Legislature(1995 - 1996)
02/26/1996 01:08 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 391 - DISSOLVED MUNICIPALITIES/SUCCESSION Number 380 TOM WRIGHT, Staff to Ivan Ivan, presented information regarding HB 391 and read the sponsor statement into the record. "This bill was introduced by request of the Department of Community and Regional Affairs and the Local Boundary Commission (LBC). Currently, the state automatically becomes the successor to a dissolved municipality unless another municipal government assumes such responsibility. In most cases, the state becomes the successor by default. This means the state takes over the responsibility and liability of owning properties such as solid waste facilities, bulk fuel storage facilities, power utilities, sewer systems and other facilities previously owned by the municipality. "CS for House Bill 391 (CRA) allows the Local Boundary Commission to designate an Indian Reorganization Act council, a council that provides services under federal law, another municipality, non profit corporation or the state to be a direct successor to a dissolved municipality. The terms of the transfer of assets and liabilities of the dissolved municipality must be approved by the Department of Law. The bill also specifies that any transfer of assets or liabilities does not constitute recognition by the state of that organization." Number 540 DAVE HUTCHENS, Alaska Rural Electric Co-Op Association (ARECA), testified in regards to HB 391 and referred to a letter dated February 16, 1996 from the Co-Op's law firm, Kemppel, Huffman and Ginder which outlined the changes they felt should be made to this bill. Mr. Huthchens stressed for the record that they have no interest or concern regarding who the surviving entity is that manages the local affairs of these communities. Their concern is simply that the transfer of authority and responsibilities be complete, that existing obligations not be left in limbo during the transition. He noted the language which provides that if no other entity commits to manage the affairs of the community, the state may assume the responsibility. ARECA thinks the language should be rather, "shall" assume responsibility if the municipality goes out of existence. He added that there are valid obligations which need to be honored by someone. Number 705 REPRESENTATIVE TOOHEY asked for clarification about how often does this happen, why, and who is responsible? Suppose there is something which has gone wrong, for example, if the water becomes contaminated with lead. What steps are taken to assure that the municipality is not transferring a whole bunch of headaches to the state. It was decided that this issue be addressed later on in testimony. Number 790 PAT POLAND, Director of Municipal and Regional Assistance Division, Department of Community and Regional Affairs testified in regards to HB 391 and stated that the department submitted written testimony to the previous committee of referral. He stated the department's support for this legislation and made himself available for questions. CHAIRMAN PORTER asked if Mr. Poland had heard the previous testimony by Mr. Hutchins. Mr. Poland stated that he had, but did not have the benefit of seeing the letter as referenced. MR. POLAND responded to Mr. Hutchins concerns that the department's intention was that the local boundary commission in accepting a dissolution petition would condition acceptance upon transfer to a succeeding entity. By using the language "may," they wanted to eliminate a situation where a community literally can compel the state to receive assets which might have significant liability attached to them. Number 909 MARJORIE VANDOR, Assistant Attorney General, Department of Law, testified on HB 391 and stated that she had not seen the letter from Rebecca Pauli of Kemppel, Huffman and Ginder either. She stated that section (b) might need to be more extensively worded beyond adding the word "may." Ms. Vandor stated that she would want to make certain that new language offered would result in what Mr. Poland had outlined that the state isn't left in a liable situation and the Local Boundary Commission is forced to transfer this liability to the state. MS. VANDOR stated that she had been involved with six second class city dissolutions in unorganized boroughs, five of which were successful. Five of these entities simply stopped acting in their municipal capacity. Due to this, because there was no city council and they weren't holding elections or conducting any municipal work, the village entities were running the facilities themselves. She noted that there was a process in law for the Local Boundary Commission after hearings, reports and briefings of such situations are considered, they can allow a municipality to dissolve contingent upon certain conditions. The entity has to be free of debt and the creditors of the former municipality have to be taken care of. MS. VANDOR continued to explain the situation surrounding these five dissolutions. The state dealt with the court in Bethel to have a trust account set up for these second class cities they had not applied for from the state for several years so the state could assist them in paying their creditors, since they had no means to tax to pay off creditors. This was the only source of money the state could use to pay off the creditors. Studies were also conducted by the Department of Environmental Conservation and all of the agencies which had touched there communities were very involved in the dissolution. The only community which succeeded so far is Atmautluak. They have signed the agreement which the Department of Law prepared. The remaining assets and liabilities will be transferred and they've waived their sovereign immunity, which are the types of things required. The agreement will be recorded. The department is working with the other remaining four cities in regards to their lands. MS. VANDOR said this legislation will change this present procedure to provide for a successor entity who would be available to run these communities. The way the law is currently established it provides for the state to succeed to the assets and liabilities of a community in order to transfer them. There is a split second of time when the transferring document is recorded by operation of law where the state is in this transfer of title. This shouldn't need to be if there is an entity available to assume responsibilities for these communities. In all of the dissolution cases so far there was an entity available to assume responsibility. Number 1172 REPRESENTATIVE TOOHEY noted that the general requirement at any time a land transaction takes place is the title has to be clean. How does the state know there aren't any environmental problems with property being transferred with these dissolution situations. Number 1217 MR. POLAND stated that the department does a basic investigation of the community which is relatively superficial. The department does not have the resources to do any in-depth studies. The example which Representative Toohey outlined is precisely why the department is seeking this legislation, which is to keep the state out of these types of transfers. The department doesn't see the need to include the state legally into this chain of title issue. Basically, the legal responsibility should remain with the community. Number 1277 REPRESENTATIVE JOE GREEN asked that in this by-passing concept would the state be opening itself up to assume responsibly for what went on in a municipality beforehand. If they dissolve assets to cover costs of environmental concerns before forfeiture there might not be any more assets left to defray additional costs. MR. POLAND, as well as, Ms. Vandor stated that they were unable to answer this question at the present moment. Number 1335 CHAIRMAN PORTER asked in this general area, if it would be a fair statement to make that the assets and the liabilities of these municipalities would be transferred or just those assets and liabilities which have been left in limbo. MS. VANDOR noted that it has to be all the assets and liabilities. Each one of the creditors have to be taken care of before an entity can be dissolved, much like a bankruptcy. Number 1358 REPRESENTATIVE BUNDE asked if he was correct in assuming that these transfers take place in villages where the people who run things are tired of the job and they want to turn their responsibilities over to a traditional council. He asked if this was a fair assumption. MS. VANDOR responded that these entities as she understood it, didn't want another layer of government on top of the systems already in place. REPRESENTATIVE BUNDE asked if these problems with unorganized boroughs would not contribute to the additional unorganized areas which become the sole responsibility of the state. MS. VANDOR stated that anything which ends up in the unorganized borough comes under the jurisdiction of the legislature. She said this process would add to the existing load. She noted that these second class cities don't have their own school districts, but they have planning powers and taxing powers. Some of them might have a sales tax, but planning and platting was something they had power to do. Also, education has always been through a Rural Education Attendance Area (REAA). REPRESENTATIVE BUNDE used the example of taxation. If an entity got tired of taxing themselves and decided to dissolve, he noted that there are people in Anchorage who would just as soon dissolve than pay taxes. MS. VANDOR pointed out that this is why these issues go to the Local Boundary Commission because this is where everything starts and this is where the studies occur. They look at these things from a statewide perspective. Number 1483 CHAIRMAN PORTER mentioned a point in fact that there isn't any individual responsibility which can be laid by the state if a second class city decides on it's own to dissolve with liabilities. He asked if there was any possible recovery in these situations. MS. VANDOR said they could declare them not dissolved and then sue them in their own right, but she said she wasn't sure where this would get anyone. Until these entities dissolve under law, they retain an incorporated status which can be sued. The state could certainly cut off all funding and such to them. CHAIRMAN PORTER said that they might not know until the check came back. MS. VANDOR pointed out that it is a process allowed by law to allow a city to dissolve and this new legislation just assists the LBC in directing how to deal with the assets and liabilities if such a dissolution is allowed by them and what they can condition this dissolution on, as well. Number 1568 REPRESENTATIVE BUNDE referred to recent discussions about tribes in Alaska and indian country. He asked if dissolving local governments and turning these functions over to a traditional council, whether or not this would have any impact on determining what is indian country. MS. VANDOR stated that in the draft agreements as they are written now these tribes would have to waive their sovereign immunity in order to get the assets and liabilities, land included. There is an actual assertion in this agreement that they will not claim this property to be indian country now or in the future. A lot of this land is municipal trust land, as well, and there are conditions on it already in that if a municipality forms out there and this municipality wants this land, the entity that it was transferred to must give it back after a certain amount of time. This clause is in the quit claim deed. As the law stands now, a successor could not quit claim deed a clear title if it's municipal trust land. REPRESENTATIVE BUNDE asked if this was for people who want to dissolve the entire entity. He asked if it had any impact on those who would like to remove themselves from an entity. MS. VANDOR said that a detachment proceeding is totally separate. Number 1687 REPRESENTATIVE JOE GREEN asked about a situation where this procedure were to take place on native corporation land where the natives were able to retain subsurface rights and municipalities would only have surface rights. He asked if there was any possibility of clouding issues if the municipality disengages itself, or becomes unincorporated and it reverts back to the state, what happens to the surface rights of the municipality. MS. VANDOR apologized that she was not a lands attorney and said that she's not familiar with these very specific questions. She offered to propose this question to a colleague. CHAIRMAN PORTER asked that the departments work on Mr. Hutchins concerns and get an answer regarding surface and subsurface rights in preparation for the next scheduled meeting.