Legislature(2001 - 2002)
04/15/2002 09:29 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 278(JUD)
"An Act requiring a good faith effort to purchase property
before that property is taken through eminent domain; and
providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
KIM OGNISTY, staff to Senator John Torgerson, informed the
Committee that this legislation "introduces a reasonable and
diligent effort clause that attempts to place a comdemnor of land
and a private landowner in an equal negotiating position." She
asserted that the bill would not reduce the ability of the State to
acquire land by eminent domain or complicate existing proceedings;
but would rather require the State to apply reasonable and diligent
efforts to negotiations with private landowners and encourage
"reasonable offers," and that "striving to initiate communications
from a more equitable bargaining position would promote more
productive negotiations" and "facilitate dialogue over reasonable
concerns and encourage suggestions from all parties involved."
Ms. Ognisty stated that approximately twenty-three states have
adopted similar measures and the intent of this language is "to
reduce the amount of litigation by encouraging more cases to be
settled up front." She noted that a zero fiscal note accompanies
the current version of the bill; however, she informed the
Committee that an indeterminate fiscal note accompanied previous
versions.
RICK KAUZLARICH, Right of Way Chief, Department of Transportation
and Public Facilities, testified that the Department is not in
favor of the bill, and he voiced "exception to the inclusion within
the bill about the reasonable and diligent effort." He opined that
given his 22-years of employment as a right-of-way agent with the
Department, he could attest to the fact that the Department "does
act in good faith to purchase property before it" is condemned. He
stated that this bill would further complicate "an already complex
process."
Mr. Kauzlarich reminded the Committee that the Alaska Constitution
specifies that no property shall be taken without just
compensation, and he elaborated that the Department has established
procedures to support that objective. He stated that the process
involves "the uniform act" which mandates that each acquisition
file include documentation of ownership, initial contact
information, appraisals, and community and individual meetings. He
stated that appraisers hired by the Department are required to
provide documentation to demonstrate that effort is taken to
contact and provide information to the property owner regarding the
appraisal process.
Mr. Kauzlarich stressed that throughout the negotiations, the
Department's right-of-way agents maintain contact with property
owners to address and resolve issues that the property owner might
have about such things as the "configuration of the project," the
affect the project might have on the property, questions about
valuation of the property, and relocation of the property owner if
need be. He reiterated that every effort is made to reach a
consensus in order to avoid condemnation of property.
Mr. Kauzlarich reiterated that the entire process is a matter of
record and is included in Departmental files to create "a
decisional document" that identifies negotiation steps taken with
the property owner. He asserted that this process provides the
documentation to prove that the Department "does make a diligent
and reasonable effort to ensure that people that are affected by a
project get all the benefits that are due to them."
WILLIAM CUMMINGS, Assistant Attorney General, Transportation
Section, Civil Division, Department of Law, commented that
"extensive statutory authority" exists that identifies the State's
negotiation practices to assure that individuals whom the State
acquires land from are treated fairly. He continued that the State
is "pretty successful" in its acquisition endeavors, and he
specified that condemnation of property only occurs in two to five
percent of the right-of-way acquisitions. He attested that this
supports the position that the State works well with landowners.
Mr. Cummings continued that this bill would amend AS 09.55.430 to
require a statement be included in each file specifying that the
State has conducted the acquisition process diligently and in good
faith. He stressed that this statement "could become a point of
litigation in the case where opposing council could stand up and
pound on the table and say the State hasn't been fair, the State
hasn't been reasonable, look how pitifully low the offer is." He
voiced that this could result in elevating the valuation of the
property, and as the State has experienced with similar situations,
could cause the delay of a project for as long as a year while
further analysis of the valuation is conducted. He summarized that
the State "already is" diligent and operates in good faith in these
matters, and that these statute amendments would result in delaying
a project "while this relatively complex litigation proceeds
forward."
Senator Austerman summarized that the Department's position is that
it already conducts the negotiation process in a reasonable and
diligent manner before the eminent domain step is reached.
Mr. Kauzlarich responded that is correct as "quite extensive
negotiations" are conducted.
Senator Austerman asked why the Department opposes the legislation
since it already conducts business in this manner.
Mr. Kauzlarich stressed that the Department's concern is that the
legislation would result in "additional delays to an already
complex process, and allow in statute, allow a reason for further
delay in a project." He explained that delays in right-of-way
projects generate substantial cost increases, and "that the more
litigation, the more time that the attorneys get involved in this
type of situation, the more delay that we can have." He invited
Committee members to examine any regional file and see the effort
that has been exerted "to reach negotiations amicably with property
owners."
Senator Wilken announced that this bill is one of the bills that he
would like to get passed this session. He voiced amazement that the
Department is testifying that this process is conducted in a fair
and diligent manner, yet it does not support legislation to that
effect. He opined that there is a reason for this bill, and he
shared that two small business owners in Fairbanks have been
"jerked around" by the Department of Transportation and Public
Facilities (DOT) and "the heavy hand of the wealth of DOT"
concerning the valuation and settlement of their separate pieces of
property.
Senator Wilken continued that one of these acquisitions is going to
trial, and, he stated that, after looking at the documentation,
"this is embarrassing that our State has not settled this and,
instead, has gone forward with a very expensive, for both parties,
litigation," involving less than half a million dollars. He stated
that the other situation involved an individual who settled out of
Court because he did not have the money to fight the State.
Senator Wilken stated that Senator Torgerson, the sponsor of the
bill, could relate similar stories regarding experiences of people
in the Kenai Peninsula area. Senator Wilken stated that these cases
are examples that the Department does not operate in a diligent
manner, and these are the reasons why the bill has been presented,
and why he considers it a "priority bill."
Co-Chair Kelly voiced that while he supports language concerning
the appraised value of the property, he questions the need to
include the diligent effort report as specified in Section 2 (8) of
the bill.
Senator Ward quoted the sponsor statement as saying that "by
requiring a reasonable and diligent effort that this would create a
full disclosure of information." He asked whether there is any
information being withheld from a property owner under the current
procedure.
Mr. Kauzlarich asserted that all the information available to the
right-of-way staff is available to the property owner. He continued
that the goal of the process is to facilitate "an exchange of
ideas, and an exchange of information between the property owner
and the Department of Transportation and Public Facilities." He
explained that the Division "only litigates over necessity" to
acquire a piece of property. He reiterated his concern that this
bill "would require litigation over the reasonableness of the
Department's efforts," as he understands that people "may not feel
that they are getting what they deserve from the Department of
Transportation, and that is why the process carries on to the
eminent domain situation." He summarized that the Department's job
"is to make sure that people are justly compensated for the
acquisition of the property and also to make sure that projects are
built."
Senator Ward asked for confirmation that all the material upon
which the final and best valuation of the property is based is
available to the property owner.
Mr. Kauzlarich confirmed that it is.
Senator Ward asked what would happen if this material omits an
issue that is important to the property owner.
Mr. Kauzlarich responded that in a situation where the property
owner and the right-of-way agent discussed an issue but reached an
impasse in the negotiations, the case would go into litigation. He
continued that if the property owner prevails, the State would pay
the cost of the litigation.
JON TILLINGHAST, Attorney, Sealaska Corporation, voiced support for
the bill. He shared that similar legislation has been adopted by at
least 23 states and is recommended by recognized authorities on the
process of eminent domain. He stressed that the intent of the
legislation is to minimize litigation and to reduce acquisition
costs. He stated the argument that as a result of this legislation;
the State would "treat the private sector as partners in a
negotiation rather than as victims."
RON WOLFE, Representative, Sealaska Corporation, conveyed that the
Corporation supports the bill and the Committee's approach to it.
WILLIAM SATTERBERG testified from an offnet site to advise that
rather than this legislation being directed at the Department, this
legislation proposes revisions to the State's eminent domain code
that affects the State, other municipalities and governmental
organizations as well as the private sector. He cited ten court
cases regarding eminent domain that resulted in "massive judgments
against" the State. He asserted that many people prefer to settle
rather than enter into litigation with the State because it is time
consuming and expensive.
Mr. Satterberg suggested that the Committee request an audit be
conducted on the last four years of eminent domain cases that would
reflect "the initial deposited amount" offered by the State and the
judgment or settlement that was reached. He stated that the
disparities in the amounts would "amaze you." He stated that one of
the problems is that the State condemns a piece of property,
deposits money into the Court registry and specifies that it be for
the benefit of the landowner.
Mr. Satterberg argued that the money does not benefit a landowner
because many people cannot continue to finance their litigation
proceedings because the money has to be withdrawn to pay for the
deed of trust and obligations such as appraisals that could cost
between $10,000 to $40,000 plus attorney fees. He stated that the
Committee should support this bill and should additionally
recommend language be included to specify that if the State chooses
to appeal a "Masters Award," the State should be required to make
another deposit in the Court equal to the amount awarded, as well
as pay for the private party's expenses up to that time. He stated
that 95 percent of the State's cases are funded by federal money,
and measures should be undertaken to give a landowner an
opportunity to continue litigation proceedings. He suggested that
language be included to the effect that the State could not appeal
a Masters Award. He urged support of the bill and the addition of
financial support for the landowners.
PHIL EVANS testified from an offnet site to detail his recent
experience with the State over condemnation of a portion of his
property for a road construction project. He stated that during the
initial negotiation process, the right-of-way agent was courteous,
but misleading in the attempt to convince him "to accept a
settlement that was completely unfair." He stated that the
appraiser did not provide him with thorough information and was
insistent in her authority to be on his property and utilize office
space in a business on the property. He asserted that the
"appraiser was deceptively courteous and misleading in her attempt
to promote an unfair evaluation of the property," and he stated
that he was not provided with either a complete copy of the
appraisal or a market data book. He stated that he could not settle
with the State because he considered the appraisal valuation as
"totally inadequate and unfair," and that rather than based "on the
highest and best use of the property," it was based on the
property's current use. He continued that the negative effect of
such things as loss of parking, changes in highest and best use,
declined market appeal, changes in the business use of the
property, and decline in market value were also not considered in
the valuation of the remainder of the property.
Mr. Evans stated that when it became apparent that the State was
misleading and unfair in the attempt to reach a settlement, he
hired an attorney and an appraiser. He stated that while the State
determined that just compensation for the property was $80,229, the
appraiser he hired valued it at $676,000, and the Master's Hearing
appraiser valued the property at $324,000 for property taken and
damages.
Mr. Evans stated that rather than continue the litigation, he
decided to settle; however, the State opted to appeal. He noted
that this situation has incurred expenses amounting to
approximately $60,000, and that the next hearing is not scheduled
until 2003; however, he is still incurring expenses because of the
State's demands that he provide such things as eight years of
profit and loss records, income statements, and correspondence with
businesses, attorneys and appraisers. He stated that the co-owner
of the property has not been asked for these records.
Mr. Evans stated that while the Department's testimony regarding
the process is accurate, he questioned what the bill would
accomplish other than suggest that the property owner hire their
own appraiser. He elaborated that the State controls the process,
condemns the land, hires an appraiser to establish values and upon
being challenged, the case goes to a Masters Hearing to decide fair
settlement, which the State then appeals. He opined that the State,
through a costly intimidation process, causes the property owner
"to fold." He summarized that this legislation "needs more teeth,"
and while he appreciates that the State has a job to do, the
landowner needs to be a participant in the process.
Senator Olson asked the testifier whether this bill adequately
addresses some of the difficulties associated with the process.
Co-Chair Kelly interjected that the testifier voiced that this bill
does not adequately address the process. Co-Chair Kelly pointed out
that the original version of the bill includes language that might
more adequately address some of the concerns raised.
SFC 02 # 57, Side A 11:08 AM
Senator Ward asked whether a binding valuation determined by a
jointly approved appraiser would be a feasible option in resolving
a situation where the parties disagreed on the valuation of the
property.
Mr. Evans stated that would "be a reasonable approach."
Senator Ward stated that this is the process used in most
commercial transactions.
Co-Chair Kelly commented that while language included in the
original bill might be more appropriate than subsequent committee
substitutes, further revisions appear to be necessary. He referred
the Committee to a new committee substitute in the bill packet in
which language from the original bill has been reintroduced.
Senator Wilken moved "to adopt the SB Number 278, original version,
for consideration."
Co-Chair Kelly clarified that this version is SB 278, 22-LS1399\A.
Without objection, the committee substitute was ADOPTED as a
working draft.
Co-Chair Kelly stated that this version "contains more extensive
language regarding the appraised value of the property and the
property owner" being supplied that information.
The bill was HELD in Committee.
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