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