HOUSE FINANCE COMMITTEE February 04, 2003 1:34 P.M. TAPE HFC 03 - 10, Side A TAPE HFC 03 - 10, Side B TAPE HFC 03 - 11, Side A CALL TO ORDER Co-Chair Harris called the House Finance Committee meeting to order at 1:34 P.M. MEMBERS PRESENT Representative John Harris, Co-Chair Representative Bill Williams, Co-Chair Representative Kevin Meyer, Vice-Chair Representative Eric Croft Representative Richard Foster Representative Mike Hawker Representative Carl Moses Representative Gary Stevens Representative Bill Stoltze Representative Jim Whitaker MEMBERS ABSENT Representative Reggie Joule ALSO PRESENT Representative Bruce Weyhrauch; Representative Kelly Wolf; Cheryl Frasca, Director, Division of Management & Budget, Office of the Governor; Jeff Jesse, Executive Director, Alaska Mental Health Trust Authority; Phil Younker, Sr., Alaska Mental Health Trust Authority Board Member; Nelson Page, Chair-Budget Committee, Alaska Mental Health Trust Authority Board Member; Stephen Planchon, Executive Director, Alaska Mental health Trust Land Office, Department of Natural Resources; Dan Fauske, Executive Director, Alaska Housing Finance Corporation, Department of Revenue; Bryan Butcher, Legislative Liaison, Alaska Housing Finance Corporation, Department of Revenue; Joseph Dubler, Chief Financial Officer/Finance Director, Alaska Housing Finance Corporation, Department of Revenue. PRESENT VIA TELECONFERENCE *Listen only GENERAL SUBJECT(S): HB 75-APPROP: OPERATING BUDGET/LOANS/FUNDS  HB 76-APPROP:MENTAL HEALTH BUDGET Agency Overviews:  Alaska Mental Health Trust Authority (AMHTA)  Alaska Housing Finance Corporation (AHFC)  The following overview was taken in log note format. Tapes and handouts will be on file with the House Finance Committee through the 23rd Legislative Session, contact 465- 2156. After the 23rd Legislative Session they will be available through the Legislative Library at 465-3808.   LOG SPEAKER DISCUSSION   TAPE HFC 03 - 10, SIDE A  000 Co-Chair Harris Convened the House Finance Committee meeting at 1:45 P.M.  114 Representative Requested that Representative Kelly Wolf Stoltze be seated at the Committee table.  160 Co-Chair Harris HOUSE BILL NO. 75  "An Act making appropriations for the operating and loan program expenses of state government, for certain programs, and to capitalize funds; making appropriations under art. IX, sec. 17(c), Constitution of the State of Alaska, from the constitutional budget reserve fund; and providing for an effective date." Co-Chair Harris noted that HB 75 was before the Committee for review by the Office of Management and Budget.  222 CHERYL FRASCA, Explained and highlighted the handout. DIRECTOR, DIVISION (Copy on File). OF MANAGEMENT & · Page 1 - total funds appropriations BUDGET, OFFICE OF by funding source since FY1992 in THE GOVERNOR the Operating and the Capital budgets. General fund spending has remained constant since FY95. The federal funding has doubled in the State. · Page 2 - Outlines the Operating budget since FY92. The general fund is approximately 2/3 of the current budget. · Page 3 - Indicates the Operating budget versus the formula Programs since FY92- the general funds and the other State funds;  · Page 4 - Formula growth by fund source since FY99 through FY03. She noted that federal funds fuel the operating budget. · Page 5 - Provides a recap of all the formula program changes during the past five years. The biggest changes are to the Longevity Bonus Program, which has decreased 25%. She listed other decreases. Ms. Frasca pointed out the 99% increase to the Medicaid program since 1993. · Page 6 - FY03 total funds operating budget of $6.5 billion dollars by program category. The All funds are listed by program category. The Department of Health and Social Services consumes 23% of the entire operating budget. · Page 7 - FY03 Operating budget: $5.2 billion all funds (except Permanent Fund) by an appropriation categories. She noted the amount for Personal services category. The amount that goes to grants consumes 27% of the budget; personal services amounts to 27% of the budget by contracts. · Page 8 - FY03 General Fund operating budget categories: $2.2 billion general funds only by program category. She noted that education consumes 35% of that budget and that budget is primarily formula driven. The Governor's priority is to minimize the impact on the public of the reductions to services. Ms. Frasca noted that was the challenge being faced by the new Administration. As a result the budget is not currently available and that they are attempting to have the budget available by February th 25. · Page 9 - Provides the FY02 authorized/fiscal year 2003 authorized fiscal summary. She noted that there are approximately $40 million dollars of proposed increases to the formula driven programs, about $55 million dollars in increased debt service costs,  approximately $85 million dollars to replace lost one time monies, $39 million from lost federal funds, $19 million dollars to replace non general fund sources and an increase request by the University.  1232 Ms. Frasca Admitted that those needs and costs need to be balanced.  1321 Co-Chair Harris Asked to have a zero line budget, the State will need to reduce spending by $159 million dollars. Ms. Frasca replied that would be the scenario with a flat budget.  1342 Representative Asked if there had been statutory Stoltze recommendations at present time.  1357 Ms. Frasca Replied that the goal was not to present a budget that depends upon statutory changes.  1417 Representative Asked if it was foreseeable that the Stoltze Administration would be making recommendations for statutory changes. Ms. Frasca replied it was probable.  1451 Representative Croft Referenced Page 9, noting that Habitat was still in the Department of Fish and Game, not Department of Natural Resources.  1516 Ms. Frasca Responded that was the FY03 management plan approved by the Legislature last session. It has not been rewritten to reflect the current proposal for FY04.  1526 Representative Croft Summarized that what was being overviewed was the FY03 budget.  1533 Representative Croft Referenced Page 1 & 2 of the handout. He noted the general fund and operating funds and asked if they were inflation- adjusted numbers.  1616 Ms. Frasca Replied that they are 'raw' numbers.  1628 Representative Croft State that those numbers would not keep up with inflation.  1641 Ms. Frasca Stated that it would not reflect "buying power".  1650 Representative Croft Noted that the numbers did not reflect any increase in the State's population. He thought that numbers was approximately 600.  1704 Ms. Frasca The chart shows the amount appropriated by the Legislature last year.  1720 Representative Croft The graph indicated that the graph shows mostly federal funds.  1746 Co-Chair Harris Noted that the bill would be HELD in Committee for further consideration.  1814 ALASKA MENTAL HEALTH TRUST AUTHORITY  (AMHTA)  1832 PHIL YOUNKER, SR., HOUSE BILL NO. 76  ALASKA MENTAL HEALTH "An Act making appropriations for the TRUST AUTHORITY operating expenses of the state's BOARD MEMBER integrated comprehensive mental health program; and providing for an effective date." Mr. Younker introduced the members of his group, Nelson Page, Steve Planchon and Jeff Jesse.  2001 JEFF JESSE, Distributed the handout. (Copy on File). EXECUTIVE DIRECTOR, He spoke to the history of the Alaska ALASKA MENTAL HEALTH Mental Health Trust Authority (AMHTA). TRUST AUTHORITY In the times of territorial Alaska, if a person had any type of disability, and could not make it with the support of family and or church and came to the attention of the territorial officials, that person was tried and convicted of being an "insane person at large". When statehood was being discussed, then the state would then have had to take over this responsibility. There was no means of support at that time. Within a few years, a three-prong strategy was created to work out the problem. The first was an initial appropriation of $8 million dollars that built the first wing of Alaska Psychiatric Institute (API) and bought the original Harborview. Additionally, there was some federal operating support. The third part was to allow the State to select acres of land to hold a trust to generate income to pay for mental health services. The State did a good job of choosing the land. It was well chosen land. As the State grew, mental health services increased. Unfortunately, the State then took that million acres and rolled it into their 100 million acre federal entitlement and treated it all like general state lands. Half of that land was removed into federal trust status. When the local governments were able to select State land, they selected mental health trust lands. He admitted that was a problem. It took three years and then in 1982, the original lawsuit was filed. By 1985, it went to the Alaska Supreme Court who ruled that the land must be returned.  2428 MR. JESSE Referenced Page 2, which listed the key  terms of that Court settlement. · Trust authority free to use Trust resources to act as a catalyst for change; · Trust authority funding recommendations considered in a single appropriation bill; · Trust authority to aid in comprehensive planning for mental health program; · Mental Health Trust Lands and associated state lands released for development.  2541 Mr. Jesse Claimed that AMHTA is proud of the land office. He recapped the beneficiaries: · People with mental illness · People with developmental disabilities · People with Alcoholism/other addictions; · People with Alzheimer's disease 7 other dementia.  2613 Mr. Jesse Referenced those people with traumatic brain injuries that are also beneficiaries of the Trust. The Board will work with the Alaska Traumatic Brain Injury Advisory Board.  2705 Mr. Younker Referenced Page 3, Land and Resources. When the settlement actually came, the Trust received 994,000 acres, managed for the long-term. He listed the breakdown of the lands: · Fee estate · Mineral estate · Coal, Oil & Gas  2842 Mr. Younker Continued, highlighting the revenue from the Trust land office and how the operating and capital expenditures versus the revenue earned. That budget is broken into two portions, Capital expenditure and the Operating.  3001 Mr. Younker Referenced Page 5, 2002 Alaska Business Monthly TOP 49 by $ per employee operations. The Trust land office with just nine employees, ranks #7 on the chart. He compared that to some Native Corporations that have some large land holdings.  3050 Mr. Younker The chart on Page 5 also indicated the value from 1996 versus 2002.  3110 Mr. Younker The pay out rate changed from 1996 at 3% to 3.5% in 2002. The Trust is designed to 'self-inflate'. That is why a little less than 5% is paid out.  3136 Mr. Younker Noted that the system is that there is a 4-year payout. Currently at 2 years. Added additional policy to insure  3222 Mr. Younker Referenced Page 6, Trust FY04 and the Trust Major Accomplishments. The general fund mental health base amounts to $134.400 million dollars. The alcohol tax, which was added last year, $3.6 million dollars was committed in last year's budget.  3350 NELSON PAGE, CHAIR-Referenced the handout. (Copy on File). BUDGET COMMITTEE, He highlighted the accomplishments of the ALASKA MENTAL HEALTH first six years. TRUST AUTHORITY · Closure of the Harborview BOARD MEMBER Developmental Center in Valdez. For years the State had been trying to find a way to close that center. When closing down an institution, there is a period of time with there are two sets of bills that need to be paid. The Trust ended up coming forward and paying 1/2 of those bills. The State then spent their money on new programs.   3635 Mr. Page Continued listing the accomplishments: · API. For years, everyone knew that API needed to be replaced. The Trust helped with the change. API was on Trust land. The system involved what a new API building would look like and that system currently is in place.   3820 Mr. Page Provided another example: · The Fort Knox Gold mine. The Trust was able to collect some revenue and at the same time, there was an opportunity to have permits to make the site a regional mill site. That created a place for milling.   3942 Mr. Page Referenced Handout 1, Page 7, noting that the Trust works in conjunction with the Four Advisory Boards. The four boards help to create the Mental Health Budget bill to determine the needs of the  beneficiaries. · Alaska Mental Health Board · Governor's Council on Disabilities & Special Education · Advisory Board on Alcoholism & Drug Abuse · Alaska Commission on Aging   4135 Mr. Page Comprehensive Integrated Mental Health Plan provides for Department of Health & Social Services and AMHTA be responsible for preparation of a plan for an integrated comprehensive mental health program that is coordinated with federal, state, regional, local and private entities involved in mental health services.  4220 Mr. Page Listed the result-based planning areas: Health, safety, economic security and living with dignity.  4233 Mr. Jesse Stated that the priorities are the result based planning concerns that are building infrastructure and creating workforce development.  4340 Mr. Jesse Listed the prior collaborations. · API 2000 - Anchorage Emergency Services · Assisted Living Rate Increase · Medicaid Options · Women's Mental Health Unit in Department of Corrections · Closure of Harborview · Suicide Prevention Council · Alcohol Evaluation  4500 Mr. Jesse Noted that the Trust had split a $200 thousand dollar study costs to determine the results of alcohol treatment programs. He advised that good results need to happen from those investments.  4548 Mr. Jesse API/Anchorage Emergency System. He noted that AMHTA was being pushed into the 'corner' to build a larger hospital was because Anchorage was using API as a short-term psychiatric facility. In other parts of the State, they do not do that. The Trust worked with U.S. Senator Stevens to develop a hospital for Anchorage. The first job was to create a single point of entry. In Anchorage, the police officers have to access the people  that they pick up.  TAPE HFC 03 - 10, Side B  4659 Mr. Jesse Added that with the help of the federal monies, a single point of entry was created for detoxing. A 24-hour nursing coverage was also provided with the federal money. He stressed that there must be an emergency system within Anchorage to address these concerns and the federal money is going away. There is a scheduled cycle to address this and over the years those federal dollars have been replaced with general fund dollars.  4501 Mr. Jesse Spoke to the Alcohol Fund Package. · Alcohol Tax increased in 2002 · Alaska Legislature committed one- half of the alcohol tax revenue to be set aside for alcohol prevention and treatment · $3.6 million dollars for Alcohol Fund revenue was utilized in the FY03 budget for existing services  4314 Mr. Jesse Listed the reforming mandated treatment consisting of five components of alcohol fund package: · Child protection · Adult Offenders · Emergency Services · Youth/Juvenile Justice · Capital/Infrastructure  Representative Questioned if the Trust had an inventory Stevens of their properties and the present value of those.  4141 STEPHEN PLANCHON, Responded that a there was a detailed EXECUTIVE DIRECTOR, inventory of where the parcels are ALASKA MENTAL HEALTH located. As a result of the settlement TRUST LAND OFFICE, process, there was an extensive appraisal DEPARTMENT OF process done for the bulk of the lands. NATURAL RESOURCES As of today, there is not a complete inventory.  4018 Representative Asked how long it would take to prepare Stevens that information.  4000 Mr. Planchon Noted that it would not be much different that some of the Alaska Native Corporations who have concluded that it would take a lot of time and a lot of money. The settlement clarified that the Trust was not to take over the obligation of the State in respect to funding Mental Health programs. The Trust does not have the resources to take over the State's  funding requirements.  3834 Representative Inquired if the Trust has been expanded Stoltze since the inception of including mental health.  3811 Mr. Jesse Explained that early on, the Trust went through the entire State budget and determined what should be allocated in a separate appropriation bill. Following that discussion, the concept of what was under the Trust has remained consistent.  3747 Representative Referenced the history of the Trust.  Stoltze 3725 Mr. Jesse Advised that the beneficiaries have not changed, but rather the methods of service. He noted that home health care, family supports, community based services, etc. have been added. He conceded that the program had changed dramatically.  3635 Co-Chair Williams Referenced a discussion he had with a constituent regarding the method of timber sales involved through the Trust.  3550 Mr. Planchon Confirmed that a bulk of the timber sales had gone to an export market, however, he noted that small mills in Alaska have benefited from the sales.  3433 Mr. Page Noted that the initial suit occurred when the State forgot that the land was held in 'trust'. That had been overlooked. The Trust's Fiduciary responsibility is to safeguard the beneficiary's interests.  3330 Representative Croft Followed up on previous comments that the State would receive less money if it were restricted for shipping out raw.  3310 Mr. Planchon Confirmed that there was a significant price difference between the foreign and domestic markets in timber. He noted that some of that was based upon volume. The domestic market is not able to accommodate the large quantities. The Forest Service sales included an export ban. The domestic sales would be a significant reduction in Trust income. At present time, the timber revenue for the Trust represents 50 percent of the gross income. The Trust attempts to diversify the revenue sources. Timber is a faster resource to liquidate. The timber resource will decline in the next three years.  3122 Representative Croft Asked if Alcoholism was considered a mental illness in 1955.  3015 Mr. Jesse Responded that the territorial authorities applied a 'blunt instrument' that people with any kind of mental disabilities that fell back on the territorial government for their care were considered as such.  3004 Representative Croft Asked if it was expanding the client base or a more sophisticated way of talking about the issues.  2940 Mr. Jesse Stressed that the issue of prevention. In some areas, the Trust has better strategies than the others.  2928 Representative Croft Asked about HB 76.  2917 Mr. Jesse Commented that HB 76 is the same situation as the general fund bill and that the Trust was in consultation with the Office of Management and Budget regarding the concern.  2900 Representative Croft Noted that it was the same funding as last year.  2847 Mr. Jesse Acknowledged that was correct. He pointed out two more aspects of the Alcohol package. · Evaluation - he noted that they were proposing that a significant amount of the money would be used for an ongoing, independent evaluation of the outcomes of the alcohol programs · Workforce development - The State is not good at taking what is known nationally of what are the best practices and putting them into play.  2733 Mr. Jesse Stated that partnering with the University of Alaska could play a key role in all areas, which could benefit the State.  2650 Mr. Younker Addressed the success of the Mental Health Trust. He admitted that the Trust looks forward to working with the Legislature and the Administration. He concluded that the management of the State's land continues to serve a wide variety of needs throughout Alaska.  2453 Representative Asked if the Trust had been subjected to Hawker an independent audit.  2427 Mr. Jesse Replied that the Trust only participates in the State audit.  2416 Representative Croft Asked for further information on the alcohol assessments and which programs work.  ALASKA HOUSING FINANCE CORPORATION  2320 DAN FAUSKE, Provided the Committee with a handout. EXECUTIVE DIRECTOR, (Copy on File). He noted that the ALASKA HOUSING mission of the Alaska Housing Finance FINANCE CORPORATION, Corporation (AHFC) was to provide DEPARTMENT OF Alaskans access to safe, quality, REVENUE affordable housing.  2227 Mr. Fauske Explained that the: (Page 3) · Housing industry accounts for 24% of the gross State product · Expenditures for housing amounts to 28% of the average Alaskan family's disposable income  2140 Co-Chair Harris Asked if those numbers could be divided between the rural and the urban.  2123 Mr. Fauske Replied that those percentages were statewide.  2111 Mr. Fauske Referenced Page 4 - Operations: · Offers Home Loan programs emphasizing housing for low and moderate income and rural residents; · Administers statewide housing, energy efficiency and weatherization programs; · Operates the State's Public Housing; · Assists in the statewide financing, development and sale of dwelling units.  1958 Mr. Fauske Page 5 - Special programs for low to moderate income & rural residents: · Interest rate reduction for low- income borrowers; · Energy efficiency interest rate reduction; · Rural Housing Assistance loan fund; · Multi-family loans. He commented that the low interest rates are 'fueling' the current robust market.  1855 Representative Inquired if those were residential loans.  Hawker 1826 Mr. Fauske Replied that they were. Referenced Page 6 - Statewide housing, energy efficiently and weatherization programs. He explained that this was a very successful programs and then listed the items: · L.I.H.T.C. Program · Senior & special needs housing · Statewide weatherization & energy programs · Supplemental housing  1702 Mr. Fauske Page 7 - the Public Housing Division. He noted that there would be a pilot program taking place in Barrow and that it would be administered through the federal government. Mr. Fauske noted that there are over 4,000 people on the wait list for that program.  1600 Mr. Fauske Page 8 - The Financing Programs. Mr. Fauske noted that the Veterans Mortgage program was about to sunset. The programs include: · Tax-exempt first time homebuyer program · Veterans mortgage program · Taxable first time homebuyer program · Taxable program  1399 Representative Inquired the rough number of veteran Stevens loans that are out within the State.  1339 JOSEPH DUBLER, CHIEF Offered to provide that information. He FINANCIAL estimated that there was roughly $300- OFFICER/FINANCE $400 million dollars out.  DIRECTOR, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF REVENUE 1308 Representative Questioned the amount of the AHFC Stoltze advertising budget.  1255 Mr. Fauske Replied that AHFC works with public awareness. On the veteran's side, there are public service announcements and no voting restrictions have been violated. He reminded members that AHFC is in a competitive market and they want awareness 'out there' particularly regarding the taxable programs. He reiterated that it is a competitive market and that AHFC is 'up against' the commercial market.  1155 Representative Admitted that he was overly suspicious.  Stoltze 1140 Mr. Fauske Continued highlighting Page 8.  1118 Mr. Fauske Outlined Page 9 - the long-term debt issuance process that emphasizes the subjective nature of the rating agencies review of capital adequacy.  1050 Mr. Fauske Referenced Page 10 - reiterated the rating criteria and requirements selected excerpts emphasizing the subjective nature of the rating agency's' review of capital adequacy. AHFC is currently rated as an AA-. He hoped to receive an  AAA rating. That would have an impact on the cost of capital to the State. Currently, Alaska has a positive image and that frees up the operating system and lowers the capital to investors. The criteria is important will become more important in discussions within the Capitol budget.  906 Mr. Fauske Page 11 - Highlights the transfers to or on behalf of the State General Fund from 1986-2002 percentages in the amount of $1,219,040.  830 Mr. Fauske Page 12 - Summary of AHFC equity, net income, State appropriations and transfers to the State.  744 Representative Croft Noted the difference between direct cash transfers and dividends. He asked the distinction between those two.  715 Mr. Dubler Replied that in 1990, AHFC began a dividend program, which included a cash transfer for the dividend program.  638 Representative Croft Asked if it was ½ direct cash and ½ taking over projects. Mr. Dubler replied that was correct.  630 Mr. Fauske Continued, referencing Page 12, the summary of AHFC equity, net income, State appropriations and transfers to the State.  608 Mr. Fauske The rating agencies focus onto these amounts. He stated that it is important to be careful with these plans. The plans must outline what is foreseeable with the future transfers within the State. Mr. Fauske noted that he would work with the Committee in order to formulate that plan.  422 Mr. Fauske Page 13 - Summary of financial information. From a business perspective, AFHC is satisfied with the corporation's market share, however, he pointed out the drop in the investment income. The original base was based on 6% as an interest rate. Currently, that rate is at 1.2%. That percentage falls in line with interest rates throughout the country. AHFC does not now invest in equities; all money loaned is short-term.  226 Mr. Fauske Discussed that these are trusted money and they have no equity.  207 Representative Asked the portion of the portfolio that Hawker is on a fixed rate basis versus the variable rate base.  142 Mr. Dubler Replied that everything at this time, is on the fixed rate loan scheme.  127 Representative Asked the average maturity rate on the Hawker portfolio.  113 Mr. Fauske Replied that the average loan in Alaska is seven years.  54 Mr. Fauske Referenced Page 14, the Short-Term Investment rates.  TAPE HFC 03 - 11, Side A  020 Mr. Fauske Continued, noting that the business of AHFC is currently doing well.  038 ADJOURNMENT The meeting was adjourned at 3:15 P.M.