Legislature(1995 - 1996)
03/20/1996 01:15 PM House TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 543 - STATE AIRPORT LAND LEASE PREFERENCE Number 0330 CHAIRMAN GARY DAVIS said the next item on the agenda was HB 543, an act establishing a preference when entering into state airport land leases, sponsored by the House Transportation Committee. CHAIRMAN GARY DAVIS said HB 543 said this bill was requested because current regulations, as well as amended regulations, which have a detrimental affect on those people leasing airport lands. He said HB 543 gives a preference to those people who have leased airport lands and have made a substantial investment in those leases. He said those assets might be in jeopardy when a lease comes up for renewal. He said, currently, at the end of a 25 year lease where assets have been added to that lease, for example the construction of a $100,000 hangar, the lease is put out to bid and the person who invested in that lease might stand to lose their investment. He concluded that HB 543 gives preference in renewing the lease and said there is a constitutional issue related to HB 543. Number 0448 REPRESENTATIVE NORMAN ROKEBERG proposed three separate amendments to HB 543. He said he had spent over 25 years as a commercial real estate broker, primarily leasing commercial office space and ground in the Anchorage area as well as in the rest of the state. He said the airport land lease has been an issue for a long time and that it was brought to his attention again by the Alaska Air Carriers Association (AACA) who have asked for some statutory changes. Number 0526 REPRESENTATIVE ROKEBERG said HB 543 would apply to both rural and international airports and that his amendments would only apply to existing leases, not for future leases. He said there is one exception to this, a revisionary interest clause for improvements in any future leases. He said this clause has to do with leasehold improvements which include the buildings, the tarmac pavement, the understructure subsurface area, field distributions and storage tanks, essentially any improvement made by a lessee or tenant on the land. He said there have been substantial problems in the past because there has been either a failure on the state to include a reversionary clause in the lease document or there has been a lack of clarity within the document. He said the disposition of improvements, at the expiration of the lease, is in question. He said there are regulations that currently exist, but they are not administered evenly. Number 0613 CHAIRMAN GARY DAVIS clarified that a revisionary interest clause means that the improvements revert back to the owner at the end of the lease. Number 0619 REPRESENTATIVE ROKEBERG said improvements can revert back to the owner and said this relates to Amendment 2. He said this amendment states that "leases made prior to the effective date the lessees shall have the right to elect to abandon, remove, or sell to a succeeding tenant all or some of the leasehold improvements installed and paid for by the lessee." He said Amendment 2 would occur in a bargain for a leasehold situation, the improvements would either revert to the tenant or revert back to the landholder depending on the agreement. He said the bureaucracy is not working with the private sector of this state to promote and foster aviation in the business community. Number 0716 REPRESENTATIVE ROKEBERG said the renewal provisions, which are located in Section 1 of HB 543, relates to Amendment 1 which grants a right of renewal to the existing tenants only. He said the state should be in a position to bargain for new tenants and new business coming in to the airport. He said new statutes will have some bearing on future negotiations, and added that the bureaucracy is having an affect on the business community. He said the renewal option only affects current leases and stipulates that the terms, conditions and rents of the new extended period have to be mutually agreed upon in a reasonable amount of time. He said if the terms, conditions and rents are not agreed upon within a reasonable amount of time, there is a provision for a three member arbitration panel which would determine the fair market value rent and other terms or additions for that particular lease in order to resolve the conflict between the state and tenant. REPRESENTATIVE ROKEBERG said additional language was added at the bottom of Amendment 1, which allows the state to deny renewal or extension of the lease if the state can prove that it is in its best interest or consistent with the airport master plan that they don't renew it. Number 0778 REPRESENTATIVE ROKEBERG said Amendment 1 and HB 543 both include language, "offering under a long term lease scenario." He said he felt five years or longer is a long term lease. He said a person with a 35 year lease should have the right to extend that lease for five years. He said, currently, the statute limits the length of a ground lease or land lease in the state of Alaska to 55 years and added that he supports this concept. He said it is his intention that the lease term and extension periods be limited to 55 years. He said an additional amendment might be needed to add this provision. Number 0854 REPRESENTATIVE ROKEBERG repeated that his intent was to ameliorate business problems that are occurring in industry and affecting the state's business community. Number 0865 REPRESENTATIVE ROKEBERG said Amendment 3 provides findings and a statement of purpose for HB 543. He said the sections need to be renumbered, he said subsection 2 includes (c) and should include (d) below. He said he would amend this amendment. He said the findings are intended to overcome any potential constitutional challenge to this legislation by laying out the reason for the statutory change. Number 0926 KURT PARKAN, Deputy Commissioner, Office of the Commissioner, Department of Transportation and Public Facilities, (DOT/PF) was next to testify. He said the Administration supports changing the language in the statute to allow the right of first refusal for an existing tenant to enter into a new lease. He said the biggest concern is making HB 543 legally defensible. He said DOT/PF has drafted up a bill which addresses the same concerns and adequately addresses the legal concerns as well. He said in reviewing HB 543 and the comments that Terry Banister (ph.) had submitted, findings were included in the Administration's legislation to meet the constitutional challenges. Number 1042 MR. PARKAN said the state wants to create an environment that is good for the aviation business and that the state wants to do what they can to assist the current tenants. He said he just received the amendments proposed by Representative Rokeberg so he could not comment on them. He said the expert on statewide aviation leasing policy is in Washington D.C. trying to put together a state position opposing proposed Federal Aviation Administration (FAA) regulation regarding a ten seat rule for certified airports. Number 1096 CHAIRMAN GARY DAVIS referred to the right to refusal provision and asked him about the legalities in including this provision. Number 1116 MR. PARKAN said the state would prefer to give the existing tenant the right for refusal, giving a preference to a new lease. CHAIRMAN GARY DAVIS said it appeared the Administration's bill and HB 543 looked at the same thing. Number 1146 REPRESENTATIVE ROKEBERG said he chose not to use the concept of the first right of refusal in his amendments because this concept in law requires a bonified third party to come forward for the lease. He said if an existing tenant wanted to renew his lease and the state replied that the lease needed to be put up for bid, another bid was put up which the existing tenant could match. He said if there is knowledge that a first right of refusal exists, a bonified third party might not come forward. He said first right of refusals are not currently in practice, they have been replaced with first rights of offer. He said his amendment gives the existing tenant the first right of offer and does not require a third party to come forward. Number 1249 REPRESENTATIVE WILLIAMS asked if the committee members have received a copy of the Administration bill draft. Number 1256 CHAIRMAN GARY DAVIS said it was located in the committee packet. He added that he had no pride of authorship, but felt the best version should go forward for the protection and passage by everyone. Number 1280 MR. PARKAN echoed Chairman Davis' comment. He said the Administration bill is a draft of a transmittal letter as well as the legislation itself. He said it include sections of which are also included in the proposed amendments. CHAIRMAN GARY DAVIS said he wanted to hear testimony on HB 543 and was not sure it would be moved today as there might need to be additional work done on this bill. Number 1309 REPRESENTATIVE WILLIAMS asked about the proposed Amendment 1, page one, line five, after the word, "lease" and asked him to explain this section. He asked how this proposed amendment would affect him if he wanted to build a building that would last 55 years and only a five year lease would be granted. Number 1374 REPRESENTATIVE ROKEBERG said that part of Amendment 1 is only addressing renewals of leases. He said the language could be clarified in Amendment 1 and added that most of the airport leases are 30 to 35 years. He said this provision was added so that if you were close to retirement and only wanted to extend it by five years you could do so. He said the 55 year limit is a statutory limit. CHAIRMAN GARY DAVIS said the 55 year maximum limit might be the intent of some of the parties. Number 1445 HOWARD FOWLER, Alaskan Air Carriers Association (AACA), said he has been dealing with the issues of dispositions of improvements on expiring leases and the requirement in the lease contract of investments on a sliding scale for the length of the lease. He said if a lease is renewed and there is an operating business which doesn't need any more capital improvements, the requirement that more money should be invested is unnecessary. Number 1520 CHAIRMAN GARY DAVIS asked him if the lease was located at the Anchorage International Airport. MR. FOWLER said his company is called Natak Aviation and they have a 200 by 200 foot lot with a helicopter hangar on it at Lake Hood. He said the lease expired last July and he requested that either the lease be extended on the basis of additional improvements exceeding those initially required or that he lease on a month by month basis until "sane" policy is involved and he can sign a longer lease contract. Number 1571 CHAIRMAN GARY DAVIS said it appeared that the people who write the leases have the authority to add and subtract different provisions of the leases. He said the committee would contact him regarding this issue. Number 1609 REPRESENTATIVE ROKEBERG said, in terms of Mr. Fowler's situation, the language in HB 543 and the amendments do not speak to the investment, but the arbitration amendment would be able to help him resolve his differences. He said, currently, Mr. Fowler is at the mercy of the state, and added that to have someone invest over the course of a 25 year lease is ridiculous. CHAIRMAN GARY DAVIS asked Mr. Fowler what he had done regarding his lease issue. MR. FOWLER said he wrote a letter, dated November 29, 1995, to the local leasing officer with letters sent to Commissioner Perkins, the Governor and some other interested people. He said he has received no reply on this issue other than receiving an invitation to bid on a neighboring lease. Number 1741 RICHARD JENSEN said he was the former airport manager 20 years ago when most of the leases, which are now currently expiring, were made. He said, at the time, the state was happy to have those entrepreneurs, who were willing to risk their resources and offer services to both the traveling public and the tourists. He said the comment on revisionist provisions made by Representative Rokeberg is pertinent to current and future leases and that the bureaucracy involved was a morass. He commented that there was and is no leasing criteria and policy. Number 1851 MR. JENSEN said it was a "jake legged" operation in that when he was the airport manager, the division was doing the leasing and he did the enforcing. He said the airport had little input as to who or where people were getting their leases. Number 1887 MR. JENSEN said in reviewing some of these charges and the basis for them, there are two separated classes of airports in Alaska and that HB 543 doesn't differentiate between these two income sources. He said the two international airports, in Anchorage and Fairbanks, operate separately from all other airports in the state. He said the international airports are a separate entity created by an early statute and are self supporting. He said these airports have their own bond rating and its own bonding authority. He said the revenue from these two airports requires these bonds. He said, by grouping all these same airports under the same leasing regulations might need to be reviewed in context of ownership lease, use and operation airports and facilities will provide revenues sufficient to comply with all the covenants of the bond revenues. He said there must be more than one bond resolution because the international enterprise fund is separate. He said lease terms and lease charges there might be a basis for a differential in those regulations and or charges. Number 2070 CHAIRMAN GARY DAVIS said the DOT/PF has been struggling with regulations that will affect the international and the rural airports. Number 2100 CHARLES COLE said that several years ago he was asked by the Lake Hood airport lessees to represent them in connection with problems that are currently being addressed in HB 543. He said some of these operators had their leases expiring and they were concerned about their renewal rights. He said Governor Knowles appointed a well-balanced, multi-member committee to conduct hearings on the problems raised by the airport lessees. He said this committee made recommendations in the form of a majority and minority report through the commissioner about addressing and resolving these problems. He said the AACA, generally, accepted the recommendations made by the majority members of that committee. He said no action has been taken by the commissioner on those recommendations. He said, as a result, those concerns are now being raised to the legislature. Number 2231 MR. JENSEN said he did not have a copy of the proposed amendments to HB 543. He said it is important that the legislature make findings in connection with HB 543 in order to support legal issues which might be raised in connection with the constitutionality of the bill. He said he has not reviewed the findings included in the proposed amendment or in the Administration bill, but he said both of those are probably satisfactory. Number 2313 MR. JENSEN said he would agree with Representative Rokeberg that existing lessees should be given the opportunity to renew their leases. He said it would be a mistake to have a right of refusal for the reasons Representative Rokeberg mentioned. Number 2369 MR. JENSEN said the Lake Hood operators and many other airport lessees favor a reversionary clause, so that they can continue to own the improvements which they made on the property during the lease. He said most of these existing tenants, 25 years ago, were told that they would have the right to renew these leases. He said these leases were signed in good faith and the lessees accepted the word of the state. He said these leases are now expiring without any statutory rights to extend the leases. Number 2452 MR. JENSEN said the problem is more than simply just losing property, constructed on the lease premise, but loss of an entire business. TAPE 96-13, SIDE A Number 0000 MR. JENSEN said the loss of a business is a serious problem. He referred to the concept of not allowing lessees to renew the lease because of it not being in the states best interest. He said he was hesitant about giving too much discretion to the state regarding airport leasing and questioned what construed the state's best interest and also questioned airport policy. He said those provisions, in addition to the one mentioned by Representative Rokeberg should be eliminated. Number 0131 MR. JENSEN said, in regards to comments by Mr. Fowler regarding the leasing as shown in some proposed notice of lease option, if someone makes an improvement of $125,000 plus then they can have the lease for 25 years. He cited an example where someone put a $4.5 million hangar and said that person would have to pay one- twenty-fifth of the $4.5 million improvement to the state every year as opposed to someone putting $200,000 improvement would only have to pay one-twenty-fifth of that. Number 0312 MR. JENSEN said another state policy is to require, for lease renewal or extension, improvements on the premises. He said some of these premises are mature and have been there for 25 years and there is no more room for improvements or the company might not have economic justification for improvements. He said he had concerns in new leases where the improvements would revert to the state. He said the state should get the full value of what it gives to the lessee which would be raw land located on state ground near an airport. CHAIRMAN GARY DAVIS said he would send him information regarding the proposed Administration bill. Number 0447 JACK BIRMINGHAM, employee, Air Aviation, and member of the AACA, said he agreed with the testimony by Mr. Cole. He said, in one form or another, commercial airport tenants have been in hearing after hearing occurring before 1986, trying to resolve many of these same issues and that now legislative help has been requested. He said the short answer is located in a Michael Barton memorandum dated August 26, 1994. MR. BIRMINGHAM suggested the committee move HB 543. He said the Administration's bill has two faults, the findings provision only includes commercial properties and does not include non-commercial tenants and added that the worst experiences involve these non- commercial tenants. He said the other issue is the rights of first refusal on new terms and conditions and said this could be anything. Number 0571 MR. BIRMINGHAM said most of these constitutional concerns have been highly overstated and said the legislature should draft a bill that makes sense and fits the circumstances. He said only two leaseholds have gone to bid at the insistence of the state and most people have justifiably assumed that there was a reasonable renewal preference and a reasonable right of extension which is true and can be found in historical records. He mentioned that the DOT/PF changed this policy in 1990 or 1991. He said the government could grant extensions if, during the middle of your 25 year lease term, you wanted to extend the lease out. Number 0653 MR. BIRMINGHAM said the proposed Amendments 1 and 2 appear to be in the right vein. He said he would like a working group to be formed on HB 543 so that it can be done correctly. He said value of new improvements does not include the value of maintenance on existing improvements. He said these structures are well maintained. He said if you tell the tenant that ten years down the road, his lease is going to terminate or that there will be uncertainty regarding its renewal, the maintenance level will decline. Number 0734 PHIL LIVINGSTON, Chair, Legislative Committee, Vice-President of Alaska Airlines Association, was next to testify. He said he agreed with the testimony of Mr. Birmingham and Mr. Cole. He said this has been a long standing problem and nothing has been resolved. He said he just received the proposed amendments and said Representative Rokeberg knows about leasing. He said the Administration's bill does not refer directly to private hangars, or private ownership. He said a solid bankable renewal preference is needed in order for businesses to continue with certainty over a long period of time. He said HB 543 should handle all leases, not just existing leases, because the same problems will exist for new leases. He said his organization is trying to encourage the aviation industry and said that lack of certainty and short term leases will not do this. Number 0827 MR. LIVINGSTON said, as far as improvements are concerned, people need to have a long term assurance that they won't have their investments confiscated at the end of that term. He said transfer of private ownership is done through a sale. He said, under a first right of refusal and/or a bid process, the state takes the leverage the owner will have to make a successful sale. Number 0859 MR. LIVINGSTON said the state is in the business of land leasing and they should value the ground rents and leave the improvements on the property (indiscernible) as opposed to a matter of state policy. He said some of the improvements on Lake Hood are simply not substantial because the businesses do not require substantial improvements. He said the businesses are substantial and are not considered in the real estate question. He said some of the businesses are worth millions of dollars whereas their investments only total $10,000. Number 0910 MR. PARKAN said DOT/PF had sent a draft copy of their bill to the AACA, Airmen's Association and had received Mr. Livingston's comments on it today. He said DOT/PF has no problem with the commercial or non-commercial and said it was not their intention to exclude it. He said the Administration has altered their draft to include language which refers to the non-commercial and commercial. He said he would share this with the committee and with all interested parties. Number 0952 BILL INGALDSON, Attorney, representing the neighbor of Mr. Fowler, was next to testify. He said his client has been trying to renew his lease for two years and it is currently in a hold over status. He echoed the comments of Mr. Cole. He said in regards to the proposed Amendment 1, the last section on page one, line 9, after "land" it refers to the "terms, conditions and rents shall be agreed upon prior to the expiration of the lease". He requested additional language be added to the proposed amendment, "present lessees who are in a holdover status". He said his client will not be affected by HB 543. Number 1043 REPRESENTATIVE ROKEBERG noted that Amendment 1 would now include, "in a holdover periodic tendency". Number 1043 DAVE KLOSTERMAN said everyone is interested in achieving solutions to these problems. He echoed Mr. Ingaldson's comments that people in holdover status be included until policy is derived from legislative efforts. He mentioned that there is a growing group of lessees who are in a holdover position. He said he would be interested in being part of the group to help work on this issue. Number 1190 CHAIRMAN GARY DAVIS agreed that everyone would like to solve this problem. MR. INGALDSON said his clients have received notice that his lease is being put up for public bid, he asked that the commissioner postpone this public bid as legislation will change his client's interest. CHAIRMAN GARY DAVIS said due notice has been given and said that he will work on a committee substitute. Number 1200 REPRESENTATIVE MASEK said she has been involved with this issue since October of 1995. She said it is unfortunate that it has taken until this point for the Administration to come forward.
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