Legislature(2023 - 2024)ANCH LIO DENALI Rm
08/30/2023 09:00 AM House LEGISLATIVE BUDGET & AUDIT
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| Audio | Topic |
|---|---|
| Start | |
| Approval of Minutes | |
| Rpl(s) | |
| Executive Session | |
| Preliminary Audit Release | |
| Procurement | |
| Alaska Mental Health Trust Authority Request | |
| Other Business | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
LEGISLATIVE BUDGET AND AUDIT COMMITTEE
Anchorage, Alaska
August 30, 2023
8:23 a.m.
MEMBERS PRESENT
Representative Ben Carpenter, Chair
Representative DeLena Johnson (via teleconference)
Representative Sarah Vance
Representative Frank Tomaszewski (via teleconference)
Representative Andy Josephson
Senator James Kaufman (via teleconference)
Senator Scott Kawasaki (via teleconference)
MEMBERS ABSENT
Senator Bert Stedman, Vice Chair
Senator Bill Wielechowski
Senator Lyman Hoffman
Representative Mike Cronk (alternate)
Senator Click Bishop (alternate)
OTHER MEMBERS PRESENT
Representative Julie Coulombe
COMMITTEE CALENDAR
APPROVAL OF MINUTES
RPL(S)
EXECUTIVE SESSION
PRELIMINARY AUDIT RELEASE
PROCUREMENT
ALASKA MENTAL HEALTH TRUST AUTHORITY
OTHER BUSINESS
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
ALEXEI PAINTER, Director
Legislative Finance Division
Legislative Agencies and Offices
Juneau, Alaska
POSITION STATEMENT: Presented RPL 18-2024-0351.
MEGAN KOHLER, Administrative Director
Department of Environmental Conservation
Juneau, Alaska
POSITION STATEMENT: Answered questions during discussion on RPL
18-2024-0351.
JASON OLDS, Director
Division of Air Quality
Department of Environment Conservation
Juneau, Alaska
POSITION STATEMENT: Answered questions during the discussion of
an RPL.
LAUREN HUGHES, Staff
Representative Ben Carpenter
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Read a document regarding the Alaska Mental
Health Trust Authority request.
KRIS CURTIS, Legislative Auditor
Division of Legislative Audit
Legislative Agencies and Offices
Juneau, Alaska
POSITION STATEMENT: Answered questions during discussion of the
Alaska Mental Health Trust Authority request.
ACTION NARRATIVE
9:06:46 AM
CHAIR BEN CARPENTER called the Legislative Budget and Audit
Committee meeting to order at 9:06 a.m. Representatives Johnson
(via teleconference), Vance, Tomaszewski (via teleconference),
Josephson, and Carpenter and Senators Wielechowski (via
teleconference) and Kaufman (via teleconference) were present at
the call to order.
^APPROVAL OF MINUTES
APPROVAL OF MINUTES
9:08:13 AM
CHAIR CARPENTER announced the first order of business would be
approval of minutes.
9:08:23 AM
REPRESENTATIVE KAUFMAN moved to approve the minutes from the
8/2/23 Legislative Budget and Audit Committee meeting. There
being no objection, the 8/2/23 minutes were approved.
^RPL(S)
RPL(S)
9:08:45 AM
CHAIR CARPENTER announced the next order of business would be
consideration of RPLs.
9:09:13 AM
ALEXEI PAINTER, Director, Legislative Finance Division,
Legislative Offices and Agencies, presented RPL 18-2024-0351,
Department of Environmental Conservation, Air Quality
Appropriation and Allocation, for $900,000 of federal funds,
code 1002, an operating budget RPL. He offered the background
that the Department of Environmental Conservation (DEC) received
a federal grant of $3 million to conduct the community emissions
inventory project. The award was granted in May 2023;
therefore, it was too late to be included in this year's state
budget. He continued:
The agency reports that this project will expand the
available community emissions inventory data for
criteria pollutants and green house gasses and will
culminate in community-level breakdown of source data,
methodology, and aspects. It will also include an
online geospatial dashboard and modeling tool. This
RPL expands federal receipt authority and air quality
appropriation and allocation from $2 million to $2.9
million.
MR. PAINTER said the agency plans to accept the full grant
amount of $3 million over the four-year period that the grant
runs, but that will require additional receipt authority in
fiscal year 2025 (FY 25); it is expected to be part of the
governor's budget for that year. He said that the agency
estimates that it needs $1.1 million of federal authority this
year; it has $200,000 in existing authority that it can use for
this, "and then this RPL has $900,000 to use that $1.1 million."
Mr. Painter stated that the Legislative Finance Division does
not see any technical issues with this RPL; it fits withing the
existing activities of the division and expands an existing fund
source.
9:11:29 AM
REPRESENTATIVE VANCE asked whether the RPL is required to
fulfill any statutory requirements.
MR. PAINTER deferred to Megan Kohler of DEC.
9:12:09 AM
MEGAN KOHLER, Administrative Director, Department of
Environmental Conservation, indicated that currently the intent
is to accept federal dollars, which will provide better baseline
data, without which some communities will not be eligible. In
response to a follow-up question, she indicated that the funds
relate to greenhouse gas emissions and "additional criteria
pollution" - the ability to determine air quality in rural
communities. She explained that having more data helps DEC
"understand on a more granular level what the data looks like."
REPRESENTATIVE VANCE expressed concern that this level of
information may not be helpful to Alaskans at this time, and she
said she does not support the RPL at this time.
9:16:22 AM
SENATOR TOMAZEWSKI asked if receipt of the funding would result
in future obligations by the state to continue this type of
funding.
MS. KOHLER answered no. She said the data would provide
baseline data that the department does not have currently, which
will allow communities to request funding through anticipated
future federal dollars for projects related to greenhouse gas
and emissions.
9:17:20 AM
The committee took an at-ease from 9:17 a.m. to 9:20 a.m.
9:20:06 AM
CHAIR CARPENTER sought further questions from committee members.
9:20:33 AM
REPRESENTATIVE JOSEPHSON commented related to the precedence of
such an RPL, and he offered his understanding that the desire
for baseline data is to discover what is achievable in Alaska;
there would be no strings attached. He asked that the RPL be
approved.
9:22:10 AM
REPRESENTATIVE JOHNSON mentioned opportunity costs and
questioned what the outcome might be if the RPL were not
approved. For example, would this be necessary in order to go
forward with any other types of research or projects.
9:23:16 AM
MR. PAINTER, in response to Representative D. Johnson and Chair
Carpenter, spoke to the issue of opportunity costs. He
explained that the RPL statute states that 45 days shall lapse
before commencement of the revised programs unless the
Legislative Budget and Audit Committee earlier recommends that
the state "take part in the activity." This means that after 45
days, the governor may choose to uphold an RPL that the
legislature did not support. He continued:
In this case, since the agency does have $200,000 of
existing receipt authority, they may not face timing
issues with that, ... because essentially they would
have to wait a month from now. But the governor has
also, in the past, indicated that they do take the
recommendation of the committee and won't necessarily
go forward when the committee recommends it not go
forward. It's not a guarantee that the government
will go forward.
9:27:05 AM
MS. KOHLER suggested Jason Olds could address opportunity costs
further.
9:27:11 AM
JASON OLDS, Director, Division of Air Quality, Department of
Environment Conservation, advised that "this funding allows more
work to continue for the planning phase of these Inflation
Reduction Act grant funds." He added, "They're a sort of
competitive grant process that's scheduled to take off sometime
early next year." He explained that not being granted those
funds could significantly hamper DEC's ability to proceed with
the planning phase for contract work "and some of our
partnership to prepare for those competitive grant processes,"
which could jeopardize the assets of those 4 billion federal
dollars to community tribes.
9:28:23 AM
CHAIR CARPENTER asked Mr. Olds to describe for the committee the
purpose of the funds.
MR. OLDS stated that these funds typically are built for
emissions from energy sector pollutants or infrastructure
projects where a baseline needs to be established to show what
communities' proposals would do to reduce baseline emissions.
He said the baseline emissions are provided to communities that
aren't able to produce them themselves so that they can compete
against other communities on projects that are eligible for
those funds. He explained that larger communities have already
been able to fund their baseline data, and smaller communities
will be left behind if they can't get these resources.
CHAIR CARPENTER asked Mr. Olds to speak regarding the Fairbanks
area's air quality issue resulting from wood stove use.
MR. OLDS replied, "Those would be standards for national ambient
air quality, and this is non-regulated pollutants - greenhouse
gasses." He explained that there is not a regulatory "hook or
action" that would occur that "would trigger any sort of
attainment process or further regulations from this baseline."
9:33:09 AM
REPRESENTATIVE JOSEPHSON asked whether, if Alaska does not take
the federal funds, another state would "come into the cue and
take it from us."
MR. OLDS offered his understanding that, yes, states and tribes
"have all lined up for these dollars."
9:34:58 AM
The committee took a brief at-ease 9:35 a.m.
9:35:44 AM
REPRESENTATIVE VANCE asked for clarification that the baseline
for emissions is a necessary component to eligibility for grant
monies.
MR. OLDS answered that is correct. He added, "They would have
to ... compare the reductions of their project against something
with the granular level of details necessary for ...
competitively bidding." In response to a follow-up question, he
said there are no sufficiency standards in terms of actual air
quality. He reiterated that [the RPL] would allow DEC to work
with the smaller communities to establish baseline emissions so
that they can apply for the grants.
9:38:29 AM
REPRESENTATIVE JOSEPHSON offered past processes related to RPLs.
9:39:46 AM
REPRESENTATIVE VANCE moved that the Legislative Budget and Audit
Committee approve RPL 18-2024-0351. There being no objection,
it was so ordered.
9:40:14 AM
The committee took a brief at-ease at 9:40 a.m.
^EXECUTIVE SESSION
EXECUTIVE SESSION
9:40:39 AM
CHAIR CARPENTER announced that the next order of business was
executive session.
9:41:05 AM
The committee took an at-ease from 9:41 a.m. to 9:47 a.m.
9:47:08 AM
CHAIR CARPENTER asked Representative Vance for a motion.
9:47:28 AM
REPRESENTATIVE VANCE moved that the Legislative Budget and Audit
Committee go into executive session under Uniform Rule 22(b)(3)
for the discussion of matters that may, by law, be required to
be confidential. She asked that the following persons remain in
the room or online: The legislative auditor and, if necessary,
staff for the auditor; any legislators not on the committee; and
staff of legislators on the committee. There being no
objection, it was so ordered.
9:47:59 AM
The committee took an at-ease from 9:48 a.m. to 10:54 a.m. for
the purpose of executive session.
10:54:27 AM
CHAIR CARPENTER called the Legislative Budget and Audit
Committee back to order at 10:54 a.m. Present at the call back
to order were Representatives Vance, Tomaszewski, via
teleconference, Josephson, and Carpenter and Senators
Wielechowski, via teleconference and Kaufman, via
teleconference. Senator Kawasaki arrived via teleconference as
the meeting was in progress. Also present was Representative
Coulombe.
^PRELIMINARY AUDIT RELEASE
PRELIMINARY AUDIT RELEASE
10:56:12 AM
CHAIR CARPENTER announced the next order of business would be
preliminary audit release.
10:57:50 AM
REPRESENTATIVE VANCE moved that the Legislative Budget and Audit
Committee release to the Department of Law the preliminary audit
related to Janus, as presented. There being no objection, it
was so ordered.
10:58:19 AM
REPRESENTATIVE VANCE moved that the Legislative Budget and Audit
Committee release the preliminary audit on Big Game Commercial
Services Board Sunset, Department of Commerce, Community &
Economic Development, as presented. There being no objection,
it was so ordered.
^PROCUREMENT
PROCUREMENT
10:58:52 AM
CHAIR CARPENTER announced that the next order of business would
be procurement.
10:58:57 AM
REPRESENTATIVE VANCE moved that the Legislative Budget and Audit
Committee approve the legislative auditor to contract for a
review of the management structure of the Office of Children's
Services for an amount not to exceed $518,000. There being no
objection, it was so ordered.
10:59:35 AM
REPRESENTATIVE VANCE moved that the Legislative Budget and Audit
Committee authorize the legislative auditor to amend the March
2022 contract with Berry, Dunn, McNeil, & Parker, LLC for
information technology expertise to extend the contract for the
review of the FY 24 general and application controls of the
state's accounting and reporting systems for an increase in
original contract amount not to exceed $175,000. There being no
objection, it was so ordered.
^ALASKA MENTAL HEALTH TRUST AUTHORITY REQUEST
ALASKA MENTAL HEALTH TRUST AUTHORITY REQUEST
11:00:18 AM
CHAIR CARPENTER announced the next order of business would be
discussion of the Alaska Mental Health Trust Authority request.
11:00:31 AM
The committee took an at-ease from 11:00 a.m. to 11:02 a.m.
11:02:02 AM
LAUREN HUGHES, Staff, Representative Ben Carpenter, Alaska State
Legislature, read a memorandum from Chair Carpenter [included in
the committee packet], which read as follows [original
punctuation provided]:
In response to concerns over management of the Alaska
Mental Health Trust, an audit was requested in 2016.
After completing the audit in 2018, the Legislative
Auditor concluded that the Alaska Mental Health Trust
Authority's Board of Trustees violated State statutes
and terms of the State v. Weiss settlement by
diverting $44.4 million in cash principal from the
Alaska Permanent Fund Corporation (APFC). The audit
found that despite statutory requirements that Trust
principal be managed and invested by the APFC, the
Authority's Board of Trustees suspended transfers of
cash principal to the APFC for almost 10 years.
Instead of transferring cash to the APFC for
investment, $39.5 of $44.4 million was directly
invested in seven commercial real estate properties
(five located out-of-state) using the Trust Land
Office within the Department of Natural Resources to
facilitate the commercial real estate investment
transactions and to manage the properties.
A follow-up audit was requested in 2020 to evaluate
the Authority's corrective actions including, in part,
the status of the commercial real estate investments
and the Authority's intent regarding future management
of the investments. The audit found that the Authority
used Trust income to restore the Trust cash principal
illegally diverted from the APFC and found that the
Department of Natural Resources Trust Land Office
continued to manage the commercial real estate
investments, which were considered Trust income
investments after the transfer. The audit criticized
this decision on the basis that the Trust Land Office
did not have expertise in financial investing,
particularly knowledge and expertise in managing a
nation-wide commercial real estate investment program.
The audit also raised concerns that converting Trust
income into illiquid assets may negatively impact the
Authority's ability to meet its spending goals in a
down market. The follow-up audit recommended the Board
of Trustees consider liquidating the commercial real
estate investments or transferring the investments to
the APFC as inflation-proofing.
During the 2023 legislative session, the Authority
reported that the commercial real estate investments
continued to be managed by the Trust Land Office with
the assistance of a third-party real estate advisor.
Since that time, it has come to my attention that the
Authority's Board of Trustees terminated the agreement
with its third-party real estate advisor. It has also
come to my attention that the commercial real estate
properties are not subject to independent audits, and
it has been alleged that related financial information
is not accurate. It has also been alleged that the
Trust Land Office has not complied with the Board of
Trustees approved management policies and that their
activities are not subject to prudent governance by
the Trustees. Given these concerns and the importance
of managing the Alaska Mental Health Trust Fund for
future generations of trust beneficiaries, I request
an audit be approved to include the following
objectives:
• Evaluate the Trust Land Office's compliance with
Trustee approved management policies.
• Evaluate the financial health of the commercial real
estate properties.
• Examine the Board of Trustee's oversight of the
Trust Land Office's operations.
• Follow up on any other related concerns the
Legislative Auditor identifies during the audit
11:06:28 AM
REPRESENTATIVE VANCE asked whether this is the best process
through which to use legislative authority "to encourage
corrective action by the board" and at what point it would be
appropriate to engage the court to resolve this.
11:07:11 AM
KRIS CURTIS, Legislative Auditor, Division of Legislative Audit,
Legislative Offices and Agencies, explained that the State v.
Weiss settlement had established the mechanism of managing the
trust; it established the Alaska Mental Health Trust Authority
(AMHTA) as the fiduciary of the fund; it is AMHTA's
responsibility to ensure the fund is managed prudently. While
the legislature has its role in appropriating, the fund has its
role in managing the investment, and the Department of Natural
Resources (DNR) has its role in managing the land corpus. She
indicated that the second audit followed up on the corrective
action from the first [audit], and the Legislative Audit
Division concluded that legally, what AMHTA did, in terms of
using trust income to reconstitute the fund principal was
"fine," except that the division has "some criticisms of what it
could mean in the future," in regard to illiquid income
investments, which aren't readily available to meet the needs of
an officiary. As written in its memorandum, the division also
believes that the Trust Land Office was the appropriate entity
to manage a nationwide (indisc.) program. Ms. Curtis noted that
in AMHTA's response, the authority highlighted a third-party
advisor that had assisted in prudently managing its investments.
She said it is the advisor portion that is no longer there, "or
at least we've been led to believe."
REPRESENTATIVE VANCE asked for the timeline of this particular
audit.
MS. CURTIS answered that because of two other significant
projects, she does not envision this audit starting until a year
and a half from now.
11:10:04 AM
REPRESENTATIVE TOMASZEWSKI expressed concern about the seven
properties and asked if there had been any consideration
regarding who owned the properties.
MS. CURTIS answered that the first audit studied how the
purchase came about and how it was done. The division did look
at ethics issues throughout the board's actions and has "some
things to say," but "nothing conclusively about the legality of
the purchases." She said the division's criticism pertains
mainly to the focus on commercial real estate and lack of
diversification; three of the commercial properties were in
Texas. She said further that there was a lack of documentation
to show the process that led to the purchases in Texas. She
said the division made a lot of recommendations about AMHTA's
external polices and hired an external company to evaluate those
policies. She said she would send to the committee a link to
the first and second audits.
11:12:08 AM
REPRESENTATIVE JOSEPHSON asked about the date of the State v.
Weiss settlement.
MS. CURTIS answered that litigation lasted 10 years, and she
recollected the settlement occurred in 1992 and resulted in
rules laid out regarding the reconstituting of the trust. She
explained that statute was woven into the settlement; therefore,
the state is "a bit limited in altering those statutes."
REPRESENTATIVE JOSEPHSON expressed support for the language of
the audit but expressed incredulity that "we have to do this."
He said he is surprised that the Alaska Permanent Fund
Corporation never asked where the resources it was supposed to
receive were. He said he thought the authority had been
"sufficiently admonished" and that it was going to "stop doing
this."
MS. CURTIS expressed she had hoped the last audit would have
been the final one. She said the Alaska Permanent Fund
Corporation does not see itself as having any responsibility to
make sure the money it is given is "complete and accurate." It
is an investment corporation that invests whatever money it is
given.
REPRESENTATIVE JOSEPHSON speculated that there is nothing in law
that states that the hiring of a third-party real estate advisor
is curative.
MS. CURTIS replied that there are prudent investor laws that
guide fiduciary action regarding trusts. She said the boards
have adopted certain acts of management policy that should be
governing the actions of "the trust's land office." She
indicated that she would need to look into it, which is why the
committee has been presented with the audit request.
11:16:03 AM
CHAIR CARPENTER said he is recommending a third audit to be
reviewed by the committee.
MS. CURTIS indicated the committee could also write a letter.
CHAIR CARPENTER said he chose not to go with a letter but
instead an audit request.
11:18:24 AM
REPRESENTATIVE VANCE moved that the Legislative Budget and Audit
Committee request an audit of the Alaska Mental Health Trust
Authority. There being no objection, it was so ordered.
^OTHER BUSINESS
OTHER BUSINESS
11:18:51 AM
CHAIR CARPENTER announced that the final order of business would
be in the category of other business.
CHAIR CARPENTER offered his recognition to Linda Day, who was
retiring after 25 years with the Legislative Audit Division, and
he thanked her for her service to the state.
11:19:36 AM
ADJOURNMENT
There being no further business before the committee, the
Legislative Budget and Audit Committee meeting was adjourned at
11:19 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AMHTA Audit request 08-21-2023.pdf |
JBUD 8/30/2023 9:00:00 AM |
AMHTA Audit Request |
| OCS and IT Procurement Memo.pdf |
JBUD 8/30/2023 9:00:00 AM |
OCS and IT Procurement Memo |
| RPL packet 18-2024-0351.pdf |
JBUD 8/30/2023 9:00:00 AM |
RPL packet 18-2024-0351 |