Legislature(1993 - 1994)
03/31/1994 08:05 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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.
Co-chair Pearce directed attention to a work draft (8-
LS0409\Q, Chenoweth, 3/22/94) CSSB 67 (2d Fin); zero fiscal
notes from the Dept. of Law, Dept. of Fish and Game, and the
Alaska Court System; correspondence from Cordova United
Fishermen United; and the committee report from passage of
CSSB 67 (Fin) on May 6, 1993.
Senator Rieger MOVED for adoption of CSSB 67 (2d Fin) "Q"
version for discussion purposes. No objection having been
raised, CSSB 67 (2d Fin) was ADOPTED. Co-chair Pearce
advised that the attorney general and commissioner of
natural resources would provide an overview of changes
incorporated within the bill. No public testimony will be
taken at this time. The legislation will then be brought
back before committee for further discussion "sometime
around the 11th of April . . . ."
HARRY NOAH, Commissioner, Dept. of Natural Resources, told
members that the attorney general would first review the
legal background and the fundamental basis upon which the
"Q" version was drafted. The commissioner said that he
would then speak to "How we've gotten to where we've gotten
on the specifics of the bill."
ATTORNEY GENERAL BRUCE BOTELHO came before committee. He
explained that he would be speaking from typewritten text in
an attempt to build a record for review by both the superior
and supreme court. (A copy of the Attorney General's typed
remarks is appended to these minutes as Attachment A.)
Senator Kerttula referenced comments that the state must
return to the trust fair market value equivalents for trust
land sold or otherwise disposed of, and asked "as of what
time?" The Attorney General responded, "as of 1978, the
time that the trust was dissolved." He further noted that
the supreme court provided the following directive for
reconstituting the trust:
1. Those general grant lands which were once mental
health lands will return to former trust status.
2. In the event exchanges of lands have been made,
those
properties which can be traced to an exchange
involving mental health lands will also be
included in the trust.
3. To the extent that former mental health lands have
been
sold since the date of conveyance, the trust must
be reimbursed for the fair market value at the
time of the sale.
4. In calculating the total amount owed, the trial
court
should grant a set-off for mental health
expenditures made by the state during the same
period.
5. In the event that expenditures exceeded the value
of
land sold, the state need not furnish cash as part
of the reconstitution.
Mr. Botelho next spoke to three legislative attempts to
reconstitute the trust (page 4 of Attachment A). The most
recent proposal, Ch. 66, SLA 91, was found to be
constitutional, but preliminary approval was denied because:
1. The settlement agreement did not provide security
to
guarantee the state's performance.
2. Both the state and plaintiffs could terminate the
settlement at any time, without court approval.
Judge Greene made clear in her ruling that the adequacy of
mental health funding and services provided by the
legislature were not at issue. All parties to the action
have come to the conclusion that the mental health community
will remain dependent on annual appropriations by the
legislature to pay for most of the state's mental health
program.
Senator Kerttula asked if the state had a cause of action
against those who profited from transfer of mental health
lands from the original trust. Mr. Botelho responded that
since no illegal activity was involved, there is no cause
for action. He attested to the fact that litigation has
cast a cloud on resource development of original mental
health lands. He further spoke to need to clear title (page
7, Attachment A).
In response to questions from Senator Kerttula and Senator
Kelly regarding the cloud upon title to former mental health
lands now held by private individuals, Mr. Botelho explained
that the proposal to return to trust original lands that
have not otherwise been disposed of, return of substitute
lands, and provision of compensation ($225 million) for the
gap between original and substitute lands is intended to
immediately lift the lis pendens and clear title to
privately held lands. Private land holders are innocent
third parties since they purchased the land under the
assumption that the state had full authority to make the
transfers. Many purchases predate the filing of the lawsuit.
Senator Kelly asked if the $225 million payout of $15
million a year for 15 years involves general funds. Mr.
Botelho responded affirmatively.
Senator Kelly next asked if lands proposed for substitution
have been generating revenues. Would the state sustain a
loss in general fund revenues from these lands while at the
same time paying out the $15 million? Commissioner Noah
acknowledged that a portion of the land is generating "some
income at this point in time." He said he would provide a
specific number.
Senator Sharp inquired concerning the reasoning and
justification behind the $225 million payout. Commissioner
Noah explained that the total was calculated as a result of
having "pulled a certain number of properties off the table
. . . in terms of . . . the land list." Removed properties
include agricultural lands at Point MacKenzie. Some of the
lands were previously mental health lands, and some are
substitute lands.
Commissioner Noah next directed attention to a series of
charts (Attachment B). He explained that on December 30,
1993, the judge denied preliminary approval of Ch. 66.
However, Ch. 66 remains the basis upon which CSSB 67 (2d
Fin) is constructed. There are two means of achieving
finalization of the mental health issue. The first is
through legislative resolution. That is contained within
the above-reference bill. The alternative is true
settlement. Settlement means that all parties to the
litigation come to the table and agree. The state is
presently dealing with different sets of mental health
attorneys. Some represent the environmental community,
some represent resource companies, some represent
municipalities and third-party landowners, and others
represent members of the mental health community. Meetings
will be ongoing next week in an attempt to reach settlement.
That is the best alternative. Absent full settlement, the
proposed legislation has been submitted for resolution of
the issue. Commissioner Noah stressed that if the
legislature takes no action, the status quo will remain.
Gridlock will continue, title to lands will remain clouded,
and resource development will remain limited.
Directing attention to page 2 of his handout (Attachment B),
Commissioner Noah advised that the six items set forth
thereon constitute the logic behind the present proposal for
finalizing mental health trust issues.
The Commissioner next referenced pages 3 and 4 of the
handout and noted concerns raised by each group and
provisions within CSSB 67 (2d Fin) which address those
concerns. Senator Kerttula questioned DNR versus trust
authority management of trust lands. He noted assertions
that the trust authority might obtain considerably more from
management of its lands than DNR would generate from the
same lands. Commissioner Noah said that the trust would be
managed consistent with the mental health enabling act.
That means that greater emphasis would be placed on deriving
economic value. Senator Kerttula asked if the trust
authority would have oversight on leasing. The Commissioner
responded affirmatively. Speaking to concerns raised by
each group, Commissioner Noah noted that "no one can have
everything they want because it's not physically possible to
do that."
Both Senator Sharp and Co-chair Frank inquired concerning
the grounds upon which environmental interests became
involved in mental health litigation. Attorney General
Botelho responded that lands from the original mental health
trust had been transferred into state parks and refuges.
The environmental community is concerned that as a
consequence of return of park lands or areas such as the
Haines eagle reserve to the trust, they might become
available for development. Mr. Botelho referenced a U.S.
Supreme Court decision which concluded that citizens could
defend "trees and spotted owls, and the like in court . . .
." That doctrine lives on.
End: SFC-94, #48, Side 1
Begin: SFC-94, #48, Side 2
Senator Kerttula referenced the fourth page of the handout
and inquired concerning the meaning of:
DNR management with current regulatory scheme used
to the extent possible under the Mental Health
Enabling Act.
Commissioner Noah explained that part of the problem
encountered in dealing with the Mental Health Enabling Act
relates to the fact that means of dealing with the "public
process and that type of thing" are not clear. The state
proposes that specific regulations be prepared and adopted
to carefully outline the process. The process of setting
the regulations will allow everyone to have a say in the
issue.
Commissioner Noah advised that the state proposal would
require some municipalities to reconvey original mental
health trust lands back to the trust. They have expressed a
willingness to do that but requested an extension of time to
select other lands, hence the two-year extension. They also
want clear title in order to allow land selections to be
completed. The proposed bill will accomplish that. It will
also clear title for third-party landholders.
Co-chair Frank inquired concerning the basis of resource
development group involvement in mental health trust
litigation. Attorney General Botelho explained that ongoing
development would be directly impacted by return of lands to
the trust. Concern arose that the lands might be subject to
a different landlord who might impose more onerous royalty
or lease payments. These parties have a right to protect
their interests and ensure that they are not subjected to
potential harm.
Commissioner Noah stressed that Judge Greene found that she
could approve resolution of the issue without all parties in
agreement. That is an important point.
Discussion of standing needed to become involved in the
litigation followed between Attorney General Botelho and Co-
chair Frank.
Co-chair Pearce directed that the meeting be recessed for
the Senate Floor session and scheduled to reconvene
approximately ten minutes after adjournment of the session.
RECESS - 9:00 A.M.
RECONVENE - 9:32 A.M.
The meeting was reconvened with Co-chair Pearce and Senators
Kelly, Kerttula, and Rieger in attendance. Senator Mike
Miller was also present.
HARRY NOAH, Commissioner, Dept. of Natural Resources,
commenced a sectional review of CSSB 67 (2d Fin). He first
asked that members consider five specific points:
1. Findings
2. Trust Authority Concept
3. Monetary Payments to the Trust
4. Reconstruction of the Trust
5. Management
An additional provision of the bill says that if the court
action is not dismissed by December 15, 1994, provisions
relating to the trust authority and cash payments would be
repealed.
Speaking to the findings, Commissioner Noah specifically
noted language providing the legislature power to remove
land from trust status if the trust is compensated for the
land. The reason for such findings is to make the record
very clear as to the legislature's understanding of what is
specifically occurring in the legislation.
An additional finding states that the land did not in the
past and will not in the future generate enough revenue to
fully fund mental health programs.
A further finding calls for ratification of lands that have
been sold.
The full purpose of the findings is to lay out the
legislature's understanding of "where we are at this point
in this case and the rationale . . . of the underpinnings of
this particular bill."
Commissioner Noah next spoke to the trust authority concept.
He explained that it derives from Ch. 66. The trust
authority would be a public corporation of the Dept. of
Revenue. The purpose of the authority would be to ensure an
integrated, comprehensive mental health program. The trust
would be governed by a board of trustees made up of seven
members appointed by the governor, based on their financial
and land management experience. The authority would be
responsible for managing the cash assets of the trust,
coordinating state agencies, and providing services to the
trust. The authority would have the ability to make budget
recommendations to both the governor and legislature as to
how "the revenue that's in the trust would be paid." The
governor and the legislature would have the ability to
modify those recommendations but only based upon specific
findings. The trust authority would also be responsible for
overseeing DNR administration in terms of "their land
management decisions." Commissioner Noah called specific
attention to that provision, advising that it is "very
important to the mental health community." Provisions
relating to the trust authority would be repealed if
litigation is not dismissed by midnight, December 15, 1994.
Commissioner Noah next addressed specific monetary payments.
He explained that the administration has proposed to pay
$225 million to the trust. The total would be paid in
annual payments of $15 million for 15 years. The state
proposes to do that by attaching an overriding royalty to
existing leases. Those leases have not yet been
specifically identified. For a royalty of $10, the state
may attach an overriding $5 royalty to flow to the mental
health trust.
Co-chair Frank asked if the funding as proposed in the
preceding paragraph would incur dedication of funds
problems. Attorney General Botelho responded negatively.
He explained that the mental health trust is a pre-existing
trust established at statehood. The constitutional
prohibition against dedicated funds creates a specific
exception. In response to a further question from the Co-
chair concerning the specific amount, Commission Noah
advised, "We were trying to balance this on curing of a
breach. So the base of this is the value of work that's
been done over the last eighteen months."
Speaking to reconstruction of the trust, Commissioner Noah
said the administration is proposing that approximately
550,000 acres of original mental health trust lands be
redesignated as mental health lands, and that approximately
400,000 acres of substitute lands be considered for
redesignation as part of the trust. The proposal here is
slightly different from the proposal in Ch. 66 wherein lands
would actually have been transferred to the trust. Under
that arrangement, lands would have to be surveyed, and costs
associated with surveys were estimated at $15 million. It
is more fiscally responsible to simply redesignate the land
for mental health purposes. The department is completing a
specific land list for attachment to CSSB 67 (2d Fin). It
would specifically outline each ADL number associated with
the mental health trust. The department will submit the
proposed list during the week of April 11. Commissioner
Noah reiterated that it will be the subject of "some very
detailed discussions between a whole group of
municipalities, resource companies, the environmental
community, and the mental health community. He then voiced
his hope that the legislature would consider the bill and
list as a package since it will be difficult to break down
into individual pieces. Senator Kerttula noted the
responsibilities of the three separate branches of
government and questioned legislative consideration of a
package into which the legislature has had no input.
Commissioner Noah acknowledged that the ultimate decision
making rests with the legislature.
Directing attention to land management aspects of the
proposal, Commissioner Noah explained that language within
the bill strives to strike a compromise. It suggests that
management of the lands be undertaken by DNR, and that
statutes under Title 38 be utilized to the extent possible
under the mental health enabling act. Because the act
itself is "fairly quiet" on this particular issue, the
department has proposed that regulations be used as the
defining vehicle. Management would be in concert between
the Commissioner and trust authority. Senator Kerttula said
that he viewed mental health lands as an interesting
comparative vehicle to state development of the same type of
lands. That comparison is eliminated under proposed
management. Commissioner Noah suggested that the
marketplace would drive development. Transfer of the land
to the mental health trust will not change the marketplace
or desire for development of the lands. Attorney General
Botelho advised that concerns raised by Senator Kerttula
mirror internal debate over land management. The choices
were either DNR or the trust authority. The intent was to
devise a method that was acceptable to the greatest majority
of the litigants. Concerns from many directions were raised
over vesting direct management of the lands in the trust
authority. Environmental interests feared that the
authority would attempt to maximize short-term development
without restraint or regard for longer-term stewardship.
Resource development interests were concerned they would see
development restricted because the trust authority would
attempt to maximize the kinds of revenue it might be able to
extract from industry by tampering with lease payments or
royalty rates. Senator Kerttula countered that such
"tampering" is purely business. The Attorney General added
that in an attempt to find a vehicle which would most likely
lead to final conclusion, DNR management was proposed under
a revised set of standards that takes into account trust
obligations of the authority. Senator Kerttula suggested
that the proposal represents "further lazy law heaped on
lazy law." Commissioner Noah advised that he could foresee
"a best interest determination" being made so that it would
be clear as to what is being done with the lands. Senator
Kerttula asked if the trust authority would have veto power
over proposed use of lands. Commissioner Noah said that DNR
would need authority concurrence. In response to additional
comments by Senator Kerttula asking if there would be
objection to language absolutely requiring concurrence, the
Commissioner voiced concern over creation of a system that
would ultimately "bog itself down."
Senator Sharp raised concern over DNR management subject to
Title 38 public process which has not proven to be effective
for development of land. He asked if trust use of the land
would be subject to intervention by special interest groups
through the court system and suggested that co-management
would invite litigation. He remarked that if the trust is
going to have the land, it should be able to manage the land
the way it wants to. Commissioner Noah stressed the
complexity of the issue. He focused specifically upon the
taking of public lands and placement of those lands in
trust. Interested parties are concerned over that action.
The administration has attempted to find middle ground.
That is the reason for the current proposal. Co-chair Frank
observed that the court appears to have said that the state
must reconstitute the trust for the benefit of mental health
beneficiaries, but the trust does not have to be managed in
a manner consistent with maximum benefit to that group.
Co-chair Frank next asked how the $225 million would show on
state books. Will it be shown as a liability, contingent
liability, etc.? Commissioner Noah said that the
administration is presently working on that issue and will
provide details the week of April 11.
Senator Rieger concurred in concerns raise by Senator Sharp
and Co-chair Frank regarding management of lands for maximum
benefit. He then asked how the proposed settlement would be
ratified by plaintiffs. What power does the court have to
provide finality? Attorney General Botelho explained that
CSSB 67 (2d Fin) would be incorporated within a settlement
presented to the superior court for preliminary approval.
If that approval is granted, the next step is to notify all
members of the class action litigation and allow them to
comment. Once the comment period is closed, the court will
determine whether or not to grant final approval. The court
does not require concurrence by all or even a majority of
the class members to approve the settlement. The judge will
decide whether or not the proposal is a fair and reasonable
outcome and protects the interests of the class. Once the
final decision is rendered, any party to the lawsuit is free
to petition the supreme court for review.
In response to a further question from Senator Rieger asking
if an individual could thereafter bring a second lawsuit and
start the process all over again, the Attorney General
explained that because the litigation is a class action, a
person in the mental health community who is not named as a
party is still considered to be represented. It is the duty
of the court to look out for the interest of class members
whether they are named or not. While the individual has the
right of repeal to the supreme court, once the settlement is
approved, someone who is not part of the class of
individuals involved in the litigation would be barred from
challenging the settlement. Individuals could, however,
raise issues that have never come up before to attack the
trust. Whether or not they would be successful depends on
the issue. Courts are very liberal about allowing a person
to bring an action or intervene in an action without making
a determination of merit. In his concluding remarks the
Attorney General cautioned that just because a settlement is
in place does not mean that mental health lands will not be
the subject of controversy in the future.
Senator Rieger noted earlier comments that the current
proposal is based on provisions of Ch. 66 and inquired
concerning which provisions from earlier law carried
forward. TOM KOESTER, Contract Attorney to the State on the
Mental Health Case, came before committee. He explained
that the proposal takes two approaches:
1. If the parties do not agree to it, it ends the
lawsuit
and repeals Ch. 66.
2. If plaintiffs agree with the bill, and the case is
dismissed by December 15, 1994, then provisions of
Ch. 66 which establish the trust authority,
appropriation process for trust revenue and
income, and improvements to the mental health
program all take effect.
Senator Rieger asked if general fund percentage schedules
within Ch. 66 would remain. Mr. Koester responded
negatively, advising of repeal.
Co-chair Frank asked if the process starts from the
beginning if the settlement does not go forward.
Commissioner Noah explained that the trust would be
reconstructed as laid out by the supreme court. He stressed
that one of the things the state has not brought into play
in reconstruction of the trust is the $1.3 billion set-off.
The court said that the state could deduct from the fair
market value of land, moneys spent since 1978 on mental
health programs. That was included in Ch. 66 and must be
maintained. It ensures that if litigation continues, the
set-off becomes part of the issue that must be considered.
End: SFC-94, #48, Side 2
Begin: SFC-94, #50, Side 1
Co-chair Frank voiced his understanding that Judge Greene
will decide whether lands put back in the trust and the $1.3
billion off-set satisfies the supreme court directive. The
Attorney General concurred and advised of a further feature
of the bill which provides that the legislature would
appropriate up to $100 million, annually, if the court
determines that the $1.3 billion plus reconstitution of
original lands and substitute lands is not enough
compensation. The legislature would commit, under the
proposed bill, to appropriate enough money over time to pay
back the remainder. The Dept. of Law feels it is highly
unlikely that will be needed, but the feature is included
within the bill. The alternative is that if we reach a
settlement with all parties, provisions of Ch. 66 come into
play. Those provisions include the trust authority and
ability to derive a stream of income over which the trust
authority will have fairly exclusive control in deciding
upon expenditure.
Co-chair Pearce announced that Senator Rieger wished to pose
a question for which the committee would have to meet in
executive session. Prior to going into executive session,
Senator Sharp requested copies of maps detailing the
location of lands to be returned to trust as well as
substitute lands. He further requested an itemization of
lands described on page 12, line 31, through page 13, line
3. Commissioner Noah agreed to provide the material.
Senator Kerttula also requested the names of individuals
holding leases on mental health lands. Commissioner Noah
said that 3,700 individuals are involved. Senator Kerttula
asked for names of approximately twenty-five individuals
holding top value parcels. Commissioner Noah advised that
all legislators were provided copies of the February 10
public notice and maps of proposed substitute lands.
Senator Sharp said he had looked at the material but did not
recall that it highlighted items described in the
legislation, specifically: state parks, state forests,
state game refuges, state wildlife refuges, state game
sanctuaries, state recreational areas, state recreational
rivers, state wilderness parks, state marine parks, state
special management areas, state public use areas and
critical habitat areas, bald eagle preserves, bison ranges,
and moose ranges. Commissioner Noah said he would provide
the information.
Co-chair Pearce announced that the meeting would recess for
five minutes to clear the room for the requested executive
session.
RECESS - 10:20 A.M.
RECONVENE - 10:30 A.M.
Senator Rieger MOVED that the committee meet in EXECUTIVE
SESSION for the purpose of discussion of pending litigation
that might affect the finances of the state. No objection
having been raised, the committee met in EXECUTIVE SESSION
from 10:31 a.m. to approximately 11:20 a.m.
EXECUTIVE SESSION - 10:31 A.M.
REGULAR SESSION - 11:20 A.M.
The regular session of the meeting was reconvened at
approximately 11:20 a.m. with Co-chairs Pearce and Frank and
Senator Kerttula, Rieger, and Sharp in attendance.
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