CS FOR HOUSE BILL NO. 201(FIN) am An Act relating to the mental health land trust and the mental health land trust litigation, Weiss v. State, 4FA-82-2208 Civil, and amending and repealing other laws relating to mental health institutions, programs, and services that are affected by ch. 66, SLA 1991; and providing for an effective date Co-chair Pearce directed that CSHB 201 (Fin)am be brought on for discussion. She noted the presence of David Walker and teleconference participation by Mr. Gottstein. The Co-chair asked that the Commissioner of Natural Resources and Mr. Tom Koester first speak to differences between CSHB 201 (Fin)am and CSSB 67 (2d Fin)--the bill reported out of committee last year. HARRY NOAH, Commissioner, Dept. of Natural Resources, came before committee with TOM KOESTER, contract attorney for the Dept. of Law in the Weiss mental health litigation. Mr. Koester directed attention to May 3, 1994, correspondence (copy on file in the original Senate Finance Committee file for HB 201) to Representative Ron Larson and explained that it provides a section-by-section breakdown of CSHB 201 (Finance). Mr. Koester acknowledged that the letter does not address technical House floor amendments to the bill. The basic difference between CSHB 201 (Finance) and legislation passed last year relates to the second component of the legislation. The mental health bill has two elements: 1. The reconstitution component 2. The incentive component The reconstitution component: 1. Reconstitutes the mental health trust as required by the Alaska Supreme Court. 2. Removes certain original mental health land from trust status and confirms actions taken with respect to those lands (conveyances to third- party purchasers, conveyances to municipalities, and inclusion of original mental health land in parks and wildlife refuges). 3. Compensates the trust for lands removed from trust status by: A. Providing additional state land. B. Identifying and claiming as a set-off against monetary liability to the trust the $1.3 billion in state mental health funding between 1978 and 1994. C. A $100 million a year allocation to a special account in the general fund for appropriation by the legislature for mental health programs. That continues only as long as the state has conceivable liability remaining to the trust. Once the annual $100 million is credited against the liability for a sufficient time period to discharge the liability, the authorization terminates. Senator Kelly asked if the proposed bill extinguishes liability. Mr. Koester responded, "Yes, it does." Further responding to questions from committee members, Mr. Koester said that the $100 million is intended to ensure that a mechanism is in place to satisfy any state liability to the mental health trust, no matter how large it is. Liability will be an amount certain, and it will not go into the future. The above provision, in effect, takes the current 6% allocation of the unrestricted general fund that flows to the mental health trust income account and terminates it. The current 6% arrangement is ad infinitum. The proposals contained in CSHB 201 (Finance) terminate that arrangement, limit the authorization to $100 million a year, and allow it to extend only as long as the state's liability is not satisfied. Mr. Koester expressed his view that the state's liability has already been satisfied, and "this provision will never come into play." Inclusion of the provision makes clear to the court that the state is determined to satisfy its liability no matter how long it takes. The legislation, therefore, contains a mechanism to do that. It provides a failsafe to ensure that there is a mechanism to take care of the state's liability. Senator Kelly referenced $165 million and asked if appropriation of that amount would satisfy all liabilities. Commissioner Noah explained that the $165 is part of the incentive program, the second component of the legislation. He explained that payment would conclude the issue in that a settlement would be reached, and the money would only come into effect when the court has dismissed the case. Senator Kelly raised questions regarding continuing liability. Mr. Koester explained that the approach taken by the state rests in its belief that the reconstitution portion of the bill will eventually allow the state to persuade the court to dismiss the case. Judge Greene has said that the state cannot unilaterally settle the case, but it can obtain a final judgment that it has satisfied its obligations. The state believes the reconstitution portion does that. The state has, in effect, armed itself to litigate the case to conclusion should agreement not be reached. It has also included the second component of the bill--an incentive to the mental health community in return for an early dismissal and conclusion of the case by December 15, 1994. If the mental health community looks at provisions of the bill and determines that it is not in particular agreement with the state on reconstitution, but it finds sufficient impetus to incentive provisions: 1. A total of $200 million up front. 2. Creation of a mental health trust authority that will oversee the state's mental health program, make recommendations with respect to general funding of mental health programs, and expend discretionary funds on pieces of the state mental health program it believes are the most important. 3. Numerous improvements to the state mental health program. to agree to dismissal of the lawsuit, the case will be over. The $200 million is not part of the compensation to the trust. Reconstitution provisions of the bill accommodate that. The $200 million is part of the incentive package. Mr. Koester voiced his understanding that most of the mental health community believes the $200 million, establishment of the mental health authority, and other program improvements represent a fair resolution of the case and will be working toward that end. Senator Kelly again raised questions concerning the earlier- mentioned $165 million figure. Mr. Koester advised of a $200 million appropriation bill consisting of $45 million in currently available funding from a variety of sources (Commissioner Noah interjected: "two mental health trust accounts") and $155 million (rather than $165 million) from the permanent fund earnings reserve. The two-pronged approach in SB 67 is still being followed. The difference is in the incentive portion. The work draft for SB 67 included a $225 million staggered approach under which $15 million a year would be considered a guaranteed income stream to the trust. CSHB 201 (Finance) provides for a $200 million up-front appropriation in a lump sum. That appropriation would flow to a mental health trust permanent fund, the principal of which would not be spent. The fund would be invested with net income, after inflation proofing, to be used by the trust authority for mental health programs. The difference is that the House bill: 1. Creates a trust authority. 2. Provides a monetary corpus of $200 million for the mental health permanent fund trust. 3. Authorizes expenditure of the earnings of net income of the trust. 4. Provides for management of the $200 million by the Alaska Permanent Fund Corporation. Senator Rieger inquired concerning use of the net income of the $200 million and inflation proofing. He voiced his understanding of a reading of bill language to be that the mental health trust authority would enjoy full use of net income from the $200 million, but inflation proofing would derive from a draw from the permanent fund earnings reserve. Mr. Koester responded, "Nothing that's in the permanent fund earnings reserve will be used to inflation proof the mental health trust fund." The mental health trust fund would not be part of the permanent fund. It would be a separate account. He concurred that the entire net income from the trust fund would flow to the trust authority, but he directed attention to page 15, line 14, and noted that once the income accrues to the authority, one of the purposes for which it may be used is offsetting the effect of inflation. In response to a further question from Senator Kelly, Mr. Koester acknowledged that inflation proofing of the fund is permissible rather than mandated. He explained that it was not mandated since the trust authority requires flexibility in use of the earnings for current or future beneficiaries. The strong sense of the mental health community, which will be influencing and speaking through membership on the trust authority, is that the corpus should be inflation proofed. The trust authority has statutory responsibility to do that. Senator Kelly expressed concern that without a mandate to inflation proof, demands for trust funding will be such that inflation proofing will fall by the wayside. Mr. Koester noted that bill provisions were negotiated with members of the mental health community who are in support of the bill and will testify to that effect. Senator Kelly stressed that they are not aware of the pressures that will be exerted upon the authority to spend trust fund income. Senator Rieger suggested it would not be difficult to rewrite bill language to make the "real income" rather than "net income" available to the trust authority each year. He concurred with Senator Kelly concerning pressure that will be brought to bear on authority members to spend rather than inflation proof the trust and suggested that it should be "set up right . . . at the start." In response to a question from Senator Kelly concerning establishment of the trust authority, Mr. Koester explained that the concept arose in 1991, the most recent of the failed settlement attempts. It was included in Ch. 66 of the 1991 session laws. That law has never taken effect because, per the effective date clause, it does not take effect until the case is dismissed. The trust authority was addressed at that time and has since taken hold in both the mental health community and elsewhere as an appropriate "umbrella-kind" of organization. Senator Kelly asked if already-enacted other legislation would take effect upon settlement or be overridden by legislation in the instant bill. Is additional legislation needed? Mr. Koester explained that the proposed bill amends earlier legislation. Both bills become effective when CSHB 201 (Finance)am takes effect. Many of the provisions of the House bill relate directly to provisions of ch. 66 from 1991 session laws. Senator Kelly questioned whether establishment of the trust authority would, in effect, establish "another huge bureaucracy." He then asked if provisions restrict the types of purposes trust moneys could be expended upon. Mr. Koester said that there are no explicit provisions that limit authority ability to hire staff. There are substantial provisions that require the authority to take actions in light of obligations to the beneficiaries of the mental health trust. In response to similar concerns again expressed by Senator Kelly, Mr. Koester stressed that the mental health community would receive the benefit of grants and contracts authorized by the trust authority. That community will not allow all of its moneys to be used to fund a bureaucracy. Unlike many state agencies where there is no direct link between the population being served and agency expenditure of its dollars, there is a very direct link between the mental health community and the trust authority. Funding is to go to programs to benefit the mental health community. Senator Kelly argued that less and less would flow into programs as the bureaucracy expands. Senator Sharp voiced his understanding that the $200 million would not be transferred until reconstitution of trust lands and extinguishment of state liabilities have occurred, and all parties have signed on to the agreement. Commissioner Noah said that it would not be paid until the judge dismisses the case. Senator Sharp asked if the $100 million would be "sunset" at the same time the $200 million is transferred. Commissioner Noah advised that the 900,000 acres is part of reconstituting the trust, whether or not the incentive package is exercised. It is the central part of the bill. Senator Sharp then voiced his understanding that the 900,000 acres could be reconstituted and "the $100 million still guaranteed." Commissioner Noah said that if the incentive package is not exercised, and the judge does not dismiss the case, the state will claim that it has reconstituted the trust with 900,000 acres plus "the offset of the $1.3 billion." The $100 million would simply be there if the judge, for whatever reason, found "that there was some additional value that had to be paid to the trust." If the incentive package is accepted, the land remains in place, the trust authority is established, and the $200 million is placed in the trust. Because the judge would, at that point, dismiss the case, the $100 million would no longer come into play. Senator Sharp sought assurance that with the proposed and earlier legislation in place and effective, plaintiffs could not "double back" and file new cases. Mr. Koester responded affirmatively. Again referencing concerns earlier voiced by Senator Kelly, Mr. Koester noted Dept. of Law discussion of making the authority budget subject to the executive budget act so that it would have to come before the legislature each year. The reason it is not is that the mental health community--those who will be receiving the benefit of grants and contracts-- are worried that the state might use the executive budget act to thwart ability of the trust authority to work. The mental health community is convinced it will have sufficient control and tools available to influence the trust authority to ensure that the feared bureaucracy will not occur. Structure of the trust authority as proposed in the bill was the subject of discussion and negotiations with plaintiffs. It was an important consideration in the "fragile construction of this bill." Senator Kelly asked if the authority would be subject to the Alaska Procurement Procedures Act, conflict of interest, law, etc. Mr. Koester said the authority would be subject to conflict of interest law but not the Administrative Procedures Act. Senator Kelly voiced dismay over lack of controls. Co-chair Frank concurred, saying that he wished to explore the relationship between expenditure of moneys and the legislative process. He voiced his belief that the legislature would not back away from its commitment to mental health. He raised questions, however, over establishment of a trust authority with a flow of income while the legislature continues to appropriate moneys for mental health needs. There are legitimate questions concerning that relationship. Co-chair Frank next referenced the original Congressional grant of a million acres for mental health needs and questioned whether the state could transfer its public responsibility to the trust authority. Commissioner Noah explained that the University trust was used as a model for the proposed trust. Senator Rieger directed attention to the bottom of page 9, top of page 10, and page 12, lines 14 and 15, and noted requirements for how the legislature crafts its appropriation measures. He then inquired concerning the constitutionality of provisions such as the one requiring that the appropriation for the mental health trust be contained in a separate measure as well as report requirements. He asked who would prepare the report and commented that the requirements appear to bind future legislatures. Mr. Koester reiterated that much of the proposed bill is predicated upon ch. 66 from 1991. The appropriation process in the current House bill differs from that in ch. 66 in that there is less mental health trust community influence, under the instant bill, with respect to the bulk of mental health trust funding. That is the portion of mental health trust funding that comes from the state general fund. All the proposed bill requires with respect to general fund funding of mental health programs is that trust authority recommendations be considered and a report issue indicating why actual appropriations by the legislature differ from those recommendation. That gives the mental health community a sense that recommendations will be considered and looked at directly and specifically. Mr. Koester stressed that the primary purpose of the bill, from the state's perspective, is to "give us what we believe to be the best legal chance to get the case dismissed and to go forward." Other provisions are incentives, negotiated with the mental health community, which many have said will allow them to see their way clear to dismissal of the case by the end of this year. In response to inquiry from Co-chair Frank concerning the number of attorneys representing the mental health community, Mr. Koester advised of four attorneys representing various groups. At least two others whose clients are beneficiaries of the trust have not moved to intervene but have participated in negotiations along with a "very large group of mental health constituents that have been actively involved in looking at the package." Co-chair Frank asked if all six attorney had signed off on the proposed bill. Commissioner Noah responded negatively. Responding to further questions from Co-chair Frank, Commissioner Noah explained that the 1991 approach to settlement also contained an incentive package. That package is modified in the proposed bill. Instead of $225 million over a fifteen-year period, the $200 million for the trust would be provided in one lump-sum payment. Co-chair Frank voiced his understanding that if all attorneys do not sign off on the proposed bill, the court will be left to decide whether the bill, without the incentives, meets requirements earlier laid out by the court. He then asked why incentives were included. Senator Kerttula asked who would manage reconstituted mental health trust lands under earlier legislation. Commissioner Noah advised that SB 67 contained the same land management provisions as CSHB 201 (Finance)am. In both instances, the lands would be managed by the Dept. of Natural Resources. Speaking to Co-chair Frank's question regarding need for incentives, Mr. Koester explained that they encourage both consent and early dismissal of the lawsuit. The state is, in effect, paying for an early resolution of the lawsuit. Senator Kerttula asked if municipalities would be responsible for returning some land under the proposed bill. Commissioner Noah noted three specific municipalities: MatSu, Kenai, and Anchorage. Senator Kerttula asked why those who benefitted from the land do not bear some liability. Commission Noah responded that the land list has been the subject of "tremendous negotiation between a whole group of parties." Senator Kerttula spoke to the value of mental health community management of lands in terms of the competitive nature of state resources. He voiced concern over management of mental health trust lands by the Dept. of Natural Resources and asked if the mental health trust authority would be involved. The Senator suggested that the proposed bill allows for money management by the trust authority but not resource management. Commissioner Noah noted that regulations for land management would be developed in concurrence between the department and the trust authority. End, SFC-94, #82, Side 2 [Tape malfunction at this point in the meeting. Tape #84 was loaded onto the recorder but failed to record on side 1. The following minutes reflect transcription of shorthand noted.] Mr. Koester concurred that management of mental health trust lands would be an interactive procedure with members of the mental health trust authority. Development would come through regulation. Senator Kerttula advised that he wished to see more statutory involvement. Senator Kelly said that he was not interested in legislative involvement but voiced need for public involvement and oversight. He then asked who initially brought the mental health lawsuit and who would comprise the mental health trust authority. Mr. Koester explained that the authority would be a state agency with members appointed by the governor. The mental health community will have input, and prequalifications will be established. Senator Kelly asked if the mental health board would be abolished when the trust authority is established. Mr. Koester answered negatively. He explained that the mental health lawsuit was brought by the mental health association. It is not a state agency. Other groups that felt they should also be covered joined in the suit. Judge Greene has ruled that at least four groups should benefit: 1. The mentally ill 2. The mentally retarded 3. The developmentally disabled 4. Chronic alcoholics and senile elderly individuals The trust authority would have umbrella responsibility for all four groups. Each of the four individual boards would make recommendations to the authority. At the present time, that function is performed in part by the mental health board. The approach taken by the proposed bill, in conjunction with Ch. 66, is a better approach. The mental health board would continue to cover the mentally ill. Senator Kelly inquired regarding the number of mental health board employees. Mr. Koester advised of three and a half positions. He further directed attention to fiscal notes accompanying the proposed bill and noted that they relate to coverage for other, above-listed groups. He explained that the Older Alaskan's Commission would assume responsibility for senile elderly. The fiscal note from the Dept. of Administration would fund one full time employee. The Governor's Council on the Disabled has a staff of three. [End of shorthand transcription of unrecorded portion of meeting.] Start, SFC-94, #84, Side 2 Mr. Koester reiterated that the proposal under CSHB 210 (Finance)am is a comprehensive state mental health program that has two funding sources: 1. The general fund 2. Mental health trust income Funding will involve legislative review and appropriation of general fund expenditures and trust authority review and expenditure of trust income for funding of all aspects of the state mental health program. Expenditures for boards and the trust authority itself will be part of the state's comprehensive mental health program. Co-chair Frank inquired concerning how the two fundings would fit together. Commissioner Noah suggested that the specifics of how they would fit would evolve over time. The earnings from the trust account ($6 million was mentioned) will be a "portion of the money that you're spending now . . . on mental health programs." Mr. Koester concurred, advising that it involves projecting out into the future in a system that has never been tried before. He reiterated that the model used for the trust authority is that of the University of Alaska. The University receives revenues from its land trust and expends those proceeds in a manner reported to the legislature. The annual report lists various contracts and grants made with land trust revenues. Those moneys are not appropriated by the legislature. Co- chair Frank advised that that approach was being changed in legislation that has already passed the Senate and is on its way to the House. Mr. Koester said that once the system is operational, the legislature will be aware, each year, of what the trust authority did in the previous year. Contracts or grants that expend over more than one year will also be noted. The trust authority will be making recommendations for the overall package of funding. In those recommendations, the authority will provide information concerning how it used its part and how that will fit with what the authority hopes the legislature will do. The legislature will be taking into account other public needs for general funds and may or may not do as the trust authority requests. Co-chair Frank voiced his understanding that expenditure of earnings from the mental health permanent fund account would not come through the legislative budget process. Mr. Koester concurred that it would not. Co-chair Frank noted that the authority would thus have appropriation power over income from the $200 million trust account. Mr. Koester concurred. Co-chair Frank then asked if that would be constitutional. Mr. Koester acknowledged, "There are certainly constitutional questions raised about that." Co-chair Frank voiced his recollection that "No money can be spent without an appropriation by the legislature." Mr. Koester concurred that a number of constitutional issues have been raised and addressed in a number of opinions by the attorney general. He then referenced examples such as AIDEA and AHFC which have the power to use interest earned on revolving loan funds for expenditure without appropriation by the legislature. Attorney general opinions have acknowledged a constitutional question raised by that practice, but because it is something that has been done in the past, it can be defended. Constitutional questions have been made known to plaintiffs. They nonetheless feel that provisions for authority expenditure of earnings are important. Mr. Koester stressed that the only means by which the $200 million will flow to the trust account is if plaintiffs agree to dismiss the lawsuit. Commissioner Noah explained that by passage of CSHB 201 (Finance)am, the legislature is essentially laying out an offer of settlement. It will be up to the mental health community whether or not it accepts that offer. Co-chair Frank voiced his understanding that if the settlement is not accepted, the final decision will have to be made by the courts per SB 67. Commissioner Noah stressed that CSHB 201 (Finance)am exactly defines the terms of the settlement. It gives the case the greatest possible certainty for dismissal. The Commissioner further stressed that many others (land owners and resource developers), aside from the mental health community, are at risk in the issue. In the absence of the proposed bill, the argument will be one of value. [Defective tape. Recording on SFC-94, #84, Side 2 stopped at this point and would not restart.] Start, SFC-94, #86, Side 1 Senator Rieger expressed concern over "turning over the appropriation control which was not part of the original setup of the trust." He further asked what the end result of the issue would be. If the lawsuit is dismissed as a result of passage of the proposed legislation, does settlement then consist of a statute that is subject to amendment in the future or will settlement entail a court order similar to the Cleary settlement? Commissioner Noah said that because the mental health trust issue has been very difficult for the state for many years, once an agreement is reached, if modification is to occur, consensus must be sought with various groups involved. Mr. Koester explained that because agreement from all attorneys representing all mental health groups has not been achieved, there has been no negotiation of a settlement agreement. The state has talked with all plaintiffs' lawyers about the possibility of settlement in order to have an agreement to present to the judge. The state has expressed its concern over "getting locked into something like the Cleary settlement which cannot be fixed." The state does not believe that is necessary. Once this case is put to rest, there will be absolutely no interest on anyone's part to reopen the issue and thus open the door to an argument that somehow the state is violating the mental health trust by doing something that would lead to a reinstitution of litigation. The state is going to cure what the Alaska Supreme Court said was a breach of the trust in 1985. This bill does that. The state is not interested in getting into a situation where there will be perpetual court oversight of everything the state does in the future. Senator Rieger voiced concurrence in that approach and suggested that perhaps the legislation should state "something to the effect that the original trust obligation remains, but that this is just a statute that is like any other law; it doesn't override or otherwise change the original trust obligation." There would thus be flexibility for the future. Senator Rieger attested to the rigid effect of court orders and voiced a preference for avoiding that end. Senator Kelly advised that his reading of enabling legislation relating to the mental health trust authority indicates the authority is covered by the Alaska Administrative Procedures Act. He then asked if that provision would be "amended out" in the proposed bill. Mr. Koester initially responded affirmatively, but subsequently corrected his comments to advise of one exemption from the Act. He further advised that authority regulations would have to be adopted under the Administrative Procedures Act. He said he would further research the issue and provide a more definitive answer. Senator Rieger voiced his intent to offer an amendment requiring a higher priority for inflation proofing so that only real income is utilized for annual expenditure by the trust authority. Co-chair Pearce noted need to attend the pending Senate floor session and advised that the meeting would be recessed at this time and reconvened later in the day for consideration of appropriations for labor agreements as well as legislation relating to pension investments. RECESS The meeting was recessed, subject to recall by the chair, at approximately 11:20 a.m.