Legislature(1993 - 1994)
05/05/1994 09:15 AM Senate FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE May 5, 1994 9:15 a.m. TAPES SFC-94, #82, Side 1 (000-end) SFC-94, #82, Side 2 (575-end) SFC-94, #84, Side 1 (000-086) SFC-94, #84, Side 2 (068-123) SFC-94, #86, Side 1 (000-121) [Note - Malfunction on Tape 84. No recording on side 1, and only partial recording on side 2.] CALL TO ORDER Co-chair Drue Pearce convened the meeting at approximately 9:15 a.m. PRESENT All committee members (Co-chairs Pearce and Frank and Senators Jacko, Kelly, Kerttula, Rieger, and Sharp) were present. ALSO ATTENDING: Representative Hanley; Harry Noah, Commissioner, Dept. of Natural Resources; Nancy Usera, Commissioner, Dept. of Administration; Jan Hansen, Director, Division of Public Assistance, Dept. of Health and Social Services; Mike Ford, Legal Counsel, Legislative Affairs Agency; Tom Koester, Legal Counsel, State of Alaska; Dave Skidmore, aide to Senator Frank; George Dozier, aide to Representative Kott; aides to committee members and other members of the legislature; and representatives of the press. SUMMARY INFORMATION SB 372 - ALCOHOLIC BEVERAGES: LOCAL OPTION & MISC. Work draft "O" was ADOPTED, and Senator Pearce explained that it removes tax provisions and former secs. 45, 58, and 59 relating to municipalities increased taxation. The Senate Finance version now contains local option provisions only. CSSB 372 (Fin) was REPORTED OUT of committee with a $1.06 fiscal note from the Office of the Governor/Division of Elections and zero notes from the Dept. of Public Safety and Dept. of Revenue. HB 201 - MENTAL HEALTH TRUST AMENDMENTS Lengthy discussion was had with Harry Noah, Commissioner of Natural Resources and Tom Koester, legal counsel for the State of Alaska. The bill was held in committee for additional discussion. HB 231 - AGGRAVATING/MITIGATING FACTORS;SEX CRIMES Brief comments were provided by George Dozier of Representative Kott's office. CSHB 231(Fin) was REPORTED OUT of committee with a fiscal note from Dept. of Corrections showing no operating costs but $500.0 in capital funding and zero notes from the Dept. of Law, Dept. of Public Safety, Dept. of Administration (OPA) and (PDA), and the Court System. HB 409 - AFDC DEMO PROJECT AND DECREASE SCS CSHB 409 version "L" was presented to committee and ADOPTED. Discussion was had with Representative Hanley, and a conceptual amendment, seeking comparison of private sector versus public workfare and a subsequent report to the legislature was proposed by Co-chair Frank and ADOPTED. SCS CSHB 409 (Fin) was REPORTED OUT of committee. PLEASE NOTE - This SCS CSHB 409 (Fin) was never finalized. Problems developed in formulation of the conceptual amendment, and the bill was returned to committee 5/6/94. An alternative SCS CSHB 409 (Fin) was adopted and reported out on that date. CS FOR HOUSE BILL NO. 409(FIN) am(efd fld) An Act relating to the maximum amount of assistance that may be granted under the adult public assistance program and the program of aid to families with dependent children; proposing a special demonstration project within the program of aid to families with dependent children and directing the Department of Health and Social Services to seek waivers from the federal government to implement the project. Co-chair Pearce directed that CS FOR HOUSE BILL NO. 409(FIN) am(efd fld) be brought on for discussion and directed attention to a draft Senate Finance Committee Substitute (8-LS121\L, Lauterbach, 5/2/94). Co-chair Frank explained that the draft increases the ratable reduction from 1.7 to 2.2. He then suggested that his staff speak to other changes. Co-chair Pearce requested that the sponsor of the legislation first speak to the demonstration project. REPRESENTATIVE MARK HANLEY, sponsor of the legislation, came before committee. He explained that the proposed bill attempts to change the way the state administers Alaska's welfare program. He suggested that the best way to reduce welfare costs is to get people off welfare rolls. That approach is consistent in what is happening in other states. There are three parts to the proposed bill: 1. It attempts to remove disincentives to work and provides incentives instead. 2. A workfare program which requires individuals, if they are able, to do either community service or to work for pay in order to receive benefits. 3. A ratable reduction. At the present time, after an individual is on welfare for four months and needs to continue to receive benefits, he or she is only allowed to keep $50 of anything made while working. The proposed bill increases that amount to $200 and allows an individual to keep one-third of "anything after that." That removes a disincentive to work and provides an incentive. It also reduces state costs by allowing the state to keep the two-thirds. The legislation also increases the car allowance. At the present time, the federal government allows an automobile value of only up to $1,500. That was increased to $7,500 in a version passed out of Senate HESS. The bill also eliminates the 100-hour rule which limits certain families to work no more than 100 hours a month. The workfare program requires that an individual do paid work for ten hours a week or unpaid community service work for at least twenty-one hours in order to receive benefits. The bill requires that the community service work portion be contracted out where possible. Representative Hanley acknowledged that the program will cost money to implement. It requires additional eligibility workers as well as people to monitor the program. The ratable reduction in the original bill was intended to cover the cost of the program, but it was eliminated in the HESS version. Representative Hanley voiced his understanding that the ratable reduction was increased to 2.2% in the proposed Senate Finance draft. In response to a question from Senator Kerttula, Representative Hanley explained that the ratable reduction represents a "straight percentage reduction in the benefits paid to recipients of adult public assistance and AFDC." DAVE SKIDMORE, aide to Senator Frank, next came before committee. He concurred that the proposed draft would increase the ratable reduction for both AFDC and APD from 1.7% to 2.2% The only other change in the Senate Finance draft is that the reduction would not be repealed in 1999. It would remain in effect even when the demonstration project is repealed. Mr. Skidmore next directed attention to a Senate Finance Committee fiscal note for the Alaska Work Program. He explained that the Dept. of Health and Social Services initially submitted a note for the bill but when provisions allowing for the contracting of these services were added, the fiscal note increased dramatically. The Senate Finance note returns to original amount since it is believed that costs should remain the same regardless of whether the state or private sector provides the service. Senator Kerttula inquired concerning liability for injuries that might be sustained as a result of workfare. JAN HANSEN, Director, Division of Public Assistance, Dept. of Health and Social Services, came before committee. She explained that part of the proposal includes purchase of insurance comparable to worker compensation. Insurance would thus be covered by the state in a manner similar to the JOBS program. That is included in the fiscal note for the Alaska Work program. The cost amounts to a $25 charge for six-month placement of an individual in workfare. Senator Kerttula next directed attention to page 4, line 14, and inquired concerning the issuing of contracts on a competitive basis. Representative Hanley said that provisions for contracting workfare to the private sector were added on the floor of the House. In some areas there is potentially more than one organization that could do the work. There is thus need to provide for competitive award. Further discussion followed between Senator Kerttula and Representative Hanley regarding the qualifications of entities to be granted such contracts. Representative Hanley stressed that the organization would have to have experience to qualify. Further discussion of the issue followed with Jan Hansen regarding establishment of criteria for evaluation of experience. Representative Hanley explained that while the department initially intended to conduct workfare on its own, concern arose in the House that private organizations were available to provide the service. The Fairbanks Native Association was cited as an example. Jan Hansen stressed that the "contract" referenced in the bill relates to administrative services for workfare rather than for the individual participant in the program. The division of public assistance would be the administrative entity if the program is not contracted to the private sector. Discussion followed between Ms. Hansen and Co-chair Pearce concerning contract arrangements associated with the JOBS program. Senator Kerttula expressed concern that private-sector contracts might, in the end, cost more than state administration. He then asked if the legislation contained safeguards to ensure that that was not the end result. Co- chair Pearce asked if the House would be amenable to a conceptual amendment requiring that the department first ascertain whether private-sector contract would be less rather than more expensive. Representative Hanley advised that he would have no problem with such a provision. He noted, however, that the original fiscal note for workfare was approximately $300.0, but the cost increased to $1.4 million after inclusion of provisions for private-sector services. The Representative advised he was unsure why costs are expected to increase so dramatically. Senator Kerttula voiced support for a conceptual amendment. Co- chair Frank suggested that the amendment include a report to the legislature on both costs and avoided costs. The Co- chair next voiced the following conceptual amendment: Provide for private sector contracting if, after having received the bids, the department determines that the private sector could do it more effectively and inexpensively than the state. In determining that, the department must analyze the avoided costs and report findings to the legislature, annually. Jan Hansen voiced concern that assessment of costs after receipt of bids would be unfair to contractors who devote substantial time and cost to bid preparation. Both Senator Kerttula and Co-chair Pearce suggested that the bid proposal include information to the effect that the state is seeking to make the above-mentioned evaluation. Jan Hansen commented that the state should perhaps seek information rather than a request for bids. Responding to earlier statements regarding the dramatic increase in the fiscal note when allowance for private- sector contracting was included, Ms. Hansen explained that a portion of the cost was the department assessment that contracting would cost more. Another part of the increase resulted from discovery that the cost to the department had been severely underestimated. The third piece of the cost relates to review of workfare in other states. The department could not find another state that was contracting out the effort. All were performing the service in house. The department thus reviewed the range of costs in other states and based its estimate on those numbers. Co-chair Frank MOVED for adoption of a conceptual amendment to add language requiring that the department report to the legislature the avoided costs and the cost of contracted provision of these services under subsection (b) (page 4, lines 12 through 21). No objection having been raised, the conceptual amendment was ADOPTED. Co-chair Frank then MOVED for adoption of SCS CSHB 409 (Finance) work draft "L." No objection having been raised, work draft "L" was ADOPTED. Co-chair Frank MOVED that SCS CSHB 409 (Finance) pass from committee with individual recommendations together with accompanying fiscal notes. No objection having been raised, SCS CSHB 409 (Finance) was *REPORTED OUT of committee with the following fiscal notes: SFC/ Alaska Workfare 0 DH&SS, AFDC 0 DH&SS, Eligibility Determination 0 DH&SS, PA Administration 200.1 DH&SS, PA Data Processing 631.4 DH&SS, Child Care 0 DH&SS, AFDC (3,080.6) DH&SS, APA ( 619.2) DH&SS, PFD ( 423.2) Co-chair Frank and Senators Jacko and Sharp signed the committee report with a "do pass" recommendation. Co-chair Pearce and Senators Rieger and Kelly signed "no rec." Senator Kerttula signed "do not pass." *PLEASE NOTE - The SCS CSHB 409 (Finance) containing the conceptual amendment was never produced due to difficulties encountered in attempting to develop appropriate language. The bill was returned to committee 5/6/94, and an alternative SCS CSHB 409 (Finance) was reported out at that time. HOUSE BILL NO. 445 am Act relating to administrative or court revocation of a driver's license resulting from operation of a motor vehicle, commercial motor vehicle, or aircraft; relating to chemical testing of a person's breath, urine, or blood if the person is involved in a motor vehicle accident that causes death or serious physical injury; relating to definitions applicable to commercial motor vehicle laws; relating to chemical testing of a person's breath, urine, or blood without the person's consent; and relating to the use in a civil or criminal action of the refusal of a person to submit to a chemical test. Co-chair Pearce referenced the scheduling of HB 445 and the fact that provisions inserted within SCS HB 445 (Jud) convert a third conviction for driving while intoxicated into a felony with a one-year prison sentence. Approximately 650 individuals, annually, would be caught in that provision. The Dept. of Corrections submitted an $11 million fiscal note because the system cannot accommodate that number of people. Co-chair Pearce said that staff is working with the department in an attempt to "try to find some compromise position that still provides a heavier penalty but doesn't force the construction of a new $20 million facility." It is hoped that a compromise bill will be available tomorrow. The bill will also bring the legal limit down to .08. Senator Kelly subsequently voiced his understanding that, during the interim, the Dept. of Corrections, in conjunction with the Alaska Railroad, would be discussing the option of using a funding mechanism similar to that proposed for discovery center bonds to build a facility to be leased by the railroad to the department, somewhere along the rail line "toward the Fairbanks area." That represents an opportunity for construction of an additional correctional facility without utilizing general fund moneys. Co-chair Pearce inquired concerning repayment of the bonds, and Co- chair Frank suggested that use of general obligation bonds would provide the lowest cost financing. SENATE BILL NO. 372 Act relating to community local options for control of alcoholic beverages; relating to the control of alcoholic beverages; relating to the definition of `alcoholic beverage'; and providing for an effective date. Co-chair Pearce directed that SB 372 be brought back before committee at this time. She noted that when the bill was previously before members, it lacked sufficient votes to pass. She then directed attention the "O" version of CSSB 372 (Finance) and explained that the new draft removes secs. 45, 58, and 59 of the previous "K" version. Sec. 58 would have prohibited a municipality from levying a property tax on alcoholic beverages. Some municipalities already have such a tax. Sec. 45 would have banned ability of a municipality to apply a sales tax to alcohol unless there was a general sales tax. Sec. 59 contained the increased tax on alcoholic beverages. Local option provisions remain the same as does the definition of "alcoholic beverages." The title was changed to remove the word "taxation." Co-chair Frank MOVED for adoption of CSSB 372 (Finance), "O" version. No objection having been raised, the "O" version of CSSB 372 (Finance) was ADOPTED. In response to statements by Co-chair Frank, Co-chair Pearce concurred that the newly adopted draft now contains only the local option changes requested by the department. Senator Sharp directed attention to page 30, lines 10 and 11 and raised questions concerning opt-out provisions. Co- chair Pearce directed that CSSB 372 (Finance) be held in committee pending the arrival of the legal drafter to speak to Senator Sharp's concerns. CS FOR HOUSE BILL NO. 231(FIN) An Act relating to when previous conduct constituting a sexual offense may be used as an aggravating factor at sentencing. Co-chair Pearce directed that CSHB 231 (Finance) be brought on for discussion. She noted that the bill was reported out of committee on May 1, 1994, and returned from Rules because it picked up a $500.0 fiscal note from the Dept. of Corrections. The department contends that the $500.0 fiscal note would apply with or without mitigating language. She acknowledged discussion of inserting mitigating factors back into the bill but questioned whether they would fit under the title. GEORGE DOZIER, aide to Representative Kott, came before committee. He explained that the sentencing commission initially embraced both aggravating and mitigating portions of the bill. Mr. Dozier advised that Representative Kott would not be in favor of reinserting the mitigating factor at this point since there was considerable opposition in the House and time is now a concern. In response to questions from Senator Kerttula, Mr. Dozier explained that as now structured, previous sexual crimes constitute an aggravating factor. However, there is a gap in coverage when an individual is being sentenced for sexual abuse of a minor and has a previous conviction for sexual assault of an adult. The proposed bill amends current law to require that previous sexual crimes, regardless of whether they were perpetrated against adults or children constitute aggravating factors for purposes of sentencing for sexual crimes. Senator Kelly MOVED that CSHB 231 (Finance) pass from committee with individual recommendations. No objection having been raised, CSHB 231 (Finance) was REPORTED OUT of committee with a fiscal note from the Dept. of Corrections showing zero operating costs and a capital cost of $500.0. Previous zero fiscal notes from the Alaska Court System, Dept. of Law, Dept. of Public Safety, and Dept. of Administration (one for the Public Defender Agency and one for the Office of Public Advocacy) also accompanied the bill. Co-chairs Pearce and Frank and Senators Kelly and Sharp signed the committee report with a "do pass" recommendation. Senators Jacko and Rieger signed "no rec." Senator Kerttula was temporarily away from the committee table and did not sign the report. CS FOR SENATE BILL NO. 372(FIN) An Act relating to community local options for control of alcoholic beverages; relating to the control of alcoholic beverages; relating to the definition of `alcoholic beverage'; relating to purchase and sale of alcoholic beverages; relating to alcohol server education courses; and providing for an effective date. Co-chair Pearce directed that attention revert to earlier adopted CSSB 372 (Finance). Senator Sharp reiterated concern regarding language at page 30, lines 8 through 11, and asked if it would allow a community of 25 people or more located 50 miles outside of the City of Fairbanks to hold a local option election, even though the community may be located within the Fairbanks North Star Borough. End: SFC-94, #82, Side 1 Begin: SFC-94, #82, Side 2 MIKE FORD, Legal Services, Legislative Affairs Agency, came before committee. He referenced bill language and noted that "established village" means an unincorporated community. Discussion focused on the designation "unified municipality." Co-chair Frank voiced his understanding that Anchorage, Juneau, and Sitka are the only unified municipalities within Alaska. Senator Rieger voiced concern that, as presently drafted, the language could inadvertently be construed to allow 25 houses clustered "just outside the Fairbanks city limits but within the Fairbanks Borough" to hold a local option election because the group is located more than 50 miles outside the boundary limits of the nearest unified municipality which is Anchorage. He suggested that language speak to a unified municipality "adjacent" to the organized borough in question. Mr. Ford said that his reading of bill language would not apply the interpretation suggested by Senator Rieger. The bill is intended to focus on unincorporated communities in an organized borough prior to meeting other bill criteria. Senator Rieger raised questions concerning application of the bill to communities within the MatSu Borough and the Kenai Peninsula Borough. Senator Sharp expressed concern that the bill does not say that the unified municipality has to be within the organized borough. Co-chair Pearce asked if members wished legal services to draft alternative language. Senator Rieger observed that communities in close proximity to a unified municipality are often difficult to identify. Housing flows from one section to another. Elsewhere in the state, however, communities are more easily defined. He cautioned that, as drafted, the bill provides a window for strained application. Co-chair Pearce suggested that, in the interest of time, the bill pass from committee with the understanding that Mr. Ford would work on clarification language that could be offered on the floor of the Senate. Senator Kerttula asked if the Co-chair's proposal would be predicated upon Senator Sharp's satisfaction with the new language. Co-chair Pearce answered affirmatively. Mr. Ford also concurred. Co-chair Frank MOVED for passage of CSSB 372 (Finance) with the understanding that amending language would be prepared for possible application in second reading on the floor of the Senate. No objection having been raised, CSSB 372 (Finance) was REPORTED OUT of committee with the noted caveat. Co-chairs Pearce and Frank and Senators Kelly and Rieger signed the committee report with a "do pass" recommendation. Senators Kerttula signed "do not pass." Senator Sharp signed "do pass if amend." Senator Jacko was absent from the meeting and did not sign. The bill was accompanied by a $1.06 fiscal note from the Office of the Governor/Elections and zero notes from the Dept. of Public Safety and Dept. of Revenue/ABC Board. CS FOR HOUSE BILL NO. 201(FIN) am An Act relating to the mental health land trust and the mental health land trust litigation, Weiss v. State, 4FA-82-2208 Civil, and amending and repealing other laws relating to mental health institutions, programs, and services that are affected by ch. 66, SLA 1991; and providing for an effective date Co-chair Pearce directed that CSHB 201 (Fin)am be brought on for discussion. She noted the presence of David Walker and teleconference participation by Mr. Gottstein. The Co-chair asked that the Commissioner of Natural Resources and Mr. Tom Koester first speak to differences between CSHB 201 (Fin)am and CSSB 67 (2d Fin)--the bill reported out of committee last year. HARRY NOAH, Commissioner, Dept. of Natural Resources, came before committee with TOM KOESTER, contract attorney for the Dept. of Law in the Weiss mental health litigation. Mr. Koester directed attention to May 3, 1994, correspondence (copy on file in the original Senate Finance Committee file for HB 201) to Representative Ron Larson and explained that it provides a section-by-section breakdown of CSHB 201 (Finance). Mr. Koester acknowledged that the letter does not address technical House floor amendments to the bill. The basic difference between CSHB 201 (Finance) and legislation passed last year relates to the second component of the legislation. The mental health bill has two elements: 1. The reconstitution component 2. The incentive component The reconstitution component: 1. Reconstitutes the mental health trust as required by the Alaska Supreme Court. 2. Removes certain original mental health land from trust status and confirms actions taken with respect to those lands (conveyances to third- party purchasers, conveyances to municipalities, and inclusion of original mental health land in parks and wildlife refuges). 3. Compensates the trust for lands removed from trust status by: A. Providing additional state land. B. Identifying and claiming as a set-off against monetary liability to the trust the $1.3 billion in state mental health funding between 1978 and 1994. C. A $100 million a year allocation to a special account in the general fund for appropriation by the legislature for mental health programs. That continues only as long as the state has conceivable liability remaining to the trust. Once the annual $100 million is credited against the liability for a sufficient time period to discharge the liability, the authorization terminates. Senator Kelly asked if the proposed bill extinguishes liability. Mr. Koester responded, "Yes, it does." Further responding to questions from committee members, Mr. Koester said that the $100 million is intended to ensure that a mechanism is in place to satisfy any state liability to the mental health trust, no matter how large it is. Liability will be an amount certain, and it will not go into the future. The above provision, in effect, takes the current 6% allocation of the unrestricted general fund that flows to the mental health trust income account and terminates it. The current 6% arrangement is ad infinitum. The proposals contained in CSHB 201 (Finance) terminate that arrangement, limit the authorization to $100 million a year, and allow it to extend only as long as the state's liability is not satisfied. Mr. Koester expressed his view that the state's liability has already been satisfied, and "this provision will never come into play." Inclusion of the provision makes clear to the court that the state is determined to satisfy its liability no matter how long it takes. The legislation, therefore, contains a mechanism to do that. It provides a failsafe to ensure that there is a mechanism to take care of the state's liability. Senator Kelly referenced $165 million and asked if appropriation of that amount would satisfy all liabilities. Commissioner Noah explained that the $165 is part of the incentive program, the second component of the legislation. He explained that payment would conclude the issue in that a settlement would be reached, and the money would only come into effect when the court has dismissed the case. Senator Kelly raised questions regarding continuing liability. Mr. Koester explained that the approach taken by the state rests in its belief that the reconstitution portion of the bill will eventually allow the state to persuade the court to dismiss the case. Judge Greene has said that the state cannot unilaterally settle the case, but it can obtain a final judgment that it has satisfied its obligations. The state believes the reconstitution portion does that. The state has, in effect, armed itself to litigate the case to conclusion should agreement not be reached. It has also included the second component of the bill--an incentive to the mental health community in return for an early dismissal and conclusion of the case by December 15, 1994. If the mental health community looks at provisions of the bill and determines that it is not in particular agreement with the state on reconstitution, but it finds sufficient impetus to incentive provisions: 1. A total of $200 million up front. 2. Creation of a mental health trust authority that will oversee the state's mental health program, make recommendations with respect to general funding of mental health programs, and expend discretionary funds on pieces of the state mental health program it believes are the most important. 3. Numerous improvements to the state mental health program. to agree to dismissal of the lawsuit, the case will be over. The $200 million is not part of the compensation to the trust. Reconstitution provisions of the bill accommodate that. The $200 million is part of the incentive package. Mr. Koester voiced his understanding that most of the mental health community believes the $200 million, establishment of the mental health authority, and other program improvements represent a fair resolution of the case and will be working toward that end. Senator Kelly again raised questions concerning the earlier- mentioned $165 million figure. Mr. Koester advised of a $200 million appropriation bill consisting of $45 million in currently available funding from a variety of sources (Commissioner Noah interjected: "two mental health trust accounts") and $155 million (rather than $165 million) from the permanent fund earnings reserve. The two-pronged approach in SB 67 is still being followed. The difference is in the incentive portion. The work draft for SB 67 included a $225 million staggered approach under which $15 million a year would be considered a guaranteed income stream to the trust. CSHB 201 (Finance) provides for a $200 million up-front appropriation in a lump sum. That appropriation would flow to a mental health trust permanent fund, the principal of which would not be spent. The fund would be invested with net income, after inflation proofing, to be used by the trust authority for mental health programs. The difference is that the House bill: 1. Creates a trust authority. 2. Provides a monetary corpus of $200 million for the mental health permanent fund trust. 3. Authorizes expenditure of the earnings of net income of the trust. 4. Provides for management of the $200 million by the Alaska Permanent Fund Corporation. Senator Rieger inquired concerning use of the net income of the $200 million and inflation proofing. He voiced his understanding of a reading of bill language to be that the mental health trust authority would enjoy full use of net income from the $200 million, but inflation proofing would derive from a draw from the permanent fund earnings reserve. Mr. Koester responded, "Nothing that's in the permanent fund earnings reserve will be used to inflation proof the mental health trust fund." The mental health trust fund would not be part of the permanent fund. It would be a separate account. He concurred that the entire net income from the trust fund would flow to the trust authority, but he directed attention to page 15, line 14, and noted that once the income accrues to the authority, one of the purposes for which it may be used is offsetting the effect of inflation. In response to a further question from Senator Kelly, Mr. Koester acknowledged that inflation proofing of the fund is permissible rather than mandated. He explained that it was not mandated since the trust authority requires flexibility in use of the earnings for current or future beneficiaries. The strong sense of the mental health community, which will be influencing and speaking through membership on the trust authority, is that the corpus should be inflation proofed. The trust authority has statutory responsibility to do that. Senator Kelly expressed concern that without a mandate to inflation proof, demands for trust funding will be such that inflation proofing will fall by the wayside. Mr. Koester noted that bill provisions were negotiated with members of the mental health community who are in support of the bill and will testify to that effect. Senator Kelly stressed that they are not aware of the pressures that will be exerted upon the authority to spend trust fund income. Senator Rieger suggested it would not be difficult to rewrite bill language to make the "real income" rather than "net income" available to the trust authority each year. He concurred with Senator Kelly concerning pressure that will be brought to bear on authority members to spend rather than inflation proof the trust and suggested that it should be "set up right . . . at the start." In response to a question from Senator Kelly concerning establishment of the trust authority, Mr. Koester explained that the concept arose in 1991, the most recent of the failed settlement attempts. It was included in Ch. 66 of the 1991 session laws. That law has never taken effect because, per the effective date clause, it does not take effect until the case is dismissed. The trust authority was addressed at that time and has since taken hold in both the mental health community and elsewhere as an appropriate "umbrella-kind" of organization. Senator Kelly asked if already-enacted other legislation would take effect upon settlement or be overridden by legislation in the instant bill. Is additional legislation needed? Mr. Koester explained that the proposed bill amends earlier legislation. Both bills become effective when CSHB 201 (Finance)am takes effect. Many of the provisions of the House bill relate directly to provisions of ch. 66 from 1991 session laws. Senator Kelly questioned whether establishment of the trust authority would, in effect, establish "another huge bureaucracy." He then asked if provisions restrict the types of purposes trust moneys could be expended upon. Mr. Koester said that there are no explicit provisions that limit authority ability to hire staff. There are substantial provisions that require the authority to take actions in light of obligations to the beneficiaries of the mental health trust. In response to similar concerns again expressed by Senator Kelly, Mr. Koester stressed that the mental health community would receive the benefit of grants and contracts authorized by the trust authority. That community will not allow all of its moneys to be used to fund a bureaucracy. Unlike many state agencies where there is no direct link between the population being served and agency expenditure of its dollars, there is a very direct link between the mental health community and the trust authority. Funding is to go to programs to benefit the mental health community. Senator Kelly argued that less and less would flow into programs as the bureaucracy expands. Senator Sharp voiced his understanding that the $200 million would not be transferred until reconstitution of trust lands and extinguishment of state liabilities have occurred, and all parties have signed on to the agreement. Commissioner Noah said that it would not be paid until the judge dismisses the case. Senator Sharp asked if the $100 million would be "sunset" at the same time the $200 million is transferred. Commissioner Noah advised that the 900,000 acres is part of reconstituting the trust, whether or not the incentive package is exercised. It is the central part of the bill. Senator Sharp then voiced his understanding that the 900,000 acres could be reconstituted and "the $100 million still guaranteed." Commissioner Noah said that if the incentive package is not exercised, and the judge does not dismiss the case, the state will claim that it has reconstituted the trust with 900,000 acres plus "the offset of the $1.3 billion." The $100 million would simply be there if the judge, for whatever reason, found "that there was some additional value that had to be paid to the trust." If the incentive package is accepted, the land remains in place, the trust authority is established, and the $200 million is placed in the trust. Because the judge would, at that point, dismiss the case, the $100 million would no longer come into play. Senator Sharp sought assurance that with the proposed and earlier legislation in place and effective, plaintiffs could not "double back" and file new cases. Mr. Koester responded affirmatively. Again referencing concerns earlier voiced by Senator Kelly, Mr. Koester noted Dept. of Law discussion of making the authority budget subject to the executive budget act so that it would have to come before the legislature each year. The reason it is not is that the mental health community--those who will be receiving the benefit of grants and contracts-- are worried that the state might use the executive budget act to thwart ability of the trust authority to work. The mental health community is convinced it will have sufficient control and tools available to influence the trust authority to ensure that the feared bureaucracy will not occur. Structure of the trust authority as proposed in the bill was the subject of discussion and negotiations with plaintiffs. It was an important consideration in the "fragile construction of this bill." Senator Kelly asked if the authority would be subject to the Alaska Procurement Procedures Act, conflict of interest, law, etc. Mr. Koester said the authority would be subject to conflict of interest law but not the Administrative Procedures Act. Senator Kelly voiced dismay over lack of controls. Co-chair Frank concurred, saying that he wished to explore the relationship between expenditure of moneys and the legislative process. He voiced his belief that the legislature would not back away from its commitment to mental health. He raised questions, however, over establishment of a trust authority with a flow of income while the legislature continues to appropriate moneys for mental health needs. There are legitimate questions concerning that relationship. Co-chair Frank next referenced the original Congressional grant of a million acres for mental health needs and questioned whether the state could transfer its public responsibility to the trust authority. Commissioner Noah explained that the University trust was used as a model for the proposed trust. Senator Rieger directed attention to the bottom of page 9, top of page 10, and page 12, lines 14 and 15, and noted requirements for how the legislature crafts its appropriation measures. He then inquired concerning the constitutionality of provisions such as the one requiring that the appropriation for the mental health trust be contained in a separate measure as well as report requirements. He asked who would prepare the report and commented that the requirements appear to bind future legislatures. Mr. Koester reiterated that much of the proposed bill is predicated upon ch. 66 from 1991. The appropriation process in the current House bill differs from that in ch. 66 in that there is less mental health trust community influence, under the instant bill, with respect to the bulk of mental health trust funding. That is the portion of mental health trust funding that comes from the state general fund. All the proposed bill requires with respect to general fund funding of mental health programs is that trust authority recommendations be considered and a report issue indicating why actual appropriations by the legislature differ from those recommendation. That gives the mental health community a sense that recommendations will be considered and looked at directly and specifically. Mr. Koester stressed that the primary purpose of the bill, from the state's perspective, is to "give us what we believe to be the best legal chance to get the case dismissed and to go forward." Other provisions are incentives, negotiated with the mental health community, which many have said will allow them to see their way clear to dismissal of the case by the end of this year. In response to inquiry from Co-chair Frank concerning the number of attorneys representing the mental health community, Mr. Koester advised of four attorneys representing various groups. At least two others whose clients are beneficiaries of the trust have not moved to intervene but have participated in negotiations along with a "very large group of mental health constituents that have been actively involved in looking at the package." Co-chair Frank asked if all six attorney had signed off on the proposed bill. Commissioner Noah responded negatively. Responding to further questions from Co-chair Frank, Commissioner Noah explained that the 1991 approach to settlement also contained an incentive package. That package is modified in the proposed bill. Instead of $225 million over a fifteen-year period, the $200 million for the trust would be provided in one lump-sum payment. Co-chair Frank voiced his understanding that if all attorneys do not sign off on the proposed bill, the court will be left to decide whether the bill, without the incentives, meets requirements earlier laid out by the court. He then asked why incentives were included. Senator Kerttula asked who would manage reconstituted mental health trust lands under earlier legislation. Commissioner Noah advised that SB 67 contained the same land management provisions as CSHB 201 (Finance)am. In both instances, the lands would be managed by the Dept. of Natural Resources. Speaking to Co-chair Frank's question regarding need for incentives, Mr. Koester explained that they encourage both consent and early dismissal of the lawsuit. The state is, in effect, paying for an early resolution of the lawsuit. Senator Kerttula asked if municipalities would be responsible for returning some land under the proposed bill. Commissioner Noah noted three specific municipalities: MatSu, Kenai, and Anchorage. Senator Kerttula asked why those who benefitted from the land do not bear some liability. Commission Noah responded that the land list has been the subject of "tremendous negotiation between a whole group of parties." Senator Kerttula spoke to the value of mental health community management of lands in terms of the competitive nature of state resources. He voiced concern over management of mental health trust lands by the Dept. of Natural Resources and asked if the mental health trust authority would be involved. The Senator suggested that the proposed bill allows for money management by the trust authority but not resource management. Commissioner Noah noted that regulations for land management would be developed in concurrence between the department and the trust authority. End, SFC-94, #82, Side 2 [Tape malfunction at this point in the meeting. Tape #84 was loaded onto the recorder but failed to record on side 1. The following minutes reflect transcription of shorthand noted.] Mr. Koester concurred that management of mental health trust lands would be an interactive procedure with members of the mental health trust authority. Development would come through regulation. Senator Kerttula advised that he wished to see more statutory involvement. Senator Kelly said that he was not interested in legislative involvement but voiced need for public involvement and oversight. He then asked who initially brought the mental health lawsuit and who would comprise the mental health trust authority. Mr. Koester explained that the authority would be a state agency with members appointed by the governor. The mental health community will have input, and prequalifications will be established. Senator Kelly asked if the mental health board would be abolished when the trust authority is established. Mr. Koester answered negatively. He explained that the mental health lawsuit was brought by the mental health association. It is not a state agency. Other groups that felt they should also be covered joined in the suit. Judge Greene has ruled that at least four groups should benefit: 1. The mentally ill 2. The mentally retarded 3. The developmentally disabled 4. Chronic alcoholics and senile elderly individuals The trust authority would have umbrella responsibility for all four groups. Each of the four individual boards would make recommendations to the authority. At the present time, that function is performed in part by the mental health board. The approach taken by the proposed bill, in conjunction with Ch. 66, is a better approach. The mental health board would continue to cover the mentally ill. Senator Kelly inquired regarding the number of mental health board employees. Mr. Koester advised of three and a half positions. He further directed attention to fiscal notes accompanying the proposed bill and noted that they relate to coverage for other, above-listed groups. He explained that the Older Alaskan's Commission would assume responsibility for senile elderly. The fiscal note from the Dept. of Administration would fund one full time employee. The Governor's Council on the Disabled has a staff of three. [End of shorthand transcription of unrecorded portion of meeting.] Start, SFC-94, #84, Side 2 Mr. Koester reiterated that the proposal under CSHB 210 (Finance)am is a comprehensive state mental health program that has two funding sources: 1. The general fund 2. Mental health trust income Funding will involve legislative review and appropriation of general fund expenditures and trust authority review and expenditure of trust income for funding of all aspects of the state mental health program. Expenditures for boards and the trust authority itself will be part of the state's comprehensive mental health program. Co-chair Frank inquired concerning how the two fundings would fit together. Commissioner Noah suggested that the specifics of how they would fit would evolve over time. The earnings from the trust account ($6 million was mentioned) will be a "portion of the money that you're spending now . . . on mental health programs." Mr. Koester concurred, advising that it involves projecting out into the future in a system that has never been tried before. He reiterated that the model used for the trust authority is that of the University of Alaska. The University receives revenues from its land trust and expends those proceeds in a manner reported to the legislature. The annual report lists various contracts and grants made with land trust revenues. Those moneys are not appropriated by the legislature. Co- chair Frank advised that that approach was being changed in legislation that has already passed the Senate and is on its way to the House. Mr. Koester said that once the system is operational, the legislature will be aware, each year, of what the trust authority did in the previous year. Contracts or grants that expend over more than one year will also be noted. The trust authority will be making recommendations for the overall package of funding. In those recommendations, the authority will provide information concerning how it used its part and how that will fit with what the authority hopes the legislature will do. The legislature will be taking into account other public needs for general funds and may or may not do as the trust authority requests. Co-chair Frank voiced his understanding that expenditure of earnings from the mental health permanent fund account would not come through the legislative budget process. Mr. Koester concurred that it would not. Co-chair Frank noted that the authority would thus have appropriation power over income from the $200 million trust account. Mr. Koester concurred. Co-chair Frank then asked if that would be constitutional. Mr. Koester acknowledged, "There are certainly constitutional questions raised about that." Co-chair Frank voiced his recollection that "No money can be spent without an appropriation by the legislature." Mr. Koester concurred that a number of constitutional issues have been raised and addressed in a number of opinions by the attorney general. He then referenced examples such as AIDEA and AHFC which have the power to use interest earned on revolving loan funds for expenditure without appropriation by the legislature. Attorney general opinions have acknowledged a constitutional question raised by that practice, but because it is something that has been done in the past, it can be defended. Constitutional questions have been made known to plaintiffs. They nonetheless feel that provisions for authority expenditure of earnings are important. Mr. Koester stressed that the only means by which the $200 million will flow to the trust account is if plaintiffs agree to dismiss the lawsuit. Commissioner Noah explained that by passage of CSHB 201 (Finance)am, the legislature is essentially laying out an offer of settlement. It will be up to the mental health community whether or not it accepts that offer. Co-chair Frank voiced his understanding that if the settlement is not accepted, the final decision will have to be made by the courts per SB 67. Commissioner Noah stressed that CSHB 201 (Finance)am exactly defines the terms of the settlement. It gives the case the greatest possible certainty for dismissal. The Commissioner further stressed that many others (land owners and resource developers), aside from the mental health community, are at risk in the issue. In the absence of the proposed bill, the argument will be one of value. [Defective tape. Recording on SFC-94, #84, Side 2 stopped at this point and would not restart.] Start, SFC-94, #86, Side 1 Senator Rieger expressed concern over "turning over the appropriation control which was not part of the original setup of the trust." He further asked what the end result of the issue would be. If the lawsuit is dismissed as a result of passage of the proposed legislation, does settlement then consist of a statute that is subject to amendment in the future or will settlement entail a court order similar to the Cleary settlement? Commissioner Noah said that because the mental health trust issue has been very difficult for the state for many years, once an agreement is reached, if modification is to occur, consensus must be sought with various groups involved. Mr. Koester explained that because agreement from all attorneys representing all mental health groups has not been achieved, there has been no negotiation of a settlement agreement. The state has talked with all plaintiffs' lawyers about the possibility of settlement in order to have an agreement to present to the judge. The state has expressed its concern over "getting locked into something like the Cleary settlement which cannot be fixed." The state does not believe that is necessary. Once this case is put to rest, there will be absolutely no interest on anyone's part to reopen the issue and thus open the door to an argument that somehow the state is violating the mental health trust by doing something that would lead to a reinstitution of litigation. The state is going to cure what the Alaska Supreme Court said was a breach of the trust in 1985. This bill does that. The state is not interested in getting into a situation where there will be perpetual court oversight of everything the state does in the future. Senator Rieger voiced concurrence in that approach and suggested that perhaps the legislation should state "something to the effect that the original trust obligation remains, but that this is just a statute that is like any other law; it doesn't override or otherwise change the original trust obligation." There would thus be flexibility for the future. Senator Rieger attested to the rigid effect of court orders and voiced a preference for avoiding that end. Senator Kelly advised that his reading of enabling legislation relating to the mental health trust authority indicates the authority is covered by the Alaska Administrative Procedures Act. He then asked if that provision would be "amended out" in the proposed bill. Mr. Koester initially responded affirmatively, but subsequently corrected his comments to advise of one exemption from the Act. He further advised that authority regulations would have to be adopted under the Administrative Procedures Act. He said he would further research the issue and provide a more definitive answer. Senator Rieger voiced his intent to offer an amendment requiring a higher priority for inflation proofing so that only real income is utilized for annual expenditure by the trust authority. Co-chair Pearce noted need to attend the pending Senate floor session and advised that the meeting would be recessed at this time and reconvened later in the day for consideration of appropriations for labor agreements as well as legislation relating to pension investments. RECESS The meeting was recessed, subject to recall by the chair, at approximately 11:20 a.m.