Legislature(1995 - 1996)
03/27/1996 01:29 PM House TRA
| Audio | Topic |
|---|
* 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 1653 CHAIRMAN GARY DAVIS announce the next item on the agenda was HB 543, an act establishing a preference when entering into state airport land leases. He said HB 543 was first heard last Wednesday and said a couple of meetings have been held since then to try and determine how the bill should be addressed. He said there have been numerous problems in HB 543 as it tries to accommodate industry and the Attorney General's Office (AG) in regard to constitutional issues and agreeing to what should be included in statute and what is addressed in regulation. He said he has drafted a committee substitute for HB 543. Number 1738 REPRESENTATIVE BRICE made a motion to adopt the work draft, CSHB 543 (TRA), version 9-LS1769\C, dated March 27, 1996. Hearing no objection CSHB 543 (TRA) was now before the House Standing Committee on Transportation. CHAIRMAN GARY DAVIS said the wording that was sent over to Legislative Legal in the work draft did not return to the committee with quite the same language that was sent over. Number 1778 KURT PARKAN, Deputy Commissioner, Office of the Commissioner, Department of Transportation and Public Facilities (DOT/PF), was next to testify. He said DOT/PF supports changes in the statutes to promote stability by giving tenants an opportunity to remain at their locations without forcing them into some sort of competitive environment, either by right of first refusal or right of first offer. He said the interest of DOT/PF is to make sure that the state promotes aviation business and gives the existing tenants some comfort in knowing that they will have an opportunity to stay at their lease site. Number 1816 MR. PARKAN said beyond that interest, the DOT/PF is interested in making sure that whatever legislation is developed remains legally defensible. He said the Department of Law will be the state's attorneys if DOT/PF goes to court to defend challenges by this proposed legislation. He said the committee and the Administration's intent is similar with regard to offering existing tenants an opportunity to continue to stay at their lease sites. MR. PARKAN said there is a concern about Section (d), which is the section that deals with the disposition of improvements. He said this section brings in a new element that the DOT/PF had not originally discussed and might be a troubling area. He suggested that it would be better to keep the bill simple and address one issue at a time. He said the option to continue a lease could be the issue that is addressed, rather than addressing the improvements issue as well. He asked for an explanation regarding the section which talks about "limited circumstances clearly defined by regulations the department may acquire ownership by financing the improvements." He said he did not understand the intent of this language and questioned whether the department would acquire those improvements if they were willing to buy them. MR. PARKAN said the language specifying financing is vague and that the DOT/PF has various leases which have different clauses regarding the disposition of the end of the term of the lease. He said every lease has some language that references the disposition. At the International Airport there is the FedEx existing lease which has the clause that the improvements revert to the airport and said that particular property was financed by the Alaska Industrial Development and Export Authority (AIDEA) and said the DOT/PF is in the process of negotiating a new lease for expansion and said he was not aware that the lease is being financed by AIDEA. He said DOT/PF is negotiating a lease which has similar language regarding reversion. The United Parcel Service (UPS) site which is a growing site, it is about five years old and that lease was not funded by any instrument of the state, yet it too has language which calls for the reversion of the improvements to the state at the end of the lease. He said Section (d) which refers to the improvements is unclear and suggested that it should not be included. Number 1991 CHAIRMAN GARY DAVIS said he retained the findings and statement of purpose as opposed to a letter of intent in CSHB 543. He said his decision was based on providing all the information, up front, when and if CSHB 543 goes before the House and Senate. Number 2027 ELIZABETH HICKERSON, Assistant Attorney General, Transportation Section, Civil Division, Department of Law, was next to testify. She said the charge or primary focus she was given, was to draft an amendment to the statute which would provide a legally defensible right for tenants, who are in good standing, to give a new lease and avoid competition. She said the reason why the Governor wanted the Attorney General's Office (AG) to draft something was because he found that there was a public purpose in allowing tenants in good standing to continue on their leases for a new term, if in fact, continuation on that lease was consistent with the needs of the airport. She said it is accepted that the airport has special needs and that the state cannot tie all inches of land at an airport and still provide the service that the aviation community needs. She said, with that charge and based on the research that had been done over the last couple of years and in new research formed through discussions with groups of people, the AG's felt that it was important to have a reasonable basis stated which is located in the findings. Number 2097 MS. HICKERSON complimented the Chairman on including the findings in CSHB 543. She said keeping the findings will help the AG's if they need to go to court and explain why this provision is in the state's best interest. She said the findings are based on the combined review and determination by airport personnel that being able to offer a tenant in good standing a new lease without competition promotes the interest of the local community, the airports and the state and has ramifications beyond the lease. She said the lease employs people, brings in money, promotes good tourism, continued tourism and other commerce. Number 2134 MS. HICKERSON said she is aware of the fact that the state needed to be sure that they were staying within the public purpose and avoid a constitutional challenge. She said, as Mr. Parkan pointed out, the Department of Law (DOL) will be required to defend this statute and the DOL needs to be able to defend this and succeed in that defense. She said the last thing people need to do is to find themselves tied up in litigation for years that the state does not end up winning. She said, in order to address those concerns, the Governor presented a bill that has been circulated with the AG's amendment. MS. HICKERSON said she had looked at the committee substitute and had some general comments. She said the title has been changed on CSHB 543 and it is a very broad title, "an act relating to state airport land leases." She expressed concern about the broad language, because she hoped that with all the work that is being done on CSHB 543 there does not have to be a lot of work done on the bill in the Senate. She said a broad title allows for additional revisions. Number 2199 CHAIRMAN GARY DAVIS also expressed concern with the title in CSHB 543. He said the title did not come back from Legislative Legal Services in the manner in which it was written. He said the original title was, "an act establishing renewal rights when entering into state airport land leases." Number 2219 MS. HICKERSON said she received that title change and expressed concerns regarding it. She said establishing renewal rights is not as specific as a right of first refusal, which is the direction the original bill had been headed. She said it is important for the committee to be careful in mixing terminology. She said terms such as "renewal" versus "a new lease" versus an "extension" have been misunderstood by courts, tenants, airports. She said "renewal and extension are intended to make renewal a new lease extension an extension of years onto the existing link, there has been confusion." To avoid that confusion in the future, she asked her clients to start using the term, expired, new lease, and to make sure that every one knows what is being talked about in discussions, whether we are talking about an extension or a new lease. She said renewal means different things to different people. She said she does not like the word renewal because of the confusion it creates. MS. HICKERSON said the other part of her concern is when entering into an airport land leases and said there is less concern regarding this language. She said the AG's understood the charge to be, setting up a preference for an existing tenants in good standing so that they could get a new lease under the various circumstances without having to go through a competitive process. Number 2302 REPRESENTATIVE BRICE referred to Section 2(a) and said the first sentence refers to the length of the contract periods "not exceeding 55 years with a person, municipality, or the United States". He asked, when the state lists governmental, commercial or other public purposes in context to this public space and asked if this provision would preclude a private person from building a private hangar which was not open to public use. Number 2338 MS. HICKERSON said the intent is not to preclude those types of operations. She said, in fact, if you have a copy of the Governor's preferred amendment the AG's office has modified Section 2, line 18, where it says, "including private plane tie down," the AG's office recommends that the language be modified to read, "including private aviation use". She said other provisions in the findings were also previously altered to address non-commercial use. The AG's office believes there is a benefit not only for commercial operations, but for non-commercial operations. She said to distinguish between the two is very difficult when you are talking about the public purpose and offering a tenant in good standing a right for a new lease without competition because it promotes the general welfare of the state. Number 2383 MS. HICKERSON referred to the term, "the first offer, a right and option to make a first offer this appears first in the findings, paragraph six, on line three, and later on paragraph (b) on line 7 and line 8." She said this language is also picked up in Section 3, "right and option to make a first offer". She said this language is unclear. She said in Alaska there is no developed law on what a right of first refusal is. She said the AG's understanding of what a right of first refusal is in order to comply with all of the constitutional requirements, the AG would have to notice new leases. At that time, if anyone else is interested, the state would offer it first to the existing tenant as long as they were in good standing and continued to use it within the public interest. She said many call this a "preference," and she cautioned about using this word. She said if a "right of first refusal" is found to be acceptable in certain circumstances by the court and once again stated that when she has to go to court she wants to be able to best defend this particular feature. She said she didn't know what the language means to have a "right and option to make a first offer." She said, if she were to speculate, the language is not creating anything other than a right to make a first offer. This language does not address whether or not the state is going to continue a lease. TAPE 96-14, SIDE B Number 0000 MS. HICKERSON, "as so, because right of first refusal has a lengthy history and acceptance in our court, we know what those procedures are, and because it is used in the statutes that we have used as a model, AS 38.05.073Q." She said, since 1990, that has not been challenged. She recommended that the language be kept as "a right of first refusal." Number 0022 CHAIRMAN GARY DAVIS said his impression of this language is that the right of first refusal did not seem to be acceptable to some because of the requirement that a third party be involved in the proceedings. He referred to Representative Rokeberg's suggestion of "right of first offer" and said both terms were mentioned as, hopefully, having some legal base. He said he tried to stay away from any legal term in an attempt to use plain language, but said from a legal standpoint this did not appear to work. Number 0065 REPRESENTATIVE NORMAN ROKEBERG said by using, "right and offer to make the first offer" it established a clear, and fundamental right on the part of the lessee to do so. He said the word, "option," is a basic, fundamental concept in common law. He said this concept is a simplified, elementary methodology in which to implement a lease extension as opposed to a renewal. Number 0138 JACK BIRMINGHAM, President, ERA Aviation, testified via teleconference from Anchorage. He expressed some frustration over the fact that in a technical reading, standing alone the way this bill does, it doesn't give the existing tenant anything. He said the biggest concern is that CSHB 543 implies that there is some kind of third party bidding thing going on here. He said it would be a whole lot simpler if terms were used such as "renewal of the existing lease" or "extending the existing lease." He said it would be clearer as to what is being granted to people. MR. BIRMINGHAM said the problem with the right of first refusal is that it implied a third party bidding game. He said both, the airmen for the non-commercial enterprises and the air carriers for the commercial enterprises, want an extension of the existing lease on all the same terms, except for an extension of years. He said prices should not be increased or more onerous provisions be added to the lease. He said this type of language is what the group, that he represents, is seeking. Number 0223 CHARLES COLE, Attorney, Representing Fairbanks Air Taxi Charters, testified via teleconference from Fairbanks. He referred to Section 3(c), and he proposed that the language be simplified, "that the expiration of a land lease entered into (a) of this section, the department shall first offer the holder of the existing lease, including a holdover lease the right to extend the term of the existing lease for a reasonable amount of time." He said it would be a mistake to start this "right of first refusal" because then one gets into the offer of a third party who knows all the terms and conditions that the third party may offer, then the existing lessee maybe matches those or makes alternative provisions, terms and conditions and requires the state to evaluate these various conditions. He said this creates a horrible mess and that the state would tie themselves in. He said the existing leaseholders should be granted the right to renew the term of the existing lease and that CSHB 543 should be simplified to make everyone, including the state, best off. Number 0304 MS. HICKERSON said there are two differences of opinion, one is that CSHB 543 is talking about offering a new lease. As Mr. Birmingham pointed out, there is a distinction between a new lease and an extension. She said you need to be very clear with the language that you are dealing with. She said an extension of a year would have to be noticed. She said the charge given to the AG was to try to provide a preference for existing tenants to give a new lease without competition. Number 0357 MS. HICKERSON said the other difference is in regards to the "right of first refusal" as compared to "right of first offer" which does have any case law within the state of Alaska. This position has been discussed with the legislative attorney, Deborah Bair (ph.), who is concerned that the state will find themselves in court if the language, "right of first offer" is used. She said if you were going to move away from a well defined procedure, such as "right of first refusal" she requested that the committee specify what that procedure is going to be to avoid an argument of what that procedure would be. Number 0375 CHAIRMAN GARY DAVIS asked her if she disagreed with the wording that Mr. Cole recommended. Number 0380 MS. HICKERSON said no, not for the reasons that the AG is trying to support a bill that is going to withstand judicial scrutiny, so that the state will not tie up further leases at state airports. Number 0395 REPRESENTATIVE ROKEBERG referred to the addition in CSHB 543 of a "first offer on a new lease" which was different language from the working language. He said this changes the concept. He said he would be comfortable with the language that Mr. Cole suggested. He said that perhaps there is no case law on general business practices because court cases have not gone to the supreme court in the state of Alaska. He said these are terms of commercial currency and legal understanding and said he used these terms for 25 years. Number 0466 MR. COLE upon request gave the proposed language to CSHB 543, "after the end of the line six, lease, (indiscernible-possibly lessee) and then on line seven, right strike and option, so that it reads, right to. Then strike make the first offer on a new lease or and, so that it would then read, right to extend the term of the existing lease." He then said, it should be, "for, rather than within." He said you might say, "for an extended period of time, reasonable is such a mushy word." Number 0528 REPRESENTATIVE ROKEBERG said the extending of the time is essential because it cannot be an open-ended thing. He said the use of the word, "reasonable" was included to allow the department to draft regulations to implement this section. Number 0533 REPRESENTATIVE DON LONG asked if the language could be faxed down and was told it could be. CHAIRMAN GARY DAVIS said it was his intent to get CSHB 543 out of committee and said he didn't think there was any way that something could be moved that everyone would agree to, but wanted it to be legally defensible. He said it could be revised when it got to the House floor. Number 0595 RICHARD WIEN, Representing 30 Fairbanks International Airport Users and Tenants, testified via teleconference from Fairbanks. He said prior to 1989 or 1990, the system under the current laws and regulations was working quite nicely. He said, as came out of the Blue Ribbon Commission through testimony from leasing people, there was a concerted change of policy and interpretation of the regulations, the act and the constitution which has cause consternation throughout the industry including economic instability. He said it is encouraging to see people interested in resolving these issues. Number 0697 MR. WIEN said that one of the things that came out of the Blue Ribbon Commission is that the current leasing staff in particular and some management people are against the renewal concept. He said it would take specific wording in the legislation so that there is no misunderstanding that when the rules are adopted the philosophy outlined is carried out. Number 0754 REPRESENTATIVE ROKEBERG asked how important it was for the legislature to address the issue of disposition of improvements. MR. WIEN said it is one of the core issues. He said the two issues are the renewal of the leases and the disposition of the assets. He said if you have a true right to renew a lease or extend that lease, part of it is resolved, and you are probably in the position, at some point in time, as has been the rule of the past, that you can sell those assets at market value because the lease under the property is not under jeopardy, as it is now. He said, currently, if you cannot extend the lease or the leases are up and nothing is being done with them, than you have nothing to sell. He said this has been a misconception within the Administration. He said the key is the right to renew and a clear understanding of the disposition of the assets. Number 0811 MR. COLE said he was aware of someone who is planning on a several million dollar investment in the Anchorage International Airport. He said this person will not make that investment, if at the end of the term especially if it is a short term of less than 35 years, he is going to lose that investment and the related businesses. Number 0848 CHAIRMAN GARY DAVIS asked how long that individual had a lease. MR. COLE said the person did not have an existing lease, he is acquiring by way of assignment, mostly vacant, unimproved ground. Number 0868 REPRESENTATIVE ROKEBERG asked if the leasing policy was having a negative effect on the development of both the Anchorage and Fairbanks International Airports as well as the rural airports in the state. He said, in the real estate industry, further development at the airports is going to be curtailed because of the existing lease policies. Number 0890 MR. WIEN said that statement was true. He said, in Fairbanks, there was a lease granted, under the proposed owner's provisions, and said that business is not developing until the leasing policy is resolved. He said no one is going to develop on these airports. He said there are many cases where hangars cannot be sold. He referred to Mr. Cole's testimony. He said the current lease policy has the "downstream effect of gutting the equity of the aviation community." He said airplanes come and go, they wear out and depreciate and the balance sheet often appears as zero. He said the equity that is valued, from a banks perspective, is the facilities. He said if you lose that ability to keep these facilities, the banks will not fund these improvements and said there is not enough infrastructure in the state as it exists to provide the capital to expand and develop. Number 0998 CHAIRMAN GARY DAVIS asked for comment on Section(d). MS. HICKERSON said Section 3 has now become an "extension of an existing contract" versus "offering a new lease" and said this creates some additional legal concerns relating to time and the preference to limit any new terms and conditions over an extended period of time. She said, from a policy point of view, there are operational issues that are contained in new leases that spoke to the ability to sufficiently run airports. She said, from a legal point of view, it is unclear what the time period would be. She asked if the total time available for the existing lease and the extension would be limited to 55 years or would this lease continue indefinitely. She said if it continues in perpetuity, then there are legal problems. Number 1081 MS. HICKERSON said, in the Governor's recommended bill, there is a paragraph (d) which says any lease term offered under (c) of this section may not exceed a total of 55 years when combined with a prior lease term. She said this would give more definition. She said, she understood the charge to be, how to provide a good tenant an opportunity for a new lease without facing competition. She said if the committee wishes to change the new lease into an extension, then the time period for the total term be stated. She referred to paragraph (d) and said the disposition of improvements is not a legal issue in concept, it is more of a policy issue and the use of the airport and the flexibility which may be needed to operate it. She said there is less flexibility, if the airports find their land tied up for extended periods of time. She said whether you own the improvements or you have the ability to have a greater return on your money are policy issues, not legal issues. She echoed the concern over the financing terms and what that implies. Number 1186 CHAIRMAN GARY DAVIS said it is not the intention to have leases in perpetuity. He said it is the intention to keep the 55 years intact unless there are some extenuating circumstances. Number 1210 REPRESENTATIVE BRICE asked for an explanation of the 55 year time period. Number 1226 MR. PARKAN said 55 years is the length in statute now and added that he did not know why that length was chosen. REPRESENTATIVE BRICE said that this 55 year period could be changed prospectively. Number 1280 CHAIRMAN GARY DAVIS agreed that this could be done. MS. HICKERSON said there are other statutes which limit lease terms to 55 years. Number 1339 CHAIRMAN GARY DAVIS referred to Section (d) which tries to delineate what will happen to the assets at the end of a lease. He said this is addressed in regulation and he was told it should not be addressed in statute. He asked if it was felt that this provision was addressed properly in regulations. Number 1364 DIANE BARTH, Chief of Leasing, Anchorage International Airport, Department of Transportation and Public Facilities, testified via teleconference from Anchorage. She said, in response to the question, it is a legal question and that DOT/PF has been using the existing regulations for a number of years to address the issue of disposition of improvements. She said the regulations give the DOT/PF a number of options. Number 1372 CHAIRMAN GARY DAVIS clarified that there had been no major problems with those regulations. Number 1382 MS. BARTH said there had been no major legal problems, but there have been some policy issues as to how the DOT/PF should be using those regulations. She repeated that the regulations give the Department a number of options. REPRESENTATIVE ROKEBERG (indiscernible due to papers over the microphone) "existing lease language that disposition of improvements says it's to the Departments discretion and the nature of the disposition would include a reversion to the state in the first interest and then the regulations give the state the right to reversionary interest." MS. BARTH said yes, the existing lease suit gives the airport the right to decide if they want title to the improvements. She said the existing regulations gives us that ability, the option to include that in the language. CHAIRMAN GARY DAVIS expressed frustration over the inability for the parties to agree on the language. Number 1483 REPRESENTATIVE ROKEBERG said, the suggested changes that Mr. Cole offered, are so elementary that it creates good language. He expressed concern over whether a revisionary interest should go back to the state by clear agreement in terms of the Section (d) language. He expressed concern over current policy. He said from his experience, as a representative whose district encompasses the Anchorage Airport and someone with real estate experience he feels CSHB 543 is a good bill. He said, "I have never participated in my business in an airport lease and I do not have now or don't intend to have any relationship businesswise with the state of Alaska as relates to this." Number 1608 REPRESENTATIVE BRICE said that Mr. Cole's language appears to meet the intent of CSHB 543. He suggested that private aviation language be included. He questioned the magic of 55 years. Number 1656 CHAIRMAN GARY DAVIS said he, somewhat, agreed with the DOL in the language of "extension of a lease," so there needs to be some time element in the language. He said there had been "two years or more" language included in the original version. Number 1691 REPRESENTATIVE ROKEBERG said the language should be, "in a reasonable period of time", and disagreed with Mr. Cole in the sense that the intention of the draft was that the arrangements be concluded in a reasonable amount of time. CHAIRMAN GARY DAVIS said the length of time is what needs to be addressed. Number 1724 REPRESENTATIVE ROKEBERG said the length of lease is something that should be bargained for between the tenant and the state. He said the bargaining length is limited by the statutory limitation of 55 years. He said this is a common business practice and not something that needs to be addressed because the committee is not delimitating the shortness or length of term here. He said the reason for the two year provision was that the term from the drafter used long term lease and a definition needed to be included as a result. He said this long term lease provision is not included and so it does not need to be included in CSHB 543. Number 1794 CHAIRMAN GARY DAVIS asked Ms. Hickerson if she considered Mr. Cole's wording an "extension" and said that the amount of time of the extension needs to be specifically addressed. MS. HICKERSON said this was what she was referring to in the Governor's draft amendment, paragraph (b). She said it could be modified, but any lease term offered under (c) of this section may not exceed a total of 55 years when combined with a prior lease term. She said if the bill is going to use language of an "extension" rather than a "new lease" any lease extension or extension to a lease, so that the language is understood to be working within the 55 year maximum period. CHAIRMAN GARY DAVIS asked if the language would be acceptable in subsection (c) with Mr. Cole's language. MS. HICKERSON said the Department would prefer a "new lease" versus an extension of something (indiscernible due to styrofoam cup being run across the table) "definition as to the total time we are looking at versus having extensions pancaked on so that they extend into perpetuity, which I urge you to stay away from that challenge, that is a problem area." In regards to the wording, "offer an extension to an existing lessee" she said she would like to see them in writing, especially in lieu of Representative Rokeberg's concern about "within a reasonable time." She said that is clearer than an offer or an option of a "first offer" and said she would appreciate the opportunity to look at the language to see if it would be legally defensible. Number 1955 MR. PARKAN said, generally, drafting legislation is the art of compromise. He said whether it is an extension or a new lease isn't so much the issue as the issue of the 55 year total length. He said the DOT/PF could probably live with an extension, but that there could be problems with having leases in perpetuity. Number 2007 CHAIRMAN GARY DAVIS said there did not appear to be disagreement on that point. Number 2014 REPRESENTATIVE ROKEBERG said the recommendation made by Ms. Hickerson is a valid one if the cumulative 55 years were included for the length. He said the intention of the draft was to say the act of extension would have to be done within a reasonable period of time and did not refer to the length of term. He said this is why the additional language as suggested by Ms. Hickerson would clear that up. Number 2062 CHAIRMAN GARY DAVIS said more work will be done on CSHB 543. Number 2107 MR. COLE suggested that at the beginning of subsection (c) language be included, "not less than 30 days prior to the expiration of the land lease". Number 2135 REPRESENTATIVE ROKEBERG said 30 days is a tight time frame. Number 2162 MR. COLE suggested that 60 or 90 days could be used instead. Number 2168 REPRESENTATIVE ROKEBERG said that the time frame varies with the length of term. He said it is common in business to have 6 months or one year for a long term lease. MR. COLE said that maybe the "reasonable period of time" language could be eliminated. REPRESENTATIVE ROKEBERG said the reasonable period of time is needed to conclude the transaction. MR. COLE said that if a sentence were started in that fashion then it would set the standard or procedure, in effect. He said he agreed with Ms. Hickerson on putting in the subsection (e) and said that would clear up a lot of the problems and be beneficial. He added a lease extension offered under (c) would solve a lot of problems.
| Document Name | Date/Time | Subjects |
|---|