Legislature(1993 - 1994)

02/03/1993 03:50 PM Senate RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
                   SENATE RESOURCES COMMITTEE                                  
                        February 3, 1993                                       
                            3:50 p.m.                                          
                                                                               
                                                                               
  MEMBERS PRESENT                                                              
                                                                               
  Senator Mike Miller, Chairman                                                
  Senator Loren Leman, Vice Chairman                                           
  Senator Steve Frank                                                          
  Senator Drue Pearce                                                          
  Senator Al Adams                                                             
                                                                               
                                                                               
  MEMBERS ABSENT                                                               
                                                                               
  Senator Dave Donley                                                          
  Senator Fred Zharoff                                                         
                                                                               
  COMMITTEE CALENDAR                                                           
                                                                               
  SENATE BILL NO. 46                                                           
  "An Act authorizing moose farming."                                          
                                                                               
  SENATE BILL NO. 67                                                           
  "An Act amending provisions of ch. 66, SLA 1991, that relate                 
  to  reconstitution of the corpus of the mental health trust,                 
  the  management  of trust  assets,  and  to  the  manner  of                 
  enforcement of the  obligation to compensate the  trust; and                 
  providing for an effective date."                                            
                                                                               
  PREVIOUS SENATE COMMITTEE ACTION                                             
                                                                               
  SB 46 -  See Resources minutes dated 2/1/93, 2/3/93.                         
                                                                               
  SB 67 -  No previous action to record.                                       
                                                                               
  WITNESS REGISTER                                                             
                                                                               
  Senator Duncan                                                               
  State Capital                                                                
  Juneau, Alaska 99811-1182                                                    
  POSITION STATEMENT:  Supported SB 67.                                        
                                                                               
  Attorney General Charles Cole                                                
  Department of Law                                                            
  P.O. Box 110300                                                              
  Juneau, Alaska 99811-0300                                                    
  POSITION STATEMENT:  Opposed SB 67.                                          
                                                                               
  Tom Koester                                                                  
  229 4th Street                                                               
  Juneau, Alaska 99801                                                         
  POSITION STATEMENT:  Opposed SB 67.                                          
                                                                               
                                                                               
  Brian Bjorkquist, Assistant Attorney General                                 
  Department of Law                                                            
  1031 W. 4th, Suite 200                                                       
  Anchorage, Alaska 99501-1994                                                 
  POSITION STATEMENT:  Was available to answer questions on SB
  67.                                                                          
                                                                               
  Charlie Boddy, Vice President                                                
  Government Relation                                                          
  Usibelli Coal Mine                                                           
  122 First Avenue #302                                                        
  Fairbanks, Alaska 99701                                                      
  POSITION STATEMENT:  Supported SB 67.                                        
                                                                               
  Peter Mawson                                                                 
  Marathon                                                                     
  UNOCAL Corporation                                                           
  POSITION STATEMENT:  Supported SB 67.                                        
                                                                               
  Tom Waldo                                                                    
  Sierra Club Legal Defense Fund                                               
  325 4th Street                                                               
  Juneau, Alaska 99801                                                         
  POSITION STATEMENT:  Commented on SB 67.                                     
                                                                               
  Jeff Jesse                                                                   
  Advocacy Services of Alaska                                                  
  230 South Franklin                                                           
  Juneau, Alaska 99801                                                         
  POSITION STATEMENT:   Commented on  the mental health  lands                 
  issue.                                                                       
                                                                               
  Bob Stiles                                                                   
  D & R Ventures, Inc.                                                         
  1227 West 9th, #201                                                          
  Anchorage, Alaska 99501                                                      
  POSITION STATEMENT:  Supported SB 67.                                        
                                                                               
  Jim Gottstein                                                                
  406 G Street, #201                                                           
  Anchorage, Alaska 99501                                                      
  POSITION STATEMENT:   Commented on  the mental health  lands                 
  issue.                                                                       
                                                                               
  David Walker                                                                 
  417 Harris Street                                                            
  Juneau, Alaska 99801                                                         
  POSITION STATEMENT:   Commented on  the mental health  lands                 
  issue.                                                                       
                                                                               
                                                                               
  ACTION NARRATIVE                                                             
                                                                               
                                                                               
  TAPE 93 - 5, SIDE A                                                          
  Number 001                                                                   
  SENATOR  MILLER called  the  Resources Committee  meeting to                 
  order  at 3:50  p.m.  and announced  SB  46 AUTHORIZE  MOOSE                 
  FARMING to  be up for consideration.   He said they  were on                 
  listen only teleconference.                                                  
                                                                               
  SENATOR  LEMAN  moved to  pass  SB  46  from committee  with                 
  individual recommendations.                                                  
                                                                               
  SENATOR ADAMS objected because he didn't think  the bill was                 
  necessary.  They had  just finished with a wolf  summit that                 
  showed there was a shortage of moose and caribou.                            
                                                                               
  SENATOR MILLER said  he would  hold the bill  until a  later                 
  time.                                                                        
  Number 25                                                                    
  SENATOR  MILLER  announced   SB  67   MENTAL  HEALTH   TRUST                 
  AMENDMENTS                                                                   
  to be up for consideration.                                                  
                                                                               
  SENATOR ADAMS asked the  Chairman to get a legal  opinion on                 
  this legislation, because  it has dedicated funds,  it binds                 
  future legislation,  and mixes  an  appropriation bill  with                 
  substantive law.                                                             
                                                                               
  Number 70                                                                    
                                                                               
  SENATOR DUNCAN said he  came to the meeting with  the intent                 
  of listening to the Attorney General  testify.  He thinks it                 
  is an important piece of legislation which needs to be given                 
  due  consideration.   He  thought this  was the  single most                 
  important development issue facing Alaska.                                   
                                                                               
  SB  67 sets  an annual  6% payment  of unrestricted  general                 
  funds  to  the   mental  health  trust  income   account  as                 
  compensation for lands that aren't  returnable to the trust.                 
  These    are   lands   that   have   been   transferred   to                 
  municipalities,  sold  or conveyed  to individuals,  or have                 
  other  encumbrances  on  them.   The  precedent  for the  6%                 
  payment was  established in Chapter  210 of Session  laws of                 
  1990.                                                                        
                                                                               
  This bill  includes all the  provisions that are  in Chapter                 
  66.    It establishes  a trust  authority  and the  means of                 
  administering the trust, transfers all unencumbered lands of                 
  the  original mental  health  trust into  the  trust of  the                 
  corpus which includes  those with  encumbrances such as  oil                 
  and gas, coal  lease, timber  contracts, mining claims,  and                 
  right-of-ways - about 500,000 acres.  All proceeds  from the                 
  land returned to  the trust go  into the corpus account  and                 
                                                                               
                                                                               
  any earnings in  the corpus principal are transferred to the                 
  mental health  trust account.   Title  to the  LDAs will  be                 
  pledged as security for the 6%  annual payment.  It requires                 
  the Alaska Mental  Health Trust  Authority to contract  with                 
  the  Department  of  Natural Resources  to  manage  the land                 
  assets of the trust unless the Authority determines the best                 
  interests of the trust beneficiary could better be served by                 
  other arrangements.                                                          
                                                                               
  In  summary,  Senator  Duncan  said,  SB  67  is  much  less                 
  complicated than in Chapter 66.                                              
                                                                               
  Number 156                                                                   
                                                                               
  SENATOR MILLER announced a short recess.                                     
                                                                               
  ATTORNEY GENERAL COLE summarized the status of mental health                 
  litigation.  He  thought the settlement they worked  on last                 
  year  was  fair  and  well  crafted.     The  court  is  now                 
  considering the  litigation and  he thought  that should  be                 
  allowed to run  its course.  If this present bill is enacted                 
  into law, he would recommend that the Governor veto it.                      
                                                                               
  Number 225                                                                   
                                                                               
  SENATOR  LEMAN  asked  him  to   comment  on  Senator  Adams                 
  concerns.                                                                    
                                                                               
  ATTORNEY GENERAL  COLE said he  questioned whether it  was a                 
  dedicated fund.   However, he  feels the legislature  should                 
  reserve   unto   itself   the   right   to   determine   the                 
  appropriations  to  be  given annual  to  the  mental health                 
  programs  of  the  state.    If  this bill  is  passed,  the                 
  legislature  has  lost  that  power   which  is  a  sobering                 
  prospect.                                                                    
                                                                               
  Number 262                                                                   
                                                                               
  SENATOR LEMAN asked when Judge  Green would rule.   Attorney                 
  General Cole said he didn't have any idea.                                   
                                                                               
  Number 278                                                                   
                                                                               
  TOM KOESTER  said in his opinion  SB 67 was probably  not in                 
  violation  of the  dedicated fund  prohibition, because  the                 
  legislature does  have some discretion  under the provisions                 
  of Chapter 66.  Some questions may have been raised in court                 
  that  apply to  Chapter 66  that also  apply  to SB  67, for                 
  instance,  the  environmental  interveners  have  challenged                 
  Chapter 66 on the grounds that  it mixes an appropriation of                 
  land with a  substantive law in a  bill.  This bill  will do                 
  precisely the same  thing.  This  is not a simple  solution.                 
  It has the  potential to  radically restructure the  current                 
  funding of all state programs - education, municipal revenue                 
                                                                               
                                                                               
  sharing, public safety, the capital budget.                                  
                                                                               
  Number 350                                                                   
                                                                               
  BRIAN BJORKQUIST,  Assistant Attorney General  in Anchorage,                 
  said he was available to answer questions.                                   
                                                                               
  Number 357                                                                   
                                                                               
  CHARLIE BODDY,  Vice President of Government  Relations with                 
  Usibelli Coal Mine, said they were being heavily impacted by                 
  the mental health  trust lands  issue.  Every  one of  their                 
  properties except one are state  co-leases that are original                 
  mental health trust lands.  He said the real problem is  the                 
  substitute land you have to put back into the trust in place                 
  of  the ones that came out.   He said the resource community                 
  would help  them in any way  possible to work on  a solution                 
  that is more palatable than what they currently have tied up                 
  in the courts.                                                               
                                                                               
  Number 445                                                                   
                                                                               
  SENATOR LEMAN said they were concerned about the transfer of                 
  the contracts  and concern  about the  new land  owner.   If                 
  ownership changes, he asked,  do contracts go with it?   MR.                 
  BODDY answered  the way he  understands Chapter  66 is  that                 
  their leases  would transfer  into Trust  ownership and  the                 
  trust authority would  be bound  by the terms  of the  lease                 
  until its first adjustment.  Land rental rates and royalties                 
  would be adjusted.                                                           
                                                                               
  Number 465                                                                   
                                                                               
  PETER MAWSON, Attorney representing Marathon and Unocal Oil,                 
  said  they  felt  their  interests  as  major  oil  and  gas                 
  producers  were  being threatened  by  the way  the settling                 
  plaintiffs  and state were  going about implementing Chapter                 
  66 and  the implementation  of the  hypothecated lands  list                 
  where hundreds of  state oil  and gas leases  in Cook  Inlet                 
  were  pledged  as  security to  the  settling  plaintiffs to                 
  insure the state would fulfill its obligations in performing                 
  the settlement under Chapter 66.   It contemplated some sort                 
  of  foreclosure  process  by  which  these leases  could  be                 
  transferred to  the trust.   The  oil and  gas lessees  were                 
  faced with the prospect  of having a new landlord  some day.                 
  A new lessor causes some concern,  because they vest a great                 
  deal of discretion in the lessor.                                            
                                                                               
  The settlement agreement, like the hypothecated list, caused                 
  the  oil  companies  some concern  because  the  state would                 
  oblige  itself to disclose  confidential information  to the                 
  settling plaintiffs for any land the plaintiffs nominated as                 
  proposed  substitute land.    It also  adopted  Departmental                 
  Order 135  which instructs  employees of  the Department  of                 
                                                                               
                                                                               
  Natural Resources  to treat  all lands  on the  hypothecated                 
  list  as though  they had  already been  transferred to  the                 
  trust  instead  of  managing  them  in  the  general  public                 
  interest.  The  producing oil and  gas leases in Cook  Inlet                 
  were nominated as proposed substitute lands, also.                           
                                                                               
  Unocal  and  Marathon  think the  State  does  not have  the                 
  contractual authority  under the lease authority to transfer                 
  the lease's out of state ownership and out of administration                 
  by DNR.  They think Departmental Law 135 is unlawful because                 
  it should have been promulgated pursuant  to the APA, but it                 
  wasn't.                                                                      
                                                                               
  Mr. Mawson said no  one disputes the worthiness of  the goal                 
  of  a sure  funding  source for  mental  health programs  in                 
  Alaska.  But the means of  achieving that goal conflict with                 
  the state's  contractual commitments to third  parties, like                 
  the   oil  companies,   and   conflict  with   statutes  and                 
  regulations governing  the state's  relationship with  those                 
  third parties. The  beneficiaries of the trust  are going to                 
  be left in limbo while those legal conflicts are going to be                 
  resolved.   Marathon and  Unocal do  support SB  67.   If it                 
  passes, all their concerns go away.                                          
                                                                               
  Number 520                                                                   
                                                                               
  TOM  WALDO, Staff Attorney for the Sierra Club Legal Defense                 
  Fund representing the public interest interveners, supported                 
  probably 95% of what's in Chapter 66.   The problem was with                 
  the replacement land and the transfer of such a large amount                 
  of  land  from  state  ownership  into the  trust  authority                 
  without any public participation  and, once the land was  in                 
  the hands of the trust, there  would be no public process to                 
  determine how those lands were to be managed.                                
                                                                               
  They  have  raised  11 claims  challenging  the  legality of                 
  Chapter  66.   Three  claims  are brought  under  Article 8,                 
  Section 10 of the Alaska Constitution and the lack of public                 
  process.  Another  claim is brought  under Section 6 (i)  of                 
  the  Alaska  Statehood Act  which  prohibits the  state from                 
  conveying mineral rights by sale or  giving them away to any                 
  other party.                                                                 
                                                                               
  Another claim brought involves the  Permanent Fund.  Chapter                 
  66 is potentially a major raid on the Permanent Fund.                        
                                                                               
  Number 572                                                                   
                                                                               
  SENATOR MILLER announced a short recess and then brought  SB
  46 before the committee.                                                     
                                                                               
  Number 575                                                                   
                                                                               
  SENATOR  LEMAN  moved   to  pass   SB  46  with   individual                 
                                                                               
                                                                               
  recommendations.   There were  no objections  and it was  so                 
  ordered.                                                                     
                                                                               
  Number 580                                                                   
                                                                               
  SENATOR MILLER continued testimony on SB 67.                                 
  JEFF JESSE, Sr.  Attorney with Advocacy Services  of Alaska,                 
  said  as legislators  they  are all  trustees of  the mental                 
  health trust.   He said there  are four principal groups  of                 
  beneficiaries - the  traditionally mentally ill,  alcoholics                 
  with  psychosis,  elderly  people  who  have  problems  like                 
  dementia,  and   the  developmentally   disabled.     He  is                 
  representing the developmentally disabled.                                   
                                                                               
  TAPE 93-5, SIDE B                                                            
  Number 585                                                                   
                                                                               
  He signed off on  Chapter 66, but last December  he withdrew                 
  his  agreement  to   the  settlement.     They  wanted   the                 
  replacement  lands  to   have  the  same   income  producing                 
  potential as the original trust corpus.                                      
                                                                               
  He  agreed  with Mr.  Koester who  said  the funds  were not                 
  dedicated.  He thought the mixing of appropriations could be                 
  dealt with.                                                                  
                                                                               
  Commenting on Attorney General Cole's  statement that 6% was                 
  too much  money, he  said the  legislature has already  done                 
  this kind of  settlement in Chapter  210.  We are  currently                 
  allocating 6% of unrestricted general  funds into the trust.                 
  He said the Trust  Authority does not have to be  seen as an                 
  enemy of the state.  There are numerous instances where good                 
  public policy has been established by a board.                               
                                                                               
  The vast  majority of lands  are not going to  be subject to                 
  the offset.   The claims of a billion  dollar offset are far                 
  out of scale, Mr. Jesse said.                                                
                                                                               
  SENATOR LEMAN commented  that he felt differently  about the                 
  offset and would need to discuss the issue in committee.                     
                                                                               
  Number 408                                                                   
                                                                               
  BOB STILES said  he has  20 years of  experience in  project                 
  promotion development in international  marketing.  The last                 
  10 years of that experience has been related to a particular                 
  reserve located in the Beluga Field on the west side of Cook                 
  Inlet.   He  said  he  was speaking  as  a lease  holder  of                 
  original  mental  health trust  lands.   Under  any possible                 
  scenario, they will have a new landlord.                                     
                                                                               
  Their   international   business   concerns   are  that   in                 
  international coal markets you can't pass on increased costs                 
  to  your customer  as in  domestic  coal markets.   Domestic                 
                                                                               
                                                                               
  customers for Alaskan coal  are almost exclusively  electric                 
  utilities.  The people running the utilities have sources of                 
  coal from other countries, so the market is very competitive                 
  and right now there is  the perception of a land  freeze and                 
  resource freeze in Alaska.                                                   
                                                                               
  If the mental health trust litigation  were solved today, we                 
  are at least  two or three years behind where we were two or                 
  three years ago  in terms of  marketing, because we have  to                 
  reestablish  credibility  in  the   investment  and  product                 
  markets.                                                                     
                                                                               
  The  only  attorneys they  have  found in  Alaska  who think                 
  Chapter 66  has a  chance are  the  two settling  plaintiffs                 
  attorneys  and  the  Attorney General.    Every  other legal                 
  opinion they have  gotten says  it's a question  of when  it                 
  goes  down.    Should  the  validity  of  their   leases  be                 
  challenged, their only recourse is against the state.                        
                                                                               
  The reason they  support SB  67 is because  they believe  it                 
  represents an opportunity to settle  the litigation quickly,                 
  it's fair to the  beneficiaries, and it's fair to  the state                 
  (they don't believe  Chapter 66 is fair  to the state).   If                 
  the  litigation goes  on  much longer,  there  won't be  any                 
  development interests to apply.                                              
                                                                               
  Number 290                                                                   
                                                                               
  JIM GOTTSTEIN and  DAVID WALKER, attorneys for  the settling                 
  plaintiffs, joined the committee for discussion.                             
                                                                               
  MR.  GOTTSTEIN  said  strict  reconstitution  of  the mental                 
  health  lands  under the  Supreme  Court's mandate  has huge                 
  attendant problems  that  dwarf  the  problems  that  people                 
  complain about under Chapter 66.                                             
                                                                               
  Number 248                                                                   
                                                                               
  SENATOR LEMAN  said  he thought  they came  to a  reasonable                 
  settlement with Chapter 66.  He wanted his reassurance  that                 
  it was still  a good option  and wanted an  estimate on  the                 
  timing.    Mr. Gottstein  said most  of  the delay  is being                 
  caused by the  people who are  complaining about the  delay.                 
  It is difficult to  predict how long the court  process will                 
  take, but the  parties have  proceeded to do  the land  work                 
  necessary  to  accomplish  the  exchanges  and  there  is  a                 
  December 1,  1994 deadline for accomplishing  the exchanges.                 
  They  have  every  reason  to believe  they  will  meet that                 
  deadline.  They don't see the  court time impacting the time                 
  frame for the reconstitution.                                                
                                                                               
  Number 160                                                                   
                                                                               
  DAVID WALKER said  they are  confident that whatever  delays                 
                                                                               
                                                                               
  there are,  they will  be able  to see  the process  through                 
  faster  than  if  they  had  to   litigate  the  case  to  a                 
  conclusion.   The options  for everyone are  settlement.  He                 
  agreed with Mr. Gottstein regarding development, that  there                 
  is  not  a  single instance  where  exploration  permits for                 
  activity has  not been acted  upon promptly.   The resources                 
  are  there  and  will  be  available  to  the  trust.    The                 
  opportunity will come again for the resources.                               
                                                                               
  MR. GOTTSTEIN said SB  67 is not really that  much different                 
  than  what  all   of  them  on  the   plaintiffs  side  were                 
  strenuously  advocating  in  the 1991  session.    They were                 
  unable  to  achieve  that sort  of  resolution,  because the                 
  administration was dead set against it.  The legislature, at                 
  that time, and  they felt that  what they could achieve  was                 
  quite a bit better than litigation.                                          
                                                                               
  Number 153                                                                   
                                                                               
  SENATOR MILLER directed  staff to get an  Attorney General's                 
  opinion  on  the   questions  Senator  Adams  raised   about                 
  dedicated funds and  mixing appropriations  and said it  was                 
  his intent to bring it up Friday.                                            
                                                                               
  MR. BODDY acknowledged the  truth of what Mr.  Gottstein and                 
  Mr. Walker said and again  emphasized that nevertheless they                 
  are  doing business  significantly different than  they ever                 
  have before  because of this issue  and it is at  very large                 
  expense, which  in turn ends  up costing the  consumers more                 
  money.  That may be a fact of life, but that doesn't make it                 
  right.                                                                       
  Number 120                                                                   
                                                                               
  SENATOR MILLER adjourned the meeting at 5:16 p.m.                            
                                                                               

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