C.L. "Butch"
Otter
Governor
Lawerence
Denney
Secretary of
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Lawrence
Wasden
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Brandon D
D Woolf
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SCO > Board of Examiners > Board of Examiners Minutes
MINUTES
STATE BOARD OF EXAMINERS
November 9, 1999 – 8:45 a.m.
JRW East Conference Room


Members Attending:
      Governor Dirk Kempthorne, Chairman of the Board
      Secretary of State Pete T. Cenarrusa
      Attorney General Al Lance
      State Controller and Secretary of the Board J. D. Williams

Sub-Committee Members Attending:
      Jeff Malmen, Office of Governor
      Ben Ysursa, Office of Secretary of State
      David High, Office of Attorney General
      Steve Allison, Office of State Controller
      Keith Johnson, Office of State Controller

Visitor Attending:
      Dennis Johnson, PERSI Board Member and CEO, United Heritage Insurance


CONSENT AGENDA
    DEPARTMENT OF HEALTH AND WELFARE

1. Request for authorization to remove the vacation caps for the following employees from November 1, 1999 to February 1, 2000 while they are involved in correcting several deficiencies related to patient care at the Idaho State Veterans Home:
            Keleone Aschenbrenner, Registered Nurse Manager
            Tina Lima, Licensed Practical Nurse
            Philip Hawkins, Volunteer Services/Activity Coordinator

2. (The Sub-Committee members recommend approval to pay 169.3 hours compensatory time, which is one half the amount requested). Request for authorization to pay 338.5 hours compensatory time for Philip Hawkins, Volunteer Services/Activity Coordinator, accrued from April 1999 to current time, while correcting deficiencies noted in the activity department by Facilities Standards for the Idaho State Veterans Home.


3. DEPARTMENT OF TRANSPORTATION
    Request for authorization to remove the vacation caps for the following employees from October 1, 1999 to September 30, 2000, while preparing for a lawsuit with the American Trucking Association and updating the 1994 Highway Cost Allocation Study in preparation for the 2000 Idaho Legislature:
                  Doug Benzon
                  Jim Witherell
    BUREAU OF HAZARDOUS MATERIALS

4. Incident 9907121 – Request for authorization to issue deficiency warrants in the amount of $336.31 for reimbursement of response costs incurred when emergency response teams assisted in a CIB drug lab incident at Southwick Road and Cedar Ridge in Latah County, Idaho on July 12, 1999, pursuant to Idaho Code § 39-7110.

5. Incident 9907261 – Request for authorization to issue deficiency warrants in the amount of $851.24 for reimbursement of response costs incurred when emergency response teams assisted in a CIB drug lab incident at 12407 S. Lonnie Lane, Kuna, in Ada County, Idaho involving household chemicals on July 26, 1999, pursuant to Idaho Code § 39-7110.

6. Incident 9908021 – Request for authorization to issue deficiency warrants in the amount of $874.72 for reimbursement of response costs incurred when emergency response teams assisted in a CIB drug lab incident at I-90 milepost 39, in Kootenai County, Idaho involving magnesium chloride abandoned on the road on August 2, 1999, pursuant to Idaho Code § 39-7110.

7. Incident 9908031 – Request for authorization to issue deficiency warrants in the amount of $1,380.77 for reimbursement of response costs incurred when emergency response teams assisted in a CIB drug lab incident at 523 WF Moon Gulch, Shoshone County, Idaho involving a suspected drug lab on August 3, 1999, pursuant to Idaho Code § 39-7110.

8. Incident 9908032 – Request for authorization to issue deficiency warrants in the amount of $141.70 for reimbursement of response costs incurred when emergency response teams assisted in a CIB drug lab incident at 602 W. Prairie, Kootenai County, Idaho involving a suspected drug lab on August 3, 1999, pursuant to Idaho Code § 39-7110.

9. Incident 9908041 – Request for authorization to issue deficiency warrants in the amount of $192.04 for reimbursement of response costs incurred when emergency response teams assisted in a CIB drug lab incident at 1124 Gilbert, Kootenai County, Idaho involving a suspected drug labor on August 4, 1999, pursuant to Idaho Code § 39-7110.

10. Incident 9908091 – Request for authorization to issue deficiency warrants in the amount of $242.18 for reimbursement of response costs incurred when emergency response teams assisted in a CIB drug lab incident at 602 W. Prairie, Kootenai County, Idaho involving a suspected drug lab on August 9, 1999, pursuant to Idaho Code § 39-7110.

11. Incident 9908171 – Request for authorization to issue deficiency warrants in the amount of $210.36 for reimbursement of response costs incurred when emergency response teams assisted in a CIB drug lab incident at 602 W. Prairie, Kootenai County, Idaho involving a suspected drug lab on August 17, 1999, pursuant to Idaho Code § 39-7110.

12. Incident 9908191 – Request for authorization to issue deficiency warrants in the amount of $983.66 for reimbursement of response costs incurred when emergency response teams assisted in a CIB drug lab incident in American Falls, Power County, Idaho involving a suspected drug lab on August 19, 1999, pursuant to Idaho Code § 39-7110.

13. Incident 9908211 – Request for authorization to issue deficiency warrants in the amount of $963.83 for reimbursement of response costs incurred when emergency response teams assisted in a CIB drug lab incident at 907 E. Vermont, Spirit Lake, Kootenai County, Idaho involving a suspected drug lab on August 21, 1999, pursuant to Idaho Code § 39-7110.

14. Incident 9908261 – Request for authorization to issue deficiency warrants in the amount of $1,189.96 for reimbursement of response costs incurred when emergency response teams assisted in a CIB drug lab incident at 939 N. Lincoln, Bannock County, Idaho involving a suspected drug lab on August 26, 1999, pursuant to Idaho Code § 39-7110.

15. Incident 9908302 – Request for authorization to issue deficiency warrants in the amount of $297.94 for reimbursement of response costs incurred when emergency response teams assisted in a CIB drug lab incident at 810 E. Indiana, Kootenai County, Idaho involving a suspected drug labor on August 30, 1999, pursuant to Idaho Code § 39-7110.

16. Incident 9909141 – Request for authorization to issue deficiency warrants in the amount of $898.01 for reimbursement of response costs incurred when emergency response teams assisted in a CIB drug lab incident in Spirit Lake, Kootenai County, Idaho involving a suspected drug lab on September 14, 1999 , pursuant to Idaho Code § 39-7110.

17. Incident 9909211 – Request for authorization to issue deficiency warrants in the amount of $627.29 for reimbursement of response costs incurred when emergency response teams assisted in a CIB drug lab incident at 1001 E. Montana, Coeur d’Alene, Kootenai County, Idaho involving a suspected drug lab on September 21, 1999, pursuant to Idaho Code § 39-7110.


Governor: J. D., perhaps the first order of business, I know that you have a new Chief Deputy and I think it would be wonderful if you would introduce this impressive young man to us.

State Controller: Thank you, Governor. As you know, Hal Turner, who was our Chief Deputy since 1981 in the office, retired last week and we were able to have the individual who was the State Controller of the State of Oklahoma come to Idaho to be our Chief Deputy. The reason we were able to prevail upon him to come to Idaho, it was coming back home for him. He is a graduate of Meridian High School, graduate of Boise State, CPA and an attorney, which clinched it for being able to bring him home. I would like to introduce to you Keith Johnson, who is our new Chief Deputy in the office. Keith, welcome.

Governor: Those are impressive credentials and again, I think it just talks about the quality of education we have in Idaho and the quality of Keith to come up through those ranks. So, welcome.

State Controller: Governor, we have today 17 items on the Consent Agenda, all of which have been reviewed by the Board’s sub-committee and they recommend for approval by the full board.

Governor: Are there any comments or questions on the first 17, or if not, is there a motion?

Secretary of State: Governor, I move approval of the Consent Agenda.

Attorney General: Seconded.

Governor: It has been moved and seconded. Further discussion? If not, those in favor please say aye.

Aye: Governor
Secretary of State
Attorney General

Opposed, nay. The ayes have it. Mr. Controller.


REGULAR AGENDA

18. PUBLIC EMPLOYEE RETIREMENT SYSTEM Dennis Johnson, PERSI Board Member, and CEO, United Heritage Insurance
    Request for authorization to remove the $1,000 bonus cap from the Public Employee Retirement System’s Chief Investment Officer position so the PERSI Board can structure an on-going incentive bonus similar to those successfully used in peer positions in other states, pursuant to Idaho Code § 67-5309C(b)(iii).


State Controller: Governor, we have one item on the Regular Agenda and it is a request from the Public Employee Retirement System (PERSI) to waive the $1,000 bonus cap. We have with us today a member of the Board, Dennis Johnson, who would like to discuss that request with the Board for a moment.

Governor: Mr. Johnson, welcome. Dennis, if you would like to go ahead with your comments.

Dennis Johnson: First, I bring greetings from Mr. Jody Olson, who is our chairman, who could not be here today. After I saw Friday’s paper I decided his timing was perfect that he had to be in Canada. I am here to talk about a bonus cap removal and I congratulated him on his timing and I am here for him. I noticed there are 17 items on the Consent Agenda, but Mr. Olson did not manage to get this one on the agenda, so I am pleased to be here this morning.

Let me start by making a few comments. I am a member of the Public Employee Retirement System of Idaho on the Board of Trustees. There are five members of the board. I do represent all of the board members this morning in the presentation I am making. We are coming to you specifically regarding our Chief Investment Officer, Bob Maynard. Bob Maynard is on the scale of the highest paid employees. I counted him 25th in that batter’s box. He is somebody who has been with us since 1992. Prior to his coming to us in 1992, we had annual turnovers they tell me. I was not on the board. I think maybe Mr. Williams, you were at that time, so you are familiar with that history with investment officers. He has brought a lot of stability and a lot of expertise to that board. Due to our asset allocation we probably have a 5 or 6 million dollar gain over what it had been previously. Some re-balancing he has done has helped us significantly to achieve investment results that are probably in the 6 and 7,000 million dollar per year excess over the 5% real rate of return target. In light of that the board would like to give this gentleman a bonus higher than $1,000 and we have a $1,000 cap. Frankly we would like to give some sort of incentive program that would allow up to 30% compensation based on a bonus program, based on formula that involves real rate of return per performance, relative performance compared to other benchmarks and relative standard deviations compared to national benchmarks so we could have a program that is consistent with other pensions around the country and with private sector where there is incentive compensation that relates to performance. The alternative would also be on the other side to try to raise that salary. We understand that in nine states the chief investment officer is actually the highest paid employee of the state. We are not asking for that at this time. We are asking for the ability to remove that cap so we can fashion a compensation program that would compensate and reward closer in kind to the performance that is a cap above $1,000.

Governor: Mr. Johnson, thank you. Mr. Williams, do you have any other comments?

State Controller: Just briefly, Mr. Chairman. As you know, for the last three or four years this board has been involved with endowment reform trying to come up with different investment strategies. A great deal of work that was done on that was done by Doug Dorn and Bob Maynard. He has been a very, very valuable part of the team. I had the opportunity not long ago of discussing this with the Director of Lands in the state of South Dakota. They have a tremendously performing endowment fund and I asked them how they compensated their manager. He told me because of a bonus system they created, an incentive based bonus system, he is the highest paid official in the state of South Dakota. They felt they were getting their money’s worth. We recognize there has been some criticism of lifting bonus levels but from the experience we have had in our office, and as one of the board members who has been working with the endowment reform, I think our experience with Mr. Maynard has been extremely positive and would urge the board to support this recommendation.

Governor: Thank you very much. Let me open this up to the members of the Board of Examiners for comment. Attorney General Lance.

Attorney General: Thank you, Governor. Dennis, the money that Mr. Maynard manages does not come out of the general fund nor does his salary. Is that a correct statement?

Dennis Johnson: That is correct but his salary is one that I understand must be appropriated.

Attorney General: His salary is appropriated but it doesn’t come out of the general fund, or does it?

State Controller: It does not, I believe.

Governor: Can we get affirmation of that?

State Controller: I am pretty sure it does not.

Attorney General: So the source of his compensation is what, Dave, do you know?

David High: It would be the contributions from all the political subdivisions plus the employees from school districts, state, and counties.

Attorney General: Mr. Johnson is one of those who has a responsibility to oversee the entire operation of the security of these investments. Governor, that is why I get caught in these catches. I don’t understand necessarily why the legislature becomes involved in these types of things and why the Board of Examiners becomes involves. We have a statutory scheme and Mr. Johnson and the board has a fiduciary responsibility to all of us who pay him and the PERSI system. The money doesn’t come out of the general fund and yet we are thrust in the middle of these things. I would assume that Mr. Maynard didn’t have to go through the Hay System as he is an employee at will, is he not?

Dennis Johnson: Yes, that is my understanding.

Attorney General: I know that we gave some relief to those in the computer industry because there was a transition. In my office we have set top end caps, if you will, and it is a management tool that I think any business uses. If I may ask Mr. Johnson, in your business bonuses are certainly tied to the performance aren’t they?

Dennis Johnson: They are, Mr. Lance. As you know, I am president and CEO of United Heritage Mutual Life Insurance Company, the largest life insurance company headquartered in the state. We use bonuses for this type of performance all the time. This would not be unusual in our business whatsoever. This is the type of thing we do in private industry. One of our concerns is that we be able to compensate and compensate for performance somewhere in the close proximity and time to that performance. That is why we are asking for the cap to be removed.

Governor: Further questions?

Attorney General: I guess I would have to point out that I suppose we would be obligated to put a dollar top end on this as we did with the computer folks. Whenever we lift the cap isn’t there a ceiling that is necessarily placed on?

State Controller: Governor, I don’t believe so. I believe what they are asking for is a percentage so it is indirectly a dollar cap but it is a percentage of his base salary.

Attorney General: But I think we are required to review those annually, are we not? It seems like an on-going approval of the bonus.

State Controller: Governor, Al, I don’t think we have done a review of the technology employees of the state. That was just a policy that was set. I think that usually for one time bonuses for most employees of the agencies that exceptions are not made for a true policy that would be annually reviewed. I believe in this situation that a policy could be set for this individual and as long as it was in the percentage guidelines, it would not have to have an annual review.

Attorney General: But aren’t we being asked to provide the authority to the board in their discretion to provide a bonus to the individual that holds that spot, and we are not asked to critique Mr. Maynard’s performance.

State Controller: That is true. It is just the policy that is set by the board.

Attorney General: If I might ask Dave High – Dave, would we be required under the Idaho Code to review this annually or can we establish basically a bonus of limitation and permit the board to their bonuses in future years without having to go through this again?

David High: Mr. Chairman and Mr. Lance, the statute calls for looking at the situation whether it be an emergency or extraordinary performance. We have generally done it annually however, as J.D. pointed out, with respect to the computer classification the view was that it was an ongoing situation and it was basically done until the situation changes as a blanket thing. I think you could do it either way, if you find that this is a long term situation but in general it calls for a specific time. I guess that is not a very good answer.

Secretary of State: I think we have to do what we have to do for the best thing for the state and state government, PERSI, and now the endowment fund. We can see that the performance of PERSI is so much better than the endowment funds there is no comparison. We are using the expertise of these people now and Mr. Maynard to carry on with the performance of the endowment legislation and constitutional change. In order to pick up the performance of the endowments to the public schools and the other institutions, and I think it is important that Mr. Maynard is known nationwide. We would hate to lose him so we have to do what we have to do in order to keep him. I know we haven’t contended with this every year annually and this is the first time to my knowledge. I believe that David High and Ben Ysursa, Mr. White and the sub-committee of the Board of Examiners can sit down with Mr. Johnson and other members and come up with a solution that is acceptable.

Governor: I appreciate the comments of the Attorney General, Secretary of State and the Controller. Dennis, I appreciate your comments too. I think you have outlined what is considered normal practice in the business community in this particular area. I think that it is of note that often we will hear a comment that it would be good if government was run like a business. And I think what you are suggesting are some business principals here in an area that is extremely important to public employees, and that is the management of the PERSI fund. Every indication that I have had about the management of that fund and the endowment fund, and the specific role of Mr. Maynard, has been exemplary. Here we are running up against the $1,000 cap in an area that, again, is highly competitive. Mr. Maynard is an individual whose ability would be highly sought after. So, again, we are in a situation where I think we need to be competitive and here is a suggested approach so that it allows Idaho to be competitive and progressive in retaining excellent people. We have the issue before us. Any further discussion?

Secretary of State: Governor, I would move that this issue be referred back to the sub-committee to work with Mr. Johnson and perhaps other members of the board to report to this board the solution.

Governor: Is there a second?

Attorney General: Second, with comments on the motion.

Governor: It has been moved and seconded. Mr. Attorney General.

Attorney General: Governor, and Pete, I support the motion. A couple of things that I think everybody needs to understand is that the persons who pay into PERSI are the persons who will pay for any bonus and the salary of Mr. Maynard, not the general taxpayers. I think that is a point that is some times missed in the media and the taxpayers are of the opinion that they have some sort of a vested interest in this. That is not my understanding. My understanding is that I as a person who pays into PERSI am, in fact, will be funding any bonuses as well as the salary. Is that correct, Mr. Johnson?

Dennis Johnson: That is correct. And the investment returns as well.

Attorney General: So if I had a problem with the bonus that Mr. Johnson came up with as a person who is one of the beneficiaries under this trust responsibility, my complaint would go to Mr. Johnson and members of the board in terms of their action, not necessarily to the legislature and not necessarily to the Board of Examiners. I think that distinction leads me to conclude that I have no idea why the legislators or why the Board of Examiners would be involved in this when we have other regress through the board that is duly appointed to look after our interest. So, therefore I am willing to support the motion with that clarification.

Governor: Further discussion? If not, those in favor please say aye.

Aye: Governor
Secretary of State
Attorney General

Those opposed, nay. The ayes have it. It is unanimous. Dennis, we appreciate your comments here and again, you can see the direction we are going to get this resolved. Is there anything else to come before the Board of Examiners.


INFORMATIONAL AGENDA

    STATE INSURANCE FUND

19. Estimate of the State Insurance Fund expenses to be paid by sight drafts for the month of October, 1999.
      Estimated expenditure for workers $7,500,000.00
      compensation claim costs, dividends
      and premium refunds

    Funds Expended in September 1999:

      Workers Compensation Claim Costs $7,082,888.61
      Dividend 11,110.13
      Commissions
      Policy Refunds 106,457.19
      Total $7,200,455.93


20. Estimate of the Petroleum Storage Tank Fund expenses to be paid by sight draft for
the month of October 1999.

      Estimated expenditures for $750,000.00
      Petroleum Storage Tank Fund
    Fund expended in September 1999:

      Payroll $ 56,290.31
      Operations 11,253.34
      Continuous Appropriations - Operations 17,728.17
      Continuous Appropriations - PSTF Claim Costs 301,121.75
      Total $386,393.57


State Controller: We have the informational agenda from the State Insurance Fund on the various storage tanks and other reserves that they have. That is it.

Governor: If there is nothing else I will adjourn the Board of Examiners.



WHEREUPON THE MEETING OF THE STATE BOARD OF EXAMINERS was adjourned, subject to the call of the Chairman.

                              _______________________________Governor Dirk Kempthorne
                              Chairman of the Board


--------------------_________________________________
J. D. Williams, Secretary to the Board
and State Controller
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