Legislature(1995 - 1996)
01/18/1996 03:06 PM House HES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
JOINT HOUSE & SENATE HEALTH, EDUCATION AND
SOCIAL SERVICES COMMITTEE
January 18, 1996
3:06 p.m.
SENATE MEMBERS PRESENT
Senator Lyda Green, Chairman
Senator Loren Leman, Vice-Chairman
Senator Johnny Ellis
Senator Judy Salo
SENATE MEMBERS ABSENT
Senator Mike Miller
HOUSE MEMBERS PRESENT
Representative Con Bunde, Co-Chair
Representative Al Vezey
Representative Gary Davis
Representative Norman Rokeberg
Representative Tom Brice
Representative Caren Robinson
HOUSE MEMBERS ABSENT
Representative Cynthia Toohey, Co-Chair
OTHER MEMBERS PRESENT
Representative Terry Martin
COMMITTEE CALENDAR
Overview of Mental Health Program and Planning
EO 97 Transfer Functions of the Alaska Commission on
Postsecondary Education
PREVIOUS SENATE COMMITTEE ACTION
No previous action to record.
WITNESS REGISTER
NELSON PAGE, Chair
Mental Health Board of Trustees
Mental Health Trust Authority
POSITION STATEMENT: Provided background on the Mental Health
Trust.
TOM HAWKINS, Co-Chair
Finance Committee
Mental Health Trust Authority
1820 East 24 Avenue
Anchorage, Alaska 99508
POSITION STATEMENT: Discussed the land and mineral base of the
Mental Health lands.
PHIL YOUNKER, Co-Chair
Finance Committee
Mental Health Trust Authority
121 Spruce Avenue
Fairbanks, Alaska 99709-4150
POSITION STATEMENT: Discussed the Trust Asset Management
Principles.
JOHN PUGH, Trustee
Mental Health Trust Authority
1011 D Street
Juneau, Alaska 99801
POSITION STATEMENT: Discussed the budget and budget
recommendations.
KAY BURROWS, Trustee
Mental Health Trust Authority
2711 West 84 Avenue
Anchorage, Alaska 99502
POSITION STATEMENT: Discussed the planning aspects.
EVELYN TUCKER, Trustee
Mental Health Trust Authority
112 Beaufort Circle
Anchorage, Alaska 99515
POSITION STATEMENT: Discussed two of the five areas of focus
regarding planning.
DIANE BARRANS, Executive Director
Alaska Commission on Postsecondary Education
3030 Vintage Boulevard
Juneau, Alaska 99801-7109
POSITION STATEMENT: Discussed the reorganization resulting from
EO 97.
ERIC FORRER
176 Behrends Avenue
Juneau, Alaska
POSITION STATEMENT: Supported EO 97.
MARY JANE FATE
750 Farmer's Loop Road
Fairbanks, Alaska 99712
POSITION STATEMENT: In general, supported EO 97.
PAGE ADAMS, Student Commissioner
Alaska Commission on Postsecondary Education
POSITION STATEMENT: Requested that a student member remain on the
board.
TERESA WILLIAMS, Assistant Attorney General
Fair Business Practices Section
Department of Law
1031 W 4th Avenue, Suite 200
Anchorage, Alaska 99501-1994
POSITION STATEMENT: Discussed the constitutionality of having
legislative members on a regulation-setting
board.
ACTION NARRATIVE
TAPE 96-2, SIDE A
Number 003
REPRESENTATIVE CON BUNDE called the Joint House & Senate Health,
Education and Social Services (HESS) Committee to order at 3:06
p.m. He announced that the overview of the Mental Health Program
and Planning from the Mental Health Trust Authority would be the
first order of business.
NELSON PAGE, Chair of the Mental Health Board of Trustees,
introduced the entire Board of Trustees of the Mental Health Trust
Authority. In 1994, the legislature unanimously passed legislation
which resulted in a settlement of the lawsuit. That lawsuit had
tied up over a million acres of Alaska's land as well as impacting
other millions of acres of Alaska's land. The lawsuit claimed that
Alaska had not acted as a suitable trustee for the beneficiaries of
the Mental Health Trust. The Alaska Supreme Court agreed and
ordered the million acres given to the Trust in the early 1950s to
be reconveyed back to the Trust. However, much of that land had
been conveyed to private parties, municipal and local governments,
etc. Mr. Page emphasized that reconveying that land back to the
Trust was an incredible disruption to the development of Alaska as
well as the planning and coordination of a mental health program to
meet the needs of Alaskans. This litigation was costing Alaska
millions. The settlement in 1994 was approximately the fourth
settlement.
Number 104
Mr. Page stated that there were some key components to the
settlement. The most important key components are as follows:
(1) The beneficiaries gave up the right to hold hostage
Alaska land. Those and other compensatory lands were
placed in Trust. Those lands are currently managed in
Trust by the Mental Health Beneficiaries. The income
from that land is used to fund mental health programs.
(2) $200 million was placed in a trust to be managed by the
Permanent Fund Dividend Corporation. The spending of the
income from that trust is determined by the Trust
Authority.
(3) The Trust Authority would make funding recommendations to
the legislature and to the administration. The
recommendations were considered as a whole, therefore the
mental health funding would be a single appropriation
bill.
(4) The Trust Authority would have an active role in working
with DHSS in attempting to ensure a comprehensive,
integrated mental health plan. This would allow more
efficiency.
Number 160
Mr. Page reminded the committee that the Trust Authority had been
appointed in March 1995. The Trust Authority wants to encourage
innovative methods of growth to join all the mental health programs
in the state together to form one program. In conclusion, Mr. Page
noted one other goal of the Trust Authority - to avoid reinstating
litigation. However, he did recognize that the settlement is
currently on appeal and the Alaska Supreme Court could choose not
to approve the settlement of the past nine months.
The presence of John Malone, Mental Health Trust Authority Trustee,
was noted.
Number 222
TOM HAWKINS, Co-Chair of the Finance Committee of the Mental Health
Trust Authority, informed the committee that he would be speaking
to the land and mineral base of the Trust. There is approximately
a million acres of which half is fee estate, 340 acres is mineral
estate, and 108,000 is oil and gas interests. A special unit
within the Department of Natural Resources(DNR) manages the land.
This special unit works for the Commissioner of DNR, but reports
and consults with the Trust Authority on matters requiring public
notice or action. In the first year, the unit earned roughly
$100,000 more than it cost to run the first six months of the
program. Mr. Hawkins projected that the Trust Land Unit revenues
for 1996 would be about $1 million with expenses of about $700,000
a year. The unit contains four permanent employees with contracts
and temporary employees as needed. One and a half million in
revenue is projected for 1998 with about the same operating
expenses, $700,000. Mr. Hawkins noted that the Trust Authority
contracts with DNR for that management and reports to the Trust
Authority regularly. He referred the committee to page 9 of the
handout, where the organization of the Trust Land Management is
outlined.
The management mission of the Trust Land Unit is to generate
revenues for the Trust, maintain and improve the land and resource
base, and continue support of these efforts by the beneficiaries.
The unit works under DNR's Title 38, unless the provisions are not
consistent with the Mental Health Enabling Act. Mr. Hawkins
communicated that regulations would be written in order to address
the inconsistencies with Title 38.
Number 258
Mr. Hawkins informed the committee that the Mental Health Trust
Authority had received its first conveyance, a 26 acre parcel. Of
the Trust lands, approximately 150,000 acres are valuable for
timber. There has been one timber sale and another is scheduled.
Mr. Hawkins felt that timber would be an important revenue source
for the Trust in the early years. The Trust has participated in
the Cook Inlet re-offer. Three parcels were leased for oil and gas
development; 25,000 acres will be offered for lease and sale in an
upcoming sale. Mr. Hawkins also mentioned the renewed interest in
coal development in the Mat-Su valley. Furthermore, the Trust sold
25 lots during a recent DNR land sale. Mr. Hawkins explained that
the first million acres selected in Alaska were selected by the
Mental Health Program, of which many are valuable commercial
properties.
Number 303
Mr. Hawkins discussed the interest that the Fort Knox project has
created in areas adjacent to the existing mineral activity. The
Trust manages approximately 2,400 mining claims across the state
which is a portion of the valid existing rights and contracts. The
Trust Land Unit has been actively meeting the neighbors. An
important part of being effective managers is being good neighbors.
He noted that the Trust has attempted to enlist the beneficiary
community throughout the state as stewards in order to identify
opportunities.
Mr. Hawkins acknowledged that projecting the costs and revenues of
the Trust Land Unit is difficult. Reconciling regulations with
Title 38 would be challenging. The Trust wants to be small,
credible and easy to do business with while having a fair return
for the beneficiaries.
Number 352
NELSON PAGE commented that Alaska administered the Mental Health
Trust lands before the settlement of this lawsuit. At that time,
the administrative costs were substantially more than the income
being generated by those lands. As the handout illustrates, the
Trust, in its first year, generated more revenue from those lands
than the administrative costs. Mr. Page predicted that the
increase in revenue would continue over the upcoming years.
REPRESENTATIVE BRICE asked if the Trust's lands were treated as
state or private lands. NELSON PAGE explained that generally, the
lands are managed under Alaska's land regulations. The Trust is
required by the settlement legislation to create regulations on how
the land will be administered within the Trust Land Unit. The
legislation specifies that in areas where the state regulations
pose a violation to the trustees responsibility as fiduciaries, the
trustees can go outside of the state regulations. REPRESENTATIVE
BRICE suggested that the Trust would have more freedom to develop
lands than would the state.
Number 375
PHIL YOUNKER, Co-Chair of the Finance Committee of the Mental
Health Trust Authority, explained that in December $200 million,
the Trust Corpus of the settlement, was transferred to the
Department of Revenue from the state. The Trust Authority as
required by the settlement, invested the $200 million in the
Permanent Fund Corporation. The trustees reviewed the inflation
scenario for this investment from the initial transfer in December
until the transfer to the PFD Corporation. The trustees decided to
inflation proof that portion of the funds and therefore,
transferred an additional $3.5 million to the PFD Corporation. The
Trust's funds are a portion of the general assets of the PFD
Corporation.
Mr. Younker pointed out that the other account established under
the settlement is the Income Account. The Trust uses the Income
Account to disperse funds and pay bills. The sources of funds for
the Income Account are transfers from the net income of the PFD
account, transfers from DNR of the land income, and the interest
earned from the account with DNR. The funds from the Income
Account are spent on beneficiaries for both operating and capital
needs. He noted that the recommendations come from the four sub-
advisory boards. The Income Account is also used for the operating
expenses for the Trust and DNR Lands Unit. Mr. Younker pointed out
that there are no state funds used to fund the Trust's operations.
Mr. Younker explained that after review of the allocation strategy
and the risk level of the PFD, the Trust uses a three to four
percent real growth rate with a seven or eight percent nominal
growth rate. The Trust uses estimations of three and a half
percent inflation. With those scenarios as well as a trust
dispersement payout rate of approximately three percent, the Trust
anticipates contributing $72 million over the next ten years. Mr.
Younker indicated that the contribution could be higher depending
upon land sales as well as the performance of the PFD investment.
The value of the principal in ten years is estimated at
$313,454,996; the inflation adjusted principal is estimated at
$222,214,144. Therefore, a one percent real growth in the funds is
expected in that ten year period. Mr. Younker noted that there is
a margin of error encompassed in that growth estimate.
Number 432
REPRESENTATIVE ROKEBERG asked if inflation proofing was the
judgement of the Board of Trustees or legislatively mandated.
NELSON PAGE replied a bit of both, the legislation specifies that
the Trust must protect the Corpus of the trust and the fund shall
remain in perpetuity. The Trust Authority interprets that as
meaning that the spending power of the Trust Fund should not be
eroded over time which means inflation proofing.
REPRESENTATIVE ROKEBERG asked if the budget projection of $3.5
million for inflation proofing dovetailed with the assumed
inflation of 3.5 percent. PHIL YOUNKER said no. The $3.5 million
was inflation proofing for December of 1994 to July of 1995; the
actual inflation from the CPI during that time was used to
inflation proof. The current inflation proofing is close to that.
The future of the 3.5 percent is drawn from the PFD's monthly
reports of future inflation.
REPRESENTATIVE ROKEBERG indicated that the amount seemed high based
on the actual CPI numbers and asked if the adjustment was from
actual CPI numbers from the PFD. PHIL YOUNKER said those numbers
were used to prepare the original inflation proofing. Mr. Younker
explained that the Trust Authority reviewed inflation which ran
from 2.9 percent to 3.5 percent annually. Take the $200 million
and cut the inflation rate in half for the six months, the
inflation was about 3.5 percent.
REPRESENTATIVE ROKEBERG felt that the margin of 1.5 percent in the
Trust's assumptions seem high. PHIL YOUNKER explained that the
Trust was looking forward 10 years and would rather be on the
conservative rather than the aggressive side. The market has risen
substantially in the six month period so that has become the margin
of safety. The Trust Authority is aiming for a payout rate of
three percent. The 1.5 percent is the margin of error.
Number 478
JOHN PUGH, Mental Health Trust Authority Trustee, reminded the
committee that in A of Section 47.30.O46, Budget Recommendations
and Reports, the Board is required to submit a budget and a
proposed plan of implementation for the next year. He explained
that this year's proposed budget was arrived at after review of the
budget proposals from the four boards. Those boards are the
Commission on Aging, the Alaska Mental Health Board, the Governor's
Council on Disabilities and Special Education, and the Alcohol and
Drug Abuse Board. The top priorities of those boards totalled more
than $20 million. The Trust Authority adopted a budget with $4.9
million in additional increments to the base of last year.
Mr. Pugh explained that after review the Trust Authority could
utilize $1.9 million of the trust income within the operating
budget and an additional $2 million within the capital budget. In
order to give the committee an idea of the critical issues the
Trust Authority faced, Mr. Pugh discussed the priorities of that
funding. The first issue was the closure of Harborview
Developmental Center. The Board supported the closure of
Harborview and the movement of those individuals into community
services. The Trust Authority provided income funding to help with
the transfer. In negotiations with DNR, the Trust Authority
decided to use $1 million of its income in Harborview and use the
general fund dollars for community services. The total Trust
income is $1.695 million which will be present in the Harborview
budget while the general fund dollars from Harborview will be
transferred to the service delivery system. Harborview is the top
expenditure from the operating budget of the trust income.
Mr. Pugh pointed out that the Trust Authority also reviewed
outcome-oriented programs in their review of the budget. The Trust
Authority also discovered that the data collection systems are
lacking within the department. Therefore, the Trust Authority
agreed to utilize trust income to develop better data collection
systems in order to ease the future planning and budget processes.
Mr. Pugh reiterated that the Trust Authority decreased the board's
budget down to $4.9 million, while the Governor further decreased
the budget. The majority of the increase in the Department of
Health & Social Services will be the income dollars from the Trust
Authority. There are differences between the Trust Authority's
recommendations and the actual budget. The Trust Authority did not
receive the full funding that it recommended, there was additional
funding necessary for salary maintenance of effort for state
employees, and additional savings with Harborview. According to
the Trust Authority, the $585,000 Harborview reduction should be
transferred to the community system.
Number 569
SENATOR GREEN inquired as to how many people would be involved in
the transfer of Harborview. Eight individuals will be involved
from the developmentally disabled group and 15 in the Sourdough
Unit. This year's funding was based on between eight and 12
individuals. JOHN PUGH agreed that part of that funding would be
present in the budget under community services. Some of the
funding is partial year funding.
REPRESENTATIVE G. DAVIS asked if the Trust Authority was reviewing
a contract to determine what system to use since many other
departments review the same information. Representative G. Davis
hoped that true integration would occur. JOHN PUGH pointed out
that the Commissioner of DHSS is beginning a data integration in
the department which has been in progress for six months. The
Trust Authority would like to contribute to that integration of
data within and across the department with trust income.
TAPE 96-2, SIDE B
Number 586
SENATOR GREEN asked if the Trust Authority had experienced any
conflicts due to the diverse group of people addressing the issue
of development. Furthermore, is the Trust Authority established in
order to accumulate more properties? TOM PUGH explained that the
Trust Authority has a fiduciary responsibility to develop land in
order to create income. At the same time, the Trust Authority must
take care and recognize who their neighbors are. For example, the
Trust Authority has an important property in Juneau, the subport
parking lot.
NELSON PAGE commented that the Trust Authority is interested in
upgrading their portfolio, however not much progress has been made
yet. The Trust Authority is also reviewing its charitable
contribution, giving and grant program. Mr. Page also noted
interest in upgrading the Trust Authority's land.
KAY BURROWS, Mental Health Trust Authority Trustee, stated that the
Trust Authority is working with DHSS on a comprehensive Mental
Health program. Such a program would cross all beneficiary groups
and programs in order to achieve more integration and streamlined
actions. The Trust Authority's goal is to streamline the
appropriation procedure.
Ms. Burrows pointed out that next year the Trust Authority would be
focusing on five major areas of change. The first area of focus
would be an integrated planning and budgeting process in order that
planning drives budgeting and funding priorities. The second area
of focus would be a unified vision for all the beneficiaries. The
third area of focus would be the consideration of service delivery
across beneficiary groups. The planning boards, the departments
and divisions support this integrated vision. The private sector
is also being utilized to achieve integration.
Number 502
EVELYN TUCKER, Mental Health Trust Authority Trustee, informed the
committee that the Trust Authority had been frustrated with the
type and quality of the data. The data made comparisons across
beneficiary groups difficult. Difficulty was also present in the
evaluation of efficiencies. Ms. Tucker said that for those and
other reasons the Trust Authority adopted an outcome-oriented
planning process. The department agrees with this process. The
outcomes being discussed will be functional outcomes. The Trust
Authority will be reviewing how the services benefit the clients.
Stability, ability to live in a community, safety, security,
community and family connections, and employment are the various
outcomes being reviewed. The goal is to link outcomes, services,
and costs. Ms. Tucker indicated her preference to review this in
a per unit of service manner, but per beneficiary per year would be
useful. She believed that when services are planned and paid for
in this manner, data would be collected in this way as well. Ms.
Tucker stated that next year's budget would not be entirely outcome
based.
CO-CHAIR BUNDE thanked everyone and took a moment to reorganize and
distribute information regarding the next order of business.
Number 466
EO 97 TRANSFER FUNCTIONS OF THE ALASKA COMM. ON POSTSECONDARY ED.
CO-CHAIR BUNDE introduced EO 97 as the next order of business
before the joint committee.
DIANE BARRANS, Executive Director of the Alaska Commission on
Postsecondary Education, explained that the mission of the
commission was substantially altered in 1986 due to a change in the
tax code. That change allowed states to fund programs through the
sale of tax exempt bonds. Therefore, when this funding mechanism
was adopted the legislature changed the nature of the business with
which the commission was charged. Ms. Barrans pointed out that now
in addition to serving Alaskans, the mission had legal and
financial obligations to the bondholders from whom money is
borrowed to lend students. When the legislature moved the program
from annual direct appropriations to commercially financed loans,
the millennium plan was put in place. The millennium plan required
an annual general fund appropriation to the program in order to
offset expenses until the year 2003. In the year 2003 the program
would have the ability to revolve due to the annual infusion of
dollars. The annual infusion was altered five years ago due to the
interruption of the millennium plan. Ms. Barrans stated that no
other plan was suggested or substituted until early last year when
Dr. Joe McCormick consolidated the two existing boards which would
administer the agency's financial and operational components. Dr.
McCormick's idea is encompassed in EO 97.
Number 430
Ms. Barrans reviewed the resulting reorganization necessitated in
EO 97. Firstly, sections 3-6 of the EO would necessitate the
movement of higher planning and policy functions to the Department
of Education(DOE). Secondly, sections 7 and 9 of the EO would move
the Alaska Student Loan Corporation from DOE to the Department of
Revenue; the corporation would be renamed the Alaska Student Aid
Corporation and the commission staff would become the corporation's
staff. The move to the Department of Revenue would strengthen its
relationship with the commission as well as utilizing the
professional resources in Revenue. This would address one of the
concerns of AMBAC, an insuring agency. AMBAC was concerned that in
the beginning the commission had not been as financially focused as
necessary. AMBAC views EO 97 as a positive move.
Section 8 of EO 97 would expand the corporation board membership
from five to seven. The board would consist of the Commissioners
of Administration and Revenue, a representative of the Department
of Education, and four governor appointed public members. The
administrative advantages of this smaller board are apparent. Ms.
Barrans noted that this change would also eliminate the
constitutional issue of having legislative members sitting on a
regulation-setting board. Sections 10-76 would move the Financial
Aid Program Administration and institutional authorization
functions to the corporation. Sections 77-84 are technical changes
which would allow the Corporation to be fully operational by the
effective date. In conclusion, Ms. Barrans referred the committee
to the other attachments from Teresa Williams, the Assistant
Attorney General, and Kenneth Vasser, bond council to the
corporation since its creation in 1988.
Number 362
REPRESENTATIVE MARTIN explained that EO 97 was brought to the
attention of the Finance Committee when DOE's budget showed that
Postsecondary Education would move to the Department of Revenue and
DOE would lose $9 million. However, there is no additional $9
million in the Department of Revenue's budget. Representative
Martin noted that he had given the committee copies of the
expenditure breakdown. The Department of Revenue seemed surprised
about the $9 million. He wondered if EO 97 would create a
corporation in the Department of Revenue similar to the Alaska
Railroad Corporation. Representative Martin relayed that the
university had not seen the EO and was not aware of how that would
impact them. He felt that this would be a great opportunity for
clean-up. For years there has been discussion of Postsecondary
Education's duplication of efforts as well as laws that are no
longer applicable. Who is actually responsible for this
corporation? The Department of Revenue would be put in limbo if
they receive the corporation without having anything to do with it.
SENATOR SALO inquired as to how much Ms. Barrans foresaw the
function of the Postsecondary Commission changing with its move to
the Department of Revenue? In the past, the Postsecondary
Commission did more than the financial management of the
commission. DIANE BARRANS predicted that the function of the
agency would not change. The institutional authorization component
would remain with the agency. Ms. Barrans clarified that currently
the commission receives almost no income revenue from that
activity.
CO-CHAIR BUNDE asked if the new make-up of the board which
eliminates special interest representation means that those
involved with education would be eliminated. DIANE BARRANS
explained that statutes currently require a proprietary school
designee on the board as well as two Regents from the University of
Alaska and at least one of those representatives must be from
either APU or Sheldon Jackson. In the past, there has been debate
over issues with regards to the Student Loan Program from which
these board members could have benefitted or suffered. The
proposed board membership would remove the tension between an
individual's personal role and their role as a policy-maker.
CO-CHAIR BUNDE asked if Ms. Barrans had relayed to the proprietary
school organization that they are considered special interest
groups which would be removed from the corporation board
membership. DIANE BARRANS said that she had not had any one-on-one
discussion regarding EO 97. However, there was discussion at the
last commission meeting with public comment as well.
CO-CHAIR BUNDE believed there should be someone on this board that
was considered special interest with an education background.
There are dentists on the Dental Board and physicians on the
Medical Board. Co-Chair Bunde invited Ms. Barrans to stay
throughout the hearing and perhaps, address the issue of
legislative members on a regulation-setting board.
Number 266
ERIC FORRER explained that he is the Chair of the Postsecondary
Education Commission, although he was not representing the
commission. The Alaska Postsecondary Loan Fund faces a fiscal
crisis. Mr. Forrer said that in order to achieve equal access to
postsecondary education opportunities for students throughout the
state, the commission sells bonds to finance the student loan
demand each year. The fund cannot be a true revolving, self-
sustaining fund due to the current statutes regarding interest rate
calculations, forgiveness provisions, repayment schedules, etc.
Therefore, the fund loses between $4 million and $9 million a year.
Mr. Forrer suggested that in a few years, the financial position of
the commission would be such that it would be unable to sell bonds.
The availability of loans would then fall below the demand and
consequentially, equal access would be lost.
It is about two years before financial changes to the student loan
program are evident because of the cyclical nature of student loans
and the inability to impose new conditions retroactively. Mr.
Forrer emphasized that there is a limited amount of time, just this
session, to impose changes to save the Alaska Student Loan Program
as a means to equal access to education. Currently, the
Postsecondary Commission does not perform any of the functions for
which it was created. Mr. Forrer pointed out that the statutory
function of oversight of the university's budget would face a
constitutionality challenge by the Board of Regents if attempted.
Many functions of the commission were responsive to federal
mandates that no longer exist and other functions have simply
become outdated.
Mr. Forrer supported EO 97. He commented that there is controversy
around the loan fund and the rules by which it is managed. This
controversy can be linked to the special interests which have
placed themselves around the fund. Mr. Forrer stated that Alaska
is not responsible to ensure the existence or continuance of any
privately owned school. However, the state is responsible in the
insurance of the massive loan fund investment and the availability
of future funds to students. If the structural and management
changes contained in EO 97 are not made in this session, Alaska's
largest investment in the future would be in jeopardy. Mr. Forrer
pointed out that many private schools would fare far worse in the
long run if their lobbying pressure prevents strict management now.
Mr. Forrer emphasized that failure now would call for a new set of
rules to determine who receives education loans and who does not.
This would result in the loss of open access to education. The
loan fund managers should be given the tools they need.
CO-CHAIR BUNDE asked Mr. Forrer if he felt that the loan fund would
be in less jeopardy if SB 123, from last session, was in effect
today. ERIC FORRER agreed that the fund would be in less jeopardy,
however the entire problem would not be solved. Mr. Forrer said
that he still supported SB 123.
Number 199
CO-CHAIR BUNDE asked if privatization of the fund would achieve
more efficiency while continuing the move toward emphasizing the
financial aspects over the social aspects of the fund. ERIC FORRER
stated that privatization of the fund has been addressed
extensively, but privatization has been abandoned as a workable
idea. Perhaps, the main reason for that abandonment is that there
is no buyer. There is no prospect of profit under the existing
rules. Mr. Forrer pointed out that the borrowers of the Student
Loan Fund do not have credit ratings or collateral. Such onerous
conditions would be present if a private entity tried to make loans
to that group; access to education would be lost. Mr. Forrer noted
that as the commission was considering privatization, the federal
government was moving away from privatization.
Number 173
CO-CHAIR BUNDE noted that the problem facing the fund is the
default rate which would never be fully solved because that would
mean privatization which would eliminate the social aspect of the
fund. He asked if Mr. Forrer favored consolidation, but felt that
SB 123 would be necessary in order to be viable. ERIC FORRER
replied yes, he was in favor of both pieces. The social aspects of
the commission would not be lost, those portions would be
reassigned to DOE and other places that may be more appropriate.
SENATOR LEMAN inquired as to Mr. Forrer's preference between the
Senate's version of SB 123 or the House's version. ERIC FORRER
said that he was supporting the notion in general - giving the fund
managers better tools. Mr. Forrer had been prepared to happily
receive the compromise. The tiny details are not of major impact.
CO-CHAIR BUNDE pointed out that one of the tiny details was the
notion of using student loan corporation funds to lend to prisoners
which posed a major stumbling block for some. Would that
constitute a tiny detail? ERIC FORRER said yes. There is not a
high loss associated with that. Such a detail is not enough of an
obstruction over which to lose this investment.
SENATOR LEMAN asserted that some of the biggest losses of the $9
million is from the University of Alaska instead of some of the
schools being sought. All of those who default should be sought in
some manner.
Number 112
REPRESENTATIVE C. ROBINSON said that the Senate needs to appoint
their Conference Committee members in order to receive a decision.
REPRESENTATIVE ROKEBERG asked if the Commission had been able to
receive sufficient statistical data in order to identify private
schools inside and outside the state and their levels of default.
ERIC FORRER said that as Chairman of the Commission, the answer has
been no. That is changing; there is a push towards good numbers
from a good computer base.
MARY JANE FATE, testifying from Fairbanks, supported EO 97 in
general. She informed the committee that she is a member of the
Alaska Commission on Postsecondary Education as well as a member of
the University of Alaska Board of Regents. However, she is
testifying today as an individual. Ms. Fate expressed concern with
Section 4 of EO 97 regarding the budget review. The Board of
Regents is a policy-making board. She said that she was in favor
of EO 97 even without viewing any regulations or mandates. She
supported saving state money as well as administrative efficiency.
Ms. Fate expressed concern with the designated members of the board
under EO 97; would there be enough input from the public? She was
also concerned about the best interest of the students as well as
the protection of the assets. Protection of the assets would mean
collection and fairness to all student loan recipients.
CO-CHAIR BUNDE reiterated his concerns with the make-up of the
board. The board could become a governor's rubberstamp if he so
chose. Education does not seem to be represented on the board as
detailed by EO 97.
TAPE 96-3, SIDE A
Number 002
PAGE ADAMS, Student Commissioner for the Alaska Commission of
Postsecondary Education, requested that the student seat on the
commission remain. The Coalition of Student Leaders and the
University of Alaska are concerned that the social aspects of the
loan could change course and their input would be lost.
CO-CHAIR BUNDE asked Ms. Adams if she supported EO 97 if one of the
public designated board members was designated to be filled by a
student. PAGE ADAMS said yes.
TERESA WILLIAMS, Assistant Attorney General, explained that under
Alaska's Constitution the governor has the power to appoint all
members of boards and commissions which have regulatory or quasi-
judicial agencies. The situation would be different if the agency
in question was merely an advisory board. Therefore, Ms. Williams
stated that every member of the board should be appointed by the
governor. Presently, only seven of the 14 members are appointed by
the governor which is a violation of Alaska's constitution. Ms.
Williams pointed out that the two legislative members of the board
are a violation of the concept of the separation of the different
branches of government. The make-up of the new board under EO 97
would be constitutional.
Ms. Williams explained that an EO is not allowed to change the
substance of the law. Therefore, functions that no longer exist
must be moved. Although the Commission does not oversee the budget
of the University of Alaska, the presence of such a statutory
provision requires that it be moved somewhere. Ms. Williams also
mentioned that a number of provisions mandated by federal law are
no longer in effect. The revisor of statutes has been alerted to
note in the next version of the statutes that the federal
provisions have been repealed. Furthermore, there are many
provisions referring to consortia, but there are no consortia. The
mere existence of the provisions require that they be moved even if
they do not exist. The advisory functions were the only thing left
to be moved to DOE. In conclusion, Ms. Williams noted the presence
of the Chair of the Alaska Student Loan Corporation, Mark Begich
and other members of the Commission, Scott Sterling and Rosa
Foster.
Number 105
CO-CHAIR BUNDE asked if having all the members appointed to the
proposed new corporation subject to legislative confirmation would
be constitutional. TERESA WILLIAMS did not know.
CO-CHAIR BUNDE asked if Ms. Williams could see his concern that
this board could be a rubberstamp commission for the governor.
TERESA WILLIAMS reiterated that the Commission is part of the
executive branch which the governor oversees. All commissions have
appointments made by the governor.
CO-CHAIR BUNDE noted that commissioners are subject to legislative
confirmation. He asked Ms. Barrans to return to the table.
REPRESENTATIVE ROKEBERG asked if the EO could be modified in any
way. CO-CHAIR BUNDE acknowledged that cooperation could be asked.
Number 144
CO-CHAIR BUNDE stated that one of the main problems with the
Student Loan Corporation is the default rate. The student loan
fund would have been in jeopardy if it had continued without change
from the position it was five years ago. Has there been recent
progress with regard to the default rate? He asked Ms. Barrans how
she predicted the program would fare if it remains the same in the
future.
DIANE BARRANS believed that there had been progress. Recently
there has been a decrease in the aging changes due to the change to
monthly billing statements rather than coupon books. Due diligence
efforts have been increased above the minimum standards. Borrowers
are being contacted earlier and more often. The level of expertise
and attention from the management group to the due diligence group
has been increased. Ms. Barrans believed that there have been a
number of changes, however that impact levels over time; this
leveling-out point has been reached. Ms. Barrans projected that
the default rate for December of 1995 would be down to 18 percent.
That percentage is still unacceptably high, but it is lower than
the 26.7 percent default rate three years ago.
In response to Co-Chair Bunde, Ms. Barrans said that the bonding
community has reacted positively. The monitor of progress is
really the feedback from the insuring agency, AMBAC. The insuring
agency continues to stress the issue that the program lends money
to students attending unaccredited schools. Another important
issue stressed by the agency is the periods of unsubsidized
interest losses to the program.
Number 190
In response to Co-Chair Bunde, Ms. Barrans explained that an
accredited college was accredited by a regional and national
accrediting agency. She agreed that unsubsidized meant that
students were allowed an interest free loan while attending school.
REPRESENTATIVE BRICE inquired as to how much of a reduction in the
default rate could be expected if EO 97 goes into effect. DIANE
BARRANS did not see any direct relationship with the EO and the
default rate. The EO does, however, send a message to the
borrowers and the financial community that Alaska views its student
loan program important. Under EO 97, borrowers will be dealing
with the Alaska Student Aid Corporation from the very beginning
which should notify borrowers that they are dealing with a credit
lending agency.
SENATOR SALO asked if the people lending the Alaska Student Loan
Program money liked the change of the grace period from one year to
six months. DIANE BARRANS said yes, but noted that the benefit of
that change probably has not been felt. In addition to that
change, the commission has expanded the authority to garnish PFDs.
Ms. Barrans explained that currently, the commission is working
with the Division of Occupational Licensing in order to suspend the
renewal of occupational licenses of individuals that have student
loan accounts in default.
Number 246
SENATOR SALO applauded the aforementioned measures, but noted that
legislators often hear from those individuals given to collection
agencies. Legislators need guidance with the manner in which they
could help these individuals. DIANE BARRANS explained that the
commission is addressing that concern by re-examining the point at
which individuals are turned over to a collection agency. There
needs to be a solid policy that utilizes all in-house opportunities
to handle such individuals before they are turned over to a
collection agency. Collection agencies are counterproductive for
everyone.
CO-CHAIR BUNDE interjected that the process towards a default being
turned over to a collection agency is a long process. DIANE
BARRANS said that borrowers are notified of their default status
for 120 days.
Number 271
SENATOR LEMAN asked if the commission had a mechanism to track
occupational licenses outside the state. He further asked if there
was any significant difference in the default rates of those who
reside in Alaska and those who do not. DIANE BARRANS said that the
commission had explored regional information sharing. However,
there are a number of legal issues surrounding the sharing of
information even within the state. In regard to default rates of
those residing outside Alaska, Ms. Barrans did not know but
believed that the data was available.
CO-CHAIR BUNDE informed the committee that individuals applying for
consumer loans are not eligible if they are in default status with
a student loan. DIANE BARRANS added that the commission would in
the next year, proactively provide default information to credit
information agencies.
CO-CHAIR BUNDE asked if EO 97 would effect the interest by the
insuring agencies to have accredited schools. DIANE BARRANS did
not believe so.
CO-CHAIR BUNDE summarized that EO 97 is an attempt for efficiency,
but it does not effect the default rate nor the bonding community's
concerns regarding accreditation.
DIANE BARRANS agreed with that summary. AMBAC saw EO 97 as a
positive move, but more response to the EO would be uncovered in
forthcoming meetings with rating representatives next month.
REPRESENTATIVE VEZEY asked if all these records would be removed
from the public domain if the commission is moved to the Department
of Revenue. DIANE BARRANS clarified that the commission's records
would be retained by the corporation. The Student Aid Corporation
is an entity separate from the state. The board of the corporation
serves as the executive officer. The Commissioner of the
Department of Revenue like the Commissioner of DOE has never been
responsible for the activity of the commission and the corporation.
The commission resides in the department for administrative
purposes.
Number 344
TERESA WILLIAMS stated that the records of the Student Aid
Corporation are public records, however there are limits as to what
can be reviewed within the records.
REPRESENTATIVE VEZEY asked if the statutes requiring privacy of
information governering the Department of Revenue would not apply
to this commission. TERESA WILLIAMS said that was correct.
REPRESENTATIVE VEZEY pointed out that when the Division of Gaming
Activity was transferred to the Department of Revenue, all the
gaming records became sealed information unavailable to the public.
TERESA WILLIAMS explained that in that case, the statutes changed
the Division of Gaming to a Division of Revenue. The Student Aid
Corporation has its own statutes that govern public records.
CO-CHAIR BUNDE asked if there was any additional testimony or
questions. There being none, the meeting adjourned at 5:05 p.m.
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