Mental Health Trust Authority transfers $41M after audit

Alaska Mental Health Trust Authority leaders have repaid $41.3 million to the core of the group’s investments to comply with state laws, but continue to insist the initial decisions to use the money elsewhere were justified according to a follow-up report from the state’s auditor.

The 60-page report signed by Legislative Auditor Kris Curtis also concluded that trust leaders continued to pay for land development activities totaling $4.7 million out of the trust’s cash principal through March of this year despite a June 2018 audit that deemed the practice inappropriate.

Those development expenses included $1.1 million to facilitate a much-publicized Southeast Alaska land exchange and $3 million for mineral exploration at the trust’s Icy Cape property, according to the most recent audit. It is dated July 6 but was released by the Legislative Budget and Audit Committee following an Aug. 27 meeting.

The 2018 audit determined the trustees interpreted state regulations as providing them the authority to invest cash principal outside of the Alaska Permanent Fund Corp., which invests the Mental Health Trust assets on behalf of the authority as required by state law.

Curtis wrote in the 2018 audit that the decision to use the $39.5 million on seven commercial real estate investments and $1.8 million on property investments for the authority’s programs “appear to be well-intentioned, driven by a desire to maximize revenue for use by beneficiaries” of the authority, despite being outside the bounds of the law.

The Alaska Mental Health Trust Authority is an independent, state-owned corporation that utilizes its assets to better the lives of its beneficiaries, who are Alaskans with mental health and addiction challenges.

The trust’s investments managed by the Permanent Fund Corp. totaled $704.7 million as of July 31, according to spokeswoman Allison Biastock.

A 1994 legal settlement and corresponding legislation directed the state to allocate $200 million for the Mental Health Trust. That money, along with one-time revenues from development activities on trust land — land sales, oil, gas and mineral extraction and 85 percent of timber sale proceeds — was to be handed over to the Permanent Fund Corp., which comingles the Trust assets with its Fund investments.

From state fiscal years 2009-17, the Mental Health Trust Authority invested in seven commercial real estate properties in Anchorage, Cordova and the Lower 48 through the Trust Land Office, which is tasked with managing the authority’s roughly 1 million acres of land holdings in the state.

Six of the properties were mortgaged and, according to the 2018 audit, portions of those proceeds were used for further real estate investments.

The authority can use recurring revenue from land leases or easements more liberally. The money in question came from such one-time revenue streams, according to the 2018 audit.

AMHTA Board Chair Christopher Cooke wrote in a formal response included in the recent report that the trustees generally agree with Curtis’ recommendations to consider selling commercial properties managed by the Trust Land Office add more structure to how the trust’s funds are handled, but do not concur with some of the conclusions behind that advice.

Cooke wrote in the 9-page response that the trustees believe their “financial practices are lawful, aligned with the rights and fiduciary responsibilities of the board of trustees, consistent with generally accepted standards in the financial industry, and conducted in the best interest of Trust beneficiaries per the 1994 settlement.”

The board regularly considers liquidating properties and will continue to do so, according to Cooke, who also noted that the authority gets an annual “hold/sell” recommendation from its real estate advisory firm Harvest Capital Partners.

He wrote further that while the authority transferred the $41.3 million for the APFC-managed investments, the trustees stand by their decision to select the Trust Land Office to manage the properties.

“The TLO is fully capable of managing seven real estate assets in five cities in a manner that suits the Trust Authority’s objectives,” Cooke wrote in response to the audit. “Our external real estate advisor, Harvest, has confirmed that the TLO is capable of fulfilling this responsibility.”

Elwood Brehmer can be reached at [email protected].

Updated: 
09/01/2021 - 9:12am