Legislature(1993 - 1994)
02/03/1993 03:50 PM Senate RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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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