Legislature(1995 - 1996)
04/18/1996 08:20 AM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL 543
"An Act establishing a preference when entering into
state airport land leases."
Co-Chair Hanley provided members with a proposed committee
substitute, work draft version 9-LS1769\R, dated 4/17/96
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(copy on file).
KURT PARKAN, DEPUTY COMMISSIONER, DEPARTMENT OF
TRANSPORTATION AND PUBLIC FACILITIES stated that the work
draft addressed many of the Department's concerns. He
stated that the Department has two remaining concerns. He
referred to page 3, line 15, subsection (c). He stated that
the extended term should be limited. He also expressed
concerns regarding the total amount of time a person may
have exclusive use of the resources. He emphasized that it
is not good public policy to allow one person exclusive
rights of the State's resources. He maintained that rights
of the broader public should be protected. Individuals that
are not current tenants should not be shut out from an
opportunity to use the public's resources. He stressed that
there should be some limit to the amount of time a person
can have exclusive rights.
Co-Chair Hanley noted that the Committee was provided with
an amendment, 9-LS1769\R.1, dated 4/17/96 that would provide
that: "The term of a new lease or an extension entered into
under (c) of this section may not exceed a total of 55 years
when combined with the term of the prior lease if a new
lease is entered into, or with the term of the existing
lease, if an extension is entered into." Mr. Parkan stated
that the Administration would support the above amendment.
JACK BURMINGHAM, ALASKA AIR CARRIERS, ANCHORAGE testified
via the teleconference network. He stated that he supports,
work draft version 9-LS1769\R, dated 4/17/96.
CHARLES COLE, ATTORNEY, FAIRBANKS testified via the
teleconference network. He expressed support for work draft
version 9-LS1769\R, dated 4/17/96.
STEPHEN COOPER, ATTORNEY, FAIRBANKS testified via the
teleconference network. He stated that he would support
work draft version 9-LS1769\R, dated 4/17/96.
Representative Kelly WITHDREW Amendment 2.
Representative Mulder noted a conflict of interest due to
his wife's lobbying activities. Mrs. Mulder represents the
Alaska Air Carriers Association. Members objected to his
request to reframe from voting.
Representative Mulder MOVED to rescind the Committee's
action in adopting work draft version 9-LS1769\O, dated
4/9/96 as amended by Amendment 1. There being NO OBJECTION,
it was so ordered.
Representative Mulder MOVED to adopt work draft version 9-
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LS1769\R, dated 4/17/96. There being NO OBJECTION, it was
so ordered.
Representative Kelly provided members with Amendment 3 (copy
on file). Amendment 3 would insert "and the lessee is
compensated for the value of the improvements removed and,
if appropriate, for the value of the business, if any,
operated by the lessee on the land." He expressed concern
that businesses be fairly compensated.
Co-Chair Hanley observed that permanent assets can be sold
or auctioned by the State. He expressed concern that the
State would have to ascertain the business value.
Co-Chair Foster suggested that the amendment be divided.
Representative Brown stated that the lessee would be
compensated for the value of the improvements. The lessee
can sell under (A)(2) or allow the State to sell the assets
and give them the proceeds.
Representative Kelly referred to page 4, (A). He questioned
what is the protection for the lease holder who has to sell
their assets. Representative Navarre noted that private
lease holders are treated in the same manner.
Co-Chair Foster emphasized that the State has a monopoly on
land surrounding state airports.
Representative Kelly MOVED to adopt Amendment 3.
Mr. Cowper spoke in support of Amendment 3. He stated that
the airport can rewrite their operational policies and
decide that it is not in the State's best interest to renew
a lease. The lessee can be required to remove improvements
from the property. He asserted that this provision is
subject to abuse by the State.
Co-Chair Hanley stressed the difficulty of assessing
business value. He pointed out that if a lessee does not
want to sell or auction their assets the State has no
recourse.
Representative Martin asked why a government lessor should
act differently than private lessors regarding contracts.
Representative Kelly emphasized that the State has a
monopoly in regards to airport land. He observed that there
are no alternative private airports. If a lessee loses his
lease he has no place to go. Representative Martin asserted
that the State should get the maximum value of its assets.
Representative Kelly observed that there are no alternative
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private airports.
ELIZABETH HICKERSON, (TESTIFIED VIA TELECONFERENCE),
ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW observed that
the term of the lease is set. She discussed condemnation.
She maintained that if the State has to buy back the
improvements in order to operate the airport in accordance
to the master plan the flexibility of the airport would be
hindered. She stressed that there would be a substantial
fiscal cost associated with Amendment 3.
In response to a question by Representative Martin,
Representative Kelly noted that there are formulas that are
used to assess the business value.
A roll call vote was taken on the MOTION to adopt Amendment
3.
IN FAVOR: Kelly, Foster
OPPOSED: Kohring, Martin, Mulder, Parnell, Therriault,
Hanley
Representatives Brown, Grussendorf, and Navarre were absent
from the vote.
The MOTION FAILED (2-6).
Mr. Parkan spoke in support of Amendment 4, 9-LS1769\R.1,
dated 4/17/96: "The term of a new lease or an extension
entered into under (c) of this section may not exceed a
total of 55 years when combined with the term of the prior
lease if a new lese is entered into, or with the term of the
existing lease, if an extension is entered into."
Ms. Hickerson maintained that Amendment 4 is a necessary
tool to overcome a constitutional challenge. She stressed
that leases could be given in perpetuity. She observed that
the courts do not favor laws that impair the transference of
lease interests or turn a lease into a individual fee simple
estate. Especially if the State owns the land for public
use. She noted that the Federal Aviation Agency (FAA) also
opposes leases that extend into perpetuity and grant
exclusive use. She noted that the State has agreed in
contracts with the federal government to make airport land
available for public use for fair and reasonable terms
without unjust discrimination. She asserted that
maintaining a provision that operates as an exclusive rate
allows the State to be targeted for noncompliance.
Noncompliance could jeopardize future funding and result in
requirements to repay funds already received. She stated
that she has taken the position that there are protections
for the public if there is a limit of term years that are
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extended without competition.
Co-Chair Hanley noted that section 3 states that the
commissioner shall extend the lease without competition if
the lessee is in compliance with the terms and conditions of
the lease and if it "is in the State's best interest." He
questioned if the requirement to be in the State's best
interest would provide sufficient protection to the State.
Ms. Hickerson agreed that this provision would be the basis
for her argument in support of the State. She stated that
clarification could prevent litigation.
In response to a question by Co-Chair Hanley, Ms. Hickerson
noted that 55 years is used in statute. She maintained that
a lease without competition is a lease that can extend into
perpetuity. She stated that the longer the lease the
greater chance that the courts and the FAA would consider
the lease an unreasonable length of time, amounting to
perpetuity.
Mr. Burmingham argued against Amendment 4. He pointed out
that the State leases federal land for what amounts to
perpetuity. The State leases land from the Coast Guard
which is extended every five years for a 25 year term. He
maintained that (c)(1) and (2) provides sufficient
protection to the State's interest. He gave an example of a
55 year lease limit that would work to the State's
disadvantage.
Mr. Cowper spoke in opposition to Amendment 4. He
maintained that Amendment 4 would be a major shift in state
aviation leasing policy. He observed that regulations under
17 AAC 40.320 (c)(1) provide that leases are issued on a
first come first served basis.
(Tape Change, HFC 96-127, Side 2)
Mr. Cowper stated that the Department has policy in place
which makes leases shorter than 55 years. Leases depend on
the value of improvements. He maintained that involved
parties should reevaluate leases to decide the terms and
conditions of a new lease at the end of a lease term. He
maintained that the amendment would allow the Department to
judge leases just based on the 55 year criteria. He
asserted that section 3, subsection (c)(2) would support the
State's case in court. He stated that Amendment 4 would be
retrogressive and destructive.
Mr. Cole agreed that the State has adequate protection under
section 3(c)(1) & (2).
Representative Brown asked how the existing 55 year
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provision in (a) would apply to (c). Ms. Hickerson
explained that the maximum term under (c) would be 55 years.
The 55 year term could be extended for an additional 55
years a number of times. She emphasized that Amendment 4 is
critical. She asserted that HB 543 is a major move away
from past practices of offering leases to the public. She
maintained that the State is not interested in kicking good
tenants off state land. The State is interested in giving
people an equal opportunity to do business with the State.
She noted that regulations stated that leases are issued on
a first come first served basis unless the Department
determines it is in the public's best interest to offer
public auction.
Representative Brown noted that leases could be extended
into perpetuity unless the State determines it is not in the
State's best interest. She asked if there is a
constitutional problem with indefinite extensions without
competition.
Co-Chair Hanley summarized that the State can reject a new
lease or extension if it is determined that it is in the
State's best interest to go to competition. He acknowledged
that the State's best interest is subjective. He noted that
it could be in the State's best interest to continue a lease
that was not allowed due to a time limit.
In response to a question by Representative Mulder, Mr.
Parkan clarified that the 55 year lease limit is not in the
Constitution.
Representative Parnell referred to (c)(2). He asked if the
language would give the State the ability to say that
competition is in the State's best interest. Mr. Parkan
replied that the State could determine that competition
would be in the State's best interest. He added that the
Department would prefer not to have to battle with lease
holders to decide the State's best interest. He spoke in
support of a definitive lease term. He noted that other
leases are limited to 55 years. There are no open ended
leases in statute.
Co-Chair Foster emphasize that most leases have to be
renewed after 20 to 30 years.
Representative Brown MOVED to adopt Amendment 4. A roll
call vote was taken on the MOTION.
IN FAVOR: Brown
OPPOSED: Kelly, Kohring, Martin, Mulder, Parnell,
Therriault, Foster, Hanley
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Representatives Grussendorf and Navarre were absent from the
vote.
The MOTION FAILED (1-8).
Co-Chair Hanley referred to page 3, line 15. He noted that
the Department would like to have "for not more than one
year" added.
Mr. Parkan provided members with a summary of the benefits
of new lease provisions (Attachment 1). He noted that a one
year lease extension limit would allow the Department to
introduce new language into the lease in order to reflect
current airport conditions. He spoke in support of the
additional language. Discussion ensued regarding problems
with birds and the use of pigs at airports.
Representative Brown asked if there are leases in the 10 to
20 year range that cannot be extended to 55 years. Mr.
Parkan explained that the legislation will allow the
Department to extend leases.
DIANE BANTH, (TESTIFIED VIA TELECONFERENCE), LEASING
OFFICER, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES,
ANCHORAGE noted that leases run from 3 to 55 years. She
stated that the majority of leases are for 25 to 35 years.
Extensions are public noticed if there is a substantial
change to the lease. She explained that leases are extended
in order to finance improvements. There is no competition
during the public notice process of a lease extension if the
lease has not ended. The original lease remains.
Extensions requested at the end of the lease would allow an
opportunity for competition.
In response to a question by Co-Chair Hanley, Ms. Banth
explained that most of the leases at the Anchorage
International Airport allow opportunities for the State to
increase lease rent no more than every five years. The
State does not have to grant lease extensions.
Representative Brown questioned the requirement for public
interest. Ms. Hickerson pointed out that the Constitution
requires that public notice be given.
Representative Brown noted that the lessee can get a lease
extension in the middle of their lease. Ms. Hickerson
reiterated that the extension would be publicly noticed.
She stressed that if there is objection the extension would
not be given. The present situation would be changed by
subsection (c) which provides statutory authority for the
State to limit competition. The constitutional requirement
for notice would not be changed.
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Mr. Cole observed that the State requires that improvements
be constructed in order to obtain an extension. He stressed
that a business may not need further improvements on the
lease premises. He maintained that this requirement creates
economic waste. He observed that section 3(c) allows the
existing lessee to have a new or extended lease in order to
carry on business for the limit of 55 years.
Representative Parnell referred to page 3, line 15. He
asked if new terms are placed on extensions. Ms. Banth
stated that part of the approval for the term extension is
to add or replace language. Mr. Parkan clarified that the
Department interprets page 3, line 15 to state that no new
terms would be added as part of the extension.
Co-Chair Foster MOVED to report CSHB 543 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CSHB 543 (FIN) was reported out of Committee with a "do
pass" recommendation and with a zero fiscal note by the
Department of Transportation and Public Facilities, dated
4/9/96.
Representative Kelly stated that his concerns had been
addressed.
Co-Chair Foster asked the Department of Transportation and
Public Facilities to provide the Committee with a report on
the fair market value of state land leased around airports.
He maintained that the State has not opened sufficient land
surrounding airports. He stated that this has increased
fair market value. He asked what the Department of
Transportation and Public Facilities is doing to open up
more land around airports.
ADJOURNMENT
The meeting adjourned at 9:50 a.m.
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