Legislature(1993 - 1994)

01/27/1993 08:00 AM House RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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               HOUSE RESOURCES STANDING COMMITTEE                              
                        January 27, 1993                                       
                            8:00 a.m.                                          
                                                                               
                                                                               
  MEMBERS PRESENT                                                              
                                                                               
  Representative Bill Williams, Chairman                                       
  Representative Bill Hudson, Vice-Chairman                                    
  Representative Con Bunde                                                     
  Representative Pat Carney                                                    
  Representative John Davies                                                   
  Representative Joe Green                                                     
  Representative Jeannette James                                               
  Representative Eldon Mulder                                                  
                                                                               
  MEMBERS ABSENT                                                               
                                                                               
  Representative David Finkelstein                                             
                                                                               
  OTHER LEGISLATORS PRESENT                                                    
                                                                               
  Representative Tom Brice                                                     
  Representative Kay Brown                                                     
  Representative Ron Larson                                                    
  Representative Harley Olberg                                                 
  Representative Brian Porter                                                  
  Representative Gene Therriault                                               
  Representative Cynthia Toohey                                                
  Representative Al Vezey                                                      
  Representative Ed Willis                                                     
                                                                               
  COMMITTEE CALENDAR                                                           
                                                                               
  Overview of Mental Health Lands Trust Settlement                             
                                                                               
  WITNESS REGISTER                                                             
                                                                               
  Charles E. Cole, Attorney General                                            
  Department of Law                                                            
  P.O. Box 110300                                                              
  Juneau, AK  99811-0300                                                       
  (907) 465-3600                                                               
  Position Statement: Gave the State's position on the Mental                  
                      Health Lands Issue                                       
                                                                               
  Ron Swanson, Director                                                        
  Division of Land                                                             
  Department of Natural Resources                                              
  P.O. Box 107005                                                              
  Anchorage, AK  99510-7005                                                    
  (907) 762-2692                                                               
  Position Statement: Explained lands affected by settlement                   
                                                                               
  Representative Kay Brown                                                     
  State Capitol, Room 517                                                      
  Juneau, Alaska  99801-1182                                                   
  (907)  465-4998                                                              
  Position Statement: Questioned whether pending settlement                    
                      included oil and gas leases                              
                                                                               
  Bruce Phelps, Project Manager                                                
  Mental Health Lands                                                          
  Department of Natural Resources                                              
  P.O. Box 107005                                                              
  Anchorage, AK  99510-7005                                                    
  (907) 762-2692                                                               
  Position Statement: Gave an overview of the settlement                       
                      agreement                                                
                                                                               
  Representative Cynthia Toohey                                                
  State Capitol, Room 104                                                      
  Juneau, Alaska  99801-1182                                                   
  (907) 465-4919                                                               
  Position Statement: Inquired about mineral development                       
                      potential                                                
                                                                               
  Tom Koester, Attorney                                                        
  229 4th Street                                                               
  Juneau, AK  99801                                                            
  (907) 463-3242                                                               
  Position Statement: Testified on legal aspects of settlement                 
                                                                               
  Representative Ron Larson                                                    
  State Capitol, Room 502                                                      
  Juneau, Alaska  99801-1182                                                   
  (907) 465-3878                                                               
  Position Statement: Supported the solution presently before                  
                      the courts                                               
                                                                               
  ACTION NARRATIVE                                                             
                                                                               
  TAPE 93-8, SIDE A                                                            
  Number 000                                                                   
                                                                               
  The House State Affairs Committee was called to order by                     
  Chairman Bill Williams at 8:03 a.m.  Members present at the                  
  call to order were Representatives Williams, Bunde, Carney,                  
  Davies, Green, James, and Mulder.  Members absent at the                     
  call to order were Representatives Hudson and Finkelstein.                   
                                                                               
  CHAIRMAN WILLIAMS announced the meeting was being                            
  teleconferenced to Anchorage and Kodiak.  He said the                        
  Department of Natural Resources (DNR) and the Department of                  
  Law would present a brief history and current status of the                  
  Mental Health Lands Trust Settlement.  He stated that a bill                 
  had been introduced in the Senate, but there would be no                     
  bill before the committee.  After the meeting, the committee                 
  would discuss any action it wanted to take on this issue, he                 
  said, and asked that questions be held until after the                       
  presentation.  He directed members to their folders for                      
  information on the Mental Health Lands Trust Settlement.                     
                                                                               
  (Chairman Williams noted for the record that Representative                  
  Hudson joined the Committee at 8:10 a.m.)                                    
                                                                               
  Number 078                                                                   
                                                                               
  CHARLES COLE, ATTORNEY GENERAL, STATE OF ALASKA, said he                     
  would like to give a history of the Mental Health Lands                      
  dispute and present some views regarding Chapter 66, how it                  
  was working and its problems.  He said his testimony would                   
  be followed by Bruce Phelps and Ron Swanson from the DNR on                  
  the implementation of Chapter 66 and problems faced.                         
                                                                               
  MR. COLE referred members to a legal opinion on the Weiss                    
  case (State v. Weiss, 706 P.2d 681 (Alaska 1985)), a copy of                 
  which was in members' folders.  He said the case provided a                  
  good basic summary of the history of the Mental Health Lands                 
  issue.                                                                       
                                                                               
  (Chairman Williams noted for the record that the committee                   
  had been joined by Representative Eldon Mulder and                           
  Representative Kay Brown.)                                                   
                                                                               
  MR. COLE continued his testimony by citing federal                           
  legislation.  In 1956, Congress enacted the Alaska Mental                    
  Health Enabling Act, as a mechanism to enable the territory                  
  of Alaska to deal with mental health problems.  Prior to                     
  that, Alaska's mental health program was unsatisfactory.                     
  The Enabling Act was a mechanism to make Alaska's mental                     
  health program consistent with mental health programs                        
  throughout the rest of the country.  Mr. Cole said Congress                  
  granted the Territory of Alaska one million acres of land in                 
  the territory, along with the proceeds of the disposition of                 
  those lands, and any income derived from the land.                           
                                                                               
  MR. COLE directed members' attention to maps showing where                   
  those one million acres were located.                                        
                                                                               
  Number 137                                                                   
                                                                               
  RON SWANSON, DIRECTOR, DIVISION OF LAND, DNR, showed the                     
  lands concentrated around major city areas.                                  
                                                                               
  MR. COLE said that under the terms of the Enabling Act the                   
  state could not establish a separate account for the                         
  proceeds of income received from those lands.  A record of                   
  trust land income was kept until 1973, he said, and a board                  
  was set up to oversee the management of those lands.                         
  Expenditures greatly exceeded the income from the lands, Mr.                 
  Cole reported.  Demands for lands from municipal and private                 
  parties in the late 1970's resulted in the passage of                        
  Chapters 181 and 182, Session Laws of Alaska 1978.  Those                    
  chapters redesignated all Alaska mental health lands as                      
  general grant lands.  The acts provided for the trust to be                  
  compensated by the payment of 1.5% of all state land                         
  revenues to a permanent trust fund.                                          
                                                                               
  MR. COLE explained the problem of this action was that                       
  Chapter 182 was subject to a legislative appropriation and                   
  the legislature did not make any appropriations.  In ensuing                 
  years, Mr. Cole said there had been many transactions in                     
  respect to the general grant lands.                                          
                                                                               
  MR.COLE summarized what had happened to those lands over the                 
  years:  1) conveyed to third parties by way of sale or other                 
  transfer, approximately 50,000 acres comprised of roughly                    
  3,162 separate parcels; 2) conveyed to municipalities,                       
  84,000 acres, consisting of 888 parcels; 3) conveyed to                      
  Native Corporations under land settlements, 36,000 acres; 4)                 
  conveyed to the University of Alaska, 3,000 acres; 5)                        
  condemnation actions, 5,000 acres; 6) leases to third                        
  parties, approximately 90,000 acres; 7) small sales, about                   
  2,000 acres; 8) mining claims, 60,000 acres; 9)                              
  legislatively designated areas, 113,000 acres in state                       
  forests and 245,000 acres in parks and wildlife refuges; 10)                 
  miscellaneous inter-agency land management agreements, about                 
  4,500 acres; and 11) a large tract of 315,000 remained in                    
  state ownership and was unencumbered.                                        
                                                                               
  NUMBER 300                                                                   
                                                                               
  MR. SWANSON showed the committee areas on the map indicating                 
  state-owned lands, legislatively-designated lands,                           
  encumbered lands, and state forests.                                         
                                                                               
  MR. COLE asked Mr. Swanson to point out the legislatively-                   
  designated areas that were part of the original trust lands.                 
                                                                               
                                                                               
  MR. SWANSON also pointed out lands with no encumbrances.                     
                                                                               
  Number 310                                                                   
                                                                               
  (Chairman Williams noted for the record that Representative                  
  Hudson had joined the meeting.)                                              
                                                                               
  MR. COLE described for the committee the facts surrounding                   
  the 1978 litigation designating the mental health lands as                   
  general grant lands.  He said that in November 1982, there                   
  was a suit filed by a class of plaintiffs alleging the state                 
  had breached its trust obligations under the 1956 Alaska                     
  Mental Health Lands Enabling Act.  He said there was too                     
  much detail to go into before the committee, and promised to                 
  furnish a ten-page handout describing that suit.                             
                                                                               
  MR. COLE referred to the court opinion on the Weiss case,                    
  page 684, where the Supreme Court said, "It follows from our                 
  conclusion that the redesignated legislation is invalid;                     
  that the trust must be reconstituted to match as nearly as                   
  possible the holdings which comprised the trust when the                     
  1978 law became effective."  The opinion continued to say                    
  that the case was remanded so requisite findings could be                    
  made.  The opinion said lands must be returned to their                      
  former trust status.  In the case of lands which had been                    
  exchanged, properties involving identified mental health                     
  lands would also be included in the trust.  For former                       
  mental health lands that had been sold, the trust must be                    
  reimbursed for the fair market value at the time of sale, he                 
  said.                                                                        
                                                                               
  Number 385                                                                   
                                                                               
  MR. COLE described the system established to calculate the                   
  total amount owed, including a set-off granted for mental                    
  health expenditures during the same time period.  In the                     
  event the expenditures exceeded the value of the lands sold,                 
  the state need not furnish cash as a part of the                             
  reconstitution.  Mr. Cole said the goal of the court was to                  
  restore the trust to its position just prior to the                          
  conveyance effected by the redesignated legislation.                         
                                                                               
  MR. COLE equated the court's decision with a directive to                    
  "put Humpty Dumpty back together again."  He then described                  
  some of the problems faced by the state as a result of the                   
  court decision.  Referring to information in committee                       
  members' folders, he summarized the state's obligations.                     
  The state would have to return to the trust the 3,162                        
  parcels of land comprising 50,000 acres that had been sold                   
  to third parties.  Mr. Cole said that as he read the                         
  opinion, the state would have to take back the land from the                 
  people who own and occupy the parcels.                                       
                                                                               
  Number 400                                                                   
                                                                               
  MR. COLE said the 888 parcels conveyed to municipalities                     
  would also have to be taken back and put into the trust, as                  
  well as the acres leased to third parties, legislatively-                    
  designated areas (state forests, parks and wildlife                          
  refuges).  Mr. Cole said there were also other problems                      
  resulting from the Weiss decision.  He directed the members'                 
  attention to page 684, the last paragraph, which says the                    
  trust must be reimbursed for the fair market value at the                    
  time of sale for former mental health lands that had been                    
  sold since the date of the conveyance.  Mr. Cole said there                  
  was considerable dispute among the parties over what was                     
  meant by the term "sale."                                                    
                                                                               
  MR. COLE identified areas of the court decision's language                   
  that were vaguely defined and how the interpretations led to                 
  disputes over how to implement the court decision.  He said                  
  the court did not give the state guidance in how to proceed.                 
                                                                               
                                                                               
  Number 478                                                                   
                                                                               
  MR. COLE referred again to Chapter 66, and pointed out that                  
  the set-off of mental health expenditures would be asserted                  
  in another round of negotiations.  Approximately one billion                 
  dollars was at stake, he said.  Referring to Chapter 48,                     
  Session Laws of Alaska 1987, Mr. Cole said that legislation                  
  provided for a four-step settlement.  Under that settlement,                 
  the first step would be for the Commissioner of the DNR to                   
  value the original one million acre land grant, effective as                 
  of September, 1987.                                                          
                                                                               
  MR. COLE added that in step two, the original lands would be                 
  exchanged for lands within legislatively-designated areas of                 
  equal value, which would then comprise the reconstituted                     
  Mental Health Lands Trust corpus.  Third, the state would                    
  then rent the reconstituted corpus for eight percent of its                  
  fair market value annually, adjusted after every five years.                 
  And fourth, pending the conclusion of the valuation and                      
  exchange process, the state would pay five percent of                        
  unrestricted general fund revenues as a transitional                         
  measure.                                                                     
                                                                               
  MR. COLE said that process had been underway, but stalled                    
  when no agreement could be reached on the value of the                       
  lands.  The DNR's Commissioner proposed procedures that                      
  produced a value of $574 million.  The commission set up                     
  under Chapter 48 came up with a value of $2.243 billion.                     
  The Commissioner then declared an impasse and said the                       
  legislature would need to look at the issue.                                 
                                                                               
  MR. COLE reported that the 1990 Legislature tried to resolve                 
  the impasse by enacting an alternative resolution mechanism                  
  not predicated on the valuation of the lands.  In Chapter                    
  210, Alaska Session Laws 1990, all lands that were in                        
  legislatively-designated areas as of September 1987, were                    
  exchanged for the original Mental Health lands not in                        
  legislatively-designated areas.  The state would then rent                   
  those lands from the trust for six percent of the                            
  unrestricted general fund revenues, plus all incidental                      
  revenues received from those lands.                                          
                                                                               
  MR. COLE said following that legislative action, there was                   
  another round of litigation.  He referred again to Chapter                   
  66, and said the injunctions arising from the litigation                     
  effectively froze any transactions.  The state gave up its                   
  claim for the expenditure set-off, Mr. Cole said, which was                  
  a massive concession.                                                        
                                                                               
  Number 532                                                                   
                                                                               
  MR. COLE continued to address Chapter 66, and said the next                  
  major point was to reconstitute the trust by putting back                    
  into the trust the unencumbered state lands, approximately                   
  315,000 acres.  Then the original trust lands would be                       
  replaced as nearly as practical with lands of comparable                     
  character and value.  This plan, Mr. Cole said was intended                  
  to cause as little disruption as possible to comply with the                 
  Weiss decision.                                                              
                                                                               
  Number 571                                                                   
                                                                               
  MR. COLE reported that a Mental Health Authority had been                    
  set up, and that six percent of general revenues would phase                 
  down over a period of years.  He acknowledged a recognized                   
  desire that the lands generate income.  Mr. Cole cited                       
  objections by environmental interests who opposed income-                    
  generating land use.  Those parties, he said, would rather                   
  see the trust reconstituted by the payment of money.                         
                                                                               
  Number 610                                                                   
                                                                               
  MR. COLE also made reference to the interests of the oil                     
  companies, including Marathon, who had concerns over the so-                 
  called hypothecated lands.  The plaintiffs in the settlement                 
  negotiations said the state never lived up to its                            
  obligations with respect to the Mental Health Lands, and the                 
  plaintiffs requested security for the performance of the                     
  state's obligations under Chapter 66.                                        
                                                                               
  MR. COLE questioned the need for security when there was                     
  legislation directing the DNR's Commissioner to perform the                  
  required acts, and also provisions for the courts to order                   
  that the obligations be met.  Those arguments, Mr. Cole                      
  said, did not prevail.  As a concession, the state agreed to                 
  give some lands as security for the performance of the                       
  state's obligations.  Those were the "mortgaged," or                         
  hypothecated lands.                                                          
                                                                               
  MR. COLE told the committee there was no way those lands                     
  would be foreclosed as security because the DNR was under                    
  statutory obligation and court order to perform its duties.                  
  He then referred to ongoing litigation in Fairbanks and                      
  lengthy negotiations that resulted in a settlement                           
  agreement.  The agreement was presented to the court in                      
  Fairbanks, and was now under advisement.                                     
                                                                               
  Number 667                                                                   
                                                                               
  MR. COLE said that in his opinion Chapter 66 was working in                  
  spite of being embroiled in litigation.  He discussed the                    
  alternatives available, which included:  1) compliance with                  
  the mandate in the Weiss decision, (the administration's                     
  position); and, 2) putting back into the trust the land that                 
  could easily be put back (315,000 acres plus legislatively-                  
  designated lands) with the balance compensated in money.  He                 
  clarified that Chapter 66 did not do away with the                           
  legislature's power to make annual appropriations for the                    
  mental health lands program.  He called Chapter 66 a                         
  "mechanism" to deal with the trust lands problem.                            
                                                                               
  TAPE 93-8, SIDE B                                                            
  Number 000                                                                   
                                                                               
  MR. COLE defined the third alternative as dedication of a                    
  certain percentage of general revenues to the mental health                  
  programs.  He believed it could be done, but he thought it                   
  was a poor settlement for the problems created by the Weiss                  
  litigation.  Six percent, he said, was too much.  At present                 
  that percent of unrestricted state revenues was about $143                   
  million.  If state revenues increased, up to $200 million or                 
  more could be required to be spent on the mental health                      
  programs.  It would be more appropriate, he said, to have                    
  the legislature retain the power to deal with the mental                     
  health program as it saw fit.                                                
                                                                               
  MR. COLE referred to potential constitutional problems with                  
  dedicated funding, as well as potential conflicts with                       
  moving state funding out of other programs to meet the six                   
  percent spending amount for mental health programs.  With                    
  that, he concluded his presentation.                                         
                                                                               
  NUMBER 075                                                                   
                                                                               
  CHAIRMAN WILLIAMS noted for the record that the committee                    
  had been joined by Representative Vezey.  He then announced                  
  the committee would spend the remaining hour hearing from                    
  Mr. Swanson and Representative Larson, as well as taking                     
  questions regarding the Mental Health Lands settlement.                      
                                                                               
  Number 080                                                                   
                                                                               
  REPRESENTATIVE BILL HUDSON asked Mr. Cole the status of                      
  funding.                                                                     
                                                                               
  MR. COLE responded that Chapter 210 remained the current                     
  state of the law, and appropriations were being made under                   
  that guideline.  The process of reconstituting the trust                     
  under Chapter 66 had been going on and should be completed                   
  in the near future.                                                          
                                                                               
  Number 100                                                                   
                                                                               
  REPRESENTATIVE PAT CARNEY asked the Attorney General to                      
  expound on the status of the hypothecated lands.                             
                                                                               
  MR. COLE responded that Mr. Swanson would address that issue                 
  in greater detail during his presentation.                                   
                                                                               
  Number 113                                                                   
                                                                               
  REPRESENTATIVE JOE GREEN asked about the process that                        
  determined the value of the lands, whether funds in excess                   
  of what was needed by the mental health programs would come                  
  back into the general fund.  He also asked about                             
  restrictions on potential land users.                                        
                                                                               
  MR. COLE answered that encumbrance of the land would have                    
  the effect of restricting its use.  He said the rule of                      
  reason would demand that no unnecessary problems be created                  
  for innocent parties, who had been referred to as the "moms                  
  and pops."  As part of the settlement, Mr. Cole said, the                    
  state agreed with the plaintiffs' lawyers that the court                     
  could release the injunction, and the court rejected that                    
  request.  He said the state would petition for review of                     
  that order with the Supreme Court.                                           
                                                                               
  Number 202                                                                   
                                                                               
  REPRESENTATIVE ELDON MULDER asked whether the legislature                    
  could take any action right now to release the hypothecated                  
  lands.                                                                       
                                                                               
  MR. COLE doubted whether there was any such action.  He said                 
  that would have to be negotiated with the plaintiffs'                        
  lawyers.                                                                     
  REPRESENTATIVE MULDER then inquired if any sort of finality                  
  had been provided for in Chapter 66.                                         
                                                                               
  MR. COLE acknowledged Chapter 66 provided for finality, but                  
  could not say when.  The courts control that factor, he                      
  said.  December 1, 1994 was one date mentioned in the                        
  interim time-line, he added.                                                 
                                                                               
  Number 235                                                                   
                                                                               
  REPRESENTATIVE JEANNETTE JAMES expressed concern with the                    
  six percent revenue stream and appropriation of the funds                    
  for other programs.  She asked Mr. Cole to confirm whether                   
  it was correct that the legislature reserved the right to                    
  appropriate the six percent to mental health issues and also                 
  on other issues.                                                             
                                                                               
  MR. COLE confirmed that under Chapter 66, this was the case.                 
                                                                               
  Number 269                                                                   
                                                                               
  REPRESENTATIVE JOHN DAVIES had two questions for the                         
  Attorney General.  First, he asked for a review of exactly                   
  who were the parties to the settlement agreement, and                        
  whether the parties could back out of the agreement.  His                    
  second question was whether 6(i) of the statehood act would                  
  be a factor in the court's findings on the settlement.                       
                                                                               
  MR. COLE responded that Tom Koester would answer those                       
  questions.  He said 6(i) had been the subject of extensive                   
  arguments before the court recently.  Regarding the parties'                 
  ability to back out, Mr. Cole said he thought not, although                  
  he said Mr. Jesse's clients had backed out but had signed                    
  the agreement.                                                               
                                                                               
  Number 287                                                                   
                                                                               
  REPRESENTATIVE CON BUNDE asked for more information about                    
  the obstructionist role of the environmental community and                   
  the legislature's role in that.  He then referred to the six                 
  percent revenue stream and asked Mr. Cole the number of                      
  clients served by the state's mental health programs, and                    
  how much of the allocated funds were spent per person.                       
                                                                               
  Number 303                                                                   
                                                                               
  MR. COLE responded that Mr. Koester would have more detail,                  
  but in regards to the environmental community, he said their                 
  intent was to litigate the settlement to the point that the                  
  legislature would change its mind and provide a different                    
  settlement.                                                                  
                                                                               
  Number 311                                                                   
                                                                               
  REPRESENTATIVE KAY BROWN asked Mr. Cole if the settlement                    
  pending before the court included oil and gas leases, and if                 
  so, what was the income generated from those leases.                         
                                                                               
  MR. COLE responded in the negative.  He added the state was                  
  opposed to including such land in the settlement.                            
                                                                               
  Number 337                                                                   
                                                                               
  MR. SWANSON again addressed the committee.  He introduced                    
  Bruce Phelps, the project manager for the DNR, who worked on                 
  the Mental Health Lands Settlement.  He commented that the                   
  DNR was working on the implementation of Chapter 66.  He                     
  said the DNR was well on its way to meeting the deadline of                  
  December 1, 1994 to complete the reconstitution.  He                         
  anticipated the DNR would be able to come back to the                        
  legislature next May and report that the land reconstitution                 
  was completed and ready for conveyance.                                      
                                                                               
  MR. SWANSON referred to essential elements of the                            
  reconstitution.  In particular, he mentioned the comparable                  
  character of lands.  He reiterated that lands selected for                   
  the reconstitution should match as nearly as possible those                  
  in the original lands' trust.  He pointed out on the map the                 
  lands that were in the hypothecated category.  He said those                 
  lands could be developed as long as the land value was not                   
  diminished.                                                                  
                                                                               
  MR. SWANSON said there were about six million acres on that                  
  list and he offered the figure of approximately 500,000                      
  acres of the hypothecated lands that would actually be                       
  selected by the Mental Health settlement.  Contrary to                       
  perception, he explained, that land was not locked up.  He                   
  then asked Mr. Phelps to explain the implementation of                       
  Chapter 66.                                                                  
                                                                               
  MR. BRUCE PHELPS, PROJECT MANAGER, DIVISION OF LANDS, DNR,                   
  delivered a brief overview of the settlement agreement,                      
  Chapter 66, and the project itself.  Since October, 1991, he                 
  said, a lot of work had been done.  He referred to a project                 
  overview manual before the members.  This document, he said,                 
  laid out the framework for the rules and procedures for                      
  meeting the trust reconstitution goal.  Chapter 66, he                       
  explained, established a Mental Health Trust authority.  It                  
  attempted to recreate the original mental health lands trust                 
  as much as possible, and to include as many of the original                  
  acres.  He said about 335,000 acres of the original trust                    
  lands were conveyable.                                                       
                                                                               
  MR. PHELPS defined a certain portion of the original trust                   
  lands that could not be conveyed because of third party                      
  interests that the state no longer owned or controlled.  He                  
  said that portion included 665,000 acres of original trust                   
  lands.  That portion had to be replaced from other state                     
  lands, according to Chapter 66's guidelines for identifying                  
  comparable lands.  The primary criteria, he said, were                       
  comparable characteristics, equal fair market value, and                     
  overall public interest.  He told the committee there was                    
  also a project manager working with the DNR for the                          
  plaintiffs.  He said there was good integration between the                  
  two staffs.                                                                  
                                                                               
  Number 439                                                                   
                                                                               
  MR. PHELPS led the committee through the parts of the                        
  project.  First, what the project was in relation to Chapter                 
  66; second, what had been accomplished so far; and third,                    
  what remained to be done in the immediate time frame.  The                   
  first aspect was to try to regain as much land as possible,                  
  which was accomplished through the title review process.                     
  This process, he said, identified original trust lands that                  
  were conveyable, original trust lands that were not                          
  conveyable back to the state, and original trust lands that                  
  might go back to the trust.  It also identified and                          
  prepared, he said, conveyance documents.                                     
                                                                               
  MR. PHELPS described the second component, of comparable                     
  characteristics analysis.  The attributes of resources in                    
  both the original trust and possible replacement lands were                  
  studied.  Attributes reviewed included income potential,                     
  development potential, location, and access.   He said these                 
  attributes were spelled out in Chapter 66.  Land was divided                 
  into resource units in terms of surface features such as                     
  forests, gravel, etc.  In terms of subsurface resources,                     
  three classifications were used:  oil and gas, coal, and                     
  minerals. The parties have agreed on the classification of                   
  resource attributes, Mr. Phelps said.                                        
                                                                               
  Number 484                                                                   
                                                                               
  MR. PHELPS told the committee what role the parties were                     
  playing in attribute identification, with the state doing                    
  large parts of the surface analysis, and the plaintiffs                      
  doing the evaluation related to minerals.  The results would                 
  go into a jointly accessible database.  The process allowed                  
  for fast evaluation of lands in the selection, he added.                     
                                                                               
  Number 500                                                                   
                                                                               
  MR. PHELPS addressed the third component, which was the                      
  value analysis.  Both the non-conveyable original trust                      
  lands and the replacement lands would be evaluated, in order                 
  to assure equal fair market value in the exchanges.  He                      
  advised 665,000 acres of the original trust lands were                       
  involved, as well as 550,000 acres of replacement lands.                     
  The parties were dividing the land for valuation into                        
  resource components.  A series of independent panels was                     
  doing the surface valuations around three parts of the                       
  state:  Southcentral, the Interior, and Southeast, he said.                  
                                                                               
  MR. PHELPS described how the commercial forest lands were                    
  being valuated, using independent contractors who developed                  
  the estimations of value based upon industry practice.                       
  Subsurface values were determined by a value model being                     
  developed by the DNR and the plaintiffs.  Results of the                     
  value analyses would go into the database, along with the                    
  attributes, he advised.                                                      
                                                                               
  Number 520                                                                   
                                                                               
  MR. PHELPS said a major component was identification of                      
  replacement lands.  Both the state and the plaintiffs could                  
  nominate the lands, both surface and subsurface.  Presently,                 
  he said, the plaintiffs had nominated approximately 555,000                  
  acres of replacement land.  About 40,000 acres of that land,                 
  he said, were associated with commercial forestry, 200,000                   
  were associated with minerals and coal, and 310,000 were                     
  associated with land and minerals.  The DNR was reviewing                    
  the nominations, and on the basis of that review they might                  
  oppose some and nominate additional land, he stated.                         
                                                                               
  Number 540                                                                   
                                                                               
  MR. PHELPS said the next step was to make matches between                    
  the original trust lands and the nominated replacement lands                 
  based on the attributes and value comparison data.  The                      
  exchange process was complex, but the software being used                    
  should make it go quickly.  Finally, he reported, a public                   
  review process would occur in regional meetings set for                      
  June, 1993, and July, 1994.  The reason for those dates was                  
  that in the first review, the results of the first tentative                 
  land exchange process would be evaluated.  A refinement                      
  process would follow that first review, with adjustments                     
  made in the land exchange based on recommendations made                      
  during public review.  In June, 1994, a second review                        
  process would allow final consideration of the exchange,                     
  still allowing time for changes based on recommendations.                    
                                                                               
  Number 560                                                                   
                                                                               
  MR. PHELPS delivered an overview of what had been                            
  accomplished thus far in the process by the DNR, which                       
  included:  identification of original trust lands;                           
  categorization of those lands into non-conveyable and                        
  conveyable lands, and property that might be conveyable;                     
  performance of title review of all lands nominated by the                    
  plaintiffs; completion of comparable characteristics                         
  analysis for all non-conveyable original trust lands; and,                   
  identification of comparable characteristics of forestry                     
  tracts and mineralized areas.                                                
                                                                               
  MR. PHELPS said what remained to be done was identification                  
  of the attributes of the replacement lands, in terms of the                  
  surface characteristics.  Contracts had been initiated to                    
  complete this last component, he told the committee.  The                    
  due date was April 2, 1993.  In terms of the evaluation                      
  analyses, he said it was set up on a contractual approach in                 
  three regional panels who would go through a mass appraisal                  
  process.  The request for proposals have been initiated on                   
  this phase, and the due date was the end of April of this                    
  year, he added.                                                              
                                                                               
  MR. PHELPS next addressed the land exchange component, and                   
  said a database had been established, and the data was                       
  available to the public and parties of the settlement.  The                  
  lands have been mapped also.  In the next six months, he                     
  said, there was still much to be accomplished.  This                         
  included identification of encumbrances on conveyable                        
  original trust lands.  The settlement agreement provided for                 
  a valuation process to compensate for the diminishment of                    
  value by the encumbrance.  Additionally, they would begin to                 
  develop the patent documents on the original trust lands, he                 
  advised.                                                                     
                                                                               
  Number 600                                                                   
                                                                               
  MR. PHELPS reported that the contractual work on the                         
  comparable characteristics evaluations would be completed                    
  around April, 1993.  The valuation analyses contract for                     
  forest tracts was underway now and should be completed by                    
  April 2, or April 15.  The land evaluations of the surface                   
  involving the mass appraisal process of 500,000 acres should                 
  be complete by the end of April.  Evaluations of the                         
  mineralized areas including coal, would also be done by                      
  April.  The title work necessary to identify original trust                  
  lands and replacement lands and the description of all the                   
  attribute features, the valuation of all the resource units,                 
  would lead to the pairing of the replacement lands with the                  
  original trust lands.  Then the lands to be conveyed would                   
  be known.  They would be tentative land exchanges, he                        
  explained, and added that a finalized exchange could not                     
  take place until after the public review process.                            
                                                                               
  Number 630                                                                   
                                                                               
  MR. PHELPS explained that the state would be in a position                   
  to accomplish the majority of the generalized work in                        
  Chapter 66 by April or May of this year.  More detailed work                 
  would be completed in terms of title documents and                           
  conveyance evaluations after that time.  He then referred to                 
  a project outline with a time-line for each of the                           
  components he described, and concluded his statements by                     
  saying he believed the state and plaintiffs were making                      
  rapid progress.                                                              
                                                                               
  Number 654                                                                   
                                                                               
  CHAIRMAN WILLIAMS noted Representative Gene Therriault had                   
  joined the meeting.                                                          
                                                                               
  REPRESENTATIVE CYNTHIA TOOHEY asked how a parcel like the                    
  Winter Creek/Glacier Creek area that was designated for ski                  
  resort development would fall into the settlement, in terms                  
  of mineral development potential.                                            
                                                                               
  MR. PHELPS advised the Winter Creek/Glacier Creek area would                 
  be addressed in terms of comparable characteristics, looking                 
  at the attributes of the land, and comparing it to the                       
  original trust lands that were non-conveyable to see if it                   
  was comparable.                                                              
                                                                               
  Number 668                                                                   
                                                                               
  MR. SWANSON also responded to the question, referring to                     
  municipalities that had large amounts of original mental                     
  health lands within their boundaries, including Ketchikan                    
  and Anchorage.  He said the DNR was working with those                       
  municipalities to see if some of the original mental health                  
  lands could be freed up.  Glacier/Winter Creek was included                  
  in those discussions, he said.                                               
                                                                               
  Number 673                                                                   
                                                                               
  REPRESENTATIVE DAVIES returned to his previous question on                   
  6(i) lands, asking if 6(i) provisions would be violated.                     
                                                                               
  Number 680                                                                   
                                                                               
  TOM KOESTER, a former assistant attorney general who                         
  represented the state in this case in 1982 and was currently                 
  on contract with the state, responded to the question                        
  regarding section 6(i).  He said the question had been                       
  submitted to the court for a decision.  The legal issues                     
  raised by the environmental interveners in the case were the                 
  subject of summary judgment motions filed with the court.                    
  The issue was under advisement.  In the event the court                      
  ruled a conveyance of the mineral estate to the trust                        
  authority, the settlement agreement provided that would                      
  violate 6(i) and the parties had 60 days to reach an                         
  accommodation of some kind.  If they failed to do so, the                    
  settlement agreement would be terminated.                                    
                                                                               
  MR. KOESTER said the state had tried to set out a procedure                  
  whereby the parties would have an opportunity to solve                       
  problems.                                                                    
                                                                               
  TAPE 93-9, SIDE A                                                            
  Number 000                                                                   
                                                                               
  MR. KOESTER briefly summarized the potential problem with                    
  section 6(i).  That section of the Statehood Act required                    
  that mineral rights could be leased but not conveyed from                    
  the state to another party.  The question now was whether                    
  the conveyance of lands from the state to the mental health                  
  lands trust was a violation of that requirement.  He said                    
  conveyance documents would include a restriction saying the                  
  conveyances were subject to the restrictions of section 6(i)                 
  of the Statehood Act.  He said the attorney general's office                 
  believed there was no 6(i) problem, but he acknowledged that                 
  others might have a contrary opinion and the court would                     
  ultimately resolve the issue.                                                
                                                                               
  Number 042                                                                   
                                                                               
  REPRESENTATIVE DAVIES asked if the 60-day window for                         
  resolution of problems would defeat the settlement.                          
                                                                               
  MR. KOESTER responded that it would depend on whether the                    
  parties could come up with an alternative valuation                          
  methodology and an alternative structure to the settlement                   
  that did not involve the conveyance of mineral estates.  He                  
  said it was the opinion of the attorney general's office                     
  that 6(i) would not be a problem.                                            
                                                                               
  Number 070                                                                   
                                                                               
  REPRESENTATIVE BUNDE asked Mr. Koester to characterize the                   
  attitude of the plaintiffs toward seeking a speedy                           
  resolution.                                                                  
                                                                               
  MR. PHELPS answered that the plaintiffs had been very                        
  cooperative and had worked quickly for solutions.  Both                      
  parties, he said, have worked to minimize conflicts.                         
                                                                               
  Number 105                                                                   
                                                                               
  REPRESENTATIVE JAMES referred to the December, 1994                          
  deadline, and the penalties if the deadline was not met,                     
  such as the foreclosure of hypothecated lands.  She also                     
  remarked on the effective dates of Chapter 66, and the                       
  process for appeals.                                                         
                                                                               
  Number 129                                                                   
                                                                               
  MR. PHELPS said he could respond to the issue of the project                 
  itself, and said the vast majority of that work would be                     
  done in the next six months.  This would include the                         
  conveyance of title which could be done by that date, he                     
  added.                                                                       
                                                                               
  Number 145                                                                   
                                                                               
  MR. KOESTER answered Representative James' question                          
  regarding the legal appeals process.  He said the state had                  
  no control over the amount of time the courts took in making                 
  their decision.  He added the court system could be speedy                   
  when it wanted to.  He referred to cases like the                            
  reapportionment case which was settled in a matter of                        
  months.  When there was a pressing deadline, he said, the                    
  court would try to honor it.                                                 
                                                                               
  Number 165                                                                   
                                                                               
  REPRESENTATIVE GREEN asked if the land comparison was based                  
  on the unimproved value of the original trust lands.                         
                                                                               
  MR. PHELPS answered in the affirmative.                                      
                                                                               
  REPRESENTATIVE GREEN then asked about subsurface mineral                     
  rights, like coal, and whether the subsurface mineral rights                 
  would be preserved by the state.                                             
  MR. PHELPS answered that in terms of coal, the majority of                   
  coal resources were in conveyable original trust lands.  He                  
  mentioned other areas that were inside Legislatively                         
  Designated Areas (LDA), which would have to go through                       
  valuation analysis.  Data on determining the value of land                   
  with coal deposits was readily available, he said.                           
                                                                               
  Number 200                                                                   
                                                                               
  REPRESENTATIVE GREEN was concerned that the mineral rights                   
  would be reserved by the state.                                              
                                                                               
  MR. PHELPS clarified that in LDA lands, the mineral rights                   
  would be reserved.                                                           
                                                                               
  REPRESENTATIVE GREEN asked about the speculation value of                    
  similar properties.                                                          
                                                                               
  Number 220                                                                   
                                                                               
  MR. PHELPS responded that those situations presented some                    
  difficulty so the valuation model included probability as a                  
  large part of the model.  He said there was a strong                         
  weighing of probability.                                                     
                                                                               
  REPRESENTATIVE GREEN asked whether valuations were being                     
  made on lands that had not been patented to the state, or                    
  lands that were clouded because of over-selection by a                       
  Native corporation.                                                          
                                                                               
  MR. PHELPS answered that in terms of title review, the state                 
  was making valuations.  They had also recommended that to                    
  the plaintiffs where there was a problem with conveyance, he                 
  added.                                                                       
                                                                               
  Number 233                                                                   
                                                                               
  REPRESENTATIVE RON LARSON distributed handouts to the                        
  committee, one of which he said would help to answer                         
  Representative James' questions.  He referred specifically                   
  to the Congressional Record from May 25, 1956.  Regarding                    
  the granting of lands to the State of Alaska, it said:  "The                 
  purpose of the grant is to afford revenue to the territory                   
  for support of its mental health programs.  If such revenues                 
  are in excess of the program, they may be used as a public                   
  trust for the public purposes."                                              
                                                                               
  REPRESENTATIVE LARSON said he would make himself available                   
  to the committee in addressing this issue.  The six percent                  
  revenue stream issue, he said, had been addressed two years                  
  ago at the end of the legislative session.  He spoke of his                  
  increased involvement in the issue.  The priority was to                     
  meet the congressional mandate, and also to meet the                         
  instructions of the supreme court, he said, and believed the                 
  solution before the courts was the best solution to date,                    
  and that it would save time to let it run its course.                        
                                                                               
  Number 318                                                                   
                                                                               
  REPRESENTATIVE DAVIES asked that the committee hear from                     
  other parties to the settlement, such as the plaintiffs and                  
  interveners.                                                                 
                                                                               
  Number 334                                                                   
                                                                               
  CHAIRMAN WILLIAMS said the committee would have an overview                  
  hearing during which those parties could air their views.                    
  He announced that at the committee's next meeting, it would                  
  consider three executive orders.                                             
                                                                               
  ADJOURNMENT                                                                  
                                                                               
  There being no further business to come before the                           
  committee, Chairman Williams adjourned the meeting at 9:55                   
  a.m.                                                                         

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