 1.52 PM on Friday, January 30, 2026 present today. We have representative more representative.
Kuchar Josephson's supposed to have the gavel.
He is currently presenting on a bill in another committee,
so he will be here shortly.
And so present today with our staff,
we do have committee assistant Helen Phillips,
Paige Talula, LaStufka, and Secretary Bree Wiley,
as well as Secretary Leah Frazier.
We have also our moderator, Emily Mesh,
From the LIO so with that if folks could remember to please also have with us for representative. Oh
Calvin
Totally fine
If folks can just mute their cell phones and in today's meeting we'll hear the Department of Revenue
Present on the state's savings reserves and investments
With us today is Janelle Earls acting Commissioner
and joining her from the Treasury Division is Pam Larry, Director and Zach Henna, Chief
Investment Officer, Acting Commissioner Earls. If you could, as well as Director Leary and
CIO HANA, if you can please come forward and put yourselves on the record. And thanks
for joining us and proceed as you would like.
Thank you, Co-Chair and members of the committee. I am Janelle Earl's Acting
administrative services director for the Department of Revenue.
Today I am here to introduce our great treasury team,
treasury director Pam Leary and chief investment officer,
Zach Hannah. They are going to go through all
funds and investments and should be able to answer any of your questions.
And I will be here but I'm going step away.
Great.
I am Pam Leary, the Director of the Treasury, and thank you for the opportunity to present
to you.
Slide two is our agenda.
And so first we're going to introduce you to the functions in Treasury.
And then we are going take a deeper dive into cash management followed by an update of
the treasury's investment funds.
We have a chart that shows the four sections of the treasury division that touch investments and cash flows
We are 40 professionals that work in these sections with strong longevity
In fact treasury leadership has an average of 17 years at the Treasury many of our staff have professional
designation such as CFA like CIO Hannah, which is a treasured financial analyst and CPA's
which is a certified public accountant like me.
The box in red shows the portfolio management team, also called the front office,
where 16 investment staff invest the assets for state fiduciaries.
The team performs or oversees 120,000 trades annually,
develops asset allocations and investment policies
on behalf of hundreds of state accountants that roll into 45 investment funds,
supported by about 150 investment managers
and over 700 private equity funds.
That is a lot, more than last year in fact,
and about half of the assets are managed internally.
And you'll hear more about that from CIO, Hannah, a bit later.
The green box is the accounting and operations side of the house, also referred to as the back office,
which ensures that those 120,000 trades and costs are all directed and accounted for in the correct amounts and in right funds.
The purple box in lower left is in middle office where compliance and performance reporting is housed.
The compliance group helps protect invested assets by monitoring adherence to laws, rules,
regulations, contracts, policies, and guidelines.
They perform more than 75 compliance tests on trades daily.
The performance group calculates the performance for 45 funds every day.
This group also supports the other sections as the data management center bringing technology
into our daily practice to make us more efficient and knowledgeable.
Cash management in the teal colored box on the lower right is arguably one of the most important central functions provided to the state.
Processing thousands of transactions daily that support the revenue and expenditure in accounting systems.
They oversee all of cash flows into and out of state to ensure that the general fund has sufficient balances to pay our bills.
They also coordinate with our investment team daily to maximize our invested cash amounts.
I will talk a little bit more about cash management in the next slides, but we'll say that managing
cash flows and investing $58 billion in numerous investment funds is as complex as it sounds
and I would take this opportunity to acknowledge our very skilled team for the work they do
in this strong track record that they have.
Cash management provides many core services to the state from maintaining bank contracts for
depository services and credit card acceptance programs to working with departments on federal
programs.
But arguably the most important daily task is managing state cash flows.
As the graphic on the right shows, cash inflows come from various sources, tax revenue, federal
while cash outflows are made to pay for payroll, pensions, Medicaid, and permanent
fund dividends to name a few. As I will discuss later, the cash management team
has experienced in working with the state's reserves to ensure we have
sufficient cash balances to pair bills. According to Pew Trust research, Alaska's
primary rainy day fund to the constitutional reserve budget was the
second highest of all states in terms of being able to cover our operating
With the passage of SB 26 starting in 2019, revenue began coming into the Treasury from the Earnings Reserve Fund managed at the Alaska Permanent Fund.
This is allowed for fewer draws from The Rainy Day Fund and has been a welcome tool to manage cash flows,
especially with uncertainty surrounding the amount of timing of cash flow.
We've got a question for Representative Galvin.
Thank you, co-chair Foster, through the chair.
I appreciate.
all of the information we're going to receive
and are receiving right now.
And I just wondered if you could give me context
around the significant reserves.
So that's what I'm saying is that we were told
we are the second highest of 50 states.
My question is, is there some sort of best practice
for what a state like ours might have in reserves?
Are we exceeding that or I'm just trying to help us have a little bit more context for that decision?
Through the chair, thank you, Rip Galvin, for the question.
So our $2.93 billion in reserves is a higher absolute number.
And when the Pew Trust looks at the rankings,
it looks that how many days one could cover our operating
expense with that amount.
And I think it's why Omen's the highest with like.
a year or more, ours is about 191 days to cover our operating expenses.
I think answers that could could be made to that.
I mean, every state as individual, some states, I believe,
have some type of formula.
I know that municipalities sometimes use formulas.
Certainly, coverage of days is an important one to have.
So from an absolute standpoint and the Pew Trust standpoint,
I'd think it's adequate right now.
I now there are always questions, what is enough?
And that is, I think, a budgetary and administrative question.
We've heard a lot of numbers over the years, and I
think it's what that number is is still in question?
A follow-up?
Follow-ups.
Thank you.
So I could imagine that the various ratings organizations
would evaluate where we are for not just with cash flow,
but with other pieces as well.
standards that they go by, we're in, they look for, oh well they are at least 150 days or whatever that is.
I guess to have a little guidance around that, particularly as we know we are in a very fiscally tough time right now.
And to just kind of look at all of our options, it would be nice to know that we aren't putting ourselves in any risk of.
downgrading any of our ratings, but at the same time I would be grateful to have a little
bit more certainty around what are these ratings groups looking at when they look at this particular
Through the chair rep Galvin at some point we'll have our debt manager come and talk to you about the rating agencies
I do know that we had
I think it was four upgrades last year and that's based on or in the last couple of years
looking at
fiscal restraint certainly and also knowing the reserve balance and the stability of
As we know a lot of it's coming from the earnings reserve right now, so I
Don't know exactly what the rating agencies have and I'm not sure that
Our debt manager will be able to tell you explicitly, but the fact that our ratings have
Continued to be stable and had upgrades I would say that they think we're doing okay
at the moment
Representative Schruggie
I think you coach your foster just a quick comment on that
Back and forth it seems to me that while we have a very large cash reserve
We also have much more volatile revenues
And I really any other state in it warrants a larger reserve because we may see dips in oil revenues for a prolonged period
So it's very very hard to
I mean, I'm sure there are best practices and metrics by which the rating agencies evaluate
us, but I think it's very hard to create a standard based on the rest of the country
given our very unique budgetary volatility.
Is that, would you agree, generally, with that sentiment?
Through the chair.
Representative Shaw, either.
I would agree with the sentiment.
Our revenue stream is a little bit more certain,
and we'll get into that a
little down the line as the earnings reserve
has represented a larger portion of our revenue
stream.
Thank you.
We're seeing if Tom Shefsky.
Thank You, co-chair Foster, through the chair.
I'm just going back to slide forward.
You talked about your investing on behalf
of hundreds of state accounts.
That role in 245 plus investment funds and it made me think of a question
I didn't ask the Department of Labor and the UI fund is that one of the funds that you would be investing
But the monies in that unemployment insurance fund
Through the chair representative Tamashaski
Yes, it's one. Of the funs. I believe that's in the general fund and we'll get into the details of that
follow-up follow up and so do you invest those separately or are together like the
Hundreds of accounts. Are they pulled together and are you good? Do we have information on that?
How they're doing and what the investments are looking like and
Where all that interest goes? Sure
Through the chair
We are going to talk about the Jafansi a little bit later which that fund rolls up into we'll talk
about The returns the jafanzi is one of the what we have to javansy one and two those are
investment funds and that they
invest in
management funds, and
So their overall
Returns on any given day are the same cash flows in and out would mean that there
would be slight differences like for a fiscal year,
how much returns each one of those got,
because they are accounted for separately.
But every single day, we calculate what that interest is
and assign it to all of the different funds
that we manage within the Gigi Ponzi.
No way, thank you.
Herbs and independent.
Thank you, Coach, your foster.
So Larry, since we returned to slide four.
You have 40 people in the division, 16 in portfolio management.
Would you give me the numbers in any other three sections?
I can try to do that.
I do have our numbers right here.
We haven't broken up a little bit differently, but I would say our cash management, we have.
of those where we have staff currently that are not vacant.
We have five cash management positions and 12 in what I would call
the back office operations and administration.
Follow-up?
Follow us.
You're changing vernacular for me.
So is the back office, the accounting and operations?
Okay. And then what's that leave us for compliance?
Oh, compliance is actually a part of that group.
I'm sorry. Okay, all right.
I have them organized a little bit differently.
So I was trying to do the math.
All right, 40 total in the division.
We currently have 40 filled right now, but that also includes debt management.
It also include unclaimed property, which I will give a shout out, unclamed property
day is February 1st, so everybody will go look for your missing money.
And then we have an armed board liaison,
which is generally considered a part of the portfolio group because they deal, she deals
Most of the retirement management investments.
Okay, one more follow-up.
Thank you, co-chair.
And Ms. O'Leary, is the cash management division where all the cannabis tax revenue would end up because it is physically cash?
Or is that not here because its tax?
All cash comes through cash management.
So if cash for whatever purpose funnels through and fun
nels out of the cash
management function they're kind of
the gatekeepers of
the bank of
the state.
Okay thank you.
Back to slide six and director
O'Leary.
I think I am
through with slide six and moving on to slide seven,
if that's okay, Coach.
On slide 7, we have detailed why we
have revenue and expenditure uncertainty.
Unrestricted general fund revenue comes from
two main sources to represent Shraghi's point,
oil revenue, and investment earnings.
Oil is a commodity, it's quite volatile,
both in terms of price and quantity.
Permanent fund investments is much less volatile due
to the percent of market value formula that provides certainty
in the current year and in next year.
Further because investments are providing a greater share
of unrestricted general revenue projected to be more
than 60% this year, and next we have a bit more certainty
with revenues at least in a short term.
Long term is another question.
While they are those are generally planned there can be uncertainty in terms of amounts and timing and those fall into a couple of categories
For example federal programs require that departments spend the money before we call for a reimbursement
So there's always money going out the door before coming in
Also, there tend to be larger appropriations at the start of fiscal year, largely in due
because of the appropriations that get settled for the next year start going out.
And so funds need to available for those.
Slide 8 defines cash flow deficiencies and revenue shortfalls and how we deal with them.
Over time as more sub funds were created, the general fund proper had less money in it to pay our bills.
And that resulted in our need to monitor our cash balances more closely.
Cash flow efficiencies are common and they can be addressed by managing the timing of receipts and payments.
An example of this is when we spread out an appropriation payment across the year rather than just transferring the funds at the beginning of the
year, and we often will work with departments and divisions to make sure that that can happen.
There is a memorandum of understanding.
between the Departments of Revenue, Administration, OMB, and Law that outline steps that we follow.
And those are shown on the right-hand side of the slide.
This is what we do if we have a cash deficiency, which is currently defined as forecast cash dipping below $400 million for five days.
starting to get lower and lower in our forecasting tools, which we update daily.
It's remedied by taking our borrowing from the earnings reserve or the budget reserves.
deficiencies. It occurs when revenue is insufficient to cover general fund
appropriations in any given fiscal years when you have a deficit basically. The
legislature generally includes language annually in the operating budget which
And Treasury is relying on this appropriation to authorize use of budget reserve funds to address both the revenue, shortfalls, and the cash flow time mismatches.
The CBRF, the Constitutional Budget Reserve, has been used to cover revenue short falls historically,
although the statutory budget reserved has also been use in the past.
Moving on to slide nine.
The graph shows forecasted an actual cash for the first half of this fiscal year 26.
This is updated daily after the cash management team works with the departments and analyzes all the anticipated payments and incoming revenue for any changes they expect to the forecast.
cannabis cash is going to be going
to change different from what they
can had anticipated. The tax
department will let us know so we can
update our cash forecast and that gets
built into this diagram.
Another example is if, which actually happened a few years back, when there was a decision
to pay permanent fund dividends a little bit earlier than had planned, we hadn't made
a cash call, and so we had to change our cash-call plans.
Sometimes we're anticipating funds that just don't come in,
such as when federal government announced it was going to shut down certain payments
or if federal dollars are taking longer
to show up as reimbursements.
And the cash management team has to be responsive and able to
readily react to these scenarios and they do so on a daily basis.
Now that the earnings reserve account is our primary tool in addressing cash deficits at the start of each year
we create an expected ERA draw and
We work with the permanent fund corporation
to come up with a plan that works for them as well as our cash needs and
It seeks to maximize investments of the Earnings Reserve and to also not go below our four hundred million dollar threshold
We've actually increased the number of draws of the last couple of years to provide greater flexibility and known liquidity needs and
We will have made I think 61 draws at the end of this fiscal year from the earnings reserve
totaling twenty six billion dollars over the past eight years and
We've had to revise our schedules from time to time,
but maybe only a couple of times per year
due to unknown circumstances.
Got a question, Representative Hennen.
Thank you, Coach Airfoster.
And just because you took the time
to print that diagram that has a dramatic dip,
and my old eyes can barely make it out,
but it looks like August 11th and 12th,
dip I can't tell what caused it I assume that in your key you probably do and can you tell me
did that require an action of drawing a cash reserve or was the rebound fast enough that
the next day the problem was resolved and it kind of date wise in my recollection was this
federal shutdown and transfer or through the tier representative hannon that actually was a planned
dip and recovery and we generally show it separately on different days I think last
year it was in the opposite direction but we I believe at that point we're getting ready
to make the transfer of dividend fund balances from the general fund into the permanent fund
I think on a counting basis, it all happened at once.
So the cash never actually physically dipped below our threshold.
But this is just an example that allows us to see.
And there is data in back of this, as you can imagine,
spreadsheets that allow us aggregate and show
how the money is moving.
For me to know what's happening and also for like the investment team in terms of where cash is going to be
Represented. Thank you. So coach your foster just so even though it looks really dramatic
To us and this one slide in this 1 capture of that one day
This is something that we would see annually when we're moving that money in preparation for cutting dividend checks and
You've scheduled it that way, and it doesn't surprise you.
It's just that we're seeing it in one isolated discrete slide.
And.
Through the chair, Representative Hammond.
That's correct.
And sometimes there is a direct payment
into the permanent fund dividend fund,
and then it does not even go through the draw fund.
Which is unusual normally.
So you, yes, it is normal.
It is part of our process.
It just, a good example to discuss here.
Got my attention.
thank you. Please proceed. So the last item on this slide highlights the
integration of our cash and investment teams. Every day based on the forecast and plant cash
flows, cash management projects cash expected to be available for investment and then works
with our portfolio team to ensure that all expected funds are fully invested.
Cash management is a small but mighty team with a big impact throughout the
state and they do a great job. So with that, I'd ask if there are any questions and
if not, we will move on to a discussion on treasury investment process and
CAO Hen and Anna if you could introduce yourself again certainly for the record
I am Zach Hannah Chief Investment Officer for The Treasury Division and Department of Revenue
We will be switching gears now and talking about on both investment process and then going through funds
I'm kind of one by one in terms of the material funds that impact
Kind of The treasury and so page 11 is a summary of process that treasury uses to set over 25 investment policies
for four fiduciaries of a state
Commissioner revenue is a sole fiduciary for many of the state funds that we'll be covering today and
For the past six years treasures used a formal state investment review to develop and recommend investment policy
Symbols the commissioner investment staff and an independent investment advisory committee
We use a similar process to what we use for the retirement board investments
We review financial markets and performance for each fund quarterly
and at least annually we review capital market assumptions
and recommend asset classes and underlying investments.
And we go through each fund to recommend
an appropriate investment policy and asset allocation
that considers fund investment objectives
and attributes like time horizon and liquidity needs.
All treasury investment recommendations
to state fiduciaries are thoroughly vetted.
They adhere to State law
and are consistent with best investment practice.
The full quarterly investment review packets
are available online on our website.
Those are linked in the back of this presentation
in The Appendix if you wish to take a look
at kind of the full packet in a full process.
Page 12 has general capital market performance information.
Over the past few years we've experienced
really an extraordinary economic cycle.
We went through a global pandemic with high stimulus and near zero interest rates.
Then markets faced a surge in inflation followed by one of the fastest interest rate hiking cycles in history.
Today inflation is moderated to more reasonable levels.
And over the last three years, capital markets staged a strong rebound.
As you can see in the far right chart, which rank orders asset class returns each year,
performance was all positive last year for 2025.
So it's led by a 32% return for international equities and on down the list, including 7% returns for fixed income and 4% for cash equivalents.
So this is the backdrop for the returns that will go through by asset class and fund.
Page 13 has the performance for asset classes that Treasury manages for state portfolios.
These are combingled investments that we use in different proportions to construct portfolios
that are diversified, low cost, and have high liquidity.
We manage over 80% of these funds internally and focus on delivery market returns with
consistent upside.
The tip on the right, the top section, has a total performance for each asset class followed
by a section with benchmark performance and then finally a stoplight section
As you can see, returns were strong in the top section with cash and bond returns ranging
from 5 to 8 percent and equities from 2 to 33 percent.
And in bottom benchmark relative section, the returns are also strong overall.
For state portfolios, most of the assets are in first three categories from cash through
core fixed income.
Bless you.
These are all internally managed, and Treasury has produced consistent excess returns over
time.
with excess returns from 24 to 42 basis points or 0.24 to 0,42 percent. So a basis point is 1-100th
of a percent and so overall strong positive returns across the state investment pools which
we'll go through by fund here shortly. Representative Hannon. Thank you,
We've got one year, three year five year seven year and ten year.
Those are predictive going out or reflective.
Through the Chair, Representative Hannon, those are historical returns for those investment.
Okay, so.
Through 1231.
Okay.
Thank you.
Okay so page 14 summarizes the overall investment results for the year across treasury portfolios and
quantifies the financial impact.
Director Lear and I have the honor of working with really a great team of professionals
They all take a lot of pride in working to generate strong results for the state
Overall last year returns were 12.9% across all the funds that Treasury manages all 58 billion
Both retirement and state accounts
Resulting in 6.7 billion and gains for The calendar year
Representative Kelvin
Thank You co-chair faster through the chair
I'm looking at a slide
11 and one of the funds that we have dipped into recently is the higher ed fund.
We used it to balance our budget last year and I guess there could have been another
choice made using CBR.
I'm not really sure what other choices and that's only if we had the will to do that.
If you could share, is that fund doing better than the CBR in terms of growth,
like what it had been, did we leave any money on the table by choosing that
fund as opposed to another?
So through the chair representative Galvin, we will be covering that fund in detail
I'll give you I guess a snapshot, you know that Fund is has a high-risk profile
heavily invested in equity markets equity Markets did quite well last year and so the the difference between
That funds returns and the CBR returns that funds had much higher returns than the CBR
So to be clear just to make sure I'm following and tracking we
then perhaps made a decision where we've lost some funds that could have been gained
just because it happened to be a high earning year for that particular fund.
We lost the earnings.
That's fair.
More earnings and the CBR.
Okay.
Thank you.
Okay, so the state funds that we're going to go through today added
658 million in gains to the State Balance Sheet in 2025
So that's strong performance for a set of lower risk portfolios and the retirement systems that will touch on last
Rank in the top third of peer public pension plans generating excess returns over the past ten years of two billion dollars over benchmark performance
Which directly reduces state and employer contributions?
And as we mentioned, managing significant assets
internally allows for tighter control results
and also material cost savings.
And with that, let me hand it back to Director Leary
to start going through individual funds.
We'll then go back and forth as she provides
the background and history for each fund,
and I cover asked allocation and performance.
Great.
Again, for the record, Pam Learey.
On slide 16, we will discuss the savings reserve funds.
The blue part of the chart shows the fiscal year in balances of
the main fund of a CBRF or constitutional budget reserve fund.
It's used for liquidity and revenue volatility management and
was created in the Constitution in 1990 when voters approved adding section 17
to Article 9 of The Constitution of State.
Deposits to the fund include all money received by the state after July 1st 1990 through resolution of disputes about the amount of certain mineral related income.
The orange yellow area of the chart shows the amounts of
the sub account of a CBRF, which the legislature created in 2000.
In accordance with statute, money in a sub-account shall be invested to yield higher returns than in the main fund and is used for funds that will not be needed for at least five years.
In 2008, $4.1 billion was deposited into the sub account and was managed to achieve a higher return than the Main Fund.
In April 2015, the balance was returned to the Maine Fund when it was determined that those funds would be
needed within that five year period.
The gray area represents the statutory budget reserve fund that was created in 1986.
The SBR was a part of the Jafonzi before and after being managed as a separate fund from July 2013 to October 2015.
But we're showing it here to reflect all of, the reserve accounts.
At June 30th.
2025 the invested balance of the CBRF was 2.9 billion and the SBR had a hundred and forty nine million in it
Okay, and so on page 17 the combination of this CBR main account in the sub sub account are provided
Balances have been stable as you saw in The Last Graph at close to three billion for the past three years
but were drawn down to one billion the prior two years through the pandemic.
CBERF is the state's primary reserve fund with a potentially short time horizon.
Treasury staff has consistently recommended an investment approach that provides high
liquidity and principal protection. As shown at year in the combined CBerF accounts are 100%
Historically, we have often included some longer-term bonds and, at times, a modest equity exposure
to enhanced earnings while still protecting principal, but since yields have remained
elevated for cash investments and published fiscal information doesn't support a longer
time horizon,
we've recommended leaving the fund invested in cash.
From a performance perspective, 2025 was a good year for
The one-year performance was 4.48 percent in excess of the benchmark by 20 basis points.
In total, this resulted in 127 million in net gains for the combined CBERF accounts in 2025.
On to slide 18, which shows the historical balances of two Jafonzi accounts we spoke about before.
general fund and other non-segregated investments.
As I mentioned earlier, the general funds proper is the checking account of the state where all the cash flows come into and out of.
And where we keep that $400 million minimum.
There are about 185 other accounts.
in the Jafonzi funds that have, that are managed together
but accounted for separately.
The first Jaffonzy was created in 1992
as a way to pool accounts for investment.
And the Gefonze II came along in 2018
to target a slightly higher risk return
for a subset of those funds.
As of June 30th, there was $3.4 billion in the Jafonzi funds combined.
And we also have included in The Appendix in this presentation a list of the top 30 funds that roll into each of
the jafonsi funds as of end of December of this year.
Currently, the general fund proper.
Is the largest of these funds at close to, I believe it's $1.5 billion?
Okay, so on page 19, both Jafonzi 1 and Jefonzy 2 have a short investment horizon
with a relatively high need for principal and income protection.
Jifonze 1 is 85% cash equivalents and 15% short-term bonds.
33% short-term bonds and 6% equities.
And similar to CBRF, these funds have fewer long- term bonds than they have had historically,
but as rates normalize, which may happen this year or next year,
you may see some additional risks added to these fund to increase earnings,
why it's still protecting principal.
Lawrence was good for the year for both.
Jafonzi 1 had a return of 4.71% and Zafonsi 2, 5.93%,
both 30 basis points in excess of their benchmarks.
and overall this total performance resulted in 172 million in gains during 2025.
Okay, I'm Pam Leary for the record. Slide 20 shows the historical asset values of the public
school trust fund which ended fiscal year 2025 with 911 million. The fund has been around since
And is funded by one half of one percent of state receipts from the management of State Lands.
And the fund is used to provide an offset to the education formula funding.
For fiscal year 25, the Fund contributed $35 million to
the public education fund and is expected to contribute $ 35 million in fiscal
year 26 and $37.5 million and fiscal years 27.
Okay, for the records at Canada on page 21. We are now turning to funds that have a long time horizon and a high ability to bear risk
Public school trust fund is the first of these
We use a higher risk profile for this fund to work to both inflation proof it and achieve the long-term
statutory spending and objective of up to 5% of the last five years average balance
We set the risk profiles for these fund and others like it at the Risk equivalent of 70% equities and 30% bonds
Treasury seeks to preserve the purchasing power of this fund over time through a combination
of the investment policy which we're discussing now and spending recommendations which you
make to the Department of Education and OMB.
Performance over the past year was a high 17.07 percent modestly over its benchmark.
For the year this resulted in $141 million in gains and brings the fund back to peak assets.
Moving on to slide 22, the Alaska Higher Education Investment Fund Historical Balances is shown.
The fund was capitalized with $400 million deposited from the
Alaska Housing Capital Corporation and it's used to support the
Alaska Performance Scholarship Awards and Alaska Advantage Education Grants
and other education uses. Up to 7% can be appropriated for scholarships
goes towards the APS Awards and one-third towards
the AEG grants.
HBE 322 established the Higher Education Fund
as a separate fund as of June 30th, 2022,
and HB 148 passed recently increasing the amounts
of the scholarship in grants, and...
The balance as of June 2025 as shown on this slide was 435 million, which as we mentioned
was reduced by a $130 million transfer to the general fund at the beginning of fiscal
year 2026.
The question represents Tom Schifzkin and Gellman.
Thank you, co-chair.
When a legislature makes the decision to
withdraw $130 million from say this count like like happened
last year
Is there any I?
mean you have this money invest in a long-term investment. It's it's generating high interest rate generally speaking
or high growth and
Is do you? Have the discretion to say you know what?
Maybe we shouldn't pull it out of that fund. Maybe. We should pull out out these cash equivalents and therefore not disrupt the
130 million in these in this fund that
Would generally, you know leave us with a
With a significant decrease in and what we could have made. Do you understand my question? Yes
Through the chair represent Thomas chef's key
I do understand the question, and we essentially work with the office of management budget
in terms of how to move the money, but because this is.
part of the budget bill, and this was how it was decided by the legislature to move the money.
That's what was moved.
This is an interesting situation, because it is essentially filling the deficit.
And so the deficits wasn't known right away, what that amount was.
And it took a little bit of time to determine what amount should be transferred.
And in the end it was roughly 130 million that would fill that gap.
So we are not as the investors, we aren't not the ones that pull the triggers into the
money coming in and out.
Generally that's agencies if they have appropriation authority that has been given to them or the
Office of Management and Budget and Division of Finance, so we didn't have a choice.
Can't I imagine you do you look at these moves and you go oh my why why are they
doing that but can you just give us a ballpark what did we lose by making that
one move Mr. Hannah through the chair I represent Tom Soske we're gonna have to
go back and look the data the transfer to get you what we can get an answer to
This an estimate a rough estimate is is this a month return on this page 8.29 percent
That less the CBRF return which is probably in the two to an a quarter percent
And so about six percent on that 130 million be a very rough. Estimate. Okay. Thank you
Okay, I've got representative Hannon and then representative Ballard
Thank You coach your foster
Mr. Hannah my question is representative Thomas Hasky's in The inverse
I'm looking to find out how much of that has grown back
in the last six months since we made the withdrawal
because we're just getting annualized balances
versus fiscal year.
So I can't, what I know is I just go half of the year
on July one, that was the balance
and what it brought down to and we've grown that much.
So, I am looking see how on its own.
It has grown in the last six months of the operating year.
Okay, through the chair, Representative Hannon. So overall, for the calendar year,
the fund increased in value by 61 million.
And so, as you can kind of see, you know, for the year,
the returns were ironically,
you kind half and half.
I don't recall exactly how they were apportioned
throughout the years.
And, so probably the answer,
you have the approximate answer to your question
is probably about half of that gain
was in the second half in a year.
But it's probably a little bit less than that
because the value went down.
But we can give you,
we know get you back the proper answer
to these questions.
Follow-up. Thank you, co-chair
And then sort of in a speculative because there's discussion of us restoring that money in the supplemental
And I am not sure if you're in position to say but if your a personal advisor and I'd drawn this out of a savings in high-risk
Right, we're talking about the
Actual dollars being restored
Would you be recommending, if you were my personal advisor, that we also increase that to the amount of lost earnings?
So, just in round numbers, instead, you know, I took 100 million, but really it could have been 110.
Should I be restoring 110 million or is 100,000,00 million?
The amount that I actually took out just fine from a management perspective.
So through the chair, Representative Hannon, certainly a policy call. I think when similar things have happened in the past
I, think, both paths have been taken at different times. At times the principal reduction has been restored
and at times, the principle reduction and, you know, foregone earnings has
been restored and that, that's, uh,
you, know effectively a budgetary choice ultimately.
And, obviously, markets go up. Markets go down as well. And so we happen to have gone
through a period here where we have very strong market
performance, no one really predicted
that that performance would occur.
And certainly, if the legislature does go down the path
of restoring funds, we'll have additional market activity
that will take place between now and when those are restored.
And you could see markets continue to go up,
but they also could certainly go back.
Thank you.
Representative Ellerd.
Thank You Chair.
I just wanted to make sure that Mr. Hannah,
that information. I know you said you were going to send it to Representative
Tommaszewski. Would you be able to put the percentages of what we lost and what
we gained back in a pretty little email for all of us? Yeah, okay, thank you.
Thank you, Representative Galvin. Thank You, co-chair Foster, through the chair.
I have one more element to add to that email coming back to us and that is the
using the higher ed investment fund so that we can have a good sense as a body of, you know,
whether that was the best choice. You know given that, we definitely needed to balance our budget.
Thank you.
So again, for the records I can, I'm happy to provide that in a very pretty email.
And so on page 23 I go ahead and cover investment points for
the year for The Higher Ed Fund.
And, so it does have the same risk pro high risk profile as the public schools trust
to support the annual spending on scholarships and other programs.
Unlike the Public Schools Trust, this fund does not have a smoothing mechanism.
and scholarship spending as Dr. Leary mentioned is up to 7% of the prior year's ending value
and statute.
It also does not require inflation-proofing, as folks will trust us, and it hasn't been
inflation proof historically.
And spending prior to FY26, prior the $130 million reduction, has been roughly equal
to the overall cumulative earnings of the fund over time.
The fund was roughly the same size at the start of FY 26 as it was when it accepted long
long ago, roughly $400 million.
performance over the past year was strong 17.08% for this fund in excess of its benchmark.
As I mentioned that did result in 61 million dollars in total gains and the 10-year performance
was 8.86% which was well over expectations for the fund. It's been a very strong period
of capital market performance. Over the last 10 years and so obviously that's the good news
and as we've been discussing the challenge for that fund is that current spending of over 30
was already at the fund's earning capacity prior
to the 130 million dollar reduction
that was used to balance the budget.
And so longer term spending
and the funds capitalization level
may need to be reconciled.
And, so I understand that the legislature
will be talking with ACPE folks
about kind of the expected spending
for the various programs.
This fund supports over time.
And that likely is something that can be factored in.
you know, as well, when you talk about, you
know thoughts about recapitalizing this or
thoughts on what this fund might look like over
the long term, depending on how it, how the
program kind of spends the, the principal to fund.
I have a question for Representative Co-Chair Josephson.
Thank you, Mr. Chairman. Through the chair,
Mr Hannah, I'm remembering that about I'll
the fund was entirely swept into the CBR and not reverse swept.
The governor wants to replenish the Fund with the CBR.
He must, because we have no other source, so I'm confident in what I've just said.
And in that respect, although it's taken years, that would be a return of that capital back to the higher education investment fund.
So, Chair Jefferson, correct, so that would be a return of the principal reduction that
took place in FY26.
Follow up?
And when the fund was restored, not to the number, I think it was just shy of
the numbers, somewhat shy the
number that it had been before the sweep, those dollars were new dollars.
They were not coming back from the CBR, is that right?
Was over my objection enriched by the sweeping of this fund
Is that true? So chair Jefferson might I know they have answered incorrectly
So there were this fun like like you mentioned was swept on back in
around that timeframe.
I think that that was your initial question
was about that initial when that were swept.
I believe that when it was replenished,
it did include, that's one of the things
I was referring to, it didn't include
some approximation of The Foregone Earnings.
I believe that's the case.
But we can get back to you on that as well.
Exactly what transpired when it was swept,
and then ultimately replenished, we
can give those dollars.
If I pull it?
I guess where I'm going, Mr. Henn is,
in an almost sort of elementary way,
there's a righteousness, if you will,
in returning, using swept dollars to replenish the fund.
That's all.
Although more of it was swept. That's where the dollars came from five years ago
At least 130 million of them
Is there something to that?
So I know righteous is you know
I believe that when it wasn't swept that it did it
Was swept into the CBR ultimately and it
Was replenished from the cbr that's that that is my recollection
But we will get back to you on the details of that to make sure that correct. Okay. Thank you
And through the chair,
co-chair Josephson,
I would add that the money went from
the higher education fund, the 130 to the general fund.
And what's
put into the supplemental
2026 is to take the
money from the CBR to replenish the Higher Education Fund.
That's what is currently being proposed.
So maybe that's your comment is on.
the difference between going to the general fund and now coming back from the CBR.
Yes, and I'm just saying that there's some logic in replenishing it from
the source it was swept to. It just strikes me that that's there is a fairness in that,
but that is my view. Thank you.
So, slide 24 shows the historical assets of the pension and health defined benefit plans
for the public employees' retirement systems, and that's in blue,
and a teacher's retirement system, or TERS, which is in orange, yellow.
These four funds totaled $32.3 billion at the end of June 30th.
And as closed funds, the defined benefit plans currently experience net with draws annually.
The board is comprised of nine trustees.
That's the fiduciary of the fund.
Two from the PERS system, two from TURS system.
Two commissioners,
two public representatives, and one finance officer.
But for 2025, investment returns for these funds were just over 10.11% and the 40-year
return average for PERS and TERS was 8.51%, which compares favorably to the overall actuarial
assumed rate during that time period of 8,17%.
Okay, so again for the records that can I so on page 25 is
The other retirement the defined benefit retirement assets and so the arm board is treasuries largest client
represents 83% of Treasury assets under management
These systems do have a more complex asset allocation
Encation since the long-term funds and they have long term fiduciary board
They have meaningful allocations to less liquid alternative investments like private equity private debt and real assets
Current asset allocation is 42% public equities,
24% fixed income, and 34% alternative investments.
And the returns have been strong.
Here we focus on longer-term return
since having material allocations alternatives
can make shorter- term comparisons difficult or misleading.
The 10-year return through September 30th was 9.1%.
It's 27 basis points over the benchmark and well in excess of the actual expected return.
The current assumed actual return was 7.25%.
And part of this excess return could be attributed to the arm board's intentional lower cost approach
that emphasizes internal management.
This has led to total costs that are roughly 30 percent lower than the median peer,
saving over $30 million per year consistently, which goes directly to the bottom line.
And as mentioned earlier, performance is in the top third of returns when compared to peers,
better than over 65 percent of other public pension systems.
So overall, strong returns for the arm board have made a meaningful contribution to retirement
assets and have reduced the need for higher state contributions.
And this actually completes our presentation we certainly have appreciate everybody's time and would be happy to try to answer any remaining questions
We have any further questions
Sure representative coach here josephson so
For either individual and it may be that it's it
It's you're not the appropriate person to answered but
The armboard is seeking something like $34 million more than the governor proposes to give it.
How can you offer us any guidance on what we should do or what model?
I know they're using different models.
There's criticism historically that we didn't do enough to invest in the fund and pay down the liability.
I just didn't know if that's a place for you to comment or not.
So, Chair Josephson, I'll give you I guess a short comment.
I think that's probably best addressed by the actuaries and DRB when they come present
to you folks.
And so, you know, our focus is, predominantly on kind of the investment of assets for the
pension system.
That's where our expertise is and where we spend our time.
Obviously, we work with the board, where staff to the Board, and so we're kind
That's not in a pejorative way, but the payment stream on the actuarial side.
And I think that the difference between what the arm board has recommended and what I
think is built into the budget is the different and how that debt is being amortized.
The armboard has taken action recently to reduce the amorization period from 25 years to 15
years.
over what you would have paid had the amortization period
been longer and so I think that's the difference
between what the arm board set into the rates
that it put forward versus what's built into
the budget and I thing portion of the
budget anyway is built on that 25 year amorization
period and sell.
You know, certainly would encourage folks to kind of delve into that when you do top
with actuaries or DRB folks.
But that's, you know I guess, a white perspective on it.
That's helpful.
Thank you.
Okay. Do we have any further questions?
Seeing none, I'd like to thank Acting Commissioner Earls as well
as Director Leary and CIO Hannah for their presentation today.
Our next House Finance Committee meeting is scheduled for Monday, February 2, 2026 at 1.30 p.m.
And at that meeting, the Department of Administration will give two presentations.
The first will be their normal departmental budget overview and then the second will
be an update on the 2025 statewide salary study.
So if there is nothing else to come before the committee, we will adjourned at 2.53 p-m, thank you.