Legislature(1993 - 1994)
09/26/1994 04:00 PM Senate FIN
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
JOINT HOUSE AND SENATE FINANCE
COMMITTEE MEETING
Second Special Session - Eighteenth Legislature
September 26, 1994
4:00 p.m.
TAPES
SFC-94, #92, Side 1 and 2
SFC-94, #94, Side 1 and 2
SFC-94, #95, Side 1 and 2
CALL TO ORDER
Senator Drue Pearce, Co-chair, Senate Finance Committee,
convened the Joint House and Senate Finance Committee
meeting in the Senate Finance Committee Room, Fifth Floor,
State Capitol Building, Juneau, Alaska, at approximately
4:00 p.m.
PRESENT
SENATE FINANCE HOUSE FINANCE
Sen. Pearce Rep. Larson
Sen. Frank Rep. Martin
Sen. Jacko Rep. Hanley
Sen. Kerttula Rep. Brown
Sen. Kelly Rep. Foster
Sen. Rieger Rep. Grussendorf
Sen. Sharp Rep. Parnell
House Finance Members, MacLean, Navarre, Therriault, and
Hoffman arrived soon after the meeting began.
ALSO ATTENDING ALL OR PORTIONS OF THE MEETING: Senators
Donley, Duncan, Halford, Leman, Lincoln, Little, Salo, and
Taylor; Representatives Barnes, Brice, Bunde, Carney,
Davidson, Davies, Davis, Finkelstein, Hudson, James, Kott,
Mackie, Nordlund, Phillips, Sanders, Ulmer, Williams, and
Willis; Attorney General Bruce Botelho; Harry Noah,
Commissioner, Dept. of Natural Resources; Shelby Stastny,
Director, Office of Management and Budget; Tom Koester,
Contract Attorney for the Dept. of Law; David Walker,
attorney for plaintiffs Weiss in Mental Health Trust
Litigation; Jim Gottstein, attorney for the Alaska Mental
Health Association; Phillip Volland, plaintiff's attorney,
Mental Health Trust Litigation; Jeff Jessee, plaintiff's
attorney, Mental Health Trust Litigation; Tom Waldo,
representing public interest intervenors, Mental Health
Trust Litigation; John Malone, President, Alaska Alliance
for the Mentally Ill; Patrick Murphy, member, Juneau
Alliance for the Mentally Ill; Mike Greany, Director,
Legislative Finance Division; Fred Fisher and Susan
(Sorensen) Taylor, fiscal analysts, Legislative Finance
Division; representatives of the administration; and aides
to committee members and other members of the legislature.
ALSO PARTICIPATING VIA TELECONFERENCE:
FAIRBANKS - Jeannette Grasto, President, Fairbanks
Alliance
for the Mentally Ill.
Joy Alben, Fairbanks Alliance for the
Mentally Ill
and member, Fairbanks Community Mental
Health
Board.
Sybil Skelton, mental health beneficiary
Sue Sherif, representing a family member
who was
a mental health beneficiary
ANCHORAGE - Jim Parsons, Vice President, Alaska Mental
Health
Association
SUMMARY INFORMATION
SB 382 - MENTAL HEALTH LAND TRUST SETTLEMENT
A lengthy teleconference was conducted with
testimony presented by the administration,
attorneys for plaintiffs, and the public.
The Senate Finance Committee reconvened
following the Joint House and Senate
Committee meeting, and SB 382 was REPORTED
OUT of committee with a unanimous "do pass"
recommendation and zero fiscal note for all
agencies from the Office of the Governor.
SB 383 - AMENDMENTS TO MENTAL HEALTH TRUST APPROPS
A lengthy teleconference was conducted in
conjunction with SB 382. SB 383 was then
REPORTED OUT of the Senate Finance Committee
with a unanimous "do pass" recommendation.
SENATE BILL NO. 382
An Act relating to the mental health land trust, the
mental health trust income account, and the mental
health land trust litigation, Weiss v. State,
4FA-82-2208 Civil, and amending ch. 66, SLA 1991, and
ch. 5, FSSLA 1994 relating to the trust, the account,
and the litigation; and providing for an effective
date.
SENATE BILL NO. 383
An Act making and amending appropriations relating to
the mental health trust fund, the mental health trust
income account, and the mental health trust settlement
income account; and providing for an effective date.
Senator Drue Pearce, Co-chair, Senate Finance Committee,
convened the Joint Meeting of House and Senate Finance
Committees and directed that Senate Bills 382 and 383 and
House Bills 549 and 550 (House versions of SB 382 and 383)
be simultaneously brought on for discussion. She then
advised that all members of Senate Finance were in
attendance and acknowledged the presence of Senators
Phillips, Salo, and Leman, as well.
Representative Ron Larson, Co-chair, House Finance
Committee, noted the presence of all House Finance Committee
members with the exception of Representatives MacLean,
Hoffman, Navarre, and Therriault (all of whom subsequently
arrived soon after the meeting began). He also acknowledged
attendance by Representatives James, Hudson, Willis, Kott,
Davis, Davies, and Sanders.
Senator Pearce advised that the joint committee would first
take testimony from the administration. BRUCE BOTELHO,
Attorney General, Dept. of Law; HARRY NOAH, Commissioner,
Dept. of Natural Resources; and SHELBY STASTNY, Director,
Office of Management and Budget, came before committee.
[Representatives MacLean, Navarre, and Therriault arrived at
this time.]
Commissioner Noah remarked that legislators would be hearing
comments both for and against the proposed settlement of the
mental health trust litigation. He stressed that ultimate
approval of the settlement rests with Judge Mary Greene.
The Commissioner referenced the judge's 58-page order,
laying out specific concerns, and advised that legislation
now before committee addresses those concerns.
Attorney General Bruce Botelho provided background
information on the mental health issue and observed that the
proposed settlement was "largely embodied" in legislation
passed during the Eighteenth Legislature's First Special
Session in May of this year. It includes five elements:
1. Reconstitution of the land trust (930,000 acres).
2. Cash component of $200 million.
3. Establishment of a trust authority.
4. Incorporation of certain benefits set forth in
Chapter 66. (Programmatic improvements)
5. A modified budget process which has the
consequence of
isolating legislative evaluation of mental health
programs in the budgetary process.
The settlement was presented to Superior Court Judge Mary
Greene, and preliminary court approval was sought. The
Attorney General advised that mental health litigation was
certified as a class action within three months of filing of
the initial case in 1982. When a settlement is presented in
the context of a class action, the courts follow a four-part
process prior to final approval:
1. The first step is preliminary approval. The court
makes a preliminary determination concerning the
fairness of the settlement.
2. The next step is provision of notice to all class
members.
3. The third consists of a fairness hearing.
4. And the last step is final approval.
In the present litigation, notice has been sent to 270,000
households statewide and 1,400 care providers. Notice has
also been published in numerous newspapers, advising the
public of its right to submit written comment on the
settlement by October 21. Those comments will go directly
to Judge Greene.
The process is now working toward the third step--the
fairness hearing. Judge Greene has scheduled two weeks of
hearings. The first will be held in Anchorage the week of
October 21. The second will continue in Fairbanks beginning
October 31. Judge Greene has indicated her intent to issue
a final ruling by November 15. She granted preliminary
approval to the settlement on July 29. That represents the
only time any settlement on this topic has achieved
preliminary approval. In issuing her 58-page decision, she
began her analysis by asking the following questions:
1. Is the proposed settlement the product of serious,
informed, non-collusive negotiations?
2. Is the settlement without serious deficiencies?
3. Is the proposed settlement without preferential
treatment of segments of the class?
4. Does the settlement fall within the range of
possible
approval?
Directing attention to page 27 of Judge Greene's decision,
the Attorney General noted that the judge concluded that the
proposal was the product of serious negotiation. It was
found to be informed (p. 29) and non-collusive (p. 32).
Seven purported deficiencies were presented by opposing
counsel. The court concluded that the proposed settlement
does not have serious deficiencies. In responding to
alleged deficiencies, the judge determined that:
1. Possible termination, by appeal, was not
sufficient to warrant denial of preliminary approval
(p. 32).
2. The proposed settlement is enforceable. If a
subsequent
legislature changes a material term, the class is
free to reassert all claims available on July 29
(p. 33).
3. The terms are not unclear (p. 37).
4. Lack of a legal description for each of the
parcels
is not a problem (p. 38).
5. There is no competent evidence that the Dept. of
Natural
Resources was or is unable to perform its
obligations to convey land to the trust authority
(p. 38)
6. The land management requirements (HB 201) cannot
and do not diminish trust responsibilities found in
the federal enabling act (p. 40).
7. Management by the Dept. of Natural Resources is
not a
serious deficiency (p. 41).
In evaluating whether the settlement is without preferential
treatment to a segment of the class, the judge concluded
that there is no improper, preferential treatment.
Judge Greene, in determining whether the settlement falls
within the range of possible approval, remarked that in
evaluating fairness, the most important element was a
comparison with the likely results of litigation (p.44).
While litigation results are unknown, it is clear that
program improvements, the trust authority, and budget
process advantages could not be obtained through litigation.
It is "entirely possible, if not likely, that there would be
no cash component from continued litigation." A trial would
be extremely expensive, lengthy, and complex. All
plaintiffs have sufficient information to adequately
evaluate the proposal. The judge said, "Based on this
preliminary examination, the court concludes that this
settlement is within the range of possible final approval."
(pp. 57 & 58)
In granting preliminary approval, Judge Greene identified
three areas of concern:
1. The first relates to the land list.
A. The 116,000 acre Salcha parcel is part of a
federal military reservation and continues to
be used as a bombing range. The court found
that if the parties have not found a solution
by the time of final approval hearing, the
court and beneficiaries will be forced to
examine the degree of risk posed by the
problem and the impact on the settlement.
Failure to find a solution associated with
Salcha could lead to non-approval.
B. Miscellaneous problems discovered after the
legislature adjourned.
2. Possible shortfall in the funding sources for the
$200
million cash component. The court order noted, in
particular, the $25 million identified as part of
the DNR land sale contract portfolio. Concern was
that the shortfall would produce a value of $16 to
$19 million rather than $25 million. If this
issue is not resolved, the court and class members
will have to evaluate the agreement in that light.
The court did not find that the deficiency
precluded the granting of preliminary approval,
but it may be an issue for consideration at final
approval (p. 37)
3. Termination of the settlement if a party files an
appeal.
The benefits of HB 201 do not take effect until
the case is dismissed and all opportunity for
appeal has ceased by December 15, unless by
November 30 the Governor has agreed to extend the
time up to 45 days. The judge noted that under
those circumstances and under Alaska Court Rules,
a party could wait until December 15 to file the
appeal (court rules allow for the filing of appeal
within 30 days). Further, it is unlikely the
Alaska Supreme Court would rule within 45 days of
the filing of an appeal. Judge Greene concluded:
The court agrees that the
effect of appeal on these
settlement provisions is
problematic. In essence,
despite the investment of
hours and significant money by
everyone in the approval
process, any party can destroy
the settlement by filing an
appeal from a grant of final
approval. Nevertheless, the
court does not see this as a
problem sufficient to warrant
denial of preliminary
approval.
Mr. Botelho reiterated that preliminary approval has been
granted for the first time in the course of this litigation.
The case is on track toward final resolution. The purpose
of the presentation, today, is to highlight the three areas
the court found to be problematic and which will weigh
heavily in the judge's determination of whether or not to
ultimately grant final approval.
[Co-chair Pearce noted the presence of Senators Lincoln and
Little and Representatives Hoffman, Williams, Davidson, and
Bunde.]
SHELBY STASTNY, Director, Office of Management and Budget,
acknowledged that one of the issues raised by Judge Greene
relates to sale of the portfolio of contracts from the Dept.
of Natural Resources. At the time the legislature passed HB
201, the administration projected that the fair market value
of the contracts was approximately $25 million. Several
things have occurred since that time. Interest rates have
increased significantly. That has had a depressing effect
on the value of the contracts. Further, the passing of time
has reduced the principal value. The contracts receive
"between $3.0 and $4.0 a month in principal payments."
There were no provisions for use of those principal
payments, so the moneys flowed to the general fund.
On the plus side of the financial picture, there is more
money in the mental health trust income account than
anticipated, mainly due to increased oil prices. Mr.
Stastny noted that when the administration made its
calculations, and the legislature passed the most recent
appropriation bills, the expectation was that the mental
health trust income account would exist until June, 1995--
the date used in measuring the $33 million included in the
settlement. When mental health legislation passed in the
first special session last May, and the bills went into
effect, the mental health trust income account "went away"
as of June 1994. The administration thus used the balance
at the end of 1994 in considering what would be available to
fund a portion of the $200 million settlement. The balance
at that time totaled $47.7 million.
The other estimate included in mental health trust
appropriation legislation was mental health income remaining
in the general fund and accounted for by the Dept. of
Natural Resources. Earlier calculations assumed that would
amount to approximately $11.7 million. Today the total is
closer to $13 million.
Since the accounts to be utilized exceed the $200 million
cash settlement by $7 to $10 million, the proposed
legislation does not set forth a definitive amount. It thus
contains "some backstop" measures to ensure that the
necessary amount is funded. Remaining amounts in excess of
the $200 million will lapse to the general fund.
Co-chair Frank asked when the decision was made to sell the
portfolio to raise cash, and who brought the financial
deficiency to the attention of the court. Would the lands
be more valuable if they were retained by the state?
Commissioner Noah responded that the possible shortfall was
brought to his attention by department staff. It was
brought up again during the first hearing in Judge Greene's
court. The proposed legislation attempts to satisfy
concerns and deal with the shortfall. Speaking to whether
the lands would be more valuable in the trust account, the
Commissioner acknowledged that, over a longer period of
time, more money would flow to the trust. However, the
administration is attempting to reach the $200 million for
the cash portion of the settlement. Co-chair Frank voiced
his understanding that it was always the intent to sell the
portfolio to generate cash for the trust versus providing an
income producing asset. Commissioner Noah concurred.
[Co-chair Pearce noted the presence of Senator Duncan and
Representatives Finkelstein and Carney.]
Senator Kelly asked if Judge Greene made reference to
inflation proofing language at page 3, Section 8, of SB 383.
The Attorney General said that she made no reference in her
written decision. Senator Kelly then voiced his
recollection that inflation proofing was not part of earlier
passed legislation and asked why it was included at this
time, when it would stop, and if it could become a "constant
drain." Commissioner Noah stated his recollection that
inflation proofing was incorporated within final amendments
to the earlier passed bill. Senator Rieger concurred in
comments by the Commissioner but added his own recollection
that inflating proofing is a permissible use of trust
income. Discussion in May centered on whether inflation
proofing would be mandated or remain permissible. Language
mandating inflation proofing did not ultimately become part
of the legislation. Attorney General Botelho concurred.
Senator Kelly asked why the present legislation seeks to
increase the $200 million by inflation proofing and where
the cutoff point would be. The Attorney General said he did
not know the answer. Commissioner Noah advised, "I'm not
sure that we are asking that this be inflation proofed over
$200 million." It is not clear that that is the intent of
the legislation. Senator Kelly referenced specific language
within Section 8, subsection (a). TOM KOESTER, Contract
Counsel, Dept. of Law, explained that revenue from the trust
could be used by the trust authority for a variety of
purposes. One of those purposes is to inflation proof the
principal of the trust fund. That action is permissive and
not mandatory. The proposed bills change effective date
provisions to provide that, upon dismissal by the Superior
Court, the settlement goes into effect on December 16. That
takes away the power of a party to prevent the settlement
from taking effect by filing an appeal. Provisions are
intended to guard the public and ensure that if the
beneficiaries receive the benefit of the settlement, the
public receives those benefits as well. If, in the
alternative, the appellate court reverses the dismissal, and
all parties are back in litigation, the benefits are
repealed. That is when provisions within Section 8 go into
effect. Upon reversal on appeal, Section 8 contains a
contingent effective date that would take the $200 million
to go into the mental health trust fund and place it in the
general fund along with whatever moneys the trust authority
has added to the fund for inflation proofing. Senator Kelly
voiced his understanding that inflation proofing would
derive from the mental health trust account rather than the
general fund. Mr. Koester and the Attorney General
concurred. Mr. Koester reiterated that it "comes out of the
income to the trust . . . ." It is discretionary with the
trust authority whether or not to inflation proof.
Representative Larson noted that money generated by the
trust will never be sufficient to pay the total amount of
mental health needs. If a portion of that income is
diverted for inflation proofing, that could mean an
additional amount would then be needed from the general fund
to subsidize mental health programs. Mr. Koester advised
that it becomes a discretionary judgment call on the part of
both the trust authority and the legislature. For the trust
authority, the decision is, How much, if any, of the trust
revenue should go to inflation proofing? The balance of the
income will then go to mental health programs. The
legislature will annually determine how much money should
come from the general fund for mental health programs.
Referencing earlier discussion relating to sale of the Dept.
of Natural Resources lands portfolio, Senator Kerttula
voiced his understanding that the settlement seeks cash
rather than an income generating asset. Commissioner Noah
remarked that the proposed sale relates to the cash portion
of the settlement. He then referenced the assets of the
land portfolio that would become part of the trust. Senator
Kerttula voiced concern over the sale of DNR assets at
discount. He noted the reduced value of the portfolio
because of increased interest rates and less demand and
asked at what stage of reduction the department might elect
not to sell. Commissioner Noah explained that the face
value of the land is $15 million, plus the interest. The
department envisions that that value will be "somewhat
greater--between and $16 and $19 million." Every month the
department collects $300.0 to $500.0. That is part of the
decrease. Senator Kerttula sought assurance that the
department would not feel compelled to "sell at $5 million."
Commissioner Noah concurred, saying that the department does
not intend to sell at a loss.
[Co-chair Pearce noted the presence of Senate President
Halford and Representative Brice.]
Senator Phillips referenced both the anticipated $33 million
balance of the mental health account and the actual balance
of $47.7 and asked if the higher amount would be set forth
in proposed legislation. Mr. Stastny responded negatively.
He advised that numbers within the bill would not be changed
because the balance is changing on a daily basis. He
referenced Sections 4 and 5 of SB 383 and indicated that
shortfalls in one account would be covered by excesses in
other accounts. Whatever is left over from the four
accounts will remain in the mental health income account
until it lapses to the general fund, when the former account
is done away with.
Representative Brown inquired concerning enforceability of
the settlement. She observed that "all claims which were
available on July 29 of this year could be reasserted" and
asked which claims were available for assertion as of that
date. Attorney General Botelho responded, "Virtually all
the claims that have been asserted in the class action
itself that have not otherwise been ruled on adverse to the
plaintiffs in the case."
Representative Brown asked if plaintiffs could go after the
entire million acres should settlement be breached by the
state. Has any of the acreage been forever removed from the
trust or the possibility of once again becoming entangled in
litigation? The Attorney General referenced p. 33 of Judge
Greene's decision and noted that it provides that:
If the legislative change was material, the class
would be entitled to invoke the remedy found in
art. VI, sec. 5: they would be free to file a new
action asserting all the claims they have today.
The footnote indicates that:
The court ensured at oral argument that it was the
state's intent that if there were a material
change, the class would have all claims they have
today and would be free to assert them.
A subsequent provision makes reference to the ability of a
party or parties to assert all claims existing on July 29.
Representative Brown asked if, as of July 29, plaintiffs had
the right to go after original trust lands not within the
proposed settlement. The Attorney General responded that
he was not in a position to define "what those claims are."
The point is that the judge said whatever those rights are
on July 29, those are the rights that may be asserted.
Attorney General Botelho acknowledged that there could be
disagreements over lifting of the lis pendens and whether or
not plaintiffs could assert claims against those privately
held lands. He subsequently suggested that plaintiffs would
probably not be able to "get a remedy directly against that
land." They could, however, assert a claim with regard to
the underlying question of reconstitution. The issue that
has been the subject of great debate is, Under the terms of
the Supreme Court decision of 1985, what constitutes a sale?
That issue has not ultimately been resolved in litigation to
date.
Representative Brown voiced need to hear from attorneys for
plaintiffs and inquired concerning the state's response to
amendments proposed by Mr. Walker and Mr. Gottstein. The
Representative next asked that representatives of the
administration describe what would happen upon appeal or
reversal of settlement approval.
End: SFC-94, #92, Side 1
Begin: SFC-94, #92, Side 2
Attorney General Botelho explained that the operative words
are "reversed on appeal." Neither the taking of appeal or
the filing of a petition for certiorari with the supreme
court would negate the settlement. Reversal by the Alaska
Supreme Court or the U.S. Supreme Court would be required.
Directing attention to the land list, Commissioner Noah
acknowledged two issues:
1. The first relates to the Salcha parcel. The
Commissioner
referenced a set of maps (copy dated 9/25/94 is on
file in the original Senate Finance Committee file
for SB 382) in addendum to HB 201. He explained
that the list outlines additions and deletions to
the land list that was part of the original bill.
In exchanging land in the same general area for
the Salcha parcel, DNR had to increase the
acreage of the subsurface parcel to obtain the
same value. The original parcel was 118,436
acres. The substitute is 184,599 acres. The
reason for need for the increase is that the
geology associated with the exchange is different.
The original parcel was "somewhat more favorable."
To obtain the same subsurface value, the acreage
was increased.
2. The second relates to a group of miscellaneous
errors in the land list. The settlement involves
over 10,000 parcels "that we were
essentially changing around three
different times." The addendum contains
247 additions to the list and 168
deletions. These mainly relate to
simple miscoding of parcel numbers and a
set of identified parcels that were
simply overlooked. The Commissioner
referenced an explanatory memorandum
dated September 23, 1994, (copy on file)
and an appended list of parcels by
election district (copy also on file).
The Commissioner next noted need to add
the following parcel:
SM-2225-A, a 50-acre,
hydrocarbon-interest-only
parcel.
Representative Brown raised questions concerning mining
claims or other leases scheduled to become part of the
trust. What will be the obligation of the trust, in the
future, with respect to administration? Will the trust have
the flexibility to change material terms or conditions of
those agreements? Commissioner Noah described such claims
and leases as "valid, existing rights." They are dealt with
as such in the proposed legislation. Representative Brown
voiced her understanding that opportunities for contract
changes could be fairly dealt with by the trust.
Commissioner Noah said that such issues would be dealt with
in regulations.
[At this point in the meeting, Co-chair Pearce noted
teleconference links to Anchorage, Fairbanks, MatSu, and
Kenai/Soldotna.]
Representatives Davies inquired concerning continued access
and easements across lands that are schedule to become part
of the trust. Do all presently existing easements follow
with those parcels? The Commissioner again cited the issue
of valid existing rights. If an easement is a valid
existing right beforehand, it continues to be so within the
trust. The Dept. of Natural Resources is in the process of
identifying all encumbrances associated with different
parcels. That would then become part of the record.
Co-chair Pearce directed that the meeting be recessed for
approximately five minutes prior to proceeding with
testimony from Messrs. Walker, Gottstein, Volland, Jessee,
and Waldo.
RECESS - 4:55 P.M.
RECONVENE - 5:08 P.M.
Upon reconvening the meeting, Co-chair Pearce announced that
the committee would hear from the above-listed attorneys
prior to proceeding to public testimony. She encouraged
those participating via teleconference to submit written
testimony to become part of the public record. She then
asked that public testimony be limited to three minutes in
order to allow all interested parties to speak.
DAVID WALKER, representing plaintiffs Weiss, Hilliker, and
others similarly situated, came before committee accompanied
by JIM GOTTSTEIN, representing the Alaska Mental Health
Association, Mary C. Nanuwak, John Martin, and others
similarly situated. Mr. Walker indicated that he and Mr.
Gottstein were before committee to explain why their clients
continue to oppose the proposed settlement.
The first issue of concern is enforceability and the ability
of beneficiaries to reassert original claims in the face of
a breach by the state. Mr. Walker suggested that answers
given by the Attorney General to similar questions raised by
Representative Brown were neither direct nor responsive.
Claims which original plaintiffs now have, and which the
court felt were important, are claims to original trust
lands now held by municipalities, by the state in
legislatively designated areas, by private third-party (mom
and pop) purchasers, and coal lands. Those claims are part
of the present lawsuit. In discussing enforceability, the
court said that the fact that plaintiffs can reinstitute the
lawsuit, and litigation would thus continue to "hang over
everybody's head," should be a sufficient deterrent to
prevent the legislature from breaching the settlement. Mr.
Walker stressed that to be a deterrent, enforceability must
be applied against the original claims. There is no
deterrent if plaintiffs may only assert against land on the
"to-be-conveyed list" in the proposed settlement. He
suggested that this deficiency alone would undo the
settlement. In ongoing litigation, the state is reserving
the right to assert that HB 201 blocks reassertion of all of
the original claims. The consequence of that is a
determination by the Alaska Supreme Court or the U. S.
Supreme Court that this settlement "was a bum deal." Mr.
Walker voiced his belief that settlement would not be
approved by the superior court because the standard for
final approval is different from that for preliminary
approval. If such approval is forthcoming, however, there
is a good chance it will be overturned on appeal.
Mr. Walker said that the proposed settlement takes away a
trust that, properly managed, has a good chance to fund a
mental health program for Alaska and provide sufficient
funding of a core group of mental health needs. To trade
the original trust for one which cannot do that causes
concern regarding the adequacy of the settlement. Mr.
Walker noted that all parties recognize that income to be
produced by the substitute trust will not provide adequate
funding.
Mr. Walker said that if his proposed amendments are adopted,
he would recommend the settlement to the mental health
community and his clients. He then noted need for the
following fixes:
1. Land List. The problem is that in presenting
information to the court, the state represented
land values to be approximately $1.1 billion and
cash to total $200 million. When plaintiffs
reviewed the land list and applied the same
evaluation procedures as used by the state, the
difference between the $1.1 billion representation
and value of individual parcels totals
approximately $95 million.
2. Formalization of representations made by the state
at
the preliminary hearing. Mr. Walker said that
these representations must be made part of the
settlement. Some of the necessary changes will
require legislation while others could be effected
within the settlement agreement. The thrust of
testimony by Commissioner Noah at the preliminary
hearing was that the substitute trust would be
managed for the maximum benefit of the
beneficiaries. That commitment must be made for
all subsequent administrations and incorporated
within the settlement.
3. Coal Lands. Coal lands that were part of the
original trust should remain in the trust. There is
no justification for removing them.
4. Survey of trust lands. Mr. Walker voiced need for
proper survey of lands transferred to the trust in
order to aid in marketing and management of the
lands.
Referencing SB 382, Mr. Walker said that, as a former
attorney with Legislative Affairs and a drafter of
legislative language, he was having difficulty understanding
portions of the bill and determining what it accomplishes.
It is troublesome that it is not easy to understand what the
legislation purports to do.
Mr. Walker described portions of HB 201 as "mean and
vindictive" and concluded that there is a chance "that most
of the world would view them that way." The proposed
settlement will thus not provide finality. While it is true
that the court, ultimately, is the entity which must be
satisfied, Mr. Walker said there would be no settlement in
the litigation without the original plaintiffs being part of
it. It is a myth that there is no widespread opposition to
the settlement. He referenced a group of resolutions from
"deeply involved organizations and associations" and noted
that they register opposition to the settlement proposal.
[Materials from the Anchorage Alliance for the Mentally Ill;
Fairbanks Alliance for the Mentally Ill; Alaska Mental
Health Association; Anchorage Residences for the Mentally
Ill, Inc.; Kenai Alliance for the Mentally Ill; Kodiak
Alliance for the Mentally Ill, Mental Health Consumers of
Alaska; and Railbelt Alliance for the Mentally Ill are on
file.]
JIM GOTTSTEIN referenced September 20, 1994, correspondence
(copy of file) and commenced to speak to proposed
amendments. He concurred in earlier comments by Mr. Walker
that if the amendments are adopted, he and Mr. Walker would
recommend the settlement to their clients, without further
change. He reiterated that if the amendments are adopted,
the state would indeed have a settlement. If they are not,
a settlement will not be forthcoming for some time.
Elimination of the appeal deadline reflects recognition that
litigation will continue.
Mr. Gottstein said he had been dealing with mental health
issues since the original 1978 legislation, purporting to
abolish the trust, was enacted. This is the fifth attempt
at settlement. While the state may be able to "jam" the
current proposal through the court, until plaintiffs who
brought the original suit agree, what the state has is a
settlement negotiated with intervenors in the litigation.
Speaking to the issue of the land list, Mr. Gottstein
referenced two tabulations. [Tabulations entitled "Missing
Parcels" and "4/21/94 Reconstitution Proposal
(State/Volland)" are on file.] He said that the tabulations
would be used to describe the "incredibly shrinking trust
that we've experienced." Directing attention to the 4/21/94
handout, Mr. Gottstein said the state presented the
tabulation at the preliminary hearing as "our--the
plaintiffs'--valuation of the settlement." He then
referenced a line half way into the tabulation and explained
that MRTLS refers to "mandatorily reconstituted trust
lands." Under Chapter 66, all agreed that those lands would
become part of the trust. There was never any controversy
over those lands in terms of category. Mr. Gottstein noted
that when he reviewed the state's April 28 list, $26 million
worth of parcels had been removed. As of September 8, the
total value of missing land is $86.4 million. When the
proposed addendum to the April 28 list was presented, last
week, it was discovered that an additional $8 million in
land was removed. Mr. Gottstein voiced his belief that the
foregoing would be a problem for the court which is very
concerned that the parties get the benefit of the bargain.
He suggested that the legislature had been called into
special session to solve a $40 million problem while the
administration has basically ignored a $95 million problem.
Mr. Gottstein added his belief that the problem was actually
larger than $95 million. All problems with the land list
have not been evaluated. Further, the state "took some
parcels and made them smaller and called them the same
number." There is obviously not as much value in the
smaller parcels. The actual tracking of these values will
require additional research. In his concluding remarks on
the issue, Mr. Gottstein observed that the state should
honor the "deal that was struck in late April." Further,
the missing parcels should be added back.
Mr. Gottstein next referenced attachments to the September
20, 1994, correspondence and said he would speak to proposed
amendments in order of importance. He commenced with
discussion of provisions allowing the trust authority to
"administer" the mental health trust income account
(amendment B). The settlement agreement says that the trust
authority has the right to spend that money free of any
further legislative appropriation. Mr. Gottstein noted
constitutional questions concerning that provision. The
propose of the proposed amendment is to make clear that it
was the legislature's intent that the trust authority be
permitted to spend the money free of further legislative
appropriation. Beneficiaries have been told that is what
the settlement does. If that is, in fact, the legislature's
intent, the proposed amendment should be adopted.
The next amendment (amendment C) addresses the issue of
reassertion of claims. (Mr. Gottstein noted need to add
Sec. 41 to sections cited in amendment language.) He
explained that the amendment provides for repeal of non-
settlement, coercive, punitive measures within HB 201. Once
the settlement is approved, there is no need to "have that
offensive language in law . . . ." The amendment also
removes the state's argument that the original claims cannot
be reasserted. The idea is that if the state breaches the
settlement, the issue reverts to where it was before passage
of HB 201 rather than after. Current assertions by the
state that recourse in the event of breach extends only to
what is presently in the trust is not a sufficient deterrent
to legislative breach.
The last statutory amendment relates to survey. Mr.
Gottstein remarked that claims that the trust will receive
the same degree of survey and title the state received from
the federal government under the enabling act are not true.
Under the mental health enabling act, the federal government
surveys lands prior to patent and advises of title status.
Under the proposed settlement, the state is exempted from
survey and platting requirements that the trust authority
will be bound to after it receives the land. The trust will
be unable to determine what land it has with any certainty,
nor will it be able to tell what the encumbrances are. Mr.
Gottstein stressed need to identify encumbrances. The state
has not agreed to that. He then noted that while the state
steadfastly refused identification, the work plan the Dept.
of Natural Resources is pursuing actually proposes to
identify encumbrances. The settlement agreement should
contain a provision whereby the state agrees to do what it
is already planning to do. Mr. Gottstein advised that
amendment language suggests a ten-year period of survey and
that the trust authority work with DNR to determine the
priority of surveys.
Mr. Gottstein next expressed need for amending language
formalizing Commissioner Noah's statements at the
preliminary hearing that the trust would be managed for the
maximum benefit of the trust authority to achieve fair
market value and that the trust authority would be treated
as a client of the Dept. of Natural Resources.
Remaining amendments are technical in nature and relate to
reassertion of claims.
The final item sought is that coal lands originally included
in the trust not be removed. There is no reason for
removal. These lands were trust lands when the coal leases
were signed. Plaintiffs are not asking that lease terms be
changed. Mr. Gottstein acknowledged that the litigation
challenges the validity of the leases and expressed his
belief that active coal mines may be liable for substantial
back royalties.
Mr. Gottstein suggested that the foregoing requests are not
seeking "that much." He reiterated that if the requests are
accommodated, a true settlement will result. If they are
not accepted, it will be some time before anyone knows the
outcome of the mental health trust issue.
Representative Larson referenced the original 100-million-
acre conveyance of trust land by the federal government and
said he could recall no Congressional appropriation for
survey. He then asked if the original conveyance was
surveyed and at whose cost. Mr. Gottstein explained that
the mental health enabling act consists of a two-part
process. Land is selected and then conveyed. Before the
federal government conveys land, it surveys it and issues a
patent. Approximately 750,000 acres have been patented.
The remaining 250,000 acres have been tentatively approved.
The statehood act involves a three part process: selection,
tentative approval, and patent. When land is tentatively
approved, lines are drawn and administration of the land is
transferred to the state. Survey and patent then follow.
If the state chooses to do something with the land, it can
survey it at state expense and move forward or wait for the
federal government to survey and patent the property. All
land received under both the statehood and mental health
trust enabling act will eventually be patented. The problem
is that the settlement merely takes surveyed lands and
writes descriptions. That, in effect, takes surveyed lands
and makes unsurveyed parcels out of it. That is illegal.
No one else can do that. In mental health trust
legislation, the state exempted itself from complying with
surveying and platting requirements. This cost should not
be shifted to the trust authority.
End, SFC-94, #92, Side 2
Begin, SFC-94, #94, Side 1
In response to a question from Representative Larson
relating to language dealing with fair market value of trust
land as well as best use of the land, Mr. Gottstein
explained that it is standard trust language. He added that
one of the problems encountered in the mental health trust
situation is the fact that the state made a determination it
was better, for the public, to take 370,000 acres of trust
land and put it into state parks and forests, critical
habitat, refuges, etc. than to hold the lands in trust.
When land is taken from the trust, the trust must be
compensated. Management regimes for trust land often allow
for use of land. However, if the action has a negative
fiscal impact on the trust, the negative fiscal impact must
be compensated for. Plaintiffs seek to ensure that, under
the settlement agreement, the trust will be administered as
a trust.
Co-chair Frank raised questions regarding action on back
royalties on coal lands. Mr. Gottstein explained that,
earlier in the year, he filed a motion to certify a class of
defendants--all coal lessees. One of the claims is that the
leases are invalid because they were not issued pursuant to
proper trust management guidelines in that royalty rates
paid for removal of coal were not a fair market return.
Back royalties to achieve fair market value are thus owed.
Co-chair Frank commented that there does not appear to be a
practical solution to the issue raised by the above-
mentioned motion since third-party private lessees probably
do not have moneys with which to pay the alleged back
royalties. Plaintiffs' proposed solution of putting coal
lands back into the trust at the same time plaintiffs are
suing on the matter is not palatable. Mr. Gottstein said
that if the proposed amendment for inclusion of coal lands
is accepted, the litigation would end. If not, the claim
remains.
Mr. Gottstein further advised that a similar class action
was filed against municipalities because they were "just
given the land." Under trust law it is clear that "They'll
come back." Mr. Gottstein reiterated that if the proposed
amendments are accepted, a settlement will be in place. If
they are not, it will be a long time before the mental
health issue is resolved.
Senator Kerttula asked which of the proposed amendments is
the least important. Mr. Gottstein said it would be
difficult to eliminate any one and still say plaintiffs
would be supportive of the settlement.
Discussion followed between Mr. Gottstein and Senator
Kerttula over settlement agreements achieved up to this time
under current administrative staff, well-versed in the
mental health trust issue, versus a new administration and
new staff.
Representative Larson referenced a succession of pieces of
legislation working toward settlement and questioned how
finality could be given to private third-parties if the
proposed amendment would return the matter to pre-HB 201
status should a breach occur. Mr. Gottstein voiced his
belief that the court viewed the prospect of having that
very problem resurface as sufficient deterrent to
legislative breach. Current settlement provisions relating
to reassertion of claims do not provide the deterrent
envisioned by the court. Representative Larson stated his
belief that the continued holding of private purchasers as
hostages would be "so unbelievable" that the court would not
approve such an arrangement even if the legislature agreed
to the amendment. Mr. Walker suggested that third-party
purchasers could be removed from the process entirely. He
referenced past legislation introduced by Representative
James to accomplish that. All the legislation required was
replacement of private third-party land with substitute
land. There are thus alternative methods of dealing with
that problem.
Representative Finkelstein raised questions regarding
security. Mr. Walker voiced concern that without
reconstitution of the trust per Chapter 66, the proposed
settlement does not contain sufficient deterrent to a
material breach of the settlement. Repeal of statutes
creating the trust authority was cited as an example of a
substantive breach. Claims, should a breach occur under the
settlement, would only apply to the "to-be-conveyed list of
this trust." That provides no deterrent at all. The remedy
is not sufficient.
Senator Rieger asked if the trust would have rights equal to
those of private land holders in terms of ability to develop
land and realize income. Mr. Gottstein said that if the
proposed amendments are adopted, plaintiffs believe trust
lands would be managed in closer accord with privately held
lands. Zoning and environmental laws would apply to the
trust. Statutes presently say that the land is to be
managed as all other state land but subject to requirements
of the mental health enabling act. In granting preliminary
approval, the court found that sufficient. Management of
trust lands in accordance with management of other state
lands takes into consideration interests (environmental,
developmental, land at less than fair market value, etc.)
other than those of the trust.
Senator Rieger sought a definition of "public trust." Mr.
Gottstein acknowledged confusion in this area. He explained
that the state originally argued that "public trust" meant
no different management than management of all state land
under the public trust doctrine--for the greater public
good. That argument was rejected by the supreme court. The
court said that private trust law principles apply.
Proposed amendments attempt to get closer to that concept.
Co-chair Frank asked why an approach such as that contained
within Representative James' legislation was not
incorporated within the proposed amendments. Mr. Walker
voiced support for the legislation, saying that it addressed
an issue of great concern to the legislature. In proposing
amendments, opposing attorneys are suggesting the "minimum
kind of changes" that would be required prior to acceptance
of the settlement.
In response to further questions from the Co-chair, Mr.
Walker acknowledged that he could not negotiate a settlement
with the legislature. That must be done with the
administration. Changes within the proposed amendments are
not acceptable to the administration. However, the
legislature can make amendments to statutes. Mr. Gottstein
said he felt it was right for counsel for plaintiffs to come
before committee and, within the framework of the proposed
settlement, advise of what it would take to achieve a true
settlement.
Speaking to the approach taken by Representative James'
bill, Mr. Gottstein said that the administration and the
legislature abandoned that approach when HB 201 was passed.
Beneficiaries are being asked to accept a settlement that is
30 cents on the dollar in exchange for establishment of the
trust authority and trust authority control over
expenditures. If beneficiaries are to accept this
arrangement, provisions therein should be enforceable.
Representative Larson stressed that the foregoing comments
and opinions are those of the speaker and not necessarily
agreed to by legislative members.
Representative Davies asked if DNR management of trust lands
as a public rather than private trust would lead to material
breach of the settlement. Mr. Gottstein said that, under
the settlement, the management regime for the trust is left
to the regulatory process or litigation, in terms of what is
permissible. Plaintiffs' problem with DNR management is
that it allows for consideration of non-trust interests.
Plaintiffs are not proposing a change in the statutory
regime. What is being proposed is that the Commissioner's
statements that the land should be managed to the maximum
benefit of the beneficiaries and to achieve fair market
value be incorporated into the settlement agreement. Those
statements to the court would then be binding on future
administrations.
Discussion followed between Representative Davies and Mr.
Gottstein regarding management of the Washington school
trust. Mr. Gottstein stressed that consideration of other
interests is acceptable as long as those interests do not
have a negative fiscal impact on the trust. Negative fiscal
impact must be compensated.
Representative James stressed need for finality. She then
voiced her understanding that problems associated with a
future breach of settlement appear the same under both
Chapter 66 and HB 201. Redress for damages would be through
the courts. Mr. Walker explained that the difference
between Chapter 66 and the proposed HB 201 settlement is
that under Chapter 66 the trust corpus would be fully
reconstituted. While allowing substitute land, the supreme
court required dollar-for-dollar equivalency with original
trust land. The trust would thus have that property. The
HB 201 settlement trades trust value for other benefits.
Further, the terms of Chapter 66 settlement were
incorporated within the court judgment and were enforceable
in terms of that judgment. There is a huge difference in
both the enforceability and the value of the trust corpus
between Chapter 66 and the proposed settlement. Mr.
Gottstein added that under Chapter 66 the mental health
community was not being asked to "put a lot of value on a
constitutionally dubious proposition"--trust authority to
spend trust income without legislative appropriation.
Representative Brown referenced the $94.8 million in missing
parcels and asked for an explanation. Mr. Gottstein said
that when he requested a response from the Dept. of Natural
Resources, he was told that the department had one but was
too busy, "getting the land list together, to give it to
us." Counsel received written response only last evening.
The response gives various reasons for why the department
unilaterally decided to "pull things off the list." Some
reasons are valid while others are not. The problem is that
removal means that the proposed settlement is less than the
court was told. If something comes off the list, something
else should go on. Of approximately 4,000 missing parcels,
17 have been added back. In less than two weeks' time, the
trust lost an additional $7.5 million worth of land as the
department reviewed and reworked its list.
Senator Rieger referenced settlement language requiring that
the principal be retained. Since the original enabling act
does not make such a provision, the requirement appears to
be a major change strengthening the corpus of the mental
health trust. Mr. Gottstein noted that review of all other
states indicates that the corpus is preserved. Even if the
enabling act permits the trustee to invade the corpus under
appropriate circumstances, the only proper time that could
be done is in the best interest of the trust and the
beneficiaries. The supreme court decision speaks to a
setoff for land that has been sold. That suggests a
reduction in corpus. One of the questions embodied within
the litigation is, What lands would be considered sold? Had
that language not existed, and had administrations not
seized upon it as a means of destroying the trust through
the setoff, the mental health issue would have been resolved
much earlier.
Senator Rieger referenced enabling act language, recited by
Judge Greene, that uses the words "expended or used by the
territory of Alaska." He then suggested that language
implies that the corpus could be used. Mr. Gottstein
acknowledged that the language has been interpreted that way
by the administration. Earlier decisions indicate that the
trust must be managed solely in the best interest of the
beneficiaries. The question is, "If it's possible to invade
the corpus, was that undertaken for a proper motive?" The
record does not indicated that the corpus was invaded to
benefit Alaskans who need mental health services.
Referencing the list of missing parcels, Senator Salo asked
if the value of each is an agreed-upon figure. Mr.
Gottstein acknowledged that the state does not agree with
the values. The administration would have to agree,
however, that all those parcels were subsumed within the
list "that went in to what the court was told we had
valued." The question is not so much one of value as much
as whether or not these parcels "were supposed to be in the
deal."
PHILLIP VOLLAND, representing a group of plaintiffs in
support of the settlement, and JEFF JESSEE, senior attorney
with Advocacy Services of Alaska, representing named
beneficiaries and the developmentally disabled, came before
committee. Both attorneys advised that they had negotiated
and signed the proposed settlement with the administration.
Mr. Volland voiced disagreement with Mr. Gottstein's and Mr.
Walker's assessments of the settlement and suggested that
they made misrepresentations of the fairness and accuracy.
He said he would not speak to technicalities, since they
have been well argued over the past two years. He stressed
that the bills now before committee represent follow-through
on the commitment made last session. The legislation fixes
mistakes made when formulating the HB 201 settlement and
resolves problems identified by the court. Assertions of
need for greater enforceability, more land added to the
list, written assurances of what the state said it will do,
etc. reflect the recurring theme of "tremendous mistrust of
the state" that is the basis for those who oppose the
settlement. That mistrust alleges that the state will not
keep its commitments. In stepping forward on the pending
legislation, the legislature is demonstrating its commitment
to solve the mental health problem. That should silence
those who criticize the motivation of the legislature.
End: SFC-94, #94, Side 1
Begin: SFC-94, #94, Side 2
Mr. Volland stressed need to keep in mind what has been
happening in the courts. The notice and comment period has
begun. Notice of the impending settlement was mailed to all
post office boxes statewide. Of those who have replied,
response is overwhelmingly consistent in support of the
settlement. Responses are consistent in one theme--a desire
to conclude the litigation. The settlement is deemed fair,
and need is expressed to stop endless bickering about
details, refinements, solutions, and legal theories.
Passage of the proposed legislation responds to that kind of
feeling among both the public and beneficiaries.
Legislative action will not only keep the promise made to
the public, but it will also demonstrate the state's
willingness and commitment to keep its own promises when it
"makes a particular deal." Mr. Volland urged that members
not lose sight of the goal of the three-day legislative
session. The objective is to review concerns expressed by
Judge Greene and address them in a simple, straightforward
way. A disservice will be done if the legislature attempts
to "tinker" with the delicate balance of the settlement.
Mr. Volland urged favorable passage of pending legislation.
Mr. Jessee stressed that there is nothing about the proposed
settlement that changes the relationship between the
legislature, as trustees, and the beneficiaries of the
trust. It merely closes a chapter in that relationship that
has led to litigation and adversarial positions. It will
begin a new relationship and a new future leading to a
spirit of cooperation wherein beneficiaries can work
together with the legislature, trustees, the trust
authority, the administration, and the people of Alaska to
"get something positive out of this trust . . . ."
Mr. Jessee described Judge Greene's decision as a reliable,
objective view of the litigation, proposed settlement, and
suggested amendments. She is the closest thing to an
objective attorney--able to assess the litigation and its
risks and the settlement and its risks and make a
fundamental decision as to whether the settlement is in the
interest of the beneficiaries.
When the settlement was first negotiated and placed before
beneficiaries, beneficiaries were not pushed to take a
position. Mr. Jessee said he urged his clients to wait and
listen to what Judge Greene had to say. She has spoken and
has made specific concerns that could lead to failure to
achieve final approval very clear.
Mr. Jessee concurred in comments by Mr. Volland that one of
the ongoing problems is the sense that the administration,
legislature, and state cannot be trusted. He then stressed
that this is the first time he had been involved in
negotiations, both before and after a settlement, where he
feels the state has not only stepped up to keep its
commitments but has gone "the extra mile." Commissioner
Noah has worked incredibly hard to keep the settlement on
track and resolve problems as they arise. The atmosphere at
both the Dept. of Natural Resources and Dept. of Law is one
of cooperation. The intent is for both sides to "get the
benefit of their bargain." That is of benefit to
beneficiaries in commencing the settlement on the right
foot. Much remains to be done in appointment of a trust
authority, commencement of the regulatory process with the
Dept. of Natural Resources, development of program
regulations, implementation of significant changes to major
mental health planning boards and commissions, establishment
of new budgeting mechanisms, etc.
Mr. Jessee stressed the importance of the immediate
effective date in proposed legislation. When Judge Greene
grants final approval, implementation of the settlement will
commence immediately. Judge Greene has pointed out inherent
risks in the settlement. It is not perfect. But, much of
what has been said about imperfections relates to items with
which Judge Greene has either dealt or will deal. As soon
as November 15, the state may be in the process of finally
implementing a settlement. While appeal may be taken, the
issue will be moving forward. That is one of the most
positive elements of the pending legislation. Judge Greene
has validated the fairness and adequacy of the settlement.
Mr. Jessee urged positive response to the bills before
committee.
Senator Kerttula referenced earlier comments regarding
draftsmanship of the current bills and asked if statutory
changes embodied in SB 382 are logical and make sense. Both
Mr. Volland and Mr. Jessee responded affirmatively.
Representative Brown inquired about enforceability of the
settlement. Mr. Volland replied that enforceability is
based on deterrence. The thought of continued litigation is
something that future legislatures will shy away from. The
court recognized that. It said that the claims and defenses
that exist when the case is dismissed can be reasserted at
the time of breach. The settlement agreement specifies that
the sole remedy is the filing of a new action claiming
whatever remedies are appropriate under the circumstances.
Upon a breach of the settlement, beneficiaries can file a
complaint and seek an appropriate remedy, including a remedy
against original trust land if that is appropriate. The
state, likewise, will assert all of its defenses. The
lawyers then go to battle over the strengths and weaknesses
of their particular claims. Deterrence is based on "a fear
of two parties going to war again." It is a mistake to
focus on a particular remedy or particular breach since they
can only be assessed in light of circumstances that will
exist at the time they occur, if they occur at all. For
certain breaches, it might not be an appropriate or
effective remedy to assert a claim against land. Receiving
the benefit of the bargain makes the deal enforceable. If
that benefit is not forthcoming in the future, the situation
for the parties reverts to where it was before the bargain
was made.
Mr. Jessee said he views enforceability in this situation
differently than a commercial venture where an injunction
may be obtained against a party, preventing breach of the
agreement. There is no way a court would be able to hold
the legislature in contempt and put members in jail if
legislation constituting a breach of the agreement is
considered. The arrangement is different when governmental
bodies are involved. Mr. Jessee stressed that the threat of
"starting this lawsuit up again is a pretty significant
deterrent." It does no good to argue enforceability when
the matter is one for the judge to ultimately decide. Judge
Greene determined that the settlement is a "reasonably
enforceable deal." She recognizes there are risks. All
parties understand that and have so informed their clients.
Mr. Jessee voiced his belief that, with that
acknowledgement, the majority of the clients will support
the settlement.
Senator Little asked what type of result is anticipated,
since the original plaintiffs are dissatisfied with the
settlement. Mr. Volland voiced his anticipation that the
court will grant final approval, that there will be an
appeal, and that the appeal will not be successful. Final
approval will involve more detailed analysis and findings
than preliminary approval. He stressed that Judge Greene's
decision clearly meets the legal standard necessary to
sustain her finding on any level of appeal.
Senator Little next asked if Mr. Volland and Mr. Jessee
agree with any of the proposals set forth by Mr. Walker and
Mr. Gottstein. Mr. Volland acknowledged that elements of
the proposals enhance the settlement. He cited surveys of
lands conveyed to trust and legislative appropriation of $15
million to do so as an example and said he was in favor of
that effort. However, he noted his commitment to the
legislature when he stood by "the deal last May" and said he
would not come back to the legislature and ask for more.
Good faith with the legislature rests in adhering to what
was determined to be fair and not asking for more.
Co-chair Frank asked what the situation would be if the
court fails to grant final approval. Mr. Volland said it
was highly unlikely that would occur. The reason for
preliminary approval is to pinpoint problems and give
parties an opportunity to address them so that the
likelihood of final approval is much more secure. That is
exactly what is happening in this instance. Final approval
is thus a reasonable assumption. Mr. Volland suggested that
the court would not have gone through a process of
considerable expense (statewide notification and the
scheduling of two to three weeks of hearings) if the court
did not believe the settlement should and could be approved,
providing that certain problems are corrected. The
legislature is addressing those items in this special
session.
Representative Therriault inquired concerning the different
level of scrutiny or proof associated with final approval.
Mr. Volland explained that different legal standards are
applied to preliminary approval and final approval. These
standards relate to what the court needs to do and findings
the court needs to make. Final approval is not more
detailed. The more important factor is that because of the
complexities of this case, the court devoted far more time
and scrutiny to the settlement than would normally be the
case under preliminary approval. Preliminary approval is
rarely a week-long adversarial hearing with ten or fifteen
witnesses. The court has heard and is aware of what the
substantial arguments against the settlement are. Using
value as an example, Mr. Volland noted that Judge Greene's
decision sheds important light on those arguments. It
indicates that values are educated guesses with no assurance
of money. Mr. Volland acknowledged that while the court has
already closely reviewed the settlement, it will again
conduct review to ensure that issues outlined in the earlier
decision were addressed and allow time for parties to brief
and argue the issues since they are complex. The difference
in the standard between preliminary and final approval
should not be something that alters what the court does or
the final outcome.
Co-chair Frank asked if the court had adequately addressed
and rejected the amendments offered by opposing attorneys.
Mr. Volland responded affirmatively. Using the survey
issue as an example, he advised of testimony and argument on
that matter at the preliminary hearing. The court
understands the issue and found that the proposed settlement
was fair without survey requirements. The court heard
arguments concerning enforceability and found that the
agreement is enforceable. The court heard suggestions of
possible unconstitutionality associated with the
appropriation process, but suggested to plaintiffs' counsel
that the arrangement is something clients and beneficiaries
would want as part of the deal. The question is not a legal
issue that has been briefed or claimed because all attorneys
for plaintiffs want trust authority ability to allocate the
net income through a process of grants and contracts. For
the most part, the court has addressed the proposed
amendments in one way or another. They were part of Judge
Greene's consideration in ruling that the settlement was
fair.
In response to an additional question from Co-chair Frank
regarding the issue of value, Mr. Volland said the court was
well aware that the coal leases were not a part of the
settlement and discussed that value issue in the overall
assessment of fairness.
Representative Brown voiced her understanding that the court
considered the value to be $1.3 billion, including the $200
million in cash. She then inquired concerning the missing
parcels and the apparent discrepancy in value. Mr. Volland
acknowledged that the issue of the "new missing parcels" was
not raised before the court at the July hearing. The court
had the land list before it. He explained that the
tabulation dated 4/21/94 (distributed by Mr. Walker and Mr.
Gottstein) contains a preliminary estimate of the value of
the settlement. It does not provide a comprehensive list of
what was supposed to be there. The court looked at value in
terms of all the different yardsticks presented. Mr.
Volland noted estimated values ranging from $2 billion to
$500 million. The judge determined that "however you
measure it, it's still fair." Mr. Volland voiced his belief
that if the issue is raised at final approval, the court
will treat it as a value discussion and will again conclude
that the settlement is fair. Continuing evidence will show
that some of the values are "very, very optimistic
assessments of values to the land, that probably won't hold
up."
Mr. Jessee advised of an earlier list of parcels that were
omitted or alleged to be omitted. He said that settling
attorneys sat down with the department and developed a
parcel-by-parcel explanation. Mr. Jessee said he was very
comfortable taking that explanation to his clients and
showing what happened to every parcel. This same process is
beginning for "this other list that we've gotten in the last
couple of weeks." Of the 4,000 parcels, over 2,000 are oil-
and-gas-only estates in parcels that have an identified
value of zero for oil and gas. That does not affect the
value and was not part of the deal. Mr. Jessee expressed
his confidence that item-by-item review would allow him to
explain to both his clients and the court what happened to
the parcels. He expressed further confidence that when the
court looks at the overall value and fairness of the
settlement, Judge Greene will conclude that the value given
for what was given up is fair and reasonable.
Representative Davies asked if the parcel-by-parcel
explanation also lists encumbrances. Mr. Jessee responded,
"No, not at this time."
Co-chair Pearce called for additional questions. None were
forthcoming. She then directed that the meeting be recessed
for approximately five minutes prior to taking public and
teleconference testimony.
RECESS - 7:00 P.M.
RECONVENE - 7:07 P.M.
Upon reconvening the meeting, Co-chair Pearce announced that
the MatSu teleconference site had dropped off the line. She
then requested that teleconference testimony proceed.
FAIRBANKS
JEANNETTE GRASTO, President, Fairbanks Alliance for the
Mentally Ill, advised that Mr. Walker was correct when he
indicated that many of the beneficiaries do not feel the
current settlement is adequate or enforceable. She advised
of contact with the Kodiak Alliance, Kenai Alliance,
Anchorage Alliance, Railbelt Alliance, Barrow Alliance, and
a family advocate group in Juneau. Conversations with the
presidents of these groups evidences that many are very
disappointed with the settlement. Amendments sought by Mr.
Gottstein and Mr. Walker are "minimally acceptable but very
essential to make this deal fair." Ms. Grasto voiced her
belief that it is difficult for the state to act as a
trustee for the mentally ill and continue to look out for
the interests of the state as a whole. If the amendments
sought by Mr. Walker and Mr. Gottstein are not adopted, many
want to ask the court to completely remove the state as a
trustee. Ms. Grasto voiced her hope that the legislature,
acting in special session as trustee for the mental health
community, will do what is best for beneficiaries and not
act on behalf of the state as a whole. She acknowledged it
would be difficult for members to separate those functions
but stressed that, as trustees, legislators have a duty to
attempt to focus on what is best for beneficiaries. She
urged adoption of amendments presented by Mr. Walker and Mr.
Gottstein.
JOY ALBEN, a member of both the Fairbanks Alliance for the
Mentally Ill and the Fairbanks Community Mental Health
Board, next testified. She said that the groups to which
she belongs represent the "invisible people"--the class of
plaintiffs that were originally named in the mental health
lands trust. As family and advocates for the seriously
mentally ill and chronically mentally ill, the
aforementioned groups represent the unwashed, the unwanted,
the misunderstood, the feared, and the odd-acting folks that
have been discriminated against since the beginning of time.
A vast number of those people continue to be treated as
lepers. There are no poster children in this group. The
above-noted organizations are the voice for the voiceless,
the timid, and the lost souls that are mentally ill.
The original mental health lands trust was an attempt to
rectify the injustices done in territorial days when the
mentally ill were sent to Morningside, and many were never
to be seen by their families again.
Ms. Alben next quoted from a letter to the editor published
in the Anchorage Daily News on Monday, September 19, 1994,
and entitled "Trust Lands Offer a Cruel Joke:"
The one million acres offered by our state
legislature in the mental health lands trust
settlement proposal is not land of like value as
the courts have determined it should be. [That]
this lesser, or non-productive land selection, is
required to be managed by a new, exclusive
bureaucracy within the Department of Natural
Resource assures a worthless return and represents
an obvious conflict of interest. With regard to
the $200 million offered in cash, after inflation
proofing, the best we can hope for is $6 million
to fund current services that currently cost $150
million. This legislative proposal is a cruel
joke. It does not achieve the intent of the
original trust or provide adequate funding
independent of state involvement.
Ms. Alben said that dissolution of the trust by the
legislature in 1978 was a black mark in the history of
Alaska. She urged that members remember that the original
million acres consisted of one million acres of the most
valuable land in the State of Alaska, outside of Prudhoe
Bay.
Speaking to concerns regarding the status of private third-
party purchasers of mental health lands, Ms. Alben said that
the mentally ill are not holding them hostage. It was the
illegal dissolution of the trust by the legislature and
subsequent actions of the state that did so. She urgently
requested that the proposed settlement be amended to include
provisions that are acceptable to all plaintiffs.
SYBIL SKELTON next testified, advising that she has been
mentally ill since 1963. She attested to a number of
"puzzling episodes" and advised of her special feelings for
the mentally ill. Ms. Skelton explained that her efforts on
behalf of the mentally ill have been as an advocate rather
than a client. She said she has been critical of lacking
programs and suggested that the greatest beneficiaries of
mental health programs are staff rather than those who need
services. She said health insurance programs should include
a program specifically for the mentally ill.
[At this point, the teleconference link to Fairbanks was
disrupted, and testimony from the Anchorage site commenced.]
ANCHORAGE
JIM PARSONS, Vice President, Alaska Mental Health
Association, advised that he has been a mental health
professional in Alaska for 42 years. He concurred in
commendations for the efforts of Commissioner Noah, saying
that the Commissioner has been equally informative to "his
interim committee of which I am a member, who are to advise
him." Mr. Parson voiced further commendation for Judge
Greene, who he said had demonstrated an evenhanded approach
and fairness in her deliberations.
Mr. Parsons noted that while Mr. Jessee approves of the
current settlement proposal, he also approved of the
previous, failed settlement attempt. Mr. Parsons said he
found it puzzling that attorneys who represent "ninety
percent of the beneficiaries" feel that the trust settlement
is not just unless the Gottstein and Walker amendments are
approved while the two attorneys who represent less than ten
percent of the clients do.
Mr. Parsons questioned why valuable coal lands that were
part of the original trust should be removed, "just because
private interests are involved." He suggested that trust
income is more important, as a public interest, to the
state. It is reprehensible to substitute lands of lesser
value for lands with the best income potential. Mr. Parsons
voiced concurrence with comments by the first two speakers
from Fairbanks.
Co-chair Pearce called for questions concerning
teleconference testimony. None were forthcoming.
JUNEAU
JOHN MALONE, President, Alaska Alliance for the Mentally
Ill, and PATRICK MURPHY, member, Juneau Alliance for the
Mentally Ill, next came before committee. Mr. Malone
explained that Mr. Murphy conducted an evaluation of the
proposed settlement on behalf of the Alaska Alliance and
that findings set forth in September 19, 1994,
correspondence (copy on file) reflect the position of the
statewide alliance. Mr. Malone noted he had been closely
involved in the mental health issue through most of all of
the proposed settlements. He said he is now faced with the
dilemma of two bodies of plaintiffs' attorneys that are
vigorously divided. Reliance must be placed on something
and someone. For the majority of the issues, that reliance
rests with Judge Greene. She has spoken both well and
clearly in her 58-page decision. Mr. Malone observed that
issues of equity, fairness, and sufficient value in the
lands are for the judge to determine. He said he is more
concerned by future public policy associated with
"delivering an integrated and comprehensive mental health
program." While the state has a comprehensive program, it
is certainly not integrated. The unspoken focus contained
within legislation (SB 65) commenced several years ago by
Senator Duncan started the process of reestablishment,
reorganization, the trust authority concept, etc. That, as
well as statutory changes within the current settlement, are
the largest steps taken, since statehood, toward integration
of the mental health program as a public health issue.
Mr. Murphy stressed that the proposal now awaiting final
approval is the fourth attempt at settlement. He voiced
doubt that there would be a fifth, if the present proposal
is not finalized. He explained that he carefully reviewed
the settlement, and he acknowledged that it is not perfect.
Mr. Murphy concurred in comments by Mr. Jessee and stressed
that Judge Greene's decision is extremely well written. The
judge has pointed out what needs to be done to complete
settlement. If that is accomplished, in all likelihood
final approval will be granted. This represents the one
opportunity "to get done something that will never get done
if we don't do it here . . . ." Most of the parties are on
board.
Speaking to claims that Mr. Gottstein and Mr. Walker
represent ninety percent of the beneficiaries, Mr. Murphy
said that those claims are inaccurate. He informed members
that the Juneau Alliance for the Mentally Ill operates a
program that serves approximately 100 consumers. There was
no program nine years ago. The alliance now has seven
buildings in which the mentally ill are housed.
End: SFC-94, #94, Side 2
Begin: SFC-94, #95, Side 1
Mr. Murphy voiced support for the settlement but added that
that is not to say "there isn't tremendous fear here." It
is almost impossible for consumers and family members to
know whether the settlement is good or not. Much concern
relates to the disagreement between the two groups of
attorneys and an overriding distrust of the legislature.
Mr. Murphy advised that if everyone moves ahead in good
faith with an honest intention to make the settlement work,
it will work. This is the last opportunity to make that
happen. The settlement is a good one. Mr. Murphy urged
support. He acknowledged that while the Juneau Alliance
would also like to have the things embodied in amendments
proposed by Mr. Gottstein and Mr. Walker, a deal is a deal.
There is no time for renegotiation at this point.
Mr. Murphy requested that the legislature make the necessary
corrections noted by Judge Greene, and he pledged his
support to the settlement. He voiced his belief that the
only ones likely to utilize the December 15 deadline are
those opposed to the settlement. He voiced further belief
that if the legislature acts on pending legislation, Judge
Greene will approve the settlement, and a subsequent appeal
will fail. The parties will then have a settlement that
will end mental health trust litigation.
FAIRBANKS
Co-chair Pearce advised of additional testimony from
Fairbanks.
SUE SHERIF, representing her late father who would have been
a beneficiary of mental health litigation, noted that
legislative dissolution of the mental health trust was a
serious breach of a public trust. The current legislature
has an opportunity to take significant action to undo the
damage done in 1978 and which led to protracted legal
actions and negotiations. The legislature should restore
the trust and its obligation to its mentally ill
constituents by amending the current settlement to protect
against future breaches and to include clearly identified,
meaningful, income-producing lands like the coal lands.
This is the time to admit a state obligation to the mentally
ill. The class of beneficiaries may seem small and
otherwise preoccupied. However, mental illness, as defined
by the court in this case, has far reaching effects. It is
not exclusive to one area of the state, one sort of family,
or one particular economic group. It is in the best
interest of all, including the legislature, to "put teeth in
the settlement by amending it strongly to reflect the
changes offered by the original plaintiffs' legal
representatives."
Ms. Sherif urged that members remember that the suit was not
brought to damage "moms and pops" or stifle development but
simply to hold the legislature accountable for what the
courts have deemed was an improper act.
Co-chair Pearce called for questions. None were
forthcoming. She then advised that Mr. Al Aaron was next
scheduled to speak. The Fairbanks teleconference moderator
advised that Mr. Aaron had decided not to testify. The Co-
chair asked if additional individuals wished to testify
locally or via teleconference. No additional testimony was
presented. Co-chair Pearce advised that Tom Waldo,
representing public interest intervenors, was present to
answer questions, if members wished to raise them. No
questions were addressed to Mr. Waldo.
BRUCE BOTELHO, Attorney General, Dept. of Law; and HARRY
NOAH, Commissioner, Dept. of Natural Resources, again came
before committee. Representative Brown referenced
amendments presented by Mr. Walker and Mr. Gottstein, asked
for the administration's views on the amendments, and
questioned whether the situation would provide greater
security if a true settlement, including everyone, could be
reached. Commissioner Noah stressed that the purpose of the
special session and proposed legislation is to deal with
Judge Greene's concerns. The judge has stated that she can
dismiss the case without all the parties agreeing to the
settlement. That is the current situation.
Legislation now before committee deals with the judge's
concerns. The proposal by Mr. Walker and Mr. Gottstein is
not what would be considered a settlement proposal in that
it is not specific enough. It is much like Chapter 66.
Chapter 66 was "a process to settle versus a true
settlement."
Speaking to the value list, Commissioner Noah said that when
parties went before Judge Greene, the value of the list was
$175 million. In subsequent correspondence to the Senate
President and the Speaker of the House, the value was listed
at $75 million. The number "tends to be going all over the
place, relative to these specific values." The
administration has attempted to address each of Mr.
Gottstein's concerns on the land list, and would gladly sit
down with him at any time and "go through those once again
to try to explain those to him." The Commissioner advised
that there is a difference in the way the parties are
counting things and adding things up. That partly has to do
with "what's going on with the land list."
Addressing the issue of the coal lands, Commissioner Noah
noted that they have been paid for as part of the $200
million in cash. In terms of the value of the settlement,
one could add the $1 million in annual royalties from the
Usibelli coal lands. That would simply be adding value to
the trust when the judge has not asked for additional value.
That is not an issue at this time. The judge has determined
that the proposed settlement is within the realm of
fairness, in terms of her approval. While coal lands could
be added, it is not clear what would be gained by "adding it
to this list right now."
Commissioner Noah explained that the administration does not
disagree with the contention that surveys need to be done.
He stressed that 75 percent of the lands have already been
surveyed. Survey of remaining lands would be extremely
expensive. The estimate of approximately $15 million is
accurate. If the legislature is willing to include the $15
million, it would gladly be accepted by the department. The
Commissioner said that he was not sure that inclusion would
improve the chances of the judge dismissing the case at this
point. He added, "I'm not sure what your money would be
buying you." As properties become available for disposal or
a deal is made on them, they will then have to be surveyed.
But, that will be part of the interaction between DNR and
the trust manager, on a parcel-by-parcel basis. The lands
could be surveyed now and never touched for thirty years.
The time and value of money is thus in question here.
In his closing remarks, Commissioner Noah said it is not
clear that proposals offered by Mr. Gottstein are going to
"improve the deal as outlined by the judge."
ATTORNEY GENERAL BOTELHO noted that the original trust
provided that moneys would be first applied to mental health
programs, although not exclusively. There was a breach of
the trust, and the supreme court ultimately determined that
the trust was to be reconstituted, insofar as possible, but
made no specific directive that any specific parcel of land
had to go back to the trust. To the extent that there was a
shortfall, the court said there had to be a substitute fair
market value. The court also said the state was entitled to
a setoff. The directive was to the superior court to
supervise reconstitution of the trust. That is basically
the function that Judge Greene has served. She has, on
several occasions, been presented with issues to decide and
has issued decisions. One of those decisions is that not
all parties--not even a majority--have to agree in order for
her to grant either preliminary or final approval. It is
somewhat ironic that when she rendered that decision it was
within the context of the state being allied with those who
are opposing the settlement.
Since the decision by the Alaska Supreme Court, the
legislature has tried, each year, to solve the problem. It
is important to note that this is not simply a negotiation
between plaintiffs and the state. It is multiparty
litigation. It has required tradeoffs with all participants
to attempt to reach settlement. Virtually every proposal
brought forward by Mr. Gottstein and Mr. Walker, at this
time, involves issues they specifically presented to the
court as a basis for denial of preliminary approval. The
court rejected each of those, with an explanation.
Speaking to the issue of coal lands, the Attorney General
reiterated remarks by Commissioner Noah indicating that they
were negotiated and paid for. Trust principal and need for
survey were discussed with the court at length. Terms in
the settlement were not lightly arrived at. Every one of
the issues was heavily debated, discussed, disputed, etc.
That was what allowed "us to reach the final construction."
The settlement was presented to Judge Greene. It was up to
her to make the first cut, and she will make the final cut
on whether this is a fair settlement with a class of
plaintiffs in the case. She has made that preliminary
determination and told us what it will take to "get the rest
of the way." That is what we are dealing with at this
point. He added:
For us, at this point, to accommodate the
additional request (in part it is giving
additional consideration) is less troubling to me
than the fact that it fails to take into account
that this is a multiparty settlement that has been
reached with great care. And, what is happening
is an attempt to really add on more to a deal and,
in essence, skew the deal with other parties who
are not right now testifying in front of you about
the deal that they negotiated and what they gave
up to get what is in there.
The Attorney General said that for those reasons he would
not recommend that any of the proposed amendments be
accepted by the legislature. He cautioned that the
amendments are not "settlement proposals" made to the
legislature. Opposing attorneys have not said that
inclusion of amendments would constitute a settlement they
would sign. They have said, "If you buy off on this," they
will "recommend" a settlement to their clients. That means
that:
You cannot walk out of here, even if you accept
every one of their recommendations, with a deal.
The only commitment made is to recommend, then, a
settlement with the state.
Representative Brown voiced her understanding that the issue
of the missing parcels was not part of Judge Greene's
considerations. She then asked if that is viewed as a
significant issue and voiced lack of understanding as to
what has become of parcels causing the discrepancy.
Commissioner Noah responded:
I do not view these as missing parcels like we
forgot about them or something. They were simply
not part of the negotiation. The Healy and Beluga
leases were part of the negotiation, and clearly
it was thought out by us. I think there are some
ag[ricultural] parcels in here, also. I mean
these are all things that were considered by us,
as far as I'm concerned, in the negotiations.
He stressed that, as the Judge said, "You give a little, and
you get a little." Everybody gave and everybody got some.
The Commissioner explained that negotiations, over a period
of time, produced a list--a settlement--that Mr. Gottstein
and Mr. Walker did not sign on to. But, settlement was
achieved with a whole group of other people. These parcels
are not missing as far as the administration is concerned.
The deal is the April 28, 1994, land list the legislature
approved when it passed HB 201, as amended by provisions
within SB 382 and the September 23, 1994, addendum to the
April 28 list. Commissioner Noah acknowledged that Mr.
Gottstein had pointed out approximately 17 parcels that were
overlooked and have now been included in the addendum. When
raising issues regarding leases and other things, however,
those parcels were not forgotten. There was never an
agreement to "put them in." The amendments sought by Mr.
Gottstein constitute "renegotiating the deal."
Representative Brown asked if the situation had changed
since the judge considered the settlement and granted
preliminary approval. Commissioner Noah answered, "only in
that we're making these corrections, here." The
Representative acknowledged that corrections were being made
but referenced assertions by opposing attorneys that a
significant amount of value has been removed since
preliminary approval. Commissioner Noah said that the
administration cannot remove property from the list. The
"list is something that the legislature put in as part of
the bill." The reason the administration had to come to the
legislature for the Salcha exchange was to "get permission
to exchange those lands." The situation is not such that
the administration can take out parcels and replace them
with others. Modifications contained within the September
23 addendum are part of the technical corrections to the
land list. Attorney General Botelho suggested that perhaps
the question is, "What are these missing parcels missing
from?" Commissioner Noah acknowledged a lack of
understanding as to how they were derived. He reiterated
that Mr. Gottstein's amendments represent an attempt to
"renegotiate the deal."
Senator Little asked if representatives of the
administration concur with settling attorneys that an appeal
of the settlement would be denied by the courts, if the
legislature passes the pending bills. The response was,
"Emphatically so! Yes."
Senator Kelly expressed his hope that the court does not
think that "everybody in the legislature buys off on this
settlement, either." He said he had problems with the
settlement and was only voting for it because, after working
on the issue for many years, it represents and option to
provide finality to the process. He attested to the number
of Governors, Commissioners, Attorneys General, and
legislators that have attempted to deal with the problem
over a substantial number of years. The Senator
acknowledged that the settlement is not perfect. He
expressed particular concern over the power of the trust
authority and lack of public accountability. He stressed
that he would, nevertheless, support the proposed
legislation because it presents opportunity for finality,
and it is time to move on to other issues. The Attorney
General acknowledged the potential for conclusion,
reiterating that preliminary approval has never before been
granted to a settlement proposal.
Co-chair Frank asked that the administration again explain
need for revision of the deadline contained within HB 201.
Commissioner Noah told members that the administration is
proposing that the December 15 date remain in effect.
Changes provide that once Judge Greene makes her decision,
the deal goes into effect and remains in effect until the
supreme court overturns her decision. If the supreme court
reverses the decision, the $200 million would, at that time,
return to the general fund, and the trust authority would be
dissolved. Co-chair Frank asked how that differs from HB
201. Commissioner Noah advised that earlier legislation
said that by December 15 or the forty-five-day extension,
the case had to be dismissed with no appeals taken. That is
the difference. The administration assumes that those
opposed to settlement will appeal.
Co-chair Frank inquired concerning what necessitated the
above-noted change. Commissioner Noah said that the
administration was initially hopeful that the matter could
get to the point where everyone would settle. He advised
that he was not now sure that point could be reached.
Further, the administration knows more now than it did
before in terms of how the judge would lay out her schedule.
A schedule that calls for her to make her decision by
November 15 has "tied our hands more than we thought it
might." Attorney General Botelho added that since the
settlement becomes effective upon dismissal, private third-
party land holders would be free at an earlier date under
the change. Under HB 201, their property would continue to
be encumbered until all appeals had been exhausted.
Responding to an additional question from Co-chair Frank,
concerning the length of time involved in appeal, Mr.
Botelho noted the 30-day period within which appeal must be
made. He acknowledged that the maximum window would "rest
with any who chose to take the appeal." He then voiced his
belief that the Alaska Supreme Court would move
expeditiously and suggested a three to six-month process.
He further noted opportunity for a party to petition the
U.S. Supreme Court. A process of several months would be
involved in the court's decision as to whether or not it
wants to hear the case. Mr. Botelho advised of his
judgment that it is highly unlikely the U.S. Supreme Court
would take the case. Attorneys for plaintiffs opposing the
settlement have also gone on record saying that it is highly
unlikely it would be taken.
Senator Rieger asked if passage of amendments contained
within SB 382 and 383 would result in need to reword any
part of the settlement agreement. After brief consultation
with Mr. Koester, the Attorney General responded, "We do not
believe that will be necessary."
Senator Rieger referenced language in the settlement
agreement requiring parties to use best efforts to obtain
passage of legislation, if it is needed. He then asked if
the wording represents the prevailing standard and if
anything within the agreement binds the legislature to
passage of legislation. Attorney General Botelho answered:
"There is not. The best efforts are those, Madam Chairman,
that are being applied today."
Representative Martin asked if the administration had the
opportunity to tell the judge that if settlement is refused,
some provisions, such as the $200 million cash payment, may
never be reestablished. The Attorney General observed that
Judge Greene is "thoroughly familiar with how House Bill 201
works." She is also very sensitized to the existing
political environment. Most, if not all, parties share the
view expressed by Mr. Murphy when he commented that it is
unlikely there would be a fifth settlement.
Representative Parnell inquired concerning the standard of
appeal that might be used by the supreme court on Judge
Greene's decision. Attorney Botelho responded, "It is
basically a clearly erroneous standard." He than
acknowledged that two standards would be applied. The
supreme court will sit on issues of law and will
independently review those issues as to what the enabling
act means, to the extent that it is directly applied. As a
question of law, there is no particular deference given as
to factual issues. The valuation issue, as an example, will
be one that great deference, in terms of the clearly
erroneous standard, would be applied.
Representative Parnell next asked if appealing parties could
move for injunction to stop the settlement process, and what
standard of review might be used in that situation. The
Attorney General advised that an appealing party would first
ask the superior court for a stay of the dismissal. He then
voiced his belief that if dismissal is granted, there would
be no stay. The next remedy is to petition the supreme
court for a stay. Mr. Botelho voiced his belief that the
likelihood of a stay is very low. The standard itself is
"an injunctive standard"--irreparable injury to a party
caused by the other and no other adequate remedy at law.
The remedy at law is for the court to ultimately determine
that the reconstitution is invalid.
Senator Rieger asked if there is a remedy for contracts
entered by the trust authority that are clearly a violation
of fiduciary responsibility. The Attorney General advised
that any beneficiary who believes the trust authority has
violated its responsibility will have recourse in the courts
to challenge trust authority actions.
Representative Therriault acknowledged Judge Greene's role
as the impartial attorney making a decision on behalf of the
beneficiaries and asked if she is the original judge to whom
the Alaska Supreme Court remanded the case for consideration
and reconstitution of the trust. The Attorney General said
that she was not the original judge. She initially became
involved in 1986. Representative Therriault then asked if
anyone else, who is not committed to one party of another,
is as well versed as she is in the legal arguments
surrounding the case. The Attorney General responded
negatively.
Representative Larson referenced a newspaper article
relating to the cost of the current special session. He
then referenced past information provided by the Dept. of
Law concerning the cumulative cost of mental health
litigation and asked that figures be updated. He stressed
the importance of public awareness that although the special
session costs money, in the long run it will probably save
money that can both be used for mental health purposes and
remain in the general fund. Attorney General Botelho
advised that, as of September 13, expenditures for legal
costs total $8,581,878.93. The summary shows a total of
$3,064,380.63, to date, for this fiscal year alone.
Co-chair Frank noted that a reading of Judge Greene's
decision does not deal at length with the issue of value.
He then voiced concern that the judge might subsequently
determine that value is a questionable area. Attorney
General Botelho directed attention to pages 50 through 56
and Appendix A--an analysis of the various positions.
Representative Martin asked if final approval is an all or
nothing matter. Could the judge approve 90 or 80 percent of
the settlement package? Attorney General Botelho explained
that the judge has made clear that it is not the role of the
court to negotiate or participate in the negotiation of a
settlement. What she may do, and has done in preliminary
approval, is make certain suggestions about how concerns
could be addressed. The court will take the settlement
package presented to it and apply appropriate legal
standards--the fairness test. It is either up or down. In
either case, the parties expect a written decision
explaining the reasoning for either approving or rejecting
the settlement. In late December of 1993, the judge
provided extensive memoranda explaining why she rejected the
Chapter 66 settlement.
Co-chair Pearce called for further questions. None were
forthcoming. She then voiced her intent to recess the joint
meeting to the call of the chairs of the individual House
and Senate Finance Committees and announced that the Senate
Finance Committee meeting would convene in approximately
five minutes to "decide what our time frame is going to be."
Representative Larson polled House Finance Committee members
on their preference for a meeting time. House Finance
members elected to meet at 8:30 a.m., Tuesday, September 27,
1994.
RECESS
The Joint House and Senate Finance Committee meeting was
recessed at approximately 8:10 p.m.
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