Legislature(1995 - 1996)
01/19/1996 01:05 PM House JUD
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* first hearing in first committee of referral
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+ teleconferenced
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HB 154 - REGULATORY TAKING OF PRIVATE PROPERTY Number 270 CHAIRMAN PORTER announced the next order of business would be HB 154 regarding the regulatory taking of private property. He commented this bill had received interim consideration and hearing. He asked Representative Vezey, chairman of the subcommittee to give a report of the subcommittee hearings. REPRESENTATIVE VEZEY said subcommittee hearings were held in Fairbanks and Wasilla with teleconference testimony from around the state. The result of the testimony was incorporated into a committee substitute prepared by the sponsor. He added that the subcommittee had received some real quality testimony from people with a lot of background, both from an administrative and legal viewpoints. Number 409 REPRESENTATIVE VIC KOHRING, sponsor of HB 154, said he was pleased that so many people have testified on this bill; most of them testified in support, which indicated to him that a major problem did indeed exist. The major problem that he saw and which prompted him to introduce this legislation was the issue of excessive regulation in society which prevents an individual from being able to use their private property and better their lives through economic gain. He referred to the constitution, Article 8, Section 16, which states, "No person shall be involuntarily divested of his right to the use of waters, his interest in lands or improvements affecting either, except for a superior beneficial use of public purpose and then only with just compensation by the operation of law." He interpreted this to mean that if a governmental entity were to take a person's private property through restriction of its use, then there should be compensation for any loss in economic value that results. REPRESENTATIVE KOHRING said this legislation provides a person an opportunity to seek recourse by exercising their constitutional right. He said those of us in the legislature are here on behalf of constituents, who have said enough is enough to big government and excessive regulation. This hinders a person's ability to better his or her life and hinders the growth of Alaska's economy. He pointed out that regulation in society on a national level is estimated at a cost of $640 billion a year. He coined the term that this legislation is the "private property owner's bill of rights." REPRESENTATIVE KOHRING referred to the intent of the bill and said it had to do with providing an opportunity to seek compensation in the event there's an economic loss to a person's property. When he referred to a taking it was not in the context of eminent domain, but a taking in the sense of economic value. The reason for filing this legislation was because Representative Kohring felt there was a need for regulatory reform in society as a whole, and there was a need for protecting the property rights for Alaska's citizens. REPRESENTATIVE KOHRING stated he has been informed of numerous cases in which property rights were taken away from people. He cited the retiree in Wasilla who was forced to quit building his home on a lake in the middle of the project due to new setback restrictions, the gold miner in Fairbanks who was forced to pay hundreds of thousands of dollars to keep up with the water quality requirements, to the subdivider on the Kenai Peninsula who went bankrupt because of unreasonable sewer and water regulations, to the homeowner in Willow whose property was rendered worthless because of wetlands designation. As elected officials, Representative Kohring felt it was incumbent upon them to go to bat for these people. REPRESENTATIVE KOHRING added that in regards to a governmental entity paying for the loss of economic value, they can withdraw at any time. If there's a claim that's filed and a loss of economic value is proven, then the regulation can be withdrawn, instead of the claim being paid out. Representative Kohring said the net effect of this legislation would be a blunting of the impact of regulation in the state of Alaska. It would also make a governmental entity think twice before a regulation is implemented. He thought there would be a lot more careful thought going into deciding if regulations should be imposed or if there should be restrictions on the use of property. It will also force a government entity to think of alternative ways to achieve their objective and to what extent should they take a piece of property; should it just be a certain portion, et cetera. REPRESENTATIVE KOHRING stressed he was not saying that regulations are bad per se and recognized the basic intent of a regulation is to protect the health and well being of society. For example, if there was a factory on a river which was polluting the air and causing potential illnesses to the public, or polluting a waterway and damaging a fish resource, this would be a justifiable taking if the government came in and shut that factory down. However, if an unjustified, unreasonable regulation was to be implemented where a person was financially devastated, government just simply can't walk away void of responsibility in regards to compensation. Number 882 REPRESENTATIVE KOHRING addressed the issue of paying out for a claim. When it comes to imposition of a regulatory restriction, there is going to be a cost incurred. The question is who is going to pay that cost? If there is a regulation that is imposed and a government entity has to bear that cost as a result of the implementation of this legislation, assuming it did become law, that government agency would pay that cost. Without this law, it would be the little guy, the property owner, who would have to pay that cost. REPRESENTATIVE KOHRING commented that this takings concept is not a quirk, but rather a concept that is sweeping the nation. As a matter of fact, 47 out of 50 states have filed regulatory takings bills in their legislatures. In addition, Congress has a similar bill as an element to their Contract for America. Our own legislative leadership has made this bill a part of their commitment to Alaska. He pointed out this was not an unfunded mandate; it would not be a cost to society to the tune of many millions of dollars, as people believe. It would be up to the regulatory agency to decide if they're going to impose a restriction that will cost them money. REPRESENTATIVE KOHRING said he wanted to be perfectly up-front with the committee with regard to supporters and opposition to the bill. As he stated previously, this legislation is widely supported but, certainly not by government, environmental groups, or the Alaska Municipal League. Those that do support the bill are basically the little guy; the average hard-working person. There are numerous documented cases of takings throughout the state of Alaska. He added this bill has generated a lot of support among their colleagues; there are 10 members on the House side that have co-sponsored and added their name to this bill. Additionally, they have received support from members of the Alaska State Chamber of Commerce, the Alaska State Home Builders Association and the National Federation of Business. He referred to a survey that was recently conducted by the latter agency. Two questions were asked in the survey. The first was, should private property owners be compensated for the reduction in value of their property by state or municipal action. The response was 91 percent yes, 3 percent no, and 5 percent undecided. The second question was, should a state agency proposing or modifying a rule or regulation complete an analysis prior to adoption to determine if the action constitutes a taking and if so, the value involved. The response was 88 percent yes, 3 percent no, and 8 percent undecided. In conclusion, REPRESENTATIVE KOHRING said our freedoms and rights as individuals have gradually eroded over the years and that America and Alaska is not what it used to be. He pointed out that this can change by passage of HB 154 which will send a message to their constituents that the legislature is serious about taking a strong stand against over-zealous government. He pointed out the private property owner in the state of Alaska owns one-half of 1 percent of the land in Alaska. Number 1181 REPRESENTATIVE FINKELSTEIN said he has often heard reference made to 1 million acres of private land; the figure is actually 46 million acres of private land in the state of Alaska. Also, many of the Native corporation lands, which make up the bulk of it, are moving into various private uses through leases and outright sales. He said he had a hard time understanding this issue. He presented a hypothetical situation where there are a bunch of people in a borough, city or state who are living on a stream or a river. Everyone puts all their stuff out on the shore and then it turns out these activities are impacting the salmon. These folks, through the laws they've passed or the people they've elected, have set up agencies to help figure out these issues for the use of all. He said the Kenai River is regulated for the good of all and many people lose uses. On the Kenai River and other places, the issue is what to do with the riverfront land. It was his understanding that under this bill they can still regulate it, but if they lose 30 percent of land value, the agency has to pay that somehow. REPRESENTATIVE KOHRING answered that was correct. REPRESENTATIVE FINKELSTEIN continued that now everyone gets paid off, now the salmon do better, the habitat is restored, recreation use increases, and property values goes up. He asked if the property owners have to pay back the state? The common good is what has gained that public benefit. REPRESENTATIVE KOHRING answered no, and added government is here for the people, not the other way around. He referenced the issue of property owners impacting habitat along stream negatively, and said if a governmental entity decides that it is important to preserve that habitat, who should be responsible to pay for this property loss? In his view the governmental agency representing the community should pay that so in a sense the cost is spread among a lot of people, instead of financially ruining one person individually. Number 1390 CHAIRMAN PORTER announced that it is the intent of the sponsor to amend the retroactive portion of the bill. In other words, there is within the bill, a provision that states if any of these unlawful takings have occurred, they would be assessed retroactively. This has caused some concern for a number of people and it is the intent of the sponsor to offer an amendment to remove this provision. It would then become a proactive piece of legislation, rather than retroactive. Number 1470 REPRESENTATIVE GREEN referred to the fiscal note and said it is quite substantial, and even more so upon reviewing the background materials which speak to hundreds of millions of dollars of potential costs. He asked Representative Kohring if that seemed reasonable and if so, would that represent the amount of loss from private property owners undergoing these takings. REPRESENTATIVE KOHRING answered he was not sure how those numbers were calculated. He was fairly confident however that those numbers represent the value of the loss that the private property owner would incur. He pointed out the numbers do reflect the retroactive provision of the bill; in his view the numbers would be zero if the retroactive provision is taken out, which is what he advocates. Number 1555 CRAIG TILLERY, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW testified on CSHB 154. Mr. Tillery initially wanted to clarify that he had been working from version (M) and had also seen a version (R) of CSHB 154. He asked which version was before the committee. Number 1583 REPRESENTATIVE GREEN moved to adopt version 9-LS0602\R dated 1/17/96, as the working document. Number 1600 CHAIRMAN PORTER asked if there was any objection. Hearing no objection, version 9-LS0602\R was before the committee. Number 1615 MR. TILLERY clarified what he understood to be a "taking" under the constitution versus what this bill before the committee would provide. Under the statute, any restraint on the use of property by an agency, municipality, or other entity, would be a per se taking and it would be compensable. Under the constitution, only if there is a physical invasion of the property or in the regulatory standard, if you deprive somebody of all the use of their property, this is considered a per se taking and damages would be allowed. If there was only a partial deprivation of property then an analysis is applied, such as what the nature of the governmental action was, the economic impact and whether or not there was some kind of interference with a reasonable business expectation of the use of the property. Mr. Tillery pointed out that this latter factor was fairly important, since this concept of business expectation was alluded to in the CS version before the committee. It is an important concept to note because it prevents windfalls. MR. TILLERY continued the second difference here in relation to a "taking" is that the statute covers the repeal of statutes and regulations. It appears this CS does not provide for repeals. Section 110 of the CS would suggest that it does cover repeals, but the related definition section of CSHB 154 is ambiguous, in that it doesn't include the discontinuation of government programs. Mr. Tillery said he didn't understand what this meant, but he believed that it would not cover say, the repeal of an individual zoning ordinance, for instance. MR. TILLERY stated thirdly, the constitution provides exceptions for public and private nuisances. The statute only provides an exception for a public nuisance and that is only as to one version of the taking, subsection (a) under the definition of a taking. Subsections (b) and (c) together essentially encompass anything that's in (a). In the department's view, private and public nuisances are not excepted and even though someone might be abating a public or private nuisance, it would still be a taking under this bill. Number 1736 MR. TILLERY outlined his understanding of how this law would work in specific exemplary instances and the potential economic impacts it could have. He proposed to review specific sections of the CS to point out situations the Department of Law felt were contrary to the constitution, are internally contradictory or sections they seem to have some particular problem with. MR. TILLERY began his review of the CS by referring to section 130, page 4, line 30, which provides that full compensation will be required. A governmental entity may not engage in a action which constitutes a taking of private property unless they pay full compensation to the property owner. Mr. Tillery alluded to the state law requirement for buffers along water bodies in timber operations. These buffer zones are mandated by statute. After review of this CS by DNR (Department of Natural Resources) they felt the ramifications under this proposed definition of a taking could mean approximately 200 million dollars paid the first year to property owners, with approximately 40 million dollars paid each year thereafter. MR. TILLERY added that the Department of Law (DOL) believes the bill provides a revolving payment on the amounts as listed previously. Again, the example of the buffer zones was used. If an entity makes a taking claim, was paid for those buffers and then subsequently sells the property to another entity, is this new owner compensated as well? This was ambiguous. There are other sections of this legislation which relate to this concept of retroactivity as well. MR. TILLERY said another way this legislation could affect DNR would be if the department wanted to lease oil and gas in Katchemak Bay or Cook Inlet for example, or land leases for minerals. This leasing would be considered a governmental action. This action under the statute would in some instances have an affect on adjacent land owners. These owners could then submit compensation claims, since DNR would have lowered their property values by granting leases to a business entity. MR. TILLERY added that with respect to the Department of Fish and Game (ADF&G), Mr. Tillery cited the example of fish allocation when applied to this new legislation, such as fisherman harvesting fish at False Pass versus fish caught at the Yukon Kuskokwim Delta. Mr. Tillery argued that he was of the opinion that fish are a common resource for everyone and the lack of a catch should not be compensated against the value of a fisherman's permit. He did note though that in the present CSHB 154 the definition of real property reads, "resources capable of being harvested or extracted." He also used the example of the state allocating more fish to the sport fisherman on the Kenai River and how that would impact say, a setnetter. Because of the decreased property value, i.e. the fishing site, nets, etcetera, should the state be liable under the "resources" definition to pay compensation? MR. TILLERY also used the example of the Exxon Valdez Oil Spill when the ADF&G, after the spill, closed specific fisheries because of a zero tolerance policy. The state legitimately wished to prevent any taint on the reputation of their salmon. Under this bill this closure would have been a governmental action, it decreases the value of boats, etcetera. The state, rather than Exxon could have faced these claims. Number 1999 MR. TILLERY stated that the Department of Environmental Conservation (DEC) has a number of regulatory functions. For instance, this department is responsible to carry out emission inspections. There is a federal mandate that requires this. If these inspections are not instituted, Alaska would loose highway funds, which Mr. Tillery roughly stated as being 900 million dollars. If requiring these emission tests is a governmental action, it would appear that the state would likely be responsible to pay for these tests. It could be that emission tests would be illegal under this bill because under section 34.50.160, page five, line 30, "A governmental entity may not require an owner of private property, (for instance a car) to provide or pay for studies, maps, plans, reports, (again, an emission report) or other information used ...to impose a restraint on private property use." Mr. Tillery pointed out that this is precisely the function of an emissions test. It imposes a restraint. MR. TILLERY added that these concerns are not fully explained in this bill. He's particularly concerned about matters related to the Alaska Oil and Gas Commission. This commission deals with maximizing oil and gas resources and enforcing safety standards in the course of extractions, such as blow-out prevention, well casing requirements, prohibition of co-mingling of reservoirs, injection of wastes into the ground and possibly the formation of exploratory units, etcetera. These may be considered compensable takings under the terms of this bill. To not do these things, compromises safety and the royalty interests of the State of Alaska in oil and gas. He also used the example of flaring. He was not sure if flaring could be prohibited under the bill without paying for it. Number 2114 MR. TILLERY outlined how this legislation affects the Commercial Fisheries Entry Commission (CFEC) would be in this entity's regulation of the issuance of limited entry permits. It is anticipated in the future that there will be only so many permits made available for fishermen and it is a legitimate concern under this legislation that the state would be forced to compensate those fishermen who did not make the final cut for acquiring permits. This is especially true if it is determined that these permits are considered a property interest loss. MR. TILLERY also added that it would appear zoning under this legislation would no longer be permissible, unless the regulating entity would be willing to pay for exclusion. This bill provides that zoning would be allowed if health and safety are at risk, but then under the takings section of this legislation compensation would be forthcoming. For example, if someone wanted to put a seafood processing plant next to a beach house in a neighborhood zoned residential, the seafood processing company would have to be compensated for the loss of expectation in this property interest if they were unable to place their company there. On the other hand, if the local governmental entity gives them a variance and allows this company in, the beach house owner could put a claim in for his loss of real estate value. Number 2205 MR. TILLERY then testified to the retroactive clause of this new version of legislation, located on page 8, line 29. Initially he understood that this legislation would not be retroactive, even though it clearly stated in the present legislation that it is not retroactive. Clearly this would not apply to someone who wasn't able to log last year in the buffer zone, for example. If so, this same person could file a logging plan again in the buffer zone and get compensated for a foreseeable season. The statute, even though it is an ambiguous, seems to allow this. Under full compensation this would mean a reduction in monetary value, but would it be reduced from where it was at a particular date and reduced from what? Would it be reduced from what the regulation said, the statute, or from what is constitutionally permissible? MR. TILLERY stressed that all these questions come back to the business expectations of the owner. When this person buys timber for example, knowing that these laws are in place, he'll hopefully buy it at a lower price. He shouldn't have a business expectation for a higher price, because this would be foolish, although this notion is not included in the pending legislation. On the other hand, if this law was in effect now or constitutionally permissible, this person would have a right to ask for a variance in this buffer zone. DNR could give him a variance for every tree in that buffer zone if ADF&G went along with it. By not giving him a variance, would that be a compensable action? If you're required to give them a variance, this person would stand to make a lot of money. Number 2316 MR. TILLERY then highlighted those areas which were not as ambiguous in the CS, but ones he also had problems with. If an agency established a particular restriction then they can either choose to get rid of a restriction or pay for it's enforcement out of it's budget. Clearly the attorney fees would come out of this bill, but this is ambiguous. If in fact, it is the intent of the CS delegate funds, then without question Mr. Tillery stated that this was an unconstitutional delegation of the legislature's authority over appropriations. The legislature in any given year can reduce an agency's budget to reflect the need to pay off it's judgments. Mr. Tillery was referring to section 34.50.100 on page four, line 13. In addition, on the bottom of page 4, section 34.50.120, Mr. Tillery made a reference to the ambiguity of what governmental agency specifically would be required to compensate a party. He also cited on page 6, line 22, section 34.50.200 as a reference to the agency responsible for compensation. Number 2386 REPRESENTATIVE GREEN asked if it was possible where the state is admonished to do something by the federal government, would an impasse be created when a question of compensation was at issue? Number 2407 MR. TILLERY understood that no, this would not be an issue. The federal government rarely makes the state do something by force. The federal government usually sets up a program with funding incentives attached, such as highway speeds. If a state doesn't enforce these speed limits, then they will not get any federal funds to help with highways, for example. Mr. Tillery referred to section 150, page 5, line 24, which speaks to access. In addition to full compensation, if a regulation is adopted and it restrains or deprives the owner of access to their property, the owner must also be provided an alternative access. Mr. Tillery wanted to make two points about this. First, this section is ambiguous whether it means deprivation of the owner to all access of the property or some access. But, more importantly the provision requires full compensation. Full compensation includes loss of access. To then require the agency to revisit this issue and require the remedy of access is double recovery. A deduction would need to be made to allow for this additional recovery, which would be very difficult to do. TAPE 96-4, SIDE B Number 000 MR. TILLERY made some reference to attorney's fees, but because of the break in the tape, his comments were incomplete. MR. TILLERY referred to section 160, page 5, line 30 regarding the prohibition against imposing costs. This section does not require a property owner to provide information related to an entity which is attempting to formulate a regulation or ordinance attached to a particular parcel of land. This clause would force the agency to pay for this investigative information. He used this law in relation to polluting a salmon stream, but it was unclear as to what conclusions he was attempting to reach with this particular illustration. MR. TILLERY then moved to section 110, page 4, which prohibits the adoption of regulations to private property unless it has a least possible effect on the property. Under section (b) this must be supported by a full analysis of the total economic effect. As an editorial note, Mr. Tillery pointed out that section (a), line 18, refers to private property and in section (b) there is reference to private real property. MR. TILLERY further added that it seemed this section was essentially requiring a NEPA (National Environmental Impact Act) statement. This section would probably be used by people opposed to development or in support of development to thwart the opposing view point. This would result in agencies going through a lot of expense to compile hugh records of analysis or simply not doing an action. One concern he has heard from the Alaska Oil & Gas Conservation Commission (AOGCC) is that they're currently working with the oil companies to come up with a modern set of regulations to governor oil exploration and development. Because of the nuances outlined in this legislation, ones which would be impossible to comply with, they could potentially thwart the entire process. Mr. Tillery said this appeared to be adding a layer of government, not reducing it, as well as, adding a layer of expense. Number 136 MR. TILLERY moved on to section 190, page 6, line 11 which concerned the adjustment of value for property tax. If a taking has been instigated the municipality is required to reduce the property's value. In part (b), line 17 of this CS, if the owner contests this valuation, the owner can secure an independent appraiser and apply this value instead. The State Appraiser after consultation with various municipalities was adamantly opposed to this. Mr. Tillery stressed that this practice was unprecedented and it was contrary to good appraisal practices. Number 181 TOM BOUTIN, STATE FORESTER, DIVISION OF FORESTRY, DEPARTMENT OF NATURAL RESOURCES testified to the large fiscal note attached to this legislation and cited this as his reasons for being present at the meeting. This fiscal note was very large, but is accurate as to the buffer zone issue as outlined by Mr. Tillery. This buffer zone is required by statute and there are hundreds and millions of dollars of trees left standing in these buffers. As far as retroactivity, forestry areas are quite often submitted for re- logging as the market changes. Number 235 CHAIRMAN PORTER acknowledged that Mr. Tillery had raised a plethora of issues and stated that it would be a great benefit to the committee and sponsor if he could put his concerns on paper in order that the committee could pour over it. He stated this legislation would be rescheduled with full notice requirements. Number 350 CHAIRMAN PORTER asked Mr. Tillery about the title to this legislation having been shortened to "regulatory taking." Would he be correct in assuming that an agency enforcing a statute under one of these categories of diminishing property values, in dealing with someone that fell within the purviews of this scenario, demanding compensation; could they prevail, notwithstanding a regulation? He referred to page 4, line 15, which read, "A governmental entity may not adopt, amend, or repeal a regulation or ordinance relating to private property, or impose..." He pointed out there was no mention of a statute. Number 405 MR. TILLERY stated that the legislature could not be bound to not adopt, amend or repeal a statute. These can always be changed, but he pointed out that this section wasn't the takings clause. This one particular clause related to adopting a regulation. In no way can a legislature be bound from changing the timber buffer law, for example. Number 418 CHAIRMAN PORTER stated that if for some reason the timber buffer law were revisited and revised, say for example, to 100 feet from 60 feet, hence reducing the property value. If there were no regulation that applied under this scenario, but a clause in the statute needed to be enforced. Does the statute then result in a taking that would fall into the compensation requirement? Number 450 MR. TILLERY said the statute would not result in a taking, but the executive branch's implementation would result in a taking that would require compensation. Number 465 CHAIRMAN PORTER responded that in other words they were not talking here about regulations that seem to exceed a statute, but about regulations that implement the intent of the statute. Number 474 MR. TILLERY said that was correct. Theoretically regulations are not really the issue here because a regulation can't exist outside of a statute. A regulation has to be empowered by a statute. Even if all the regulations were done away with, the bureaucracy implementing the statute would still be in effect. Number 489 REPRESENTATIVE FINKELSTEIN pointed out that all existing property that anyone owns in Alaska was bought with existing regulations as a constraint on price. If he was to predict this bill's passage and purchase land along a stream with timber, the state might be required to pay for every tree within his buffer zones, and he would become a millionaire. The only other option would be to log the land right down to the stream.
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