The House Labor and Commerce Committee heard testimony Tuesday on legislation that would require Permanent Fund trustees to be state residents and extend their terms from four to six years.

The proposal would also require legislative confirmation of trustees for the first time since 1982, though constitutional concerns may force lawmakers to pursue a constitutional amendment instead.

The bill's sponsor said the Permanent Fund has become the state's dominant revenue source, providing more than 60 percent of budget revenue for more than eight years. The sponsor said the legislature should exercise oversight through confirmation power because it holds the power of the purse.

"I think that it is time that we clarify the role that the legislature has in confirming appointments to the board of trustees, not to execute political power but to exercise our power of the purse," the sponsor said. "This is an important sovereign wealth fund for the state and we want to make sure that we are exercising the balance of power that the legislature is to provide to the executive branch."

The sponsor acknowledged legal concerns. A 1976 Alaska Supreme Court case, Bradner v. Hammond, ruled that the legislature cannot expand confirmation requirements beyond what the constitution explicitly allows because appointment power is fundamentally an executive function.

"In order for us to be, for the statute to be very constitutionally clear, we may need to amend this bill to include a constitutional amendment that allows for legislative confirmation of the board of trustees," the sponsor said.

The Permanent Fund board does not qualify as a regulatory or quasi-judicial agency or the head of a principal department, making legislative confirmation constitutionally questionable under current law.

The committee chair noted that legislative confirmation requirements existed from 1980 to 1982 but were removed in 1982. A legal memo to be distributed to committee members states that no legislative history explains why the confirmation requirements were removed.

Current statute already requires trustees to be Alaska residents under a lower bar for residency. Devin Mitchell, executive director and CEO of the Permanent Fund, told the committee every trustee who has served on the board has been an Alaska resident, though some spend significant time outside the state and are not eligible for permanent fund dividends.

Mitchell noted that extending trustee terms from four to six years would create scheduling complications. With four public members on a six-year rotation cycle, two years would pass without a trustee cycling off or being reappointed.

"Something that you might just put a little thought into," Mitchell said.

One committee member questioned whether the residency requirement would prevent the state from recruiting accomplished investment professionals from outside Alaska. The bill sponsor said someone can establish Alaska residency within 30 days by getting an Alaska driver's license or registering to vote.

"I would hope that someone who has been appointed to the board would have at least bought or rented a place and unpacked their boxes before they start serving on the board," the sponsor said.

Another committee member suggested adding a trustee position to create an odd number of board members, then requiring only a majority of public members to be Alaska residents. That would allow the board to bring in outside expertise while maintaining Alaska connections.

The committee member also asked whether the constitutional problem applies only to the confirmation process or extends to other provisions in the bill.

"I think there is some good language and work we can do here, and even if the constitutional piece of this potentially derails this, I think there is some good that we ought to find the pieces here that still can continue," the member said.

Mitchell said the legislative budget and audit committee is the body the corporation reports to annually under statute. He said that process could be made more effective.

"I do in my role have maybe an outside appreciation for the impact that the permanent fund has to the state of Alaska and the sometimes fragile nature of our construct," Mitchell said. "It relies on a lot of people doing a lot of good work and that construct has worked for us, but there are holes and it certainly warrants attention."

The committee took no action on the bill. The committee will distribute a legal memo on the constitutional questions at its next hearing.