Legislature(2001 - 2002)
05/01/2002 01:15 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 278 - TAKING PROPERTY BY EMINENT DOMAIN Number 0377 CHAIR ROKEBERG announced that the next order of business would be CS FOR SENATE BILL NO. 278(FIN), "An Act requiring a good faith effort to purchase property before that property is taken through eminent domain; and providing for an effective date." CHAIR ROKEBERG called an at-ease from 1:20 p.m. to 1:21 p.m. Number 0407 KIM OGNISTY, Intern to Senator John Torgerson, Alaska State Legislature, said on behalf of Senator Torgerson, sponsor, that SB 278 is concerned with the "eminent domain and declaration of taking" proceedings in Alaska statute. The bill introduces a "reasonable and diligent effort" clause that attempts to place the condemnor of land and the private landholder in an equal negotiating position. The bill is not intended to try to remove the authority of the state to acquire land by eminent domain, nor in any way complicate existing proceedings. The phrase "reasonable and diligent effort" or similar language has been adopted in at least 23 other states. Encouraging the state to initiate communication from an equitable bargaining position will promote productive negotiations, facilitate dialog over reasonable concerns, and encourage suggestions from all parties involved. MS. OGNISTY noted that SB 278 was amended in the Senate Judiciary Committee, and that Senator Torgerson had no objections to that revision. The Senate Finance Committee, however, felt strongly that the original language should be returned to SB 278; therefore, she acknowledged, CSSB 278(FIN) is essentially the original bill. In response to a question, she indicated that the concept of SB 278 was brought to the sponsor as a result of a situation that the Sealaska Corporation encountered. Number 0589 RICHARD P. HARRIS, Senior Vice President of Natural Resources, Sealaska Corporation ("Sealaska"); and Executive Vice President, Sealaska Timber Corporation, noted that the process of eminent domain allows the state to take private land for public purposes. He said: For a company like Sealaska, private land is particularly important because it was a long and over a hundred-year process for Natives to be able to finally reacquire a land that was historically and aboriginally theirs. And so we are very diligent in protecting that land and ensuring that it isn't unreasonably taken. As I've indicated, we have very little land, and what we're trying to do is to ensure that eminent domain should be a proceeding of last resort. In other words, we believe that the private property owner needs to be put on an equal plain in terms of negotiation and in terms of finding acceptable alternatives that will work for the party. Our view is that [SB 278] helps level the playing field - gives the private property owner a right to effectively negotiate with the condemnor in order to preserve his values and his rights as he perceives them. It doesn't give him an absolute veto over that; it's clearly structured just simply to ensure that there is a diligent process that is undertaken to be sure that private property rights are protected.... The model code allows this type of transaction, ... [and] any federal project or federally funded project requires a reasonable and diligent effort, so we don't believe that this is an extraordinary or ... unreasonable request. Number 0749 JON TILLINGHAST, General Counsel, Sealaska Corporation, added that a provision similar to [SB 278] is found in at least 23 other states' codes as well as the model eminent domain code, which he indicated says: A condemnor shall make every reasonable and diligent effort to acquire property by negotiation ... an action to condemn property may not be maintained unless the condemnor made a good-faith effort to acquire the property by purchase before commencing the action. MR. TILLINGHAST said that with such a provision, the state is at risk if it doesn't negotiate fairly with the private party. Therefore, because both sides have something at risk at the outset of the process, they will approach each other more as equals, which, he opined, will reduce litigation because the atmosphere surrounding negotiations will be improved and, thus, the landowner will feel more like he/she is being treated as an equal. He offered the following as a quote from the drafters of the uniform eminent domain code: The purpose of preliminary purchase attempts include the protecting of property owners from arbitrary and unexpected exercises of eminent domain power, facilitation of amicable settlements of disputes as to the amount of just compensation, minimizing acquisition costs through reduction of litigation, and promotion of citizen cooperation with governmental programs involving land acquisitions. MR. TILLINGHAST said that to his knowledge, that philosophy has remained unchanged since those words were written, which, he opined, indicated that the experts in the field continue to believe that this type of provision is a "litigation saver." REPRESENTATIVE JAMES asked for a description of the incident that engendered SB 278. Number 0904 MR. HARRIS said: We've had periodic occasions where the [Department of Transportation & Public Facilities (DOT&PF)], for purposes of airports or other expansions, have come and initiated an action, actually brought condemnation. In one case, we had a separation of the surface and the subsurface estate, and [DOT&PF] said, "Here, we're just going to pay you this amount of money"; ... Sealaska Corporation, in this case, and a village corporation in Klawock, were basically told to "go fight it out" to figure out whose share of the money it belonged to. That left, clearly, a pretty unpalatable situation. We finally, after many, many years, were able to work out an amiable solution, but it was only after a long, long process. Each time we start into a new action, we start from the process of ... [being told], "Here, we're here, here's the value of your property, here's what we're going to pay you for it." We don't feel that we're in a fair or a strong negotiating position, and when we try to speak about alternatives, we frequently find ourselves frustrated. And, as I said, we speak in terms of seeking opportunities not to see land condemned, but to work exchanges or some other types of transactions which will allow us to keep that acreage or the ownership of that acreage in an equal basis. We're not parties that sell [Alaska Native Claims Settlement Act (ANCSA)] land, as a (indisc.) rule. REPRESENTATIVE JAMES said she'd heard that "it was an exchange issue, more than it was a price issue." MR. HARRIS said that the issue in this case was that [the DOT&PF] wanted to condemn land and then buy it. He explained that the appraisal did not appraise the surface and the subsurface separately; "You had two separate owners - essentially a horizontally severed estate - and they said, 'You guys have to go figure it out; you have to work it out,'" he added. REPRESENTATIVE JAMES mentioned that she wants to make sure that the piece of legislation before them actually fixes the sort of problem that Sealaska is facing. She asked whether, in the aforementioned situation, a trade was ever offered. Number 1069 MR. HARRIS said that ultimately, that particular dispute was solved by a trade, but only after a considerable amount of legal wrangling. "The value of what we were paid for the property paled by what we paid our lawyers to argue this particular issue," he remarked. Turning to Section 2 of SB 278, he explained that lines [2-8] will allow entities to have separate appraisals that will have equal footing, and allow for alternative means of satisfying the public purpose. He surmised that currently, government entities find it much easier to just come in and condemn the property it wants, rather than taking the time to negotiate in a fair and equitable manner. In contrast, SB 278 give landholders the right to try to negotiate reasonable alternatives. REPRESENTATIVE JAMES asked Mr. Harris whether he thought that the DOT&PF would now be more amenable to negotiations to begin with: "Do you think you have their attention? Do you think they would not do it that same way again, or did they do it to you more than once?" MR. HARRIS said: We've had repeat events.... We're working closer to getting their attention; we believe that this bill is really the vehicle to make sure that the attention exists with the people that we work with. We have their attention, but administrations change, internal policies change, and what we're doing is saying that this is an intelligent policy. It's clearly a policy that's acceptable in a variety of other states, and we believe that it's a reasonable one here. REPRESENTATIVE JAMES indicated that although it may be appropriate to provide for property exchanges for Native corporations, she is not convinced that it would be in the best interest of the state for everyone to have that alternative available. She asked whether there would be a way to stipulate different procedures for Native corporations. MR. TILLINGHAST noted that SB 278 does not compel the state to accept an exchange nor does it give regional corporations "the right to force one down the state's throat." If a land exchange is suggested by one of the parties, the state need only provide a reasonable explanation of why it is refusing that exchange. Number 1332 MR. HARRIS pointed out that Sealaska owns both ANCSA land and non-ANCSA land. In each case, he said, Sealaska believes that SB 278 is a good law with regard to any private landowners. He opined that when taking private land for public purposes, it should be shown that such a process is really necessary. Senate Bill 278 will give private landholders the opportunity to seek an alternative to condemnation; if, however, a reasonable alternative cannot be arrived at, the state can say so and then proceed with condemnation. An example of an unreasonable exchange request would be an offer to exchange land worth $1,000 for land worth $100,000. REPRESENTATIVE JAMES mentioned that she has had a lot of experience with circumstances involving [taking by] eminent domain, and has concluded that oftentimes the landholders were better off after the taking, acknowledging, however, that the circumstances might be a little different when land in Southeast Alaska is at issue. She said that she did not want to see [the provisions of] SB 278 being used to stop projects that could build Alaska's economy. REPRESENTATIVE BERKOWITZ asked how Section 2 of SB 278 works in conjunction with AS 09.55.240(a)(12) and (b), which involve right-of-ways versus real property. He asked how a real estate appraisal would work in that context. MR. HARRIS replied: We deal with right-of-ways all the time. We provide and sell right-of-ways for pipelines, for hydroelectric projects - it's all underground; we can deal with that as an appraisal and ... we're very happy to lease property. It's when someone comes and condemns it ... So if we're talking about a right-of- way for a waterline, as an example, I'll give you the example of "Black Bear Hydro Power Project": we leased that property. They came and tried to condemn the property under federal law, and we told them we would fight until forever to stop that project. Once they came to us and said, "We would like to lease it," we were in a totally different ballgame.... We're a landowner; the condemnation of land is much different than using and releasing of land. In that case, we were able, very successfully, to develop a successful easement process; we were compensated in the proper way, but we still owned the land. And those are the types of things, again, that we come back to and refer to, is to say: "Do you have to condemn the land in this case? Can we find another alternative? Can we use it as an easement and a lease, [or a] land trade?" I'm only using these as examples.... We've tried to say, "Allow the landowner to define what's acceptable to him other than, 'We're going to pay you and that's your only viable option.'" Number 1603 REPRESENTATIVE BERKOWITZ asked whether appraisals would be based on fair market value [of the land] or on the replacement costs of generating an alternative route [for the project]. MR. HARRIS said appraisals are based strictly on the fair market value of the land using standard uniform appraisal procedures. He noted that in leasing property for an "Alascom repeater site," Sealaska followed U.S. Forest Service procedures, which involved using a percentage of the value of the repeater site. In that case, "it was 8 or 10 percent of the value of the improvements," he added. REPRESENTATIVE BERKOWITZ remarked that different amounts might be arrived at depending on how the land is appraised, whether it is based on the rental value or the market value. CHAIR ROKEBERG acknowledged that appraisal styles do differ. REPRESENTATIVE JAMES mentioned that were she in the state's position, she would rather own the land than rent it or lease it. MR. TILLINGHAST pointed out that SB 278 does not address appraisal methods; whatever rules appraisals must currently follow would not be changed by SB 278. CHAIR ROKEBERG asked Mr. Tillinghast to address the argument that SB 278 will slow down the process of eminent domain, and to speak to whether eminent domain filing could take place before implementation. He also asked: "Many times, doesn't the state go ahead and start processing the taking before they finish their negotiations with somebody because of the time elements necessary to get a project underway? Wouldn't this bill take that ability away?" Number 1900 MR. TILLINGHAST said no, it certainly wouldn't; the state can continue to file a motion to get possession. The state can continue to file a declaration of taking, which lets them take the land immediately. And in those cases, he noted, the court has an expedited procedure for the preliminary issues, where in the court asks: Is the taking necessary, and is the taking authorized. He opined that with passage of SB 278, the court would then have three questions to ask during an expedited preliminary procedure: Is the taking necessary, is the taking authorized, and is the state "reasonable." He surmised that the latter question would not involve valuation of the land, merely whether the state is behaving within "the broad universe of reason that we expect of our public servants." CHAIR ROKEBERG, referring to language in the bill that stipulates that the condemnor shall set "a reasonable period of time" in which to obtain an appraisal, asked Mr. Tillinghast what he considers to be a reasonable period of time. MR. TILLINGHAST indicated that that would depend on where the property is located; he ventured that if the property were in Juneau, 30 days would be reasonable. MR. HARRIS said that it would also depend on the size of the project. He said that typically, Sealaska can get an appraisal within 45 to 60 days. He posited that a project is not going to simply stop while waiting for an appraisal, typically projects are complex and other aspects can continue in the meantime. MR. TILLINGHAST, in response to questions, said that under SB 278, if a landowner feels that the state has not negotiated reasonably and in good faith, he/she can file objections to the state's taking, with one of the objections being that the state didn't obey the law and wasn't reasonable and diligent. He noted that there are already rules for ensuring that the court deal with those types of preliminary objections in an expeditious manner. He opined that a person who is not satisfied with the amount of compensation being offered for his/her land will not be able to use the provisions of SB 278 to delay a project by even one day. He relayed that "the national experts" feel that clauses such those in SB 278 prevent eminent domain cases from going to court at all. He also relayed that he has not heard of situations in which similar legislation has caused the delay of eminent domain proceedings. Number 2171 MR. TILLINGHAST, in response to further questions about the possibility of delaying a project, said: The court controls it's own proceedings, and the civil rules have limitations on how long discovery can go on, on these preliminary issues, and it's not very long. And there's no reason that the courts can't force this issue within that same preliminary proceeding. Now, for sure, ... if the state doesn't take my offer, I'm going say "I'm going to go to court and I'm going to claim you're being unreasonable." And that does give the landowner leverage, but that's the reason for the bill, is to give the landowner a lever in eminent domain negotiations - is to put the state at risk a little bit. Because right now, you've got the state as the sovereign and the landowner as the victim, and that's the way a lot of landowners see it.... But if the state is at risk of losing something, in this case losing their eminent domain right because they weren't reasonable, then the state is going to be more inclined to negotiate with the landowner as an equal. MR. HARRIS opined that what Sealaska is asking for via SB 278 is not unreasonable. He indicated that under current statute, federally funded projects are already addressed in this same manner. MR. TILLINGHAST concurred that the federal property acquisition guidelines have been adopted by the state; AS 34.60.120 says: "(1) Every reasonable effort shall be made to expeditiously acquire real property by negotiation." The problem with that clause, he opined, is that "nothing happens if the state doesn't do it - there's no remedy." REPRESENTATIVE JAMES noted that she did not see any remedy in SB 278 either. MR. TILLINGHAST said that the remedy is in Section 4, which provides that the state can be denied or dispossessed of the property if the court finds, as part of this preliminary process, that the state hadn't been reasonable with the landowner. Currently, he added, the court does not have that authority. In response to further questions, he reiterated that the issue of whether the state is being reasonable would be decided at the outset of the eminent domain proceedings. REPRESENTATIVE MEYER posited that the term "reasonable and diligent" is fairly subjective and could be hard to prove. MR. TILLINGHAST, in response, offered that this type of clause is relatively common, and that there is already quite a bit of case law that provides the courts with guidance and outlines the state's maneuverability. He explained that language in Section 2 was added with the intent of creating "an objective cookbook" for the steps that the state must follow in order to satisfy the "reasonable and diligent effort" clause. TAPE 02-58, SIDE B Number 2377 DENNIS POSHARD, Legislative Liaison/Special Assistant, Office of the Commissioner, Department of Transportation & Public Facilities (DOT&PF), said that the DOT&PF really takes acquisition of property through eminent domain procedures as a very serious matter. He also said: We respect the rights and concerns of property owners. It starts right at the beginning. Our guidance to our staff - which we've given you a copy of - right at the beginning of it, it describes the rights of individual property owners as are stated by the Alaska [State] Constitution and the Fifth Amendment of the [Constitution of the United States]; and we take it very seriously. We believe that the current process works well. About 93 percent of our acquisitions, of the roughly 350 or so that we acquire in a given year, we end up acquiring through negotiated settlement - we don't even go to court or any kind of eminent domain proceedings ... - which is a very good record compared to other states. First of all, in terms of the current process, our acquisitions take place under the federal uniform Act and the Alaska Statutes. By law, we're required to offer fair market value. It's not like buying a home, where it's in your best interest to go in and maybe offer a low price in hopes that you're going to get a good deal. We're required by law to go in and offer what we truly believe, based on an appraised value, to be fair market value for the property. We go in trying to compensate the owner what they're due ... for what their property is worth. Our right-of-way manual ... stresses the importance of fairness and just compensation. There's exhaustive case law on eminent domain procedures, and, ultimately, everything we do - every appraisal, every piece of property we acquire - ends up getting reviewed by the Federal Highway Administration. For them to participate and fund the acquisition of property, we have to do it according to federal law and according to the codes that they establish. And under the existing law, a judge already ... decides the issue of authority and necessity, and eventually, if necessary, fair market value. But the way the eminent domain process works now, we can go in and we can, through eminent domain, acquire title to a piece of property through a relatively quick procedure that, as you noted in Section 4 of the bill, requires us to prove authority and necessity, which is a pretty objective standard for us to go in and prove. Number 2219 MR. POSHARD continued: I think that entering a new standard of "reasonable and diligent" into what we have to prove in the court before we can divest the property owner of their title will only result in project delays and increased costs in legal fees. That's why we believe that [SB 278] encourages additional litigation during the acquisition process, and ultimately it shifts some of our project dollars from asphalt and needed highway improvements into paying for attorneys to defend our takings. This bill will also result in project delays. I think you have a letter from the commissioner ... [wherein] he expresses his concern, and he uses an example of one property owner who ... could use this new language to try and delay the project, for whatever reason, ... even on a project where all of the other homeowners ... were in agreement that this is a needed project and were willing to negotiate and settle with the state for their parcels of property. Another concern for us is whether or not the expenses - ... the additional expenses - will ultimately be eligible for federal highway reimbursement. I think they will, but at least it's a concern that we have. And then [there are] a couple of other issues ... related to ... some of the testimony that you heard.... I'm not intimately familiar with the cases and some of the property takings that were brought up, but I can say that the department is definitely willing to consider the concerns of the sponsor and other interested parties that have been expressed in testimony regarding this bill, particularly as it relates to land trades and appealing a master's decision. To that end I think you have in your packet a copy of a memorandum from Mike Downing [Director/Chief Engineer] ... that deals with the delegation of authority to appeal a master's decision. MR. POSHARD concluded: I think that in past committee hearings there was testimony about a case where a master's decision was appealed. That is a very, very rare thing for us to do; and that decision did occur by the regional staff and the Department of Law, and we've sent out a memorandum taking away that delegation of authority and bringing it back into the headquarters so that the chief engineer can review those cases and go over them with the commissioner before deciding to appeal. And ... with regard to land trades, ... I think you also have a memorandum in your packet ... from Mike Downing to staff requesting them to try to come up with a policy that we can put in place that is going to deal with that particular issue and maybe give some guidance for us in terms of ... looking at land trades as maybe a first option, particularly as it relates to ANCSA lands and Native corporation land acquisitions. Number 2020 MICHAEL L. DOWNING, Director/Chief Engineer, Division of Statewide Design & Engineering Services, Department of Transportation & Public Facilities (DOT&PF), referred to a handout in members' packets titled Simplified Project Development Flow Chart. He said: We go through these steps in the same way every time. It's detailed in the ... code of federal regulations, and we have to follow these steps; we've got lots of policies and manuals that add detail, but this is generally it. It's very simple; the actual library of all the guidance is pretty big. But you can get a sense of the steps here, starting with planning, then the environmental document phase of work, which is where all of the real decisions about an alignment get made. There might be little details that we put into the final designs, such as pulling in a slope or flattening one out, that changes the acquisition requirements, but, generally speaking, the right-of- way needs get addressed in the environmental document phase.... That's also the opportunity for any affected landowner to speak up and say, "Well, we object at this point to what you're planning to do because of what it would [do to] affect our property interests." Once we've gotten an approval from the Federal Highway Administration of that document, we're bound to stay within it. We can't start working on some scope of work that's not under that approved document. We also can't acquire right-of-way in advance of that document being approved because, ... if we had that option, we could pick our favorite route, acquire the right-of- way, and then prejudice the outcome of the document by saying, "Well, we already own the land here." So under NEPA, the National Environmental Policy Act [of 1969], we're prohibited from proceeding on with the acquisitions or any other steps that would prejudice the environmental document. That means that those two functions in the development of a project ... [are] the long items, they're the long-duration activities; they become the critical activities in terms [of] how long it takes to deliver a project. MR. DOWNING said that according to his interpretation of SB 278, Sections 2 and 4 will expand the time it takes to acquire right- of-way. First, by adding the process that is involved in allowing the owner to propose alternative means and allowing the owner to go out and seek his/her own appraisal. He noted that currently, landowners are not prohibited from getting their own appraisal and rebutting the department's appraisal, and such is often done. Number 1917 CHAIR ROKEBERG asked why then, if that activity is currently allowed, the department objects to such provisions being put into statute. MR. DOWNING said it is because Section 4 stipulates that the owner cannot be divested of his/her property until the department has proven that it has been "reasonable and diligent", which is defined in Section 2 as "having followed these steps that add time." CHAIR ROKEBERG posited that following the steps in Section 2 shouldn't add time. MR. DOWNING clarified that it is in proving "reasonable and diligent" that time will be added, since the owner cannot be divested of the property until after this "new test" regarding "reasonable and diligent" is passed by the Department. MR. POSHARD pointed out that although property owners can currently choose to get their own appraisal and rebut the department's case, [Section 2 of SB 278] mandates that in each case, the department "shall invite" landowners to "obtain an appraisal" or "offer any alternative means". CHAIR ROKEBERG asked whether the department would be satisfied if the provisions of Section 2 only applied to property valued at [at least] $10,000 or $15,000. MR. DOWNING indicated that price is not always the main issue for property owners; for example, Native corporations are concerned about maintaining property inventories. CHAIR ROKEBERG indicated that he did not think the provisions of Section 2 should apply to "small takings." Number 1680 MR. POSHARD agreed, noting that a "full blown appraisal" can cost as much as $2,500, and so for a small pieces of property, [applying the provisions of Section 2] do not make sense. MR. DOWNING added: "Under our delegation of authority from the Federal Highway Administration for these appraisals, we're allowed to do a value estimate, in lieu of appraisals, for property acquisitions ... for $10,000 and less." He noted, however, that this exception applies only when the department can reach an amicable agreement with the property owner on what the value is. CHAIR ROKEBERG offered his interpretation that Section 2 stipulates that an appraiser shall be hired, and opined, therefore, that it would be good to include an exception for property valued at $10,000 [or under]. REPRESENTATIVE JAMES opined that eminent domain is there for a reason, and surmised that regardless of the dollar amount, projects could be delayed because of the restrictions added to the taking process via Section 4, which is [linked with] Section 2. MR. DOWNING pointed out that under the federal program, the property owner is still only entitled to just compensation; therefore, regardless of any processes added by SB 278, the property owner will not receive any additional monetary benefits. Instead, he opined, SB 278 will only create new process and new tests, and will encourage litigation. REPRESENTATIVE JAMES asked whether the department currently has provisions pertaining to land exchanges. MR. DOWNING said that he has just issued a memo to the department's right-of-way chiefs instructing them to develop a process by which the department can engage in land exchanges. He pointed out that when engaging in land exchanges, the department must ensure that it stays eligible for federal reimbursement and that both sides are treated fairly. He indicated that he anticipates that the details for a land exchange program should be worked out by the end of July [2002]. REPRESENTATIVE JAMES asked whether, in terms of public process, the development of such a program will be treated in the same manner as the development of regulations. Number 1472 MR. DOWNING pointed out that Title 19 authorizes the DOT&PF to acquire properties for the [purpose] of exchange, although any policies the department ultimately comes up with to implement that [acquisition] may also have to be supported by regulation, and, if so, then under the administrative procedures Act, the department would have to go through the public hearing process. REPRESENTATIVE JAMES opined that regardless of whether regulations were required, any forthcoming land exchange policies ought to get some form of public scrutiny. MR. DOWNING agreed, adding that the parties involved should be able to have confidence in the solution. REPRESENTATIVE JAMES commented that she believes that there should be more private ownership of land, and, thus, favors land exchange as an alternative. MR. POSHARD, turning to Section 4 of SB 278, reiterated that the DOT&PF feels that this provision will cause [project] delays and will increase legal expenses; hence the department's fiscal note of approximately $1.3 million. He pointed out that this projected increase in cost reflects money that would be spent in right-of-way acquisition as opposed to asphalt or some other aspect of a given project. In response to a question, he explained that in an average year, the department experiences only one "authority and necessity" challenge. In contrast, he predicted, there will be quite an increase in challenges based on SB 278's proposed standard of "reasonable and diligent". Number 1232 JAMES CANTOR, Assistant Attorney General, Transportation Section, Civil Division (Anchorage), Department of Law (DOL), testified via teleconference. He explained that the fiscal note only reflects increased legal costs, and doesn't reflect possible delays in a project. He said: The legal issue here is not reasonableness or reasonable alternatives. Those are already addressed in our statutes, as they are in the statutes of other states. The issue is the sword, in Section 4, of being able to stop a project. And the stop of a project occurs merely with the allegation [that] the state was (indisc. - coughing) or diligent in their effort to acquire the property. We actually are not afraid of losing that issue in the end, once the court hears it, because we think we are reasonable and diligent. But there's a timing factor. And the timing factor's particularly serious here with short construction seasons. So what I'd like to do is quickly explain the process and then explain an example of one that happened to us up here recently. MR. CANTOR paraphrased from AS 34.60.120, which says: (1) Every reasonable effort shall be made to expeditiously acquire real property by negotiation. (2) Real property shall be appraised before the initiation of negotiations, and the owner or a designated representative shall be given an opportunity to accompany the appraiser during the inspection of the property. (3) Before the initiation of negotiations for real property, an amount shall be established that is reasonably believed to be just compensation for the real property and that amount shall be offered for the property. In no event may the amount be less than the approved appraisal of the fair market value of the property. MR. CANTOR noted that for properties of any value, [the DOT&PF] requires two "MAI appraisals" to determine just compensation. CHAIR ROKEBERG asked, "What's the break point there?" Number 1118 MR. CANTOR replied, "I think it's in the $200,000 range." He continued with his opening remarks: [The Department of Transportation & Public Facilities] attempts to negotiate starting at that appraised value. If they fail, they refer to the Department of Law to file condemnation. We [the DOL] actually attempt to negotiate before condemnation as well; sometimes just changing personalities helps resolve an issue. At that point, condemnation is filed, and the most common kind of condemnation involves the state depositing the amount of money - that appraisal amount of money - with the court, and the property owner can then withdraw that money and have it while the proceeding continues. So then the property owner is saying, "Well, sure, I have this amount of money, but I'm entitled to more," and you're arguing about the "more." Also at the time you deposit the money, title passes and [DOT&PF] takes possession and can start to build the project, and the rest of the legal proceeding is to determine if the property owner should get more money. However - and this is Section 4 of the bill, the "however" - ... the property owner can object to the state's authority and necessity.... As it works now, that's where the property owner says, "No, no, no, there's another alternative; you don't have to take this property." If the property owner has another idea of how the project should have been built, that's the chance for the property owner to stop the project so the state has to redesign it. The test there is, as the project crosses that particular parcel, was it designed to achieve the greatest public good with the least private injury. And until that issue gets resolved, property title does not pass, and the project does not proceed. Number 1031 MR. CANTOR said: Now, our courts set up in [Civil Rule 72 of the Alaska Rules of Civil Procedure] a series of deadlines to speed that process up so that projects can get going. However, in our experience, courts don't follow those rules, and there's a good reason for it: we're taking away somebody's constitutional right to possession of their property, and that should not be done ... lightly. And if that person needs extra time to do discovery, review documents, take depositions, have their experts review things, the courts are not going to stick to an artificial deadline; they'll give that person the time they need before we take their property from them. And so the Rule 72 deadlines don't actually define what happens in court; what happens in court is slower. After the court reaches a decision on authority and necessity, and ... if the court says, "Yes, the state had the authority and necessity," then the project can start up again and proceed to be built. And then you continue the litigation through [an] evaluation phase, and any amounts of money due the property owner are paid with 10.5 percent interest, which is higher than interest on most civil litigation - it's an extra help for the landowner.... Section 4 takes that authority and necessity objection and expands it to include an objection about reasonableness: you merely have to say the state was not reasonable and diligent, and the process stops, and you go to court and do your discovery, you take your depositions, and you figure [out] whether the state was reasonable or diligent.... The example I have is on the "Parks Highway"; this is one we went through last year. One of Anchorage's top-drawer aggressive trial lawyers interposed an objection on authority and necessity. The objection was basically that this highway, which [is] the freeway that's being built into Wasilla, didn't need to be built - instead there should be a second road, more or less parallel, in a different location. So that stopped the project. The project was set to be ... put out for bid, and it didn't get put out for bid. The objection was lodged on January 22; the court's decision on August 14 was that the state did have the authority and necessity to build the project where they designed it, but by that time, just with construction seasons, we've been delayed a year in the project. So, a proceeding that for the court system at least was relatively fast, delayed the project for a year. Number 0865 MR. CANTOR concluded: I expect to see a significant increase in this type of objection, under Section 4. The reason I expect to see it is because if I were representing the landowner, I would do it. I'd have a duty as a lawyer to zealously advocate my client's position, and I think that it's a very valuable advocacy tool to be able to allege [in order to slow the process down by stopping construction] that the state was not reasonable.... I think that gives me a very strong advocacy tool; I don't think it particularly benefits the landowner except as a negotiation tool, because, in the end, the landowner only gets just compensation and 10.5 percent interest. The penalty is to slow down the project; the penalty is not to pay the landowner more money or anything else. So all the landowner gets is the opportunity to stop the horses because the landowner feels - or at least can allege - that they weren't being treated reasonably. MR. CANTOR, referring to the fiscal note, opined that it is self-explanatory; he said that under the provisions of Section 4, it is estimated that of the current rate of condemnation rate of 7 percent, 84 percent of those would be subjected to "this type of challenge." He added that there may be an incentive "for people to push into condemnation in order to stop a project and get the upper hand in a negotiation; so we estimated what would happen if we had a 14 percent condemnation rate, and that's where those numbers come from." CHAIR ROKEBERG asked Mr. Cantor whether he would still have objections if Section 4 were removed from SB 278. MR. CANTOR said that removing Sections 3 and 4 would address his concerns, adding, however, that [DOT&PF] might still have concerns with Section 2. Number 0690 MR. DOWNING, referring to Section 1 of SB 278, noted that because "we have that already," the addition of the term "reasonable and diligent effort" is not problematic in and of itself; rather, it is the way in which that term gets detailed via Section 2, and the way in which that detail can stop a project via Section 4, that gives the [DOT&PF] concern. He relayed that the [DOT&PF] is willing to work with the sponsor and other interested parties to resolve the issues raised by SB 278. He said of SB 278 that he did not believe it "to be in the public interest." REPRESENTATIVE MEYER asked whether it is state money or federal money that's being used when cases go to court. MR. DOWNING replied: That is federal funds, if it's a federally funded project, ... as long we stay within the parameters of the guidance that they give us. We believe that there's elements of this bill that may go outside of that; for instance, if under "(b)(2)(1)," we end up having to pay for a value in excess of what you'd arrive at through the process detailed in the code of federal regulations, then that excess expenditure would be non-participating funds. We would try hard to avoid that occurrence, but it sits out there as a possibility. MR. DOWNING, in response to a question about the fiscal note, said: We arrived at that due to the estimates that we have of how much additional litigation we would see. When you go from a challenge of authority and necessity to include reasonableness and [diligence], we believe that encourages considerably more challenges as a negotiating tool. Our experience in "authority and necessity" challenges is that they're running us in the $35,000 range per occurrence, and we don't have many occurrences today - about one a year. And we think we'll see anywhere from ... 20 to 35 - maybe even 40 - a year ... [if] this bill goes through.... So that's what we're concerned about, is that increased litigation costs.... Again, we're going to be paying for attorney fees and ... not ... new pavement, safety improvements, ... [or] the other amenities that we get out of the transportation program. MR. POSHARD pointed out that although [the DOT&PF] believes that the dollar figure in the fiscal note would likely be "federal eligible," there is no guarantee from the Federal Highway Administration that such would be the case. If the Federal Highway Administration does participate, then approximately 90 percent of the amount estimated in the fiscal note would be paid for with federal funds, leaving the state responsible for the other 10 percent. REPRESENTATIVE MEYER asked for assurance that [the DOT&PF] will institute a land exchange program. MR. DOWNING offered his assurance, adding that there is a strong demand for such a program, and that the Native corporations have a legitimate point that must be addressed. Number 0288 RICHARD "DICK" CATTANACH, Executive Director, Associated General Contractors (AGC), testified via teleconference. He said: Our primary concern is getting the jobs out in a timely manner, and we're very concerned about the potential on this bill. We do acknowledge and are aware of the problem that Sealaska had, but I'm not sure this is the best solution to deal with that issue.... But I'm primarily concerned about Section 2(b)(2), because, imagine if you will, a hypothetical: let's assume that we want to extend the highway around Merrill Field - the Glenn Highway - and [the DOT&PF] is proceeding with that, and an antidevelopment group, if there is such a thing in Alaska, buys a piece of property, and they can't reach an agreement with [the DOT&PF], and they offer an alternative; they suggest the [DOT&PF] tunnel under the existing roadway from Bragaw all the way to (indisc.). Okay, that's an alternative, and [SB 278] says, "offer any alternative means". Then the state would of course reject that, but to do that, they've got to do it in a reasonable way, and they actually can't just do it offhand; they've had to consider that option, they've had to evaluate that option. So, when they prepare their initial estimate, they've got to look at all of these options, whether they're feasible or not, and come to a conclusion as to why they've rejected them. And if they didn't, if this is one they hadn't looked at, I can't believe they can just say out of hand, "No, we can't accept that." So, I just don't know if we want to open that door. But then when it gets to court, and this antidevelopment group might just actually take it to court, if they lose, they would probably go to the supreme court. So we're not just talking about a number of months - we're maybe not talking about one construction season, we may be talking about two or three - and I don't know that we've done anything for the state of Alaska other than solve the problem that Sealaska has right now. I think there may be a better way to do that; I don't think this bill is the way to accomplish that, and we suggest that it be modified significantly if you intend to go forward with it. Number 0059 WILLIAM CUMMINGS, Assistant Attorney General, Transportation Section, Civil Division (Juneau), Department of Law (DOL), said that although it has been mentioned that SB 278 follows the model procurement code, he wanted to point out that this model procurement code has been adopted by only one jurisdiction in the United States, and that one jurisdiction is Alabama. He suggested that upon closer inspection, members will find that the provisions of SB 278 are actually contrary to the provisions of the [uniform eminent domain code]. TAPE 02-59, SIDE A Number 0001 MR. CUMMINGS, referring to AS 34.60.120 that was cited by Mr. Cantor, said that the language therein is identical to language in the "model procurement code"; in other words, he added, "we're already doing that. He said that the difference of opinion lies in the remedies available. He elaborated: Under the uniform eminent domain code, the state ... is put to the test, just like under this statute, but under the eminent domain code, if the state has gone through and acquired appraisals and has negotiated with the property owner and has offered him fair market value - ... no less than this approved appraisal that the statute called for - then that's prima facie evidence that the state has been reasonable and acting in good faith. The language that we have in the [proposed] statute in ... Sections 2 and 3 sets up quite a different standard for the state to follow, and allows a number of places for people to actively get in and litigate and what not, even though it's been in full compliance ... with the law already. MR. CUMMINGS indicated that comments pertaining to "Section 306 of the model code" say: This section requires that the condemnor attempt negotiations, as defined in Section 307, only to the extent reasonably necessary to satisfy the good faith effort requirement. An inflexible negotiation rule could well prove a source of unnecessary litigation, and unless carefully defined in a requirement, could provide an opportunity for dilatory tactics by property owners. MR. CUMMINGS opined that the aforementioned is precisely what Sections 2, 3, and 4 would do: enhance the opportunity for litigation and result in delays, which costs the state dearly in terms of time, money, and attorney fees. He also opined that there is a big difference between the remedies in "the code" and those proposed by SB 278. Under the legislation, he surmised, if the state has made a mistake, the only thing that will result is that the state's condemnation case will be kicked out of court and thus the state will have to "start all over again." "Under the eminent domain code" he offered, there are three things that can happen: One, the property owner could be found to be "all wet"; two, the state could be told to correct certain things; or, three, the case could be thrown out of court. CHAIR ROKEBERG announced that SB 278 would be held over.
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