SENATOR TAYLOR brought SB 67 (MENTAL HEALTH TRUST AMENDMENTS) before the Judiciary Committee. SENATOR TAYLOR announced the list of those testifying on SB 67 in Juneau and on the teleconference network in Anchorage, Fairbanks, Kodiak, and MatSu. SENATOR TAYLOR invited Attorney General Cole to testify. ATTORNEY GENERAL COLE began his remarks to SB 67 entitled "An Act amending provisions of ch. 66, SLA 1991, that relate to reconstitution of the corpus of the mental health trust, the management of trust assets, and providing for an effective date," by objecting to the legislation. He explained the legislation would involve the reconstitution of lands formerly within the corpus of the trust which have not been conveyed or encumbered by the state or reserved by law from the public domain. He further explained it would repeal sections of Chapter 66 of AS 37.14.036(c) to provide compensation for the land that constituted the trust established by the Alaska Mental Health Enabling Act in 1956. ATTORNEY GENERAL COLE quoted the requirement, as proposed by SB 67, to direct the state to make an annual payment of 6% of the unrestricted general fund revenue of the state during each fiscal year. He explained that section provides further that the Commissioner of Revenue shall annually allocate that amount from the general fund to the Mental Health Trust Income Account established under Subsection A of Section 2 of the bill. ATTORNEY GENERAL COLE questioned the amount of land to be reconstituted to the trust as provided by the proposed legislation and explained the status of the original lands: 46 thousand acres to third parties, 43 thousand acres to Municipalities, 39 thousand acres to the Native corporations and the University of Alaska, 60 thousand to mining claims, and legislatively designated areas - state forests, parks, wildlife refuges, etc. - comprising 357 thousand acres, and unencumbered lands comprising 352 thousand acres. He thought this last figure of 352 thousand acres should be the focus; however, about 550 thousand acres would be reconstituted to the trust under the proposed legislation. ATTORNEY GENERAL COLE discussed the process of placing thousands of acres back into the trust and finding the missing 550 thousand acres to make up the original one million acres under the original enabling legislation. ATTORNEY GENERAL COLE explained the legislation would appropriate in perpetuity 6% of the unrestricted general funds of the state, with last year's amount about $132 million, and he thought this year's bill would be about the same general amount, or more depending on the recent British Petroleum settlement. Number 147 ATTORNEY GENERAL COLE suggested the proposed amount for this year might be around $170 million to the Mental Health Income Account, and would go on forever. He thought there might be some constitution problems arising from this legislation, and he expressed his firmly held view that 6% of the unrestricted general funds forever was far too much to pay to replace the missing 550 thousand acres. ATTORNEY GENERAL COLE repeated his opposition to SB 67, and he asked the committee to consider the effect of the 6% provision. He explained the legislature would have no further control over the appropriations for mental health, and the legislation would effect money that goes to education, to public safety, or any other legislative priorities. ATTORNEY GENERAL COLE thought the legislature should be free to make appropriations pending upon the evaluation of state appropriation needs. He thought the Weiss case should be settled at fair market value, but the bill shouldn't lock the legislature into 6% in perpetuity to pay for only 500 thousand acres of land. Number 202 ATTORNEY GENERAL COLE explained, in the existing settlement, the state waived the set-off which was granted by the Alaska Supreme Court for sums previously appropriated to mental health programs in the state. He said the amount was a matter of debate, and he claimed the court had refused to explain their actions. He stressed his main theme of "what is fair?" SENATOR LITTLE asked ATTORNEY GENERAL COLE if he was saying it was a bad idea, and she asked if he had a better idea to offer. ATTORNEY GENERAL COLE explained why he thought SB 67 was a profoundly bad deal, and he thought Chapter 66 was basically fair, to reconstitute the trust as mandated by the supreme court. He continued to discuss his opposition to the changes which would be brought by SB 67. Number 261 SENATOR LITTLE pushed for a better idea, and ATTORNEY GENERAL COLE thought Chapter 66 was a good idea then and now. SENATOR TAYLOR expressed his primary concern at what he considered the hostages, and he asked if the bill released the hostages. ATTORNEY GENERAL COLE thought those provisions in SB 67 that seemed simple and straight forward would generate a plethora of litigation, and he explained stipulations from the Weiss case. He refused to elaborate further. SENATOR TAYLOR asked if the proposed litigation would release the hostages, and ATTORNEY GENERAL COLE said he didn't see anything in the bill that would release them. He explained the legislation would not end the quest, since there still needed to be an agreement with the beneficiaries in the Weiss litigation. Number 310 SENATOR TAYLOR asked how the concerns could be satisfactorily resolved for all of the various parties who may wish to litigate, and he explained how the group expanded to include many other groups. ATTORNEY GENERAL COLE suggested SENATOR TAYLOR would not have that assurance if SB 67 was enacted. SENATOR JACKO asked whether it would be a dedicated fund, and ATTORNEY GENERAL COLE quoted MR. KOESTER as saying it was a dedicated fund, but he preferred to leave the answer to MR. KOESTER. MR. KOESTER said it had been done obliquely. SENATOR TAYLOR suggested there should be time for both sides of the dispute, and BOB STILES, President/Owner of D.& R. Ventures, asked to testify for the settling plaintiffs. Number 342 MR. STILES said he was not a plaintiff, but an affected third party, who had become one of the hostages in the mental health litigation. He clarified that SB 67 was not an alternate to Chapter 66 but was amendments to Chapter 66. He reviewed the objections put forth by the Department of Law and the attorney general, and said he has instructed his legal counsel to prepare some suggested legal fixes to SB 67. He addressed his concerns about the primary litigious parts of Chapter 66 on the substitute land issue. MR. STILES outlined two potential outcomes, both of which he found onerous, the first being the ineffectiveness of Chapter 66 if it survives. He predicted if Chapter 66 fails quickly, it would precipitate reconstitution, dealing with 6 thousand transactions in the litigation. He described the knowledge of the mental health land freeze in international markets, and he said the details of the litigation are not well known, but he explained they just don't invest or buy. He outlined some dire results with regards to his investments, and other investors, in the Wishbone Coal Project and the Beluga Coal Company, thus, losing a new project. Number 416 SENATOR TAYLOR asked what assurances MR. STILES had that if the amendments passed, the land freeze would be lifted. MR. STILES said the legislature had removed the fuel from the fire in the substitute language, and he quoted the interveners as saying, "In the absence of the substitute lands, they don't have anything to litigate about." He claimed the original trust lands are trust lands, and he gave his understanding of the way in which the lands should be handled. SENATOR TAYLOR clarified MR. STILES' explanation on the treatment of the original trust lands, and MR. STILES said they would be somewhere between private lands and municipal lands. Number 438 Next SENATOR TAYLOR invited JEFF JESSEE, Senior Attorney for the Advocacy Services of Alaska, to testify. MR. JESSEE said he was a former settling plaintiff, and now a non-settling plaintiff, and represented people with developmental disabilities, one of the four beneficiary groups in the mental health lands trust case. He expressed dismay that ATTORNEY GENERAL COLE was not able to stay to listen to the remainder of the testimony. SENATOR TAYLOR said that was why he had asked MR. KOESTER, Attorney for the Department of Law, to return. MR. JESSEE reminded the legislators that when they were elected as legislators they were also elected as Trustees of the Alaska Mental Health Lands Trust, and as such, have a special relation to his clients, the developmentally disabled. MR. JESSEE traced his path from being a settling plaintiff to a non-settling plaintiff, and his negotiations with ATTORNEY GENERAL COLE and COMMISSIONER HAROLD HEINZE in the land exchange. He reviewed their discussion as to whether the land exchange would violate Section 6(i) of the Statehood Act, and how it was put on a list of unresolved problems. MR. JESSEE continued his description of the negotiations, the development of the settlement agreement, and the emergence of the public interest interveners, who activated the list of unresolved problems. He thought the suit brought by the interveners would resolve most of the list of problems and bullet proof the settlement. Number 490 MR. JESSEE took one issue from the problem list, Section 6(i) of the Statehood Act, which, he said, must be resolved before the land exchange can take place. He explained if the land exchange was held in violation of Section 6(i), the state could lose to the federal government all of those exchange lands, while languishing in the courts. MR. JESSEE took on the issue of hostages beginning with a million acres of hostage land, the original trust land. He added the 6.7 million acres of hypothecated or security lands and the 550 thousand acres of proposed substitute lands, which under the settlement agreement, has to be segregated and closed to mineral entry. He summarized the problems a person might have in wanting to develop any of the hostage lands. MR. JESSEE said the fatal flaw in the lands deal came when he realized the concept of locating comparable lands to the original lands was not realistic, and he listed such areas as the Homer Spit, Mountain View, and Kenai River frontage as part of the original trust. When the comparable land was not found, he said they were forced to select Cook Inlet oil and gas wells, the Glacier Winter Creek area, the Lease Lake area, and hydro-electric sites in Southeast Alaska. MR. JESSEE said the state was outraged when these lands were selected, especially the Cook Inlet oil and gas wells, which made him realize there would be additional hostages just to get the chance to litigate against the state to see what lands would be put into the trust. He explained that realization wasn't in the best interest of the beneficiaries. Number 522 MR. JESSEE explained how the Mom and Pop designated land was to be released, to lift the land freeze, so they could get their patents, but the mental health trust had to reserve the right to reassert claims to that land if the settlement was never approved. He quoted the courts as saying it was a cruel hoax, since selling the land would be selling a lawsuit. MR. JESSEE admonished ATTORNEY GENERAL COLE for his remark about the 6% going on forever. He explained whoever had the land would have it forever, and the mental health programs would have it forever. He explained the 6% had been passed in 1990 as a proposed settlement to the case, and he gave the reasons why that settlement failed. MR. JESSEE said the legislation had the same protection as the legislature's ability to appropriate and control the money contained in the current settlement before the court. He linked the reduction in the 6% amount to the reduction in the income in the state. MR. JESSEE characterized the conservative philosophy of the participants in regards to the use of the mental health funds by the mental health programs and the Mental Health Trust Authority as being more careful than the legislature. He outlined all of the participants in the mental health problems as to how they are paying for Chapter 66, and how unpopular this has made the litigants in the mental health case. MR. JESSEE quoted PHILIP VOLLAND from last year when he outlined what he believed would happen with SB 67, when the land freeze would be lifted, and all the hostage lands released. MR. JESSEE could not guarantee there would not be any future litigation, but he couldn't imagine any more problems than there presently were with Chapter 66. MR. JESSEE described ATTORNEY GENERAL COLE'S $3 billion offset as being untrue, and he quoted the supreme court as stating the mental health trust was to have received all of the original land possible, except for the lands that were sold, where the plaintiffs were entitled to cash from the state, and the state entitled to a credit for what they had spent. He explained how crucial were the lands that had been sold. TAPE 93-19, SIDE B Number 001 MR. JESSEE suggested the attorney general sit down and realistically look at some of the remaining issues, because he thought they could be solved. SENATOR TAYLOR asked MR. JESSEE what assurance the legislators have, if the amendments are passed, the hostages will be released. MR. JESSEE said the first would be all of the land hostages would be released, and the cloud over the rest of the state land would be lifted. He said he would present the letter from PHILIP VOLLAND, who believes within a matter of months, the injunction would be removed. He thought it would happen more quickly than under the current Chapter 66 settlement. SENATOR TAYLOR asked if the 315 thousand acres would be returned to the trust under SB 67, and MR. JESSEE explained there would be some variation in the number of acres of totally unencumbered land. He said some of the encumbered lands can also be returned under SB 67, because the trust would take them subject to the encumbrance, and he gave an example. SENATOR TAYLOR quoted ATTORNEY GENERAL COLE as using the figure of about 450 thousand acres that could be returned to the trust. There ensued a discussion of these lands including the legislatively designated lands, the Municipality lands, and the Mom and Pop lands. They also discussed the 6% to be spent currently on mental health programs, and MR. JESSEE criticized ATTORNEY GENERAL COLE'S attitude on the 6%. SENATOR TAYLOR suggested, as the state has a decreased income stream, the mental health programs might need more money, and MR. JESSEE said none of the money currently appropriated would ever completely pay for all of the mental health programs of the state. MR. JESSEE thought the settlement would give the mental health programs some influence over the money to spend it smarter or better. Number 050 SENATOR DONLEY asked if there were going to be any changes to the legislation as it comes from Resources, and SENATOR TAYLOR said there were none so far. MR. JESSEE said MR. STILES would be presenting some technical amendments, which MR. STILES explained were in response to legal issues raised by the attorney general. Next, SENATOR TAYLOR called on TOM WALDO, Attorney for the Sierra Legal Defense Fund, Inc., to testify. MR. WALDO explained, in addition to the Sierra Legal Defense Fund, he was also one of the attorneys representing the public interest interveners in the mental health litigation, and he described the interveners as a coalition of 8 groups - 5 environmental groups, 2 sport fishing organizations, and the Susitna Valley Association, which he said promoted the recreational and tourism values of the Susitna Valley. MR. WALDO explained the public interest interveners generally supported nearly all of Chapter 66, the provisions dealing with the whole program side, and the administrative provisions negotiated over which a consensus was reached. He outlined their disagreement on the land exchange provisions for reconstituting the trust that had been hastily put together in the closing days of the 1991 legislative sessions. The disruption they saw in the proposed land exchange led them to litigation over 11 claims in October, 1991, a few months after the passage of Chapter 66. He quickly described some of the claims. SENATOR DONLEY asked MR. WALDO if his group supported the legislation, and MR. WALDO said they did. He cited Chapter 66 for not having enough safeguards for the public interest and was a major raid on the permanent fund in violation of the Alaska Constitution. He also explained how his group had been working with the other claimants on SB 67. Number 121 SENATOR TAYLOR asked if he represented all of the potential litigants in the settlement, and MR. WALDO said he could only speak on behalf of his own clients. He said he did represent many people with concerns that have been expressed. SENATOR TAYLOR turned to the teleconference site in Anchorage for PETER MAASSEN, an Attorney representing Marathon Oil Company and the Union Oil Company of California. MR. MAASSEN said he represented recent interveners in the Weiss litigation, as specified by JUDGE MEG GREEN. He described Marathon and UNICAL as unlikely allies with some of the other groups supporting SB 67, as well as unlikely participants in a struggle over funding for mental health programs. He explained the companies had scores of oil and gas leases in Cook Inlet, currently tied up in the litigation, because they had been pledged by the state as security for the state's reconstitution of the trust, or they have been named by the settling plaintiffs as proposed substitute land to be included in the reconstituted trust. MR. MAASSEN described their problems in terms of foreclosures under the provisions of Chapter 66, inclusion of the oil and gas leases in the trust by the settling plaintiffs, and the issue of being transferred to another lessor, who has no history of lease administration. Because of this, MR. MAASSEN said Marathon and UNICAL had brought suit saying their contract is with the state and can't be transferred to the trust without doing violence to the lease terms. He gave an example of the magnitude of the timing problem under Chapter 66, in the specific context of their claims. He predicted one lawsuit after another if the state proceeded under Chapter 66. Number 188 There were no questions, so SENATOR TAYLOR called on CHARLES BODDY, representing the Usibelli Coal Company in Fairbanks. Next he lined up JIM GOTTSTEIN, representing the Alaska Mental Health Association, and DAVID WALKER, Lead Counsel for the Settling Plaintiffs in the Weiss litigation, for the remaining time. MR. BODDY, Vice-President of Government Relations for Usibelli Coal Mine, explained the coal mine was a company that currently operated on three state coal leases that was either original mental health trust lands, on the hypothecated lands list, the proposed substitute lands list, or on the "pizzle" list. He characterized SB 67 as a fire fighting mechanism, and he said the fire was the replacement or substitute lands. He thought without that one sole provision, there would only be a few dim embers with which to deal. MR. BODDY indicated he would be coming to Juneau to help work through the technical amendments. Number 223 MR. GOTTSTEIN deferred to MR. WALKER in Juneau, who addressed the legislation before the committee as to what it "is and isn't." He said he represented the group of dwindling settling plaintiffs in the state who have urged the state to stay the course on Chapter 66, and he praised the settlement provided by chapter 66. He explained it took the good faith effort of all three branches of government to effect the settlement in the class action litigation, and SB 67 was an abandonment of that approach. He hinted the governor would probably veto the bill, and he quoted the court as saying the legislature cannot unilaterally resolve the lawsuit. MR. WALKER spoke optimistically about Chapter 66 and suggested the committee conduct a hearing with people who have worked in the settlement with their maps. SENATOR TAYLOR apologized for the lack of time, but he thought all of the speakers were essential. MR. WALKER offered to be available to the committee whenever needed. Number 296 SENATOR TAYLOR expressed some concerns that once the land settlement was achieved, parties should be working together, and he thought that process had broken down to the extent that every square inch of Alaska Statehood land was presently in jeopardy. He said he was willing to continue the process if he could see some resolve, but at this point, he told MR. WALKER, the state was never going to be able to develop any lands in Alaska for the next ten years. SENATOR TAYLOR thought some of the interest groups were concerned about their own welfare and not the mental health patients. MR. WALKER explained they were trying to reconstitute the trust with what is left of some of the most valuable land in the state of Alaska, and he said it was absolutely certain there would be conflicts over the reconstitution as an all land based trust, as a consequence of the decision. MR. WALKER thought if all parties worked together the land proposal exchanges would be possible, and he expressed some reservations about the use of an income stream. He said the proposals in Chapter 66 are manageable and a short cut way to resolve the land exchange difficulties. Number 359 SENATOR TAYLOR described a large block of retained lands that are parks, wilderness, and forested lands, and he suggested returning these park lands to the trust, instead of using these lands as leverage to tie up every piece of valuable land in the state. MR. WALKER didn't quite understand the thrust of legislatively designated areas, but he explained there would be problems as there were legislatively designated areas. SENATOR TAYLOR suggested that under SB 67 the 370 thousand acres acts as security for a 6% annual payout, and he complained the land had been leveraged up to 6.7 million acres of land. MR. WALKER protested they were substitute lands and would not all be included in the trust, but rather a pool from which the trust would be reconstituted. He explained the legislature had insisted on the legislatively designated lands designation. SENATOR TAYLOR felt the legislature should revisit the entire question of the legislatively designated lands, because the real price is more evident. He described the land transaction as having some spendy parks if such as the Haines State Forest were kept intact. SENATOR TAYLOR and MR. WALKER traded questions and answers in an exchange about legislatively designated lands, the parks, and satisfying the supreme court decision. SENATOR TAYLOR had some harsh comments on the potential litigants in the trust lands reconstitution. Number 462 SENATOR TAYLOR said the legislation would be resolved in committee with consensus. SENATOR LITTLE asked when the bill would be returned to committee, and SENATOR TAYLOR indicated it would be Monday of the following week. SENATOR DONLEY said he would like to see the proposed amendments as soon as possible.