JOINT HOUSE & SENATE HEALTH, EDUCATION AND SOCIAL SERVICES COMMITTEE January 18, 1996 3:06 p.m. SENATE MEMBERS PRESENT Senator Lyda Green, Chairman Senator Loren Leman, Vice-Chairman Senator Johnny Ellis Senator Judy Salo SENATE MEMBERS ABSENT Senator Mike Miller HOUSE MEMBERS PRESENT Representative Con Bunde, Co-Chair Representative Al Vezey Representative Gary Davis Representative Norman Rokeberg Representative Tom Brice Representative Caren Robinson HOUSE MEMBERS ABSENT Representative Cynthia Toohey, Co-Chair OTHER MEMBERS PRESENT Representative Terry Martin COMMITTEE CALENDAR Overview of Mental Health Program and Planning EO 97 Transfer Functions of the Alaska Commission on Postsecondary Education PREVIOUS SENATE COMMITTEE ACTION No previous action to record. WITNESS REGISTER NELSON PAGE, Chair Mental Health Board of Trustees Mental Health Trust Authority POSITION STATEMENT: Provided background on the Mental Health Trust. TOM HAWKINS, Co-Chair Finance Committee Mental Health Trust Authority 1820 East 24 Avenue Anchorage, Alaska 99508 POSITION STATEMENT: Discussed the land and mineral base of the Mental Health lands. PHIL YOUNKER, Co-Chair Finance Committee Mental Health Trust Authority 121 Spruce Avenue Fairbanks, Alaska 99709-4150 POSITION STATEMENT: Discussed the Trust Asset Management Principles. JOHN PUGH, Trustee Mental Health Trust Authority 1011 D Street Juneau, Alaska 99801 POSITION STATEMENT: Discussed the budget and budget recommendations. KAY BURROWS, Trustee Mental Health Trust Authority 2711 West 84 Avenue Anchorage, Alaska 99502 POSITION STATEMENT: Discussed the planning aspects. EVELYN TUCKER, Trustee Mental Health Trust Authority 112 Beaufort Circle Anchorage, Alaska 99515 POSITION STATEMENT: Discussed two of the five areas of focus regarding planning. DIANE BARRANS, Executive Director Alaska Commission on Postsecondary Education 3030 Vintage Boulevard Juneau, Alaska 99801-7109 POSITION STATEMENT: Discussed the reorganization resulting from EO 97. ERIC FORRER 176 Behrends Avenue Juneau, Alaska POSITION STATEMENT: Supported EO 97. MARY JANE FATE 750 Farmer's Loop Road Fairbanks, Alaska 99712 POSITION STATEMENT: In general, supported EO 97. PAGE ADAMS, Student Commissioner Alaska Commission on Postsecondary Education POSITION STATEMENT: Requested that a student member remain on the board. TERESA WILLIAMS, Assistant Attorney General Fair Business Practices Section Department of Law 1031 W 4th Avenue, Suite 200 Anchorage, Alaska 99501-1994 POSITION STATEMENT: Discussed the constitutionality of having legislative members on a regulation-setting board. ACTION NARRATIVE TAPE 96-2, SIDE A Number 003 REPRESENTATIVE CON BUNDE called the Joint House & Senate Health, Education and Social Services (HESS) Committee to order at 3:06 p.m. He announced that the overview of the Mental Health Program and Planning from the Mental Health Trust Authority would be the first order of business. NELSON PAGE, Chair of the Mental Health Board of Trustees, introduced the entire Board of Trustees of the Mental Health Trust Authority. In 1994, the legislature unanimously passed legislation which resulted in a settlement of the lawsuit. That lawsuit had tied up over a million acres of Alaska's land as well as impacting other millions of acres of Alaska's land. The lawsuit claimed that Alaska had not acted as a suitable trustee for the beneficiaries of the Mental Health Trust. The Alaska Supreme Court agreed and ordered the million acres given to the Trust in the early 1950s to be reconveyed back to the Trust. However, much of that land had been conveyed to private parties, municipal and local governments, etc. Mr. Page emphasized that reconveying that land back to the Trust was an incredible disruption to the development of Alaska as well as the planning and coordination of a mental health program to meet the needs of Alaskans. This litigation was costing Alaska millions. The settlement in 1994 was approximately the fourth settlement. Number 104 Mr. Page stated that there were some key components to the settlement. The most important key components are as follows: (1) The beneficiaries gave up the right to hold hostage Alaska land. Those and other compensatory lands were placed in Trust. Those lands are currently managed in Trust by the Mental Health Beneficiaries. The income from that land is used to fund mental health programs. (2) $200 million was placed in a trust to be managed by the Permanent Fund Dividend Corporation. The spending of the income from that trust is determined by the Trust Authority. (3) The Trust Authority would make funding recommendations to the legislature and to the administration. The recommendations were considered as a whole, therefore the mental health funding would be a single appropriation bill. (4) The Trust Authority would have an active role in working with DHSS in attempting to ensure a comprehensive, integrated mental health plan. This would allow more efficiency. Number 160 Mr. Page reminded the committee that the Trust Authority had been appointed in March 1995. The Trust Authority wants to encourage innovative methods of growth to join all the mental health programs in the state together to form one program. In conclusion, Mr. Page noted one other goal of the Trust Authority - to avoid reinstating litigation. However, he did recognize that the settlement is currently on appeal and the Alaska Supreme Court could choose not to approve the settlement of the past nine months. The presence of John Malone, Mental Health Trust Authority Trustee, was noted. Number 222 TOM HAWKINS, Co-Chair of the Finance Committee of the Mental Health Trust Authority, informed the committee that he would be speaking to the land and mineral base of the Trust. There is approximately a million acres of which half is fee estate, 340 acres is mineral estate, and 108,000 is oil and gas interests. A special unit within the Department of Natural Resources(DNR) manages the land. This special unit works for the Commissioner of DNR, but reports and consults with the Trust Authority on matters requiring public notice or action. In the first year, the unit earned roughly $100,000 more than it cost to run the first six months of the program. Mr. Hawkins projected that the Trust Land Unit revenues for 1996 would be about $1 million with expenses of about $700,000 a year. The unit contains four permanent employees with contracts and temporary employees as needed. One and a half million in revenue is projected for 1998 with about the same operating expenses, $700,000. Mr. Hawkins noted that the Trust Authority contracts with DNR for that management and reports to the Trust Authority regularly. He referred the committee to page 9 of the handout, where the organization of the Trust Land Management is outlined. The management mission of the Trust Land Unit is to generate revenues for the Trust, maintain and improve the land and resource base, and continue support of these efforts by the beneficiaries. The unit works under DNR's Title 38, unless the provisions are not consistent with the Mental Health Enabling Act. Mr. Hawkins communicated that regulations would be written in order to address the inconsistencies with Title 38. Number 258 Mr. Hawkins informed the committee that the Mental Health Trust Authority had received its first conveyance, a 26 acre parcel. Of the Trust lands, approximately 150,000 acres are valuable for timber. There has been one timber sale and another is scheduled. Mr. Hawkins felt that timber would be an important revenue source for the Trust in the early years. The Trust has participated in the Cook Inlet re-offer. Three parcels were leased for oil and gas development; 25,000 acres will be offered for lease and sale in an upcoming sale. Mr. Hawkins also mentioned the renewed interest in coal development in the Mat-Su valley. Furthermore, the Trust sold 25 lots during a recent DNR land sale. Mr. Hawkins explained that the first million acres selected in Alaska were selected by the Mental Health Program, of which many are valuable commercial properties. Number 303 Mr. Hawkins discussed the interest that the Fort Knox project has created in areas adjacent to the existing mineral activity. The Trust manages approximately 2,400 mining claims across the state which is a portion of the valid existing rights and contracts. The Trust Land Unit has been actively meeting the neighbors. An important part of being effective managers is being good neighbors. He noted that the Trust has attempted to enlist the beneficiary community throughout the state as stewards in order to identify opportunities. Mr. Hawkins acknowledged that projecting the costs and revenues of the Trust Land Unit is difficult. Reconciling regulations with Title 38 would be challenging. The Trust wants to be small, credible and easy to do business with while having a fair return for the beneficiaries. Number 352 NELSON PAGE commented that Alaska administered the Mental Health Trust lands before the settlement of this lawsuit. At that time, the administrative costs were substantially more than the income being generated by those lands. As the handout illustrates, the Trust, in its first year, generated more revenue from those lands than the administrative costs. Mr. Page predicted that the increase in revenue would continue over the upcoming years. REPRESENTATIVE BRICE asked if the Trust's lands were treated as state or private lands. NELSON PAGE explained that generally, the lands are managed under Alaska's land regulations. The Trust is required by the settlement legislation to create regulations on how the land will be administered within the Trust Land Unit. The legislation specifies that in areas where the state regulations pose a violation to the trustees responsibility as fiduciaries, the trustees can go outside of the state regulations. REPRESENTATIVE BRICE suggested that the Trust would have more freedom to develop lands than would the state. Number 375 PHIL YOUNKER, Co-Chair of the Finance Committee of the Mental Health Trust Authority, explained that in December $200 million, the Trust Corpus of the settlement, was transferred to the Department of Revenue from the state. The Trust Authority as required by the settlement, invested the $200 million in the Permanent Fund Corporation. The trustees reviewed the inflation scenario for this investment from the initial transfer in December until the transfer to the PFD Corporation. The trustees decided to inflation proof that portion of the funds and therefore, transferred an additional $3.5 million to the PFD Corporation. The Trust's funds are a portion of the general assets of the PFD Corporation. Mr. Younker pointed out that the other account established under the settlement is the Income Account. The Trust uses the Income Account to disperse funds and pay bills. The sources of funds for the Income Account are transfers from the net income of the PFD account, transfers from DNR of the land income, and the interest earned from the account with DNR. The funds from the Income Account are spent on beneficiaries for both operating and capital needs. He noted that the recommendations come from the four sub- advisory boards. The Income Account is also used for the operating expenses for the Trust and DNR Lands Unit. Mr. Younker pointed out that there are no state funds used to fund the Trust's operations. Mr. Younker explained that after review of the allocation strategy and the risk level of the PFD, the Trust uses a three to four percent real growth rate with a seven or eight percent nominal growth rate. The Trust uses estimations of three and a half percent inflation. With those scenarios as well as a trust dispersement payout rate of approximately three percent, the Trust anticipates contributing $72 million over the next ten years. Mr. Younker indicated that the contribution could be higher depending upon land sales as well as the performance of the PFD investment. The value of the principal in ten years is estimated at $313,454,996; the inflation adjusted principal is estimated at $222,214,144. Therefore, a one percent real growth in the funds is expected in that ten year period. Mr. Younker noted that there is a margin of error encompassed in that growth estimate. Number 432 REPRESENTATIVE ROKEBERG asked if inflation proofing was the judgement of the Board of Trustees or legislatively mandated. NELSON PAGE replied a bit of both, the legislation specifies that the Trust must protect the Corpus of the trust and the fund shall remain in perpetuity. The Trust Authority interprets that as meaning that the spending power of the Trust Fund should not be eroded over time which means inflation proofing. REPRESENTATIVE ROKEBERG asked if the budget projection of $3.5 million for inflation proofing dovetailed with the assumed inflation of 3.5 percent. PHIL YOUNKER said no. The $3.5 million was inflation proofing for December of 1994 to July of 1995; the actual inflation from the CPI during that time was used to inflation proof. The current inflation proofing is close to that. The future of the 3.5 percent is drawn from the PFD's monthly reports of future inflation. REPRESENTATIVE ROKEBERG indicated that the amount seemed high based on the actual CPI numbers and asked if the adjustment was from actual CPI numbers from the PFD. PHIL YOUNKER said those numbers were used to prepare the original inflation proofing. Mr. Younker explained that the Trust Authority reviewed inflation which ran from 2.9 percent to 3.5 percent annually. Take the $200 million and cut the inflation rate in half for the six months, the inflation was about 3.5 percent. REPRESENTATIVE ROKEBERG felt that the margin of 1.5 percent in the Trust's assumptions seem high. PHIL YOUNKER explained that the Trust was looking forward 10 years and would rather be on the conservative rather than the aggressive side. The market has risen substantially in the six month period so that has become the margin of safety. The Trust Authority is aiming for a payout rate of three percent. The 1.5 percent is the margin of error. Number 478 JOHN PUGH, Mental Health Trust Authority Trustee, reminded the committee that in A of Section 47.30.O46, Budget Recommendations and Reports, the Board is required to submit a budget and a proposed plan of implementation for the next year. He explained that this year's proposed budget was arrived at after review of the budget proposals from the four boards. Those boards are the Commission on Aging, the Alaska Mental Health Board, the Governor's Council on Disabilities and Special Education, and the Alcohol and Drug Abuse Board. The top priorities of those boards totalled more than $20 million. The Trust Authority adopted a budget with $4.9 million in additional increments to the base of last year. Mr. Pugh explained that after review the Trust Authority could utilize $1.9 million of the trust income within the operating budget and an additional $2 million within the capital budget. In order to give the committee an idea of the critical issues the Trust Authority faced, Mr. Pugh discussed the priorities of that funding. The first issue was the closure of Harborview Developmental Center. The Board supported the closure of Harborview and the movement of those individuals into community services. The Trust Authority provided income funding to help with the transfer. In negotiations with DNR, the Trust Authority decided to use $1 million of its income in Harborview and use the general fund dollars for community services. The total Trust income is $1.695 million which will be present in the Harborview budget while the general fund dollars from Harborview will be transferred to the service delivery system. Harborview is the top expenditure from the operating budget of the trust income. Mr. Pugh pointed out that the Trust Authority also reviewed outcome-oriented programs in their review of the budget. The Trust Authority also discovered that the data collection systems are lacking within the department. Therefore, the Trust Authority agreed to utilize trust income to develop better data collection systems in order to ease the future planning and budget processes. Mr. Pugh reiterated that the Trust Authority decreased the board's budget down to $4.9 million, while the Governor further decreased the budget. The majority of the increase in the Department of Health & Social Services will be the income dollars from the Trust Authority. There are differences between the Trust Authority's recommendations and the actual budget. The Trust Authority did not receive the full funding that it recommended, there was additional funding necessary for salary maintenance of effort for state employees, and additional savings with Harborview. According to the Trust Authority, the $585,000 Harborview reduction should be transferred to the community system. Number 569 SENATOR GREEN inquired as to how many people would be involved in the transfer of Harborview. Eight individuals will be involved from the developmentally disabled group and 15 in the Sourdough Unit. This year's funding was based on between eight and 12 individuals. JOHN PUGH agreed that part of that funding would be present in the budget under community services. Some of the funding is partial year funding. REPRESENTATIVE G. DAVIS asked if the Trust Authority was reviewing a contract to determine what system to use since many other departments review the same information. Representative G. Davis hoped that true integration would occur. JOHN PUGH pointed out that the Commissioner of DHSS is beginning a data integration in the department which has been in progress for six months. The Trust Authority would like to contribute to that integration of data within and across the department with trust income. TAPE 96-2, SIDE B Number 586 SENATOR GREEN asked if the Trust Authority had experienced any conflicts due to the diverse group of people addressing the issue of development. Furthermore, is the Trust Authority established in order to accumulate more properties? TOM PUGH explained that the Trust Authority has a fiduciary responsibility to develop land in order to create income. At the same time, the Trust Authority must take care and recognize who their neighbors are. For example, the Trust Authority has an important property in Juneau, the subport parking lot. NELSON PAGE commented that the Trust Authority is interested in upgrading their portfolio, however not much progress has been made yet. The Trust Authority is also reviewing its charitable contribution, giving and grant program. Mr. Page also noted interest in upgrading the Trust Authority's land. KAY BURROWS, Mental Health Trust Authority Trustee, stated that the Trust Authority is working with DHSS on a comprehensive Mental Health program. Such a program would cross all beneficiary groups and programs in order to achieve more integration and streamlined actions. The Trust Authority's goal is to streamline the appropriation procedure. Ms. Burrows pointed out that next year the Trust Authority would be focusing on five major areas of change. The first area of focus would be an integrated planning and budgeting process in order that planning drives budgeting and funding priorities. The second area of focus would be a unified vision for all the beneficiaries. The third area of focus would be the consideration of service delivery across beneficiary groups. The planning boards, the departments and divisions support this integrated vision. The private sector is also being utilized to achieve integration. Number 502 EVELYN TUCKER, Mental Health Trust Authority Trustee, informed the committee that the Trust Authority had been frustrated with the type and quality of the data. The data made comparisons across beneficiary groups difficult. Difficulty was also present in the evaluation of efficiencies. Ms. Tucker said that for those and other reasons the Trust Authority adopted an outcome-oriented planning process. The department agrees with this process. The outcomes being discussed will be functional outcomes. The Trust Authority will be reviewing how the services benefit the clients. Stability, ability to live in a community, safety, security, community and family connections, and employment are the various outcomes being reviewed. The goal is to link outcomes, services, and costs. Ms. Tucker indicated her preference to review this in a per unit of service manner, but per beneficiary per year would be useful. She believed that when services are planned and paid for in this manner, data would be collected in this way as well. Ms. Tucker stated that next year's budget would not be entirely outcome based. CO-CHAIR BUNDE thanked everyone and took a moment to reorganize and distribute information regarding the next order of business. Number 466  EO 97 TRANSFER FUNCTIONS OF THE ALASKA COMM. ON POSTSECONDARY ED.  CO-CHAIR BUNDE introduced EO 97 as the next order of business before the joint committee. DIANE BARRANS, Executive Director of the Alaska Commission on Postsecondary Education, explained that the mission of the commission was substantially altered in 1986 due to a change in the tax code. That change allowed states to fund programs through the sale of tax exempt bonds. Therefore, when this funding mechanism was adopted the legislature changed the nature of the business with which the commission was charged. Ms. Barrans pointed out that now in addition to serving Alaskans, the mission had legal and financial obligations to the bondholders from whom money is borrowed to lend students. When the legislature moved the program from annual direct appropriations to commercially financed loans, the millennium plan was put in place. The millennium plan required an annual general fund appropriation to the program in order to offset expenses until the year 2003. In the year 2003 the program would have the ability to revolve due to the annual infusion of dollars. The annual infusion was altered five years ago due to the interruption of the millennium plan. Ms. Barrans stated that no other plan was suggested or substituted until early last year when Dr. Joe McCormick consolidated the two existing boards which would administer the agency's financial and operational components. Dr. McCormick's idea is encompassed in EO 97. Number 430 Ms. Barrans reviewed the resulting reorganization necessitated in EO 97. Firstly, sections 3-6 of the EO would necessitate the movement of higher planning and policy functions to the Department of Education(DOE). Secondly, sections 7 and 9 of the EO would move the Alaska Student Loan Corporation from DOE to the Department of Revenue; the corporation would be renamed the Alaska Student Aid Corporation and the commission staff would become the corporation's staff. The move to the Department of Revenue would strengthen its relationship with the commission as well as utilizing the professional resources in Revenue. This would address one of the concerns of AMBAC, an insuring agency. AMBAC was concerned that in the beginning the commission had not been as financially focused as necessary. AMBAC views EO 97 as a positive move. Section 8 of EO 97 would expand the corporation board membership from five to seven. The board would consist of the Commissioners of Administration and Revenue, a representative of the Department of Education, and four governor appointed public members. The administrative advantages of this smaller board are apparent. Ms. Barrans noted that this change would also eliminate the constitutional issue of having legislative members sitting on a regulation-setting board. Sections 10-76 would move the Financial Aid Program Administration and institutional authorization functions to the corporation. Sections 77-84 are technical changes which would allow the Corporation to be fully operational by the effective date. In conclusion, Ms. Barrans referred the committee to the other attachments from Teresa Williams, the Assistant Attorney General, and Kenneth Vasser, bond council to the corporation since its creation in 1988. Number 362 REPRESENTATIVE MARTIN explained that EO 97 was brought to the attention of the Finance Committee when DOE's budget showed that Postsecondary Education would move to the Department of Revenue and DOE would lose $9 million. However, there is no additional $9 million in the Department of Revenue's budget. Representative Martin noted that he had given the committee copies of the expenditure breakdown. The Department of Revenue seemed surprised about the $9 million. He wondered if EO 97 would create a corporation in the Department of Revenue similar to the Alaska Railroad Corporation. Representative Martin relayed that the university had not seen the EO and was not aware of how that would impact them. He felt that this would be a great opportunity for clean-up. For years there has been discussion of Postsecondary Education's duplication of efforts as well as laws that are no longer applicable. Who is actually responsible for this corporation? The Department of Revenue would be put in limbo if they receive the corporation without having anything to do with it. SENATOR SALO inquired as to how much Ms. Barrans foresaw the function of the Postsecondary Commission changing with its move to the Department of Revenue? In the past, the Postsecondary Commission did more than the financial management of the commission. DIANE BARRANS predicted that the function of the agency would not change. The institutional authorization component would remain with the agency. Ms. Barrans clarified that currently the commission receives almost no income revenue from that activity. CO-CHAIR BUNDE asked if the new make-up of the board which eliminates special interest representation means that those involved with education would be eliminated. DIANE BARRANS explained that statutes currently require a proprietary school designee on the board as well as two Regents from the University of Alaska and at least one of those representatives must be from either APU or Sheldon Jackson. In the past, there has been debate over issues with regards to the Student Loan Program from which these board members could have benefitted or suffered. The proposed board membership would remove the tension between an individual's personal role and their role as a policy-maker. CO-CHAIR BUNDE asked if Ms. Barrans had relayed to the proprietary school organization that they are considered special interest groups which would be removed from the corporation board membership. DIANE BARRANS said that she had not had any one-on-one discussion regarding EO 97. However, there was discussion at the last commission meeting with public comment as well. CO-CHAIR BUNDE believed there should be someone on this board that was considered special interest with an education background. There are dentists on the Dental Board and physicians on the Medical Board. Co-Chair Bunde invited Ms. Barrans to stay throughout the hearing and perhaps, address the issue of legislative members on a regulation-setting board. Number 266 ERIC FORRER explained that he is the Chair of the Postsecondary Education Commission, although he was not representing the commission. The Alaska Postsecondary Loan Fund faces a fiscal crisis. Mr. Forrer said that in order to achieve equal access to postsecondary education opportunities for students throughout the state, the commission sells bonds to finance the student loan demand each year. The fund cannot be a true revolving, self- sustaining fund due to the current statutes regarding interest rate calculations, forgiveness provisions, repayment schedules, etc. Therefore, the fund loses between $4 million and $9 million a year. Mr. Forrer suggested that in a few years, the financial position of the commission would be such that it would be unable to sell bonds. The availability of loans would then fall below the demand and consequentially, equal access would be lost. It is about two years before financial changes to the student loan program are evident because of the cyclical nature of student loans and the inability to impose new conditions retroactively. Mr. Forrer emphasized that there is a limited amount of time, just this session, to impose changes to save the Alaska Student Loan Program as a means to equal access to education. Currently, the Postsecondary Commission does not perform any of the functions for which it was created. Mr. Forrer pointed out that the statutory function of oversight of the university's budget would face a constitutionality challenge by the Board of Regents if attempted. Many functions of the commission were responsive to federal mandates that no longer exist and other functions have simply become outdated. Mr. Forrer supported EO 97. He commented that there is controversy around the loan fund and the rules by which it is managed. This controversy can be linked to the special interests which have placed themselves around the fund. Mr. Forrer stated that Alaska is not responsible to ensure the existence or continuance of any privately owned school. However, the state is responsible in the insurance of the massive loan fund investment and the availability of future funds to students. If the structural and management changes contained in EO 97 are not made in this session, Alaska's largest investment in the future would be in jeopardy. Mr. Forrer pointed out that many private schools would fare far worse in the long run if their lobbying pressure prevents strict management now. Mr. Forrer emphasized that failure now would call for a new set of rules to determine who receives education loans and who does not. This would result in the loss of open access to education. The loan fund managers should be given the tools they need. CO-CHAIR BUNDE asked Mr. Forrer if he felt that the loan fund would be in less jeopardy if SB 123, from last session, was in effect today. ERIC FORRER agreed that the fund would be in less jeopardy, however the entire problem would not be solved. Mr. Forrer said that he still supported SB 123. Number 199 CO-CHAIR BUNDE asked if privatization of the fund would achieve more efficiency while continuing the move toward emphasizing the financial aspects over the social aspects of the fund. ERIC FORRER stated that privatization of the fund has been addressed extensively, but privatization has been abandoned as a workable idea. Perhaps, the main reason for that abandonment is that there is no buyer. There is no prospect of profit under the existing rules. Mr. Forrer pointed out that the borrowers of the Student Loan Fund do not have credit ratings or collateral. Such onerous conditions would be present if a private entity tried to make loans to that group; access to education would be lost. Mr. Forrer noted that as the commission was considering privatization, the federal government was moving away from privatization. Number 173 CO-CHAIR BUNDE noted that the problem facing the fund is the default rate which would never be fully solved because that would mean privatization which would eliminate the social aspect of the fund. He asked if Mr. Forrer favored consolidation, but felt that SB 123 would be necessary in order to be viable. ERIC FORRER replied yes, he was in favor of both pieces. The social aspects of the commission would not be lost, those portions would be reassigned to DOE and other places that may be more appropriate. SENATOR LEMAN inquired as to Mr. Forrer's preference between the Senate's version of SB 123 or the House's version. ERIC FORRER said that he was supporting the notion in general - giving the fund managers better tools. Mr. Forrer had been prepared to happily receive the compromise. The tiny details are not of major impact. CO-CHAIR BUNDE pointed out that one of the tiny details was the notion of using student loan corporation funds to lend to prisoners which posed a major stumbling block for some. Would that constitute a tiny detail? ERIC FORRER said yes. There is not a high loss associated with that. Such a detail is not enough of an obstruction over which to lose this investment. SENATOR LEMAN asserted that some of the biggest losses of the $9 million is from the University of Alaska instead of some of the schools being sought. All of those who default should be sought in some manner. Number 112 REPRESENTATIVE C. ROBINSON said that the Senate needs to appoint their Conference Committee members in order to receive a decision. REPRESENTATIVE ROKEBERG asked if the Commission had been able to receive sufficient statistical data in order to identify private schools inside and outside the state and their levels of default. ERIC FORRER said that as Chairman of the Commission, the answer has been no. That is changing; there is a push towards good numbers from a good computer base. MARY JANE FATE, testifying from Fairbanks, supported EO 97 in general. She informed the committee that she is a member of the Alaska Commission on Postsecondary Education as well as a member of the University of Alaska Board of Regents. However, she is testifying today as an individual. Ms. Fate expressed concern with Section 4 of EO 97 regarding the budget review. The Board of Regents is a policy-making board. She said that she was in favor of EO 97 even without viewing any regulations or mandates. She supported saving state money as well as administrative efficiency. Ms. Fate expressed concern with the designated members of the board under EO 97; would there be enough input from the public? She was also concerned about the best interest of the students as well as the protection of the assets. Protection of the assets would mean collection and fairness to all student loan recipients. CO-CHAIR BUNDE reiterated his concerns with the make-up of the board. The board could become a governor's rubberstamp if he so chose. Education does not seem to be represented on the board as detailed by EO 97. TAPE 96-3, SIDE A Number 002 PAGE ADAMS, Student Commissioner for the Alaska Commission of Postsecondary Education, requested that the student seat on the commission remain. The Coalition of Student Leaders and the University of Alaska are concerned that the social aspects of the loan could change course and their input would be lost. CO-CHAIR BUNDE asked Ms. Adams if she supported EO 97 if one of the public designated board members was designated to be filled by a student. PAGE ADAMS said yes. TERESA WILLIAMS, Assistant Attorney General, explained that under Alaska's Constitution the governor has the power to appoint all members of boards and commissions which have regulatory or quasi- judicial agencies. The situation would be different if the agency in question was merely an advisory board. Therefore, Ms. Williams stated that every member of the board should be appointed by the governor. Presently, only seven of the 14 members are appointed by the governor which is a violation of Alaska's constitution. Ms. Williams pointed out that the two legislative members of the board are a violation of the concept of the separation of the different branches of government. The make-up of the new board under EO 97 would be constitutional. Ms. Williams explained that an EO is not allowed to change the substance of the law. Therefore, functions that no longer exist must be moved. Although the Commission does not oversee the budget of the University of Alaska, the presence of such a statutory provision requires that it be moved somewhere. Ms. Williams also mentioned that a number of provisions mandated by federal law are no longer in effect. The revisor of statutes has been alerted to note in the next version of the statutes that the federal provisions have been repealed. Furthermore, there are many provisions referring to consortia, but there are no consortia. The mere existence of the provisions require that they be moved even if they do not exist. The advisory functions were the only thing left to be moved to DOE. In conclusion, Ms. Williams noted the presence of the Chair of the Alaska Student Loan Corporation, Mark Begich and other members of the Commission, Scott Sterling and Rosa Foster. Number 105 CO-CHAIR BUNDE asked if having all the members appointed to the proposed new corporation subject to legislative confirmation would be constitutional. TERESA WILLIAMS did not know. CO-CHAIR BUNDE asked if Ms. Williams could see his concern that this board could be a rubberstamp commission for the governor. TERESA WILLIAMS reiterated that the Commission is part of the executive branch which the governor oversees. All commissions have appointments made by the governor. CO-CHAIR BUNDE noted that commissioners are subject to legislative confirmation. He asked Ms. Barrans to return to the table. REPRESENTATIVE ROKEBERG asked if the EO could be modified in any way. CO-CHAIR BUNDE acknowledged that cooperation could be asked. Number 144 CO-CHAIR BUNDE stated that one of the main problems with the Student Loan Corporation is the default rate. The student loan fund would have been in jeopardy if it had continued without change from the position it was five years ago. Has there been recent progress with regard to the default rate? He asked Ms. Barrans how she predicted the program would fare if it remains the same in the future. DIANE BARRANS believed that there had been progress. Recently there has been a decrease in the aging changes due to the change to monthly billing statements rather than coupon books. Due diligence efforts have been increased above the minimum standards. Borrowers are being contacted earlier and more often. The level of expertise and attention from the management group to the due diligence group has been increased. Ms. Barrans believed that there have been a number of changes, however that impact levels over time; this leveling-out point has been reached. Ms. Barrans projected that the default rate for December of 1995 would be down to 18 percent. That percentage is still unacceptably high, but it is lower than the 26.7 percent default rate three years ago. In response to Co-Chair Bunde, Ms. Barrans said that the bonding community has reacted positively. The monitor of progress is really the feedback from the insuring agency, AMBAC. The insuring agency continues to stress the issue that the program lends money to students attending unaccredited schools. Another important issue stressed by the agency is the periods of unsubsidized interest losses to the program. Number 190 In response to Co-Chair Bunde, Ms. Barrans explained that an accredited college was accredited by a regional and national accrediting agency. She agreed that unsubsidized meant that students were allowed an interest free loan while attending school. REPRESENTATIVE BRICE inquired as to how much of a reduction in the default rate could be expected if EO 97 goes into effect. DIANE BARRANS did not see any direct relationship with the EO and the default rate. The EO does, however, send a message to the borrowers and the financial community that Alaska views its student loan program important. Under EO 97, borrowers will be dealing with the Alaska Student Aid Corporation from the very beginning which should notify borrowers that they are dealing with a credit lending agency. SENATOR SALO asked if the people lending the Alaska Student Loan Program money liked the change of the grace period from one year to six months. DIANE BARRANS said yes, but noted that the benefit of that change probably has not been felt. In addition to that change, the commission has expanded the authority to garnish PFDs. Ms. Barrans explained that currently, the commission is working with the Division of Occupational Licensing in order to suspend the renewal of occupational licenses of individuals that have student loan accounts in default. Number 246 SENATOR SALO applauded the aforementioned measures, but noted that legislators often hear from those individuals given to collection agencies. Legislators need guidance with the manner in which they could help these individuals. DIANE BARRANS explained that the commission is addressing that concern by re-examining the point at which individuals are turned over to a collection agency. There needs to be a solid policy that utilizes all in-house opportunities to handle such individuals before they are turned over to a collection agency. Collection agencies are counterproductive for everyone. CO-CHAIR BUNDE interjected that the process towards a default being turned over to a collection agency is a long process. DIANE BARRANS said that borrowers are notified of their default status for 120 days. Number 271 SENATOR LEMAN asked if the commission had a mechanism to track occupational licenses outside the state. He further asked if there was any significant difference in the default rates of those who reside in Alaska and those who do not. DIANE BARRANS said that the commission had explored regional information sharing. However, there are a number of legal issues surrounding the sharing of information even within the state. In regard to default rates of those residing outside Alaska, Ms. Barrans did not know but believed that the data was available. CO-CHAIR BUNDE informed the committee that individuals applying for consumer loans are not eligible if they are in default status with a student loan. DIANE BARRANS added that the commission would in the next year, proactively provide default information to credit information agencies. CO-CHAIR BUNDE asked if EO 97 would effect the interest by the insuring agencies to have accredited schools. DIANE BARRANS did not believe so. CO-CHAIR BUNDE summarized that EO 97 is an attempt for efficiency, but it does not effect the default rate nor the bonding community's concerns regarding accreditation. DIANE BARRANS agreed with that summary. AMBAC saw EO 97 as a positive move, but more response to the EO would be uncovered in forthcoming meetings with rating representatives next month. REPRESENTATIVE VEZEY asked if all these records would be removed from the public domain if the commission is moved to the Department of Revenue. DIANE BARRANS clarified that the commission's records would be retained by the corporation. The Student Aid Corporation is an entity separate from the state. The board of the corporation serves as the executive officer. The Commissioner of the Department of Revenue like the Commissioner of DOE has never been responsible for the activity of the commission and the corporation. The commission resides in the department for administrative purposes. Number 344 TERESA WILLIAMS stated that the records of the Student Aid Corporation are public records, however there are limits as to what can be reviewed within the records. REPRESENTATIVE VEZEY asked if the statutes requiring privacy of information governering the Department of Revenue would not apply to this commission. TERESA WILLIAMS said that was correct. REPRESENTATIVE VEZEY pointed out that when the Division of Gaming Activity was transferred to the Department of Revenue, all the gaming records became sealed information unavailable to the public. TERESA WILLIAMS explained that in that case, the statutes changed the Division of Gaming to a Division of Revenue. The Student Aid Corporation has its own statutes that govern public records. CO-CHAIR BUNDE asked if there was any additional testimony or questions. There being none, the meeting adjourned at 5:05 p.m.