Legislature(2003 - 2004)
02/04/2004 01:38 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
February 04, 2004
1:38 P.M.
TAPE HFC 04 - 18, Side A
TAPE HFC 04 - 18, Side B
CALL TO ORDER
Co-Chair Harris called the House Finance Committee meeting
to order at 1:38 P.M.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Mike Chenault
Representative Eric Croft
Representative Hugh Fate
Representative Richard Foster
Representative Mike Hawker
Representative Reggie Joule
Representative Carl Moses
Representative Bill Stoltze
MEMBERS ABSENT
None
ALSO PRESENT
Representative Mary Kapsner; Jeff Jesse, Executive Director,
Alaska Mental Health Trust Authority; Phil Younker, Sr.,
Chair, Alaska Mental Health Trust Authority; Steve Planchon,
Executive Director, Trust Land Office, Department of Revenue
GENERAL SUBJECT(S):
OVERVIEW: ALASKA MENTAL HEALTH TRUST AUTHORITY
HOUSE BILL NO. 377
An Act making appropriations for the operating and capital
expenses of the state's integrated comprehensive mental
health program; and providing for an effective date.
The following overview was taken in log note format. Tapes
and handouts will be on file with the House Finance
Committee through the 23rd Legislative Session, contact 465-
2156. After the 23rd Legislative Session they will be
available through the Legislative Library at 465-3808.
LOG SPEAKER DISCUSSION
TAPE HFC 04 - 18, SIDE A
000 Co-Chair Harris Convened the House Finance Committee
meeting at 1:38 p.m. He noted that the
Alaska Mental Health Trust Authority
(AMHTA) would provide a presentation &
overview to the Committee.
ALASKA MENTAL HEALTH TRUST AUTHORITY
154 PHIL YOUNKER, SR., Introduced members Mr. Planchon and Mr.
CHAIR, ALASKA MENTAL Jesse. He provided Committee members
HEALTH TRUST copies of the handouts. (Copies on File)
AUTHORITY and outlined the intent of the
presentation.
300 Mr. Younker Provided a history of the Trust
Formation:
· Litigation (related to breach of
Mental Health Enabling Act trust
established by Congress in 1956)
ongoing for 13 years
· State would have been required to
reconstitute the old Trust
· Millions of dollars in litigation
costs
· Millions in lost resource
development opportunities
· Paralyzed and fractured mental
health community
403 Mr. Younker Listed the key terms of the settlement:
· Trust Authority free to use Trust
resources to act as a catalyst for
change
· Trust Authority funding
recommendations considered in a
single appropriation bill
· Trust Authority to aid in
comprehensive planning for mental
health program
· Mental Health Trust Lands and
associated state lands released for
development
527 Mr. Younker Commented on the Trust's beneficiaries:
· People with mental illness
· People with developmental
disabilities
· People with alcoholism/other
addictions
· People with Alzheimer's disease &
other dementia
702 Mr. Younker Listed the four boards that advise the
Trust:
· Alaska Mental Health Board
· Advisory Board on Alcoholism & Drug
Abuse
· Governor's Council on Disabilities &
Special Education
· Alaska Commission on Aging
750 Mr. Younker Continued, noting that the 4 Advisory
Boards have been engaged in a
collaborative effort with the Division of
Behavioral Health to oversee a federal
grant for planning and implementation of
a service delivery. Alaska has the
highest incidence of brain injuries than
any other state.
802 STEVE PLANCHON, Pointed out the land and resources used
EXECUTIVE DIRECTOR, by the Board for profit totaling 994,000
TRUST LAND OFFICE, acres:
DEPARTMENT OF
· Fee Estate - 547,000 acres
REVENUE
· Mineral Estate - 341,000 acres
· Coal, Oil & Gas - 106,000 acres
841 Mr. Planchon Noted that the key role of the Trust is
to prudently operate trust lands. He
listed the regulations and assets of
management strategy. Initially, 85% of
the work was self-directed. He pointed
out the charts that highlight the cost
outcomes.
942 Mr. Planchon Mr. Planchon referenced the chart showing
the spendable income from the Trust Land.
Lease rents are included, purchase
contract interest and money of that
nature. Over the past three years, that
money has increased about 24%. Since the
beginning of operations in 1994, it has
increased about 800%.
1026 Co-Chair Harris Questioned why the projected income was
such a conservative number given the
actual income.
1043 Mr. Planchon Responded that the projections were done
in the land office to actually be able to
commit money.
1059 Mr. Planchon Referenced the handout indicating the
operating and capital expenditures versus
the revenue earned. There are two types
of costs incurred. The core operating
costs and the supplemental operating
costs that comes from the capital budget.
That is used to pay for short-term
projects and are not costs incurring on
an on-going basis. The costs are
reasonable when compared to the gross
revenue, which averages about 14% of
gross revenues.
1201 Mr. Planchon Referenced the gross revenue slide. The
spikes are not projectable and result
from long-term negotiations and
complicated transactions. Only the
things that they feel relatively
confident about are used. He emphasized
that they do not plan based upon the
spike.
1256 Co-Chair Harris What happened with the big spike in FY03.
1320 Mr. Planchon Responded that spike resulted from timber
sales, a couple large real estate
transactions and an oil and gas lease
sale.
1317 Representative Croft Clarified that those are not repeatable
events and would be in the 1x category.
1334 Mr. Planchon Stated that the spendable is something
that can be predicted. The principle
depends on the deals crafted and brought
to closure.
1359 Representative Croft Commented that once there is a timber
sale, then the Trust cannot sell that
timber for another 100 years.
1413 Mr. Planchon Stated that the next step is to go to the
next level of income.
1426 JEFF JESSE, Clarified that the one-time land sale
EXECUTIVE DIRECTOR, revenues go into the Permanent Fund and
ALASKA MENTAL HEALTH generate income over time.
TRUST AUTHORITY
1443 Representative Croft The gross revenue spike does not indicate
the distribution between how much is
spendable and how much goes into the
Trust.
1454 Mr. Planchon Referenced the spendable income slide and
the copy of the annual report.
1518 Mr. Younker Noted the Trust FY05 slide in the
handout. It highlights the income from
this past year. The other income is
generated would go back to principle.
The Permanent Fund payout was 3.5%
payout. $2.3 million dollars was lapsed.
1575 Representative Croft Asked if the 3.5% was the percent of
market value.
1614 Mr. Younker Responded that they do 3.5% of the
present market value. The 5% would not
sustain itself. He added that they had
started out at 3%, moving to 3.25% and
then to 3.5%. Nothing is ever added back
in for inflation. The payout considers
the inflation. The Trust uses about a
60-year market period to determine the
3.5% number. Last year, there was
concern that the payout would stay level.
The payout is based on a principle
reserve account, which is equal to 4-
years of the payout. That number was
down to less than 2-years resulting from
the market conditions. The Trustees
inserted a provision that when the fund
was less than 2%, the number would be
increased to 5%.
1722 Mr. Younker Continued, the Trustees look for very
level sources of income. The budget is
based on a 2-year basis. Most of the
expenditures are on projects that are
from three to five years. When the Trust
commits to a beneficiary a project or a
program, the Trust must know that source
of income will be there for a period of
time. In order to do that, they have
developed a system of level payout using
the principle reserve to guarantee that.
The Trust has also taken 50% of the
principle reserve and moved it from the
Permanent Fund to the Department of
Revenue and placed it in an intermediate
account to stabilize what is needed in
the next 24-months. That will guarantee
that the 3.5% will continue to sustain
itself.
1849 Representative Croft Inquired why the Mental Health base
budget was declining so much.
1915 Mr. Younker The Governor and the Legislature created
the budget.
1929 Representative Croft Asked if it could be set at zero.
1940 Mr. Jesse Explained that it could not happen as it
would be illegal and an "act of bad
faith" on the part of the State.
2005 Representative Croft Asked at what point would the State be
"running up against the Settlement". He
asked what needed to exist before being
in breech of the Settlement.
2020 Mr. Jesse Stated that the Trust attempts to be very
honest and upfront with information. The
settlement did not delineate any
particular level of funding from the
State. He stressed that -0- would be
beneath the floor legally sanctioned. He
did not know the floor. The Courts would
step in to direct the State regarding the
needs of this population.
2122 Representative Croft Asked the impact of the proposed budget
cuts.
2132 Mr. Jesse Replied that would be addressed shortly.
2142 Co-Chair Williams Noted the "other endowments" and asked
the difference in the Permanent Fund plan
and the Sitka plan with a payout of 6%.
2237 Mr. Younker Stated that when the model was built, the
Trust knew it needed a sustainable source
of income that would inflation proof the
principle on an on-going basis with a
level payout. The principle reserve was
used to get the level payout. The market
was analyzed for a 60-year period using
different levels of payout. Using a
lower payout allows the programs to
sustain. He pointed out that the Sitka
Plan does not have a level payout. The
Permanent Fund makes it difficult to
manage with the up and down market. By
using a lower pay out and guaranteeing
that it goes straight through keeps the
program alive.
2420 Mr. Younker Continued, the actual cash and applied
inflation should be almost equal. If the
plan grew faster, then the Board would
not be spending enough. At this time,
they are on track.
2455 Mr. Jesse The big difference between the mental
health trust and other funds is that the
Trust cannot spend the principle.
2521 Mr. Jesse Commented that if the Permanent Fund went
to a Percent of Market Value (PMV)
system, the principle could be spent.
2530 Co-Chair Williams Commented that inflation proofing is 3%
and that this year inflation totals only
about 1%.
2545 Mr. Younker Questioned if it was replaced before the
payout.
2607 Co-Chair Williams Commented that the fund is taking out 5%
on earning of 8% per year.
2624 Mr. Jesse Advised that because the Trust cannot dip
into the principle, they are forced to
either have greatly fluctuating income
every year or to have a level payout.
The Trustees decided on the 3% payout
because it guaranteed a reserve. Without
st
a reserve, the 1 year that the fund lost
money, there would be zero income. The
size needed for a reserve was determined
and it was decided that it should be 4x
the annual payout.
2702 Mr. Jesse The payout was started at 3%. In the
first few years, the returns were very
high and the reserve filled quickly.
When the payout is raised a quarter
percent, then 1% had to be added to the
reserve to build it back up to 400% of
the amount. When the market "tanked",
the Trustees started taking money out of
the reserve. He stated that the reserve
allowed time for the market to recover.
2831 Mr. Jesse The sustainable payout was somewhere
between 4.5% and 5%.
2843 Co-Chair Williams Thought that the payout formula was
unstable and recommended addressing it
differently. He commented on the PMV
concept. He thought that reference made
by Mr. Jesse was different than that
provided by trusted sources.
2940 Representative Summarized that the Trust's investment
Hawker model is a "foundation model" under a
perpetual trust, which is a different
management than that proposed under the
PMV system. He asked if their style of
management was given in statute rather
than an endowment model.
3045 Mr. Jesse Responded that the settlement did not lay
out the details of how the fund should be
managed. It gave the Trustees discretion
over the income. The Trustees knew that
the trust income would vary greatly from
year to year. It was essential that it
be managed to guarantee a sustained
payout every year. At present time, the
fund could loose money every year for 4-
years, and the payout would remain the
same.
3135 Representative Clarified that the mechanism used to
Hawker accomplish that is a different mechanism
from the PMV.
3150 Representative Croft Commented that the major difference is
that the Trust cannot invade their
principle. Having that restriction, a
set payout has been established at 3.5% -
4%. 5% cannot be set unless comfortable
building the principle. He assured that
the protection should not be eliminated.
3222 Co-Chair Williams Asked if incorporating the PMV, money
would be taken from the principle of the
Permanent Fund.
3244 Representative Croft Acknowledged that was true.
3248 Vice Chair Meyer Interjected that it was possible by using
the PMV theory, the principle could be
tapped. He noted that some years could
be adding more to the principle.
3302 Co-Chair Williams Suggested that could interpret taking out
from the principle and then increasing
the principle.
3331 Mr. Younker Responded that there are years when that
will happen, however, there are years
when the principle shrank.
3352 Mr. Younker Commented on a scholarship fund payout
that he personally holds and how
historically the return on that fund has
been affected by what is occurring in the
market place.
3435 Representative Inquired if the principle was inflation
Chenault proofed.
3456 Mr. Younker Replied it was inflation proofed at 3.5%.
3507 Representative Asked about the high money and if it was
Chenault placed into the principle or into the
reserve.
3516 Mr. Younker Explained that there are two parts.
Principle reserve receives 4 years of the
payout. All income goes into that fund
until it is full and then it runs over.
The principle cannot be touched. The
test is to take the fund and applying it
from day one and apply inflation to it.
3604 Representative Asked about the principle strength versus
Chenault market performance.
3626 Representative He asked if the money came out of the
Chenault principle reserve.
3648 Mr. Younker Still have not had a payout of that
reserve for a 4-year period. If less
than 2-years in the reserve, the Trustees
will change the amount to 3.5% and then
to 3.75%.
3720 Mr. Younker Returned discussion to the Trust FY05
page of the handout. He noted that
$11.986 million had been budgeted for the
operating programs and $3.73 million has
been budgeted for capital projects. He
pointed out that the Mental Health budget
has been reduced from $136.372 million
dollars in FY04 to $125.788 in FY05.
That has created more pressure for the
Trust to sustain their programs.
3828 Mr. Younker Addressed the budget shrink and how it
affects the programs. A study has been
started at this point.
3914 Mr. Younker Highlighted the New Trust Budget
Recommendation Planning Process for
FY06/07:
· Collaborative planning process with
four Trust advisory groups, state
agencies and major partners.
· Limited number of focus areas
targeting system change +
partnerships, mini grants and other
ongoing projects.
· Emphasis on partnering to maximize
and coordinate funding goals across
systems serving beneficiaries.
4054 Mr. Jesse Noted that Representative Hawker has
requested an accounting of the alcohol
tax
4100 Representative Croft Asked if the alcohol receipts had
declined. Mr. Younker explained the
difference and that it was still at the
full level which is consistent.
4117 Representative Noted that he had requested an accounting
Hawker of the alcohol tax fund. He acknowledged
that excess funds had been budgets last
year.
4127 Mr. Younker The new structure will have work groups
appointed. About 20% of all expendable
income will be used for that project over
the next four or five years.
4316 Mr. Younker Commented on partnerships with people
outside the State for leveraging dollars
for that particular program. The
emphasis is on partnering and the
Trustees are excited about the larger
programs.
4435 Mr. Jesse Addressed the impacts of the reductions
on the beneficiaries:
· Tribal substance abuse program cuts
977.3 - 35% of all ADA cuts while
Alaska Natives are 20% of the
population (and 40% of treatment
population)
· Rural ASAP programs cut $980 - 70%-
90% no show rates thus far in FY04
for those programs that have tried
self-pay
· 10% - 25% match on alcohol grants
4548 Mr. Jesse He stressed that the Trust is no longer
budgeting toward missions and measures.
They are budgeting to monetary targets to
minimize the damage to the programs and
beneficiaries, which is a different
exercise. He reiterated that currently,
they are aiming at numbers without
hurting the clientele.
4645 Mr. Jesse Commented on the administrative
infrastructure cuts and the impacts of
the reorganization.
TAPE HFC 04 - 18, Side B
4647 Mr. Jesse Spoke to the delayed grants and quarterly
advances and how that affects programs.
As the capacity of agencies is degraded,
getting the work done becomes more
difficult.
4547 Mr. Jesse In FY04, the intent was to look at the
base budget. He provided information on
that budget:
· $1.3 million in Developmental
Disabilities (DD) grants was reduced
· Reduction in legal support for DD in
Bethel, Fairbanks & Juneau offices
of DLC.
· Hope Community Resources - closed
apartment for emergency rural
housing
· Quality Assurance funds (GF/Mental
Health) for the DD cuts
· Care Coordination grants for seniors
reduced by 20%
4328 Representative Joule Asked why it took so long for information
to go public.
4317 Mr. Jesse Responded that there were not enough
employees for moving the information.
The planning boards have been speaking
with the Governor's boards regarding how
the grant funds are awarded. It need to
be determined how are emergencies are
being addressed. He noted that the
contingency funds are being reduced and
the Trust's flexibility becomes less and
less.
4220 Representative Thought in 1996, the Legislature
Stoltze addressed DD sexual offense. He
commented that it is such a "touchy" area
for those victims and that it is a
different class of sexual offender. He
asked for personal time with the Trust
members to discuss that issue.
4124 Mr. Jesse Agreed to that.
4108 Mr. Jesse Continued discussion on reducing grants
to the agencies and the impact of care
coordination for seniors. When the
systems are withdrawn, it accelerates
family burn out and then costs to the
State. He addressed cost shifting into
the future of the prevention programs.
The cumulative effect with the loss of
the Longevity Bonus and the other cuts to
programs, create more impact to the State
over time. Cost shifting to Medicaid is
the same as cost shifting into the
future.
3850 Co-Chair Williams Reiterated concerns with the Trust's
payment of 3.5%. He hoped that the Board
would attempt to change the payout system
so that the programs can continue.
3731 Mr. Jesse Noted that the fund currently has a
little over $300 million dollars.
3721 Co-Chair Williams People are not receiving the services.
3711 Mr. Younker Stated that part of the growth is
principle and cannot be spent.
3617 Co-Chair Williams Voiced concern, emphasizing that the
concern is real. Financial resources
must be managed to address these concerns
and he hoped that the Board understands
that.
3609 Mr. Jesse Highlighted the FY04 impacts and securing
the match in the rural areas. He spoke
to self-pay for the ASAP program, which
was cut by $908 thousand dollar. It
follows those offenders. He noted that
the Administration does not want to fund
that program anymore. The Administration
wants it to be self-pay. The issue with
self-pay is that the people that most
need the treatment are the least able to
pay. Public dollars will cost more by
staying in the system. Right now, there
is a 70-90% no show rate.
3344 Mr. Jesse The self-pay program works best with a
class of clients that has the most
resources. Eliminating ASAP in the FY05
budget will cost the entire State down
the road. The Department does not have a
plan at this time.
3300 Mr. Jesse Highlighted the FY05 budget.
· Medicaid - Federal control and
support concerns
· Budget is built on assumptions
regarding refinancing, litigation
around Medicaid, proshare viability,
tribal agenda, catchment area
consolidation, Alcohol Safety Action
Program (ASAP) program self-pay,
restructuring of service waivers and
cost containment.
· Continued infrastructure cuts and
reorganization impacts
3220 Mr. Jesse Spoke about the Medicaid outcome. The
State is becoming more dependent on the
Medicaid system. The State is becoming
more and more dependant on what the
federal government rules what you must
have for the program. That involves
their rules and terms. The President has
recommended a 7% reduction to that
service.
3011 Mr. Jesse Commented on the loose to the mental
health care. He reiterated that cost
shifting is a huge issue.
2936 Mr. Jesse The Administration has raised its risk
tolerance level. The FY05 budget is
launching with perhaps 100 different
components this year. He predicted that
some of those projects are not going to
make it.
2828 Mr. Jesse addressed the increased risk levels:
· Refinancing
· Litigation around Medicaid
· Proshare viability
· Tribal agenda
· Catchment area consolidation
· ASAP program self-pay
· Restructuring of service waivers
· Cost containment
2725 Mr. Jesse He emphasized that each item raises the
risk tolerance.
2610 Mr. Jesse The choice is to help the Administration
make these correct choices so the risk
does not fall upon the beneficiaries.
2537 Mr. Jesse He recommended that the Legislature
considering assisting the Administration
with making choices, assisting with the
establishment of a centralized billing
office. The risk of failure falls upon
the beneficiaries with a reduction of
services.
2448 Mr. Jesse Applauded Representative Hawker and the
work that he has done with the Department
of Health & Social Services subcommittee.
He projected that they expect the program
will get worse before it gets better. He
was concerned with the projected FY06 and
FY07 budgets.
2403 Representative Joule Asked about the concerns with the rising
Medicaid costs. He asked how that should
be addressed at present time.
2325 Mr. Jesse The Administration is attempting to
address those concerns with items such as
the waivers and trying to make them more
efficient and the tribal agenda. The
only way to become less dependant upon
the federal government is for the State
to pay its own way. That is the basic
fiscal gap issue.
2237 Representative Croft Voiced confusion with the tribal status
issue and relying upon it so heavily in
the budget.
2216 Mr. Jesse Did not believe so and admitted that he
was not an expert on those issues. Some
entities are entitled to bill Medicaid at
100%.
2145 Representative Croft Commented that State funding would be
"wiped out".
2134 Mr. Jesse Responded that this is an issue of
choice. The Trustees have not taken a
stance on that concern. In many rural
communities, there are not enough
agencies from which to choose.
2056 Representative Croft Committed that if they do not get the
tribal funding, there is no general fund
back-fill.
2046 Mr. Jesse Correct as they would have already taken
the projected savings in the budget.
There could be a possibility of
supplemental funding.
2031 Representative Voiced his appreciation for the
Hawker professionalism and focus of the Alaska
Mental Health Trust Authority providing
facts and problems and willingness to
"strike a balance".
1942 Co-Chair Harris Echoed sentiments made by Representative
Hawker. He addressed the fiscal revenue
shortage that the Legislature is
currently working under. He understood
that many of the beneficiaries cannot
help themselves. He acknowledged that
Representative Hawker works hard to
address these concerns on the Department
of Health & Social Services subcommittee
and the Ways and Means Committee.
1834 ADJOURNMENT The meeting was adjourned at 2:55 P.M.
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