Money management at Mental Health Trust raises concerns

William Foster holds some of the ornaments he helped make at Bean's Cafe as part of a project funded by the Alaska Mental Health Trust Authority. (Hillman/Alaska Public Media)
William Foster holds some of the ornaments he helped make at Bean’s Cafe as part of a project funded by the Alaska Mental Health Trust Authority. (Hillman/Alaska Public Media)

Congress set up the Alaska Mental Health Trust in 1956 to make sure the state could provide mental health care programs to its residents far into the future. But the Trust has had a tumultuous history, and now, some state leaders fear it could be in danger once more. Legislators are considering a special audit of the Trust and how the trustees are investing its money.

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William Foster stood in Bean’s Cafe late last week sifting through a pile of ceramic ornaments he helped design, then pulled one out of his pocket. It was an image of a raven pressed into clay and painted a deep grey. He carries it with him everywhere, he said, because it reminds him of his late mother.

Foster was participating in the Healing Faces Project, a program focused on art and healing circles for clients of Bean’s that was funded in part by the Alaska Mental Health Trust.

“It calms us down. Relaxes us,” Foster said of the project. “Keeps our mind off a lot of stuff.”

Healing Faces is just one of hundreds of projects made possible by the Trust. Programs range from job training for young people with disabilities to detox centers to criminal justice reform. There are tens of thousands of people in Alaska who rely on Trust funds.

Now, some of the people involved in creating the public entity think the Trust may be at risk.

Alaska statute reads “the mental health trust fund shall be managed by the Alaska Permanent Fund Corporation.” Phillip Volland, one of the lawyers who helped create the Trust, said that law is really straightforward.

“That’s where you put the money. It’s just, that’s what it says. It says all the money goes there,” Volland said in a phone interview.

But since October 2008, that is not where the money has gone. For eight years, members of the Board of Trustees have voted to suspend transfers of the principal to the Permanent Fund and instead are investing and managing it themselves. That includes buying $39 million worth of real estate.

Trust Authority CFO Kevin Buckland said $17 million was spent on an office building in Washington state in 2014. Another $9 million went to property in Texas this past summer. The board also passed a resolution to spend $2 million to try to develop a mine at Icy Cape, near Yakutat in Southeast Alaska.

A list of the Trust Authority's current LLCs as provided by John Morrison, executive director of the Trust Land Office.
A list of the Trust Authority’s current LLCs as provided by John Morrison, executive director of the Trust Land Office.

Volland said that’s exactly what he and other state leaders were trying to prevent.

The Mental Health Trust has a complicated history. When it was first established in 1956 by Congress, one million acres were set aside to be used by the Alaska Legislature to fund a comprehensive mental health care system. But by 1982, most of that land trust was whittled away – given to municipalities and individuals – and little money was being spent on mental health. So a group of people sued the state. Volland represented one of the plaintiffs.

“The original rulings by the state Superior Court declared that the state had mismanaged and destroyed the Trust and had to go about re-establishing it,” Volland said.

It took more than a decade for the plaintiffs and the state to agree on how to do that. Volland said the plaintiffs wanted two main things: “Sufficient funds to provide for mental health programs” as well as “all kinds of assurances to make sure that there wouldn’t be another dissipation of the Trust in the future.”

In the 1994 settlement, the state re-constituted the original one million acres with mostly new land and added $200 million to re-establish the Trust. They installed a board of trustees to oversee it. The cash principal was invested by the Alaska Permanent Fund Corporation. The land was managed by the Trust Land Office at the Department of Natural Resources.

Money generated by the investments and the land went into two different pots – some to be used for mental health programs, and the rest to be added to the principal and re-invested by the Permanent Fund.

Volland said splitting the responsibilities and asset management was intentional “to prevent any sort of rogue action by the Trustees. It was just, what I would say was a prophylactic measure.”

Greg Jones is the new CEO of the Mental Health Trust Authority and a former executive director of the Trust Land Office. He said the Trust Land Office is “more nimble” than the Permanent Fund and can bring in more money for the Trust.

“We believe that we can add to what the Permanent Fund does and diversify and perhaps add a little more with a carefully managed real estate program,” Jones said.

The way the Trust is laid out in state code, revenues from things like mineral sales goes to the principal, but rent money – that all goes toward programs that help people.

“What we’ve done with the real estate program is create an investment that creates income,” Jones explained. “That pays millions of dollars in income that goes straight to programs.”

Jones and Board chair Russ Webb both said they are legally allowed to use the principal to buy land and invest it as they choose. However, they would not provide copies of written legal counsel explaining their authority, could not cite specific statutes or regulations and would not allow their attorney to speak on the matter.

Volland is not the only person concerned about the legality of the Trust’s investments. Bruce Botelho was the Attorney General back in 1994 and was sitting on the opposite side of the table from Volland, looking out for the state’s interests.

Botelho said they purposely separated the Trust’s money management from their land management during the settlement, in part because the Permanent Fund was already managing money and doing it well. “And we saw little reason to duplicate that effort,” he said.

Botelho would not comment on how well the Trust is managing its assets, and he said that’s the point.

“We saw a check and balance in trying to separate those functions out,” Botelho said. “And to me, that is the underlying concern.”

Botelho, Volland and others want a special legislative audit of the Trust Authority, the Land Office and the Board of Trustees. They say it’s up to legislature to decide if the Board’s actions are legal.

Representative Mike Hawker is requesting an audit, and the Legislative Budget and Audit Committee will make a decision at its December 13 meeting. If lawmakers act, auditors will look into everything from the legality of the Trust’s financial management, to potential open meetings act violations.