Legislature(2021 - 2022)SENATE FINANCE 532
02/24/2021 09:00 AM Senate FINANCE
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| Audio | Topic |
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| Start | |
| Presentation: Alaska Mental Health Trust Authority – Update and Fy22 Proposed Budget | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
February 24, 2021
9:01 a.m.
9:01:43 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:01 a.m.
MEMBERS PRESENT
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman
Senator Donny Olson
Senator Natasha von Imhof
Senator Bill Wielechowski
Senator David Wilson
MEMBERS ABSENT
Senator Click Bishop, Co-Chair
PRESENT VIA TELECONFERENCE
Chris Cook, Board Chair, Alaska Mental Health Trust
Authority; Mike Abbott, Chief Executive Officer, Alaska
Mental Health Trust Authority.
SUMMARY
^PRESENTATION: ALASKA MENTAL HEALTH TRUST AUTHORITY
UPDATE AND FY22 PROPOSED BUDGET
9:02:08 AM
Co-Chair Stedman relayed that the Alaska Mental Health
Trust Authority (AMHTA) would be discussing the trust's FY
22 budget as well as some COVID-19 response issues and
trust reserves.
9:02:54 AM
CHRIS COOK, BOARD CHAIR, ALASKA MENTAL HEALTH TRUST
AUTHORITY (via teleconference), discussed a presentation
entitled "Senate Finance Committee - February 24, 2021"
(copy on file).
Mr. Cook showed slide 2, "Trustees":
?Chris Cooke, Chair
?Anita Halterman, Vice Chair
?Rhonda Boyles, Secretary
?Vern? Boerner
?John Sturgeon
?Annette Gwalthney-Jones
?Brent Fisher
Mr. Cook relayed that AMHTA's purpose was to administer the
Alaska Mental Health Trust, which was a perpetual trust.
The mission of the trust was to improve the lives of the
trust beneficiaries and to operate in a sustained way in
order to positively impact the lives of future
beneficiaries.
Mr. Cook noted that the corpus of the trust consisted of
both money and land, specifically the Mental Health Trust
Fund, managed by the Alaska Permanent Fund Corporation
(APFC), and trust land of nearly one million acres managed
by the trust land office under the Department of Revenue
(DOR). The trust drew annual income from the resources to
provide for the needs of the beneficiaries, pursuant to
Alaska's comprehensive mental health program. In the role
of funder of programs for beneficiaries, the trust had
granted over $21 million the previous year to fund
community-based projects. Funding also included significant
trust income directed to various state agencies to
accomplish statewide system change efforts. He mentioned a
mini-grant program that provided funds to individual
beneficiaries to improve quality of life and gain
independence.
Mr. Cook explained that in addition to providing funds to a
variety of entities, the trust provided leadership in the
advocacy, planning, and implementing of Alaska's
comprehensive mental health program for its beneficiaries.
The trust had supported many systems-change efforts,
including reforms to Medicaid, behavioral health and
addiction services, and most currently efforts to provide
services to Alaskans experiencing a psychiatric crisis.
9:07:39 AM
Mr. Cook continued his remarks. He noted that the board was
comprised of long-time Alaskans. He expressed that thanks
to the trust's competent staff, the financial position of
the trust remained in a healthy financial position and was
bolstered by strong performance of trust land and natural
resources. The strong position allowed for advancement of
beneficiary priorities while balancing the needs of future
beneficiaries.
Mr. Cook was proud of the work of his fellow board members
and trust staff, particularly in light of unexpected
challenges form the COVID-19 pandemic.
9:09:16 AM
MIKE ABBOTT, CHIEF EXECUTIVE OFFICER, ALASKA MENTAL HEALTH
TRUST AUTHORITY (via teleconference), discussed slide 3,
"Trust Beneficiaries":
Beneficiaries include Alaskans who experience:
?Mental illnesses
?Intellectual and/or developmental disabilities
?Alzheimer's disease and related dementia
?Traumatic brain injuries
?Substance use disorders
Mr. Abbott relayed that the trust did not keep a list or
index of individuals that met the criteria listed on the
slide. He relayed that based on population density
calculations in Alaska and elsewhere in the United States,
the trust estimated that approximately 70,000 to 100,000
Alaskans would qualify as trust beneficiaries.
Mr. Abbott reviewed slide 4, "Financial Position," which
showed a bar graph entitled 'Trust Invested Assets.' The
bar graph was a high-level overview of the trust's
financial position. He pointed out that the trust's assets
had grown relatively steadily over the years. The dips were
primarily associated with investment returns. He pointed
out a substantial decline in asset value over the time
period of 2008 to 2010. He explained that assets grew
primarily through two mechanisms: investment earnings on
assets, and revenues from land management activity. Both of
the revenue streams contributed to spending capability and
the growth of invested assets.
Mr. Abbott referenced slide 5, "FY22 Available Funding":
Trust's Estimated Available Funding FY22
Investment Portfolio Payout (4.25%) $25,200,000
Prior Year Funds Carried Forward $3,500,000
Land Office Spendable Income $4,600,000
Interest Earnings $700,000
Total $34,000,000
Prior Years' Available Funding
FY21 $33,243,200
FY20 $31,875,600
FY19 $29,437,000
FY18 $28,908,000
FY17 $28,234,000
Mr. Abbott shared that for FY 22, the trust expected an
estimated an approximately 3 percent increase in available
revenue over FY 21. The primary source of the revenue in FY
22 would be investment earnings. The trust used a percent
of market value (POMV) process and paid out 4.25 percent of
the previous four years of asset value. He emphasized the
steadily increasing annual spendable revenue, which he
expected would continue at approximately the same pace. He
thought the amount could change based on factors such as
market returns. He explained that even a period of
significant market decline should not affect the trust's
ability to spend funds in the annual budget for the
beneficiaries because of access to trust reserves.
9:13:46 AM
Senator von Imhof asked if an upcoming slide would show the
percentage of returns for the trust's investments for the
previous four or five years. She noted that the committee
looked at many funds to consider returns.
Mr. Abbott did not have the information at hand but agreed
to send the information to the committee.
Co-Chair Stedman asked for the information to include
details regarding the trust's consultants' expectations
regarding future returns. He had seen expectations lowered
in other areas.
Mr. Abbott agreed to provide the additional information.
Mr. Abbott advanced to slide 6, "FY 22 Spending":
Authority Grants
$16,084.9
Designated grants to community providers, nonprofits,
local governments and Tribal organizations
?Includes $1.7 M in mini grants
Administrative Budgets
Trust Authority: $4,179.9
Trust Land Office (TLO) $4,393.8
Administrative budget is lower than FY21 levels
MHTAA
$8,110.0
Designated grants to state agencies, requires receipt
authority
Mr. Abbott explained that the slide showed expenditures as
approved by the board for FY 22. He explained that Mental
Health Trust Authority Authorized Receipts (MHTAAR) funds
were funds the trust provided to fund a variety of state
government programs. The funds had been part of the budget
for a number of years, and he expected it to continue.
Roughly half the spending in FY 22 were grants made to
funding partners such as local governments, non-profits, or
tribes that provided or facilitated services to
beneficiaries. He quantified that roughly three quarters of
the funds were going out the door to agencies and partners
to direct services to trust beneficiaries.
9:17:36 AM
Mr. Abbott spoke to slide 7, "FY 22 GF/MH Recommendations,"
which showed a data table. He reminded that one of the
trust's statutory obligations was to make recommendations
as to how general funds could be allocated for the benefit
of trust beneficiaries. He thought the AMHTA was the only
state entities with the explicit statutory obligation to
make the recommendations. He pointed out that the blue
column showed trust recommendations, and the yellow column
signified what ended up in the governor's budget. The
significant and obvious difference was that all of the
general fund recommendations that the trustee's provided
(with the exception of one for coordinated transportation)
were zeroed out in the administration's budget and replaced
with direct appropriation with trust reserves. He
highlighted that the situation was a significant departure,
although there was no obligation for the administration to
accept the trusts recommendations. He thought the committee
was aware that most recommendations were adjusted or not
funded at all. The current proposal was the first time
there was a proposal to substitute trust reserves for
general funds without authorization from the trust.
Co-Chair Stedman looked at the operating budget item
"Support Client Services at API (DHSS)" which was listed on
the table in red. He asked Mr. Abbott to speak to the item.
Mr. Abbott stated that in addition to a fund swap, the
administration had proposed to replace $6 million of
funding for the Alaska Psychiatric Institute (API) with
trust reserves in both the FY 21 supplemental budget and
the FY 22 operating budget. He explained that API was
expecting a shortfall in recovered revenue in of $6
million. The administration had proposed to use trust
reserves. He thought the proposed use of reserves was
problematic for the trust for two reasons. He noted that
the administration had not engaged with the trust about the
need during its budget process the previous summer. He
explained that the item was something not historically
funded by the trust. Typically trust funds were deployed by
the trust to enhance the efficiency of programs that served
the beneficiaries, rather than to supplant state funds. He
thought the item would be a clear deviation of the
approach.
9:21:53 AM
Co-Chair Stedman asked if the trust was too heavily
invested in reserves. He asked Mr. Abbott to comment on
reserve balance status, and on any potential commitments
that were not reflected.
Mr. Abbott offered to jump ahead to slides that addressed
the reserves.
Co-Chair Stedman asked Mr. Abbott to address the subject
when the appropriate slide was reached.
9:22:54 AM
Senator Hoffman asked about the Capital Budget Item
"Special Needs Housing Grant" (SNHG) listed on the table.
He thought there was a large difference between what the
board had proposed and what the governor was presenting. He
asked what potential hole was left if the governor's budget
was implemented without following the recommendations of
the board.
Mr. Abbott stated that there would be a substantial gap.
The SNHG program supported housing work around the state
and was managed by the Alaska Housing Finance Corporation
(AHFC). The grant funded a number of programs, and in
combination with the Housing Assistance Program, improved
housing and addressed homelessness around the state. He was
happy to provide the committee with specific examples of
programmatic impacts of the reduction.
Senator Hoffman wanted to see information about the impacts
in order to make a decision on how the mental health budget
was brought together by the committee.
Co-Chair Stedman thought Mr. Abbott would be providing
detailed information.
Senator Wilson asked if AHFC was able to supplement any of
the funds with the generous amount of COVID-19 funding it
had received in the previous two years.
Mr. Abbott did not know.
Senator Wielechowski asked if Mr. Abbott could comment on
how the trust was set up and the court cases that were
involved.
Mr. Abbott relayed that the trust was formed as a result of
a combination of statute change and settlement of
litigation between the state and beneficiaries in 1994. The
litigation arose from a concern from beneficiaries that the
state had been mismanaging its federal trust
responsibilities. The settlement of the litigation caused
the creation of the trust authority. The authority was
established with a substantial amount of independence from
typical state financial decision making. The authority for
the expenditure of trust funds was explicitly provided
solely to the trustees. The trust had operated in the same
manner for almost 27 years.
Co-Chair Stedman was curious about the legality of
switching from general funds to trust reserves. He asked if
Mr. Abbott believed the proposed use of funds met the trust
settlement requirements.
Mr. Abbott thought it was doubtful that the use of funds
met the trust settlement requirements. He referenced a
letter to the committee from January 2021 in response to
the governor's proposed budget that had expressed concerns
that the approach as described in the administration's
budget was compliant with the terms of the original
settlement. He added that the letter was based on guidance
that the trust had received from its counsel in the
department of law.
9:27:36 AM
Senator von Imhof considered slides 5, 6, and 7 and how the
information went together. She considered available funding
as shown on slide 5 as well as the breakdown on slide 6,
and estimated that there was $24 million left for grants
and programming.
Mr. Abbott stated that Senator von Imhof's calculation was
"pretty close."
Senator von Imhof looked at trustee-approved budget in
light blue on slide 7, which totaled about $24 million. She
asked if she was reading the slides correctly.
Mr. Abbott stated that the only piece of slide 7 that was
included in the previous slide was the $3.8 million of
MHTAAR. He clarified that the general funds and AHFC funds
would not be included because they were not trust funds.
The $3.8 million of MHTAAR funds was a subset of the total
and was highlighted as matching or co-funding the programs
recommend by the trust for general fund contributions.
Senator von Imhof assumed that the $16 million in authority
grants were found on another page.
Mr. Abbot affirmed that the authority grants were typically
made directly by the trust and did not require legislative
authorization. The only trust funds that came through the
legislative process were the MHTAAR and administrative
budgets, which showed up as receipt authority for specific
mutually agreed purposes. The bulk of the trust's funds
went directly from the trust to grantees and did not go
through the legislative appropriations process.
9:31:00 AM
Senator von Imhof mentioned Co-Chair Stedman's reference to
API. She thought the use of trust reserves was a separate
issue. She thought that after looking at the trust's
charter documents, there was an appropriateness to funding
some of API. She did not think it was wholly inappropriate
for the governor to suggest AMHTA use funds towards API.
She noticed that the administrative budgets for the trust
authority and land office were almost 25 percent, which she
thought were high compared to other trusts. She suggested
Mr. Abbott could provide a written response to the
committee with information about why the administrative
budget the size it was.
Co-Chair Stedman asked Mr. Abbott to get back to the
committee with the information.
Mr. Abbott discussed slide 8, "Work of the Trust":
Established Focus Areas
?Disability Justice
?Mental Health and Addiction Intervention
?Beneficiary Employment & Engagement
?Housing and Home & Community Based Services
Additional Priorities
?Workforce Development
?Early Childhood Intervention and Prevention
Mr. Abbott relayed that the slide described the priority
areas that had been the focus of the trust's work in recent
years and would continue in FY 22.
Mr. Abbott addressed slide 9, "Trust Grant Impacts":
?Supported project increasing substance use disorder
treatment capacity
?$300,000 to Akeela, Inc. to increase residential
treatment capacity
?$125,000 to SeaView Community Services Recovery
Housing Program in Seward
?$300,000 to Set Free Alaska's residential
treatment facility in Homer
?Expanded services to prevent and end homelessness
?$150,000 to the Bethel Winter House?$250,000 to
Covenant House Alaska
?$200,000 for the new Glory Hall facility in
Juneau
?$500,000 to United Way of Anchorage
?Supported ongoing implementation of the Medicaid
Behavioral Health Waiver
Mr. Abbott mentioned some high-impact program work shown on
the slide, including recent significant investments in
substance abuse treatment capacity increase. He expected
the level of investment in the identified areas to
continue. He commented on the success of the enhancement of
Medicaid services, that would significantly increase
behavioral healthcare in the state without increasing state
contribution.
Mr. Abbott reviewed slide 10, "COVID-19 Response Grants":
?Trustees approved $1.5M in spring of 2020
?Supported 70+ beneficiary serving organizations
across the state
?Program in addition to regular Trust granting
activity
Mr. Abbott shared that in response to the pandemic the
previous spring, the trust had reallocated funds within its
FY 20 budget as shown on the slide. He was happy to say
that the trust had been able to typically turn around an
application from a grantee within two weeks. Funds
typically went towards enhancing technology so that
providers could provide services to trust beneficiaries. He
mentioned purchase of protective equipment and coverage of
temporary or long-term revenue losses as examples use of
the funds.
9:36:36 AM
Senator Wilson asked if there had been any double-funding
of items that occurred with grantees due to application for
federal funds.
Mr. Abbott thought it was highly likely that the grantees
were seeking other funds, either through state or federally
administered programs. He added that the trust had worked
to steer applicants to the other programs when possible.
Senator Wilson asked if any of the grantees had been
seeking double reimbursement for the same services. He
asked about audits of grantees.
Mr. Abbott relayed that AMHTA had not done any auditing
beyond simple grant reporting that was required. He shared
that the vast majority of trust grants had gone out in
increments of less than $25,000 per grantee. The goal of
the trust had been to get the funds to grantees as quickly
as possible in order to assist providers in staying open
and continuing to provide services.
Mr. Abbott considered slide 11, "Improving Alaska's
Psychiatric Crisis Care":
?Our behavioral health crisis system of care should
provide people experiencing a behavioral health crisis
the right care, in the right setting, when they need
it --just like what we expect for a physical health
crisis
Currently law enforcement, EMS, and hospital
emergency rooms serve people having a mental health
crisis.
Mr. Abbott noted that when Alaskans had a medical emergency
such as a heart attack or broken leg, a patient could be
generally confident in being served by emergency responders
that were trained. He described a lack of training and
resources as a reason for the need for improvement. Current
primary psychiatric crisis care resources in the state were
paramedics, police officers, and hospital emergency rooms,
and correctional facilities, which did not serve patients
very well. There were better services available, and the
trust was committed to bringing the services to Alaska. The
trust had been working with other states and communities
that had developed better systems and were in the process
of brings Alaska-adapted versions of the systems to the
state.
Mr. Abbot continued to address slide 11. He expected to
deploy more than $10 million in trust funds toward the
effort in FY 21, FY 22, and FY 23. He expected that
Medicaid would be a significant funder of the serves in the
1115 waiver. The trust expected to supplement the funds as
the services came up to speed. He thought the enhanced
services were good for trust beneficiaries, communities,
and other service providers.
9:41:43 AM
Senator Wilson assumed that Mr. Abbott was referring to the
"Crisis Now" model. He mentioned the Biden Administration
putting a hold on Medicaid waivers. He asked if Mr. Abbott
felt that additional Medicaid waivers for reimbursable
services would slow down the implementation of the model.
Mr. Abbott stated that the trust was currently trying to
build out the system using the current 1115 waiver. He
thought future waivers maybe warranted and applied for, the
trust had started the process with the assumption that the
status quo would be in place for the next several years.
Senator Wilson asked if the trust was providing authority
grants to provide additional services for individuals in
API.
Mr. Abbott relayed that the trust was providing funding for
a number of things that supported API. There were a number
of grants for a variety of equipment and improvements to
the facility. The trust was also funding some of the
services that the state agreed to through a settlement
executed the previous year. There was no current or
anticipated funding in the trust-approved budget for the
base-level services at API. He added that the trust had
been active in a variety of issues related to API, and the
trust had contributed the land on which the current API
campus sat.
Senator Wielechowski asked if the trust was consulted or
did the trust support the governor's decision to give
Wellpath the sole-source $1 million per month contract.
Mr. Abbott answered "no." Since that time, API had rebuilt
a governance board that advised on significant decisions
relating to the operation of the hospital. He added that
the trust served as an ex officio member of the board. The
board was not formed when the contract was issued, and the
trust had not had other involvement in the decision.
9:45:52 AM
Mr. Abbott showed slide 12, "Trust Land Office":
?USFS Land Exchange
?Icy Cape Development
?Fort Knox 2021 Expansion
ubport Sale Finalized
FY21 Anticipated Trust Land Office Revenues
Coal $171,000
Oil and Gas $1,257,000
Minerals $1,078,000
Materials $280,000
Timber $2,581,000
Land $22,865,000
Real Estate $1,668,000
Total $29,900,000
Mr. Abbott explained that the slide highlighted the success
of the land office, and described the revenue anticipated
in the current fiscal year. He was relatively confident
that the trust land office was going to have an exceptional
year in generating revenue. He shared that in FY 21, the
trust would receive payment for the Juneau Subport parcel
that had been purchased by Norwegian Cruise Lines. He
detailed that the sale took place a little more than a year
previously, but the transaction did not take place until
2021. Of the $29.9 million shown on the slide, $20 million
was from the single transaction, while the remainder was
from other asset types managed by the trust land office.
Mr. Abbott discussed slide 13, "Trust Reserves":
?Create buffer for years with low earnings, ensuring
Trust programming is not impacted
?Described in the Trust Asset Management Policy
Statement
?Some Reserves are managed by APFC, some by Dept. of
Revenue
?If the Trust only relied on prior year earnings for
spending, there would have been spending reductions in
9 of the past 24 years
?In 5 years since 1994, the Trust's investments
had negative earnings
Mr. Abbott explained that trust asset management policy
statement was reviewed every few years and was recently
updated in the summer of 2019. As a result of
recommendations provided by Callan and Associates, reserves
were managed in two different portfolios by the two
entities listed on the slide. He discussed the value of the
trust's reserves. He thought that the trust had managed its
reserves responsibly in order to allow for a consistent
presence in programming for support of trust beneficiaries.
9:50:09 AM
Senator Wielechowski asked if the entire amount of the
trust reserves and trust corpus were available for
appropriation by the legislature.
Mr. Abbott informed that the corpus, or Mental Health Trust
Fund, was not available for the trust or any other entity
to use for any purpose. The fund was to be managed for
perpetual functionality based on statutory requirements and
as determined in the settlement in the early 1990s. He
continued that trust reserves were available for trust-
authorized uses.
Co-Chair Stedman asked Mr. Abbott to compare and contrast
the funds as compared to the Alaska Permanent Fund (APF).
He mentioned the Earnings Reserve Account (ERA), which was
subject to appropriation. He thought the trust was
structured differently.
Mr. Abbott relayed that the trust and the APF were
relatively similar, and more similar than most other state-
invested assets. Like the APF, the trust corpus was
segregated and was off limits. He realized that the APF
could be accessed by a vote of the people, which was an
option not available for accessing the trust. The trust
reserves functioned much like the ERA, and all the earnings
from the assets invested by the trust went into reserves,
similar to the ERA. The corpus of the trust did not
fluctuate based on investment earnings. The trust was set
up as an endowment, as in many other states.
Mr. Abbott continued to address Co-Chair Stedman's
questions. He explained that the only way the corpus of the
trust would grow was through deposits made by trustees
through a particular type of land revenue or inflation
proofing. He acknowledged that he was not an expert on the
APF, but he thought that the way the corpus of the trust
operated was roughly analogous. For inflation proofing to
take place, an appropriation by the legislature was
required. Conversely in an endowment, inflation proofing
took place naturally as the earnings and corpus were
melded.
Senator Wielechowski commented that if the governor was
starting to use the trust reserves when there had not been
inflation-proofed in 15 years, the trust might want to
consider putting some of the funds into the corpus.
Senator von Imhof looked back to slide 5. She assumed the
$34 million reflected 4.25 percent of the total trust
amount comprised of the trust reserves plus the corpus.
Mr. Abbott stated that Senator von Imhof was correct.
Senator von Imhof asked if the legislature began taking
more reserves or more than 4.25 percent, than the potential
was that the annual draw began to decrease as the overall
portfolio decreased.
Mr. Abbott answered in the affirmative.
Senator von Imhof thought the situation was similar to the
APF. She knew it was possible for the legislature to take
from the trust reserves, but thought it was important to
consider the consequences, which could require General Fund
matching or program elimination.
9:56:39 AM
Senator Wilson asked if the governor's proposed budget
could work if there was only a one or two year draw rather
than an annual draw.
Mr. Abbott thought that Senator Wilson's question pondered
whether the amount of reserves exceeded the proposed FY 21
and FY 22 draws, and answered affirmatively. He asserted
that there would be long term impacts from the proposed
budget. He thought in the near term, trustees would
consider reducing other areas of spending to avoid
overdrawing from reserves.
Mr. Abbott continued to address Senator Wilson's question.
Based on his guidance from the trustees, the proposed draw
from invested assets was closer to 7 percent or 8 percent
rather than 4.25 percent. If the trust was faced with the
larger draw, it would have to make some hard choices.
Senator Wilson was looking for a more simplistic answer. he
asked if it would be catastrophic if the proposed draw was
taken for only one year.
Mr. Abbott was not sure he was comfortable giving an
answer. He thought the draw would be a radical deviation
from the manner in which the trust had operated, both in
process and in substance. He did not want to challenge the
legal authority of the legislature and encouraged members
to seek advice from the Department of Law or other counsel
on the legal impact of what was proposed, beyond the fiscal
impact.
Co-Chair Stedman mentioned the existing 4.25 draw on the
trust and asked what the draw rate would be if the
legislature executed the governor's proposed budget.
Mr. Abbott stated that the appropriation would signify
pulling an additional $16 million beyond the anticipated
$25 million from the trust assets. The amount would signify
an approximately 7 percent draw rather than the traditional
4.25 percent POMV draw.
10:00:52 AM
Senator Wilson asked if Mr. Abbott had stated there would
be a $16 million additional draw.
Mr. Abbott affirmed that the proposed budget would signify
a $16 million additional draw, as a result of the
combination of the FY 21 supplemental budget and FY 22
operating budget proposals from the governor.
Mr. Abbott reviewed slide 14, "Trust Reserves":
Reserves target set after consulting with Callan at
400% of the current year's payout
?Allows Trust to sustain program work during
prolonged market downturns
?Trust Reserves are volatile
Trust Reserves
FY20 Year End Balance:
$160,555,000
FY21 Year End Balance:
(estimated) $175,000,000 to $225,000,000
Mr. Abbot addressed the graph on slide, entitled 'Available
Budget Reserves Compared to annual Payout.' He pointed out
that the graph showed the last 18 months of reserve levels,
which had fluctuated between a starting point of 500
percent of reserves, with a dip seven months later to below
400 percent, and growth within the last year to
approximately 800 percent of the annual payout in reserves.
He thought the graph was a good description of the
volatility that the trust faced. He added that because the
trust was not run like an endowment, all of the volatility
that the APF experienced as it managed the trusts corpus
showed up in the trust's reserves, which was another reason
to keep a conservative amount of reserves available.
Mr. Abbott described that if the APF and DOR (the trust's
two managers) had annual projections for FY 21 that came
true before the end of the fiscal year, trust reserve
levels would drop by $30 million to $40 million. He
reminded that the APFC and DOR were both significantly
exceeding initial annual projections.
Co-Chair Stedman asked Mr. Abbott to restate the
information about timing. He asked when the last time the
trust inflation proofed.
10:05:05 AM
Mr. Abbott thought Co-Chair Stedman's question introduced
the topic of slide 15. He relayed that the trust's asset
management policy statement and state statutes obliged the
trust to evaluate inflation proofing when trust reserves
exceeded the target rate. He cited that the last time the
trust made a significant inflation-proofing transfer
between the reserves and the corpus was 2005, and that for
a variety of reasons, the trust had not done substantial
inflation-proofing since. He mentioned the legislative
audit in 2018. He thought earlier graphs depicting reserve
levels showed that investment performance in 2008 through
2010 had been part of the reason. The trust had
contemplated inflation-proofing a year previously, and at
the time the trust assets were below target and inflation
proofing had not been recommended at the time. He added
that because of investment performance over the previous 12
months there would be trustee consideration of inflation
proofing.
Mr. Abbot referenced slide 15, "Trust Reserves":
When Reserves exceed the target:
?Asset Management Policy Statement says the Trust will
consider inflation-proofing the corpus
?There has been no substantial inflation proofing
since 2005
?Our FY21 inflation-proofing liability is $120 million
Mr. Abbott cited that the trust's finance committee would
be meeting the following week to consider the topic and he
expected the committee would evaluate the staff
recommendation that upwards of $100 million would be
transferred from trust reserves to the corpus to begin to
address the roughly $120 million outstanding inflation
proofing liability.
Senator von Imhof thought it was good news that the trust
was contemplating inflation-proofing the fund. She thought
inflation-proofing should be done on an annual basis in a
disciplined manner. She thought the 400 percent target
recommended by Callan was generous. She thought it made
sense to inflation proof, and she thought entities such as
the governor would look to the fund when there were high
corpus balances. She thought the long-term health of the
fund would be best served by disciplined inflation proofing
on a regular basis, and it would be good for beneficiaries
who would benefit from programs being in perpetuity.
Co-Chair Stedman also supported a disciplined approach as
suggested by Senator von Imhof. He agreed that it would be
nice for the trust board to consider the topic of annual
inflation proofing.
Mr. Abbott believed the board would be addressing inflation
proofing in the October/November time frame on an annual
basis using audit financials from the previous year. He
agreed with the recommendation.
Senator Wilson asked if it was the board's intention to try
to make up for the entire $120 million in inflation
proofing deficit, or rather to set a new policy going
forward for an annual appropriation.
Mr. Abbott stated the board had not decided on the matter.
The following week the board's finance committee would
consider the condition of the reserves and the outstanding
inflation proofing obligation. He was confident the
trustees would make an excellent decision as to how much
and when to affect any inflation proofing transfers.
10:10:24 AM
Senator Hoffman asked what discretion the legislature had
in inflation-proofing the trust if the board did not.
Mr. Abbott referenced guidance from the Department of Law.
He understood that the deployment of funds into the trust
fund (from reserves or any other source) was the exclusive
responsibility of trustees.
Senator Hoffman requested clarification as to the exact
responsibility of the legislature, and as to whether the
legislature had the authority to inflation proof since it
was the appropriating body.
Co-Chair Stedman thought the members were interested in
inflation proofing the trust to protect the funds for
future generations.
Mr. Abbott would work with the Department of Law to provide
information on Senator Hoffman's question. He stated he and
the board chair understood Co-Chair Stedman's message
clearly.
Senator Olson asked about the "shuffling" of funds as
proposed by the administration. He asked how the proposed
splitting of the Department of Health and Social Services
(DHSS) would affect the budget of the trust.
Mr. Abbott did not see any direct impact on the trust or
its programming from the implementation of the governor's
executive order regarding DHSS.
Senator Olson asked if the trust supported the split of the
department as proposed by the governor's executive order.
Mr. Abbott relayed that the trust had not taken a formal
position on the reorganization. The trust had been assured
by the department that the reorganization would improve
service delivery to trust beneficiaries among others. The
trust was confident that the executive order as proposed
would not impact the trust directly. The statutory re-write
involved in the executive order was neutral with regard to
the trust.
Mr. Abbott thanked the committee on behalf of the trust.
Co-Chair Stedman looked forward to the response to the
member's question. He asked Mr. Abbott to inform the
committee when the board took action or gave a direction
regarding the inflation proofing issue.
Mr. Abbot agreed to provide the information.
Co-Chair Stedman discussed the agenda for the following
day.
ADJOURNMENT
10:15:22 AM
The meeting was adjourned at 10:15 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 022421 AMHTA Final Trust 2021 S FIN PPT.pdf |
SFIN 2/24/2021 9:00:00 AM |
AMHTA |
| 022421 Trust Follow-up S FIN Hearing 3.1.21.pdf |
SFIN 2/24/2021 9:00:00 AM |
AMHTA |