Legislature(1993 - 1994)
04/18/1994 01:35 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
April 18, 1994
1:35 p.m.
TAPE HFC 94-130, Side 1, #000 - end.
TAPE HFC 94-130, Side 2, #000 - end.
TAPE HFC 94-131, Side 1, #000 - end.
TAPE HFC 94-131, Side 2, #000 - 242.
CALL TO ORDER
Co-Chair Larson called the House Finance Committee to order
at 1:35 p.m.
PRESENT
Co-Chair Larson
Co-Chair MacLean Representative Martin
Vice-Chair Hanley Representative Navarre
Representative Brown Representative Parnell
Representative Foster Representative Therriault
Representative Grussendorf
Representative Hoffman was not present for the vote.
ALSO PRESENT
Bruce Botelho, Attorney General, Department of Law; Harry A.
Noah, Commissioner, Department of Natural Resources; Tom
Koester, Independent Counsel, Department of Law; Jay Hogan,
Staff, House Finance Committee; McKie Campbell, Deputy
Commissioner, Department of Fish and Game; Jim Gottstein,
Attorney, Alaska Mental Health Association; Robert Stiles,
Alaska Coal Association; Charlie Brody, Alaska Miners'
Association; Jeff Jessee, Advocacy Beneficiaries of Alaska;
Cora Allen, Soldtna; Paul Baer, Anchorage; Mike Meehan,
Planning Commission, Mat-Su; Beck Gay, Resource Development
Council; Rick Johannsen, Attorney, Anchorage; Ladd McBride,
Fairbanks; Steve Kelly, Fairbanks; Robert Gore, Ketchikan;
Jonathan Hayward, Ketchikan; Paul Huppert, Mat-Su; Harvey
Baskin, Mat-Su; Don Moore, Mat-Su.
SUMMARY INFORMATION
HB 201 "An Act amending provisions of ch. 66, SLA 1991,
that relate to reconstitution of the corpus of the
mental health trust, the management of trust
assets, and to the manner of enforcement of the
obligation to compensate the trust; and providing
for an effective date."
HB 201 was HELD in Committee for further
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discussion.
HOUSE BILL NO. 201
"An Act amending provisions of ch. 66, SLA 1991, that
relate to reconstitution of the corpus of the mental
health trust, the management of trust assets, and to
the manner of enforcement of the obligation to
compensate the trust; and providing for an effective
date."
HARRY A. NOAH, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES
observed that the intent of the legislation is to:
* Allow third party land owners clear title to land
purchases;
* Reconstruct the land trust and propose a fair
compensation package;
* Provide the court with direction from the
Legislature, in regards to land sold from the
Mental Health Land Trust, and
* Bring resolution to litigation.
Commissioner Noah provided members with a summary of values
contained in the compensation package for the Mental Health
Trust (Attachment 1). He stressed that the state has
focused on making the Trust whole. Original trust land has
been returned to the Trust when possible. Land not
returnable to the Trust has been replaced with similar state
land. A cash compensation to the Trust was included in HB
201. He noted that the state has not used the deduction
allocated by the Supreme Court for funding spent on mental
health programs since 1978. This deduction is equal to $1.3
billion dollars. He stressed that land values were assessed
higher than fair market value.
Commissioner Noah reviewed the compensation package as
detailed in attachment 1. He observed that lands to be
returned to the Trust consist of:
* 466,000 acres of surface and subsurface lands;
* 22,400 acres of subsurface lands (mineral estate);
and
* 76,000 acres of subsurface (hydro carbon only)
land.
The value of Trust lands not returnable to the Trust is $636
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million dollars. Compensation of lands not returnable to
the Trust is $380 million dollars. The proposed cash
compensation is $225 million dollars. The total value of
land plus cash is $605 million dollars. He noted that a
change in the legislation is needed to transfer the $225
million dollar cash payment from the incentive to the
compensation package.
Commissioner Noah noted that the biggest area of difference
is in subsurface values. The plaintiffs value subsurface
lands at $540.0 million dollars. The state values
subsurface lands at $156.0 million dollars. Much of the
disputed land value is located in the Chena recreation area.
He emphasized that minerals are only valuable if they can be
extracted.
Commissioner Noah maintained that the state has made the
Trust whole. He asserted that the state is ready to settle
the issue. He discussed what is required to bring the case
to settlement. He observed that lawyers for the plaintiffs
have requested the establishment of a Mental Health Trust
Endowment, administered by a Trust Authority. A deposit of
$100.0 million dollars would be made from the Trust Income
Account into the Endowment. An additional $450 million
dollars would be deposited into the Endowment over the next
15 years. The original mental health land and replacement
land would also be part of the Endowment. The Trust
Authority would have the responsibility of spending
earnings, absence legislative appropriation authority.
Under the Chapter 66 appropriation process the Trust
Authority would make recommendations of the amounts needed
to meet the needs of the beneficiaries. If amounts
appropriated by the legislature differ from the Trust
Authority's recommendations legislative findings would be
required to explain the differences.
Commissioner Noah observed that there are two major
sticking points in negotiations with plaintiff lawyers,
control of general fund dollars and the volume of funds to
be deposited into the endowment permanent fund.
BRUCE BOTELHO, ATTORNEY GENERAL, DEPARTMENT OF LAW provided
members with State v. Weiss (attachment 2). He observed
that the Court message was that, original mental health
lands be restored, the Trust be reimbursed for sold lands at
fair market value at the time of the sale, and the state be
granted a set off for mental health expenditures made by the
state. He pointed out that Judge Greene indicated that
adequacy of the funding and service for mental health
programs in Alaska is outside of the scope of the case.
Judge Greene declared that the Alaska Mental Health Enabling
Act (AMHEA) did not guarantee any particular level of
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funding for mental health services in the state. "The
remedy guidelines in the 1985 Weiss decision also did not
discuss any guarantee income stream for the Trust.
Commissioner Botelho maintained that the legislation
represents the quickest and fairest resolution of the
Supreme Court's directive. He contrasted the legislation
with Chapter 66.
In response to a question by Representative Brown,
Commissioner Noah discussed the difference of subsurface and
surface estate. He noted that oil and gas rights would be
transferred with mineral estate. He described the process
used to derive values for subsurface and surface lands.
Representative Hanley asked, if the legislation passes
without resolution, would the state be required to expend 6
percent of the state's unrestricted general fund income for
mental health programs and the $225 million dollars
contained in the settlement package. Commissioner Noah
replied that the state would no longer be under the 6
percent requirement. The $225 million dollars would be
compensation to a mental health account and appropriate by
the legislature to meet mental health program needs.
Representative Navarre clarified that the lands in the Trust
would be managed by the Department of Natural Resources. He
asked if the state would be liable for breach of trust if
the department's management is not adequately funded.
Commissioner Botelho stressed that the party administrating
the land will always be subject to a challenge about its
obligation to manage. Commissioner Noah noted that
management by the Department of Natural Resources is
important to the environmental and resource communities.
Representative Navarre queried the provision for findings if
the legislature does not fund mental health programs at the
level recommended by the Trust Authority. He asked if the
legislature's constitutional appropriation power would be
impacted.
Commissioner Noah emphasized that the Trust Authority is
important to the plaintiffs. Commissioner Botelho stated
that the proposal for the Authority to make recommendation
for appropriation levels is objectionable to the
Administration.
JAY HOGAN, CONTRACT EMPLOYEE, HOUSE FINANCE COMMITTEE
provided members with a chart detailing the values used to
arrive at the set-off amount (Attachment 3). He discussed
attachment 3. He stressed that the set-off amount was
derived by audits prepared by the Legislative Audit Division
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in 1985 and 1992 (copies on file). He discussed the audits.
He concluded that the amount was carefully researched then
brought before the legislature and used for the purpose of
making appropriations for mental health programs since FY
91. He noted that estimates range from $1.3 to $1.574
billion dollars.
Mr. Hogan discussed the appropriation and trustee authority
of the legislature. He provided members with Senate Report
No. 2053, May 25, 1956 regarding the Mental Health Enabling
Act (copy on file). "The income and proceeds from
disposition of these lands must be administered as a public
trust, with the expenses of the mental health program having
first call on such funds. Amounts not needed for mental
health programs can be used for other public purposes as the
legislature may determine." He maintained that the state
was given discretion over the use of surplus funds.
Mr. Hogan noted that Mr. Bartlett, the Alaskan
representative to Congress, at the time, argued against the
funds being ear-marked exclusively for mental health
purposes.
Mr. Hogan quoted from a letter from the Department of
Interior to the chairman of the Senate Committee. The
letter discussed the House version which was amended to
provide ear-marking of funds, derived from the land grants,
for the sole purpose of hospitalization and care of mentally
ill (copy on file). "We are inclined to believe that it
would be wiser not to restrict them in this manner." He
asserted that there was no intention by Congress to restrict
the land proceeds for mental health purposes.
(Tape Change, HFC 94-130, Side 2)
JIM GOTTSTEIN, LAWYER, MENTAL HEALTH PLAINTIFFS provided
members with a letter to Representative MacLean, from David
Walker, Attorney, dated April 16, 1994 (copy on file). "The
Administrations's proposal presented in Chenoweths's work
draft CS for House Bill 201, March 18, 1994, is not a
settlement. It purports to buy out the Trust by funding the
mental health program. It unfairly characterizes the
beneficiaries and is in fact unacceptable to all parties who
represent beneficiaries. It is unrealistic to think that
the measure would be accepted by the Plaintiffs or approved
by the court."
Mr. Gottstein asserted that the legislation would eliminate
the Trust over time. He acknowledged that the AMEA did not
guarantee any particular level of funding. He observed the
opposition to Chapter 66 by other affected parties. He
briefly discussed Chapter 66. He maintained that the
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plaintiffs are willing to trade out third party purchasers.
Mr. Gottstein discussed desired terms of settlement. He
suggested that the compensation package is at 65 percent of
the full reconstitution of the Trust. He maintained that
additional recompensation through an endowment is needed to
achieve full compensation. He noted that if appropriations
by the legislature for mental health programs are reduced
due to an increase in funding available by the Trust, the
Trust would be meaningless.
Mr. Gottstein observed that Judge Greene's decision stressed
that the state and plaintiffs could back out of the proposal
due to defects in the 1991 legislation. The legislation did
not include a lands list or AS 38.04 and AS 38.05 exemptions
under the exchange provisions. He noted that the state also
demanded that the court release the third party purchasers
as a prerequisite to signing the settlement agreement. Mr.
Gottstein maintained that the court clearly indicated that
it would grant preliminary approval of the settlement if
these issues were resolved.
Mr. Gottstein noted that the Administration proposed
amendments to fix the first two issues, but the amendments
were not adopted by the legislature. He pointed out that
plaintiffs have been willing to trade land to clear the
third party purchasers.
Representative Martin suggested that the judge arbitrate to
take the third party purchasers out of the settlement. Mr.
Gottstein agreed that it would be possible to authorize an
exchange to take the private third party purchasers out of
the litigation in separate legislation.
In response to a question by Representative Navarre, Mr.
Gottstein clarified that he did not include the state's off-
set from appropriations to mental health programs in
calculations of the recompensation package's worth.
Representative Grussendorf emphasized the need for
legislative oversight of general fund appropriations.
ROBERT GORE, MEMBER, PIONEER HOMES ADVISORY BOARD testified
via the teleconference network from Ketchikan. He urged a
prompt resolution of the issue.
PAUL BAER, MUNICIPALITY OF ANCHORAGE testified via the
teleconference network. He emphasized the importance of the
mental health litigation to the entire state. He noted that
the Municipality of Anchorage is willing to return or
exchange land to the Trust.
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PAUL HUPPERT, MAT-SU testified via the teleconference
network. He urged a settlement to the mental health
litigation on behalf of agriculture interests in Mat-Su. He
noted the adverse effect on agriculture development on
disputed lands.
LADD MCBRIDE, FAIRBANKS testified via the teleconference
network. He urged prompt resolution. He maintained that
the set-off should not be ignored. He questioned the $225
million dollar cash compensation.
JEFF JESSE, ATTORNEY, DEVELOPMENTALLY DISABLED MENTAL HEALTH
PLAINTIFFS, ADVOCACY OF ALASKA disagreed with the state's
assumption that the Trust has been reconstituted under the
Weiss decision. He noted that the Weiss decision provides
that the original land be returned when possible. He added
that the court ruled that the only land that does not have
to be returned is land that was sold. He maintained that
the state is proposing to the court that land given to
municipalities or included as a park or refuge be considered
sold. He suggested that this approach will not be accepted
by the court.
Mr. Jesse discussed the passage of Chapter 210 in 1990. He
noted that legislation attempted to recompensate the Trust
by taking 6 percent of the unrestricted general fund revenue
of the state in perpetuity to pay for mental health
programs. The court maintained that the proposal was a
unilateral decision. The court ruled that the Weiss
decision be followed or a bilateral decision be reached.
Mr. Jesse pointed out the difficulty of reaching a
settlement. He discussed some of the problems facing
negotiators.
Mr. Jesse maintained that Congress did not restrict the
state's appropriation of mental health land income for fear
that oil would be found on the land. He alleged that
Congress was concerned that excessive income might be
realized on mental health lands due to oil finds.
Mr. Jesse estimated that the Trust income would be
approximately $15 million dollars. He stressed that the
Trust Authority has been requested to assure that the money
spent benefits the beneficiaries. He emphasized that if
appropriations to the Trust are reappropriated for mental
health programs, that there will be no trust corpus to
generate money into the future. Mr. Jesse asserted that the
legislation will not operate as a true trust.
Mr. Jesse maintained that passage of the legislation would
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slow negotiations. He suggested that legislation be
introduced to help the third party purchasers.
Co-Chair Larson asked if third party purchasers and mental
health plaintiffs would be better off if all the original
land was returned to the Trust. Mr. Jesse emphasized that
it would be impossible to return all the original land to
the Trust.
(Tape Change, HFC 94-131, Side 1)
Mr. Jesse recommended that the Trust Authority manage the
land. He pointed out that if there are management problems
that the Trust Authority would not then be able to blame the
Department of Natural Resources.
Representative Navarre noted that Congress was concerned
that there would be either too much or not enough money in
the Trust. He proposed that the Trust Authority appropriate
the trust income on mental health programs and then request
additional general fund money for the remaining mental
health needs. The legislature would assess the expenditures
made by the Trust Authority and appropriate the remaining
funds necessary to cover the beneficiaries' needs. Mr.
Jesse emphasized that the plaintiffs are proposing a similar
solution.
Representative Navarre emphasized the necessity of solving
the third party purchasers. He spoke in support of the
legislation.
JONATHAN HAYWARD, MENTAL HEALTH CONSUMER ADVOCATE testified
via the teleconference network from Ketchikan. He spoke in
support of mental health consumers.
MIKE MEEHAN, PLANNING COMMISSION, ANCHORAGE testified via
the teleconference network. He noted that the Anchorage
Municipal Assembly passed Resolution 94-72 in recognition of
the cloud caused by the mental health trust issue on private
and public development. He referred to section 16 of HB 201
regarding the land list. He noted that Anchorage has
supported the legislative settlement and has offered comment
on lands that could be used to reconstitute the Trust.
Representative Brown asked how the Municipality of Anchorage
would be effected if all original lands were returned. Mr.
Meehan observed that a return of all original land would be
detrimental to the Municipality of Anchorage. He noted that
trust land is involved in negotiations between the
municipality and the Anchorage International Airport.
HARVEY BASKIN, POINT MACKENZIE testified via the
teleconference network. He stressed the difficulty of third
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party purchasers. He urged an expedient solution.
BECKY GAY, RESOURCE DEVELOPMENT COUNCIL testified via the
teleconference network. She spoke in support of HB 201.
She asserted that the legislation fairly compensates the
Trust and complies with the Supreme Court ruling. She
maintained that the legislation removes the cloud of title
to municipality land grants and third party purchasers
through the ratification of sales. She spoke in support of
the proposed land list.
BOB STILES, PRESIDENT, ALASKA COAL ASSOCIATION spoke in
support of HB 201. He maintained that the legislation is a
reasonable solution to the mental health issue. He
acknowledged that the legislation will not end litigation.
He spoke in support of trust land management by the
Department of Natural Resources.
CHARLIE BRODY, ALASKA MINER'S ASSOCIATION spoke in favor of
HB 201. He noted that the Alaska Miner's Association
supports land management by the Department of Natural
Resources. He observed that land management by the Trust
Authority would require the expense of setting up the
management bureaucracy.
Mr. Brody maintained that the Department of Natural
Resources in concert with the Trust Authority must create a
regulatory scheme to embrace the concept of the Alaska
Mental Health Enabling Act.
MCKIE CAMPBELL, DEPUTY COMMISSIONER, DEPARTMENT OF FISH AND
GAME spoke in support of HB 201. He pointed out that it is
in the interest of all parties to reach a solution. He
referred to the land list. He noted that the Department of
Natural Resources has worked closely with the Department of
Fish and Game to resolve resource conflicts before they
occur. He asserted that the original land grant could not
be returned to the Trust without injuring long term
litigation. He urged adoption of HB 201 as the best
possible action the state can take.
In response to a question by Representative Therriault, Mr.
Campbell expounded on the difficulties of returning the
original trust land. He maintained that the legislation
protects critical fish and wildlife habitat while freeing up
state land for development.
TOM KOESTER, CONTRACT COUNSEL, DEPARTMENT OF LAW clarified
that litigation would not occur as a result of a return to
trust status. Litigation would result from the attempts to
develop the land. He explained that litigation is most
likely to occur under federal law such as the Clean Water
Act. He maintained that the Trust would experience constant
litigation in its attempt to develop trust land.
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Mr. Koester discussed the sale of legislative designated
land. He noted that the Alaska Supreme Court held, in 1981,
that it is perfectly permissible to take land granted to the
state in trust, for the University, by the federal
government and put the land in a park. The court ruled that
the remedy is not to invalidate the transfer, but to
compensate the Trust for the fair market value of the land.
Mr. Koester pointed out that in the Weiss case the court
ruled that when the state has a monetary liability that one
of the ways the liability can be discharged is to credit it
against the amount spent on mental health programs as a set-
off. He asserted that there is a direct link between the
state's obligation to pay money to the Trust for land put in
parks and wildlife refuges and the court's authorization for
a credit against that liability for the money the state has
spent for mental health programs.
Representative Brown asked if there is any indication in the
Weiss record that the state's interpretation is what is
meant by sold. She suggested that the court's
interpretation is more narrow than that given by Mr.
Koester.
Mr. Koester summarized a footnote not included in materials
before the Committee as saying "in light of our disposition
of this case we do not need to reach the question of whether
third party conveyances and bona fide purchasers are out of
this case or not." He concluded that the only reason the
court would not need to reach those issues is if there was
some reason to say some lands are sold and some are not
sold. He inferred that the court intended to reach all the
lands that had been conveyed out of state ownership.
Mr. Gottstein disagreed with Mr. Koester's interpretation.
He pointed out that the Alaska Supreme Court ruled that the
compensation remedy is not the appropriate remedy. He
stated that the court stated that the appropriate remedy is
reconstitution of the land trust.
Mr. Gottstein pointed out that footnote 4 characterized by
Mr. Koester stated that the court did not need to decide the
issue of land ownership "at this time." He observed that
Judge Greene has called the state's position "overly
simplistic". He concluded that Judge Greene was charged by
the Supreme Court to decide which lands are to be returned
according to the court's interpretation of what is sold. He
maintained that there are technical trust land principles
which apply to suggest that even people that entered into
land sale contracts are not entitled to keep the land. He
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asserted that if the state breached the trust in conveyance
of land the Trust gets the land back.
(Tape Change, HFC 94-131, Side 2)
Commissioner Botelho assured the Committee and plaintiffs
that the state continues to seek solution. He summarized
that the legislature must decide if actions taken fully
recompensates the Trust. He concluded that Congress
intended the legislature to be the trustee. He observed
that the legislature must decide to what extent it wishes to
relinquish trustee authority in favor of another body.
DON MOORE, MANAGER, MAT-SU BOROUGH testified via the
teleconference network in support of HB 201. He observed
the importance of resolving ownership by third party
purchasers. He noted that the Mat-Su borough has 77,000
acres of mental health trust land in entitlements.
RICH JOHANNSEN, ATTORNEY, ANCHORAGE testified via the
teleconference network. He maintained that land sold is
irrelevant if the fair market value exchange for land
removed from the Trust is established. He asserted that the
legislature clearly has the power to exchange land as long
as the fair market value has been exchanged.
STEVE KELLY, FAIRBANKS testified via the teleconference
network. He noted that third party purchasers have in good
faith paid for land dispersed by the state to
municipalities. He added that third party purchasers have
been taxed for their property and invested in property in
dispute. He expressed concern that resolution will be
postponed.
CORA ALLEN, SOLDTNA testified via the teleconference
network. She alleged that mental health consumers are
victims of the state's inadequate management of the Trust
and funding of programs.
HB 201 was HELD in Committee for further discussion.
ADJOURNMENT
The meeting adjourned at 4:00 p.m.
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