Legislature(1995 - 1996)
02/01/1996 09:10 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 162
An Act relating to land used for agricultural purposes
and to state land classified for agricultural purposes
or subject to the restriction of use for agricultural
purposes only; and annulling certain program
regulations of the Department of Natural Resources that
are inconsistent with the amendments made by this Act.
Co-chairman Halford directed that SB 162 be brought on for
hearing and directed attention to CSSB 162 (Res) and
Amendments 1 and 2, proposed by the sponsor. SENATOR LYDA
GREEN came before committee. She explained that the bill
responds to numerous requests for improvements from owners
of agricultural land to make ownership of farm land more
attractive. The legislation expands state ability to convey
interest in lands classified for agriculture purposes. The
state presently conveys agriculture interest only, and the
state retains all other interest. Passage of SB 162 would
authorize state conveyance of fee simple title, subject to
certain restrictive covenants that maintain use of the land
for agriculture. This change would allow owners of
agricultural parcels to obtain financing from institutions
other than the state.
Senator Sharp inquired concerning the size of parcels that
may be subdivided and sold. Senator Green described the
process by which a parcel may be divided "by fours" every
four years. Resulting parcels may not be less than 40
acres.
Senator Zharoff voiced concern that agricultural land might
be used for non-agricultural purposes and asked if the
proposed bill would allow for other use. Senator Green
stressed that the bill maintains covenants for use for
agricultural purposes only. Instead of agricultural
designation being a departmental decision, it would become a
judicial decision. The reversionary clause that allows the
commissioner to decide if land is being used according to
plan would no longer remain in place. The landholder would
pay the cost of survey, subdivision, and title. Senator
Green referenced Amendment No. 2 and noted that the change
from agricultural rights to fee simple title would be an
applicant-driven process. The department will not go
through its files and issue a new deed for every
agricultural parcel.
Discussion followed regarding whether a 40-acre subdivision
would be of productive size and whether subdivision might
eventually result in agricultural land being devoted to
other use. Senator Green noted that ability to subdivide
down to 40 acres is presently in statute. It is not a new
provision within CSSB 162 (Res). Co-chairman Halford
informed members that under existing law a landholder may
separate off a 40-acre parcel, but no improvements may be
made to the parcel. The proposed bill would allow for
improvements. Senator Green concurred and reiterated that
the change from agricultural rights to fee simple title
would allow for financing of improvements on the subdivided
property through entities other than the existing state
agricultural loan program. She explained that some
agricultural endeavors do not require large parcels of land.
In response to a question from Senator Donley, BRETT HUBER,
aide to Senator Green, advised that local property taxes are
presently set by boroughs and municipalities. The breakout
for agricultural purposes is based on utilization of the
land rather than the size of the parcel or improvements.
Under the proposed bill, utilization would not change. Co-
chairman Halford added that landholders pay property taxes
on "the portion of the value that is contained in the
agricultural rights." That is much less than the value of
the whole land eligible for unlimited subdivision or use.
Since the state initially sold only agricultural rights,
local governments could only tax those rights. If the
ability to subdivide increases the value, it will also
increase potential taxation of the property.
Discussion followed regarding impact of the legislation on
Delta and Point MacKenzie agricultural projects. Senator
Green advised that there would be no difference in
application in any region of the state aside from parcels
involved in mental health trust lands. She stressed that
the major impact of the bill would allow those with high
interest loans to refinance at a lower rate. There are no
private loans on agricultural rights at the present time.
Conversion to fee simple title would provide the collateral
needed to obtain financing from entities other than the
state.
Further discussion ensued concerning the Delta project and
the size of the parcels as well as the current status of
Point MacKenzie farms.
JANE ANGVIK, Director, Division of Land, Dept. of Natural
Resources, next came before committee. She voiced her
understanding that the bill would:
1. Allow individuals with agricultural rights to
exchange those rights for fee simple title to enhance
ability to secure financing in the private
sector.
End: SFC-96, #17, Side 2
Begin: SFC-96, #18, Side 1
2. Allow for subdivision down to 40-acre parcels and
improvements on subdivided parcels.
3. Allow landholders to secure a lower interest rate
on state repayment schedules if they apply for
refinancing.
Ms. Angvik voiced support for proposed amendments to make
the process applicant-driven. Individual landholders would
be responsible for appraisal, title search, and other
conversion costs.
Referencing the second portion of the legislation, Ms.
Angvik raised policy questions regarding ability to
subdivide. The question is:
If by the act of subdividing we have . . . created
a substantial increase in the value of the
property, should the state be compensated for that
increased value?
Provisions allow for subdivision into only four parcels,
once every four years.
Further comments by Ms. Angvik followed regarding testimony
before the Senate Resources Committee to the effect that
subdivision provisions were designed to allow individuals to
convey land to heirs. She said it was not the intention to
allow individuals to speculate and increase the value of
land obtained at a low price because purchase involved
agricultural rights only.
Ms. Angvik suggested that policy concerns could be mitigated
by either:
1. Appraising the land at subdivision and making the
difference in value due to the state.
2. Allowing subdivision every generation (30 years)
to
convey lands to heirs.
If the foregoing issues can be addressed, the administration
feels it is in the best interest of the public to provide
greater access to financing for farmers.
Discussion followed regarding criteria used to obtain
refinancing through the state. Ms. Angvik explained that
the division has no ability to screen individuals for
ability to pay. The division would merely apply statutory
interest rate provisions (not to exceed "nine point
something") to applications for refinancing. Further
discussion of the process ensued. Co-chairman Frank noted
that it is unusual for legislation to be worded to imply
discretion when discretion is not expected to be utilized.
Ms. Angvik voiced her understanding that the legislation
would provide impetus to utilize federal moneys for
agricultural endeavors. Federal rates are lower than those
of the state. The average rate of existing agricultural
loans is 11.8 percent.
Co-chairman Halford asked if landholders would have to be
current in their loan payments to refinance through the
state. Ms. Angvik responded affirmatively.
Discussion followed regarding an adjustable rather than
fixed interest rate for state agricultural loans. Ms.
Angvik voiced concern over additional paperwork associated
with application of adjustable rates. She further advised
of Commissioner Shively's goal that:
We basically get out of the banking business.
That we do everything that we can possibly do to
no longer be the financing source for the purchase
of state lands.
Ms. Angvik advised that in other legislation containing a
rewrite of Title 38, the department is suggesting that the
interest rate for sale of all lands be the current
prevailing rate plus a percentage. That would then become
the statutory methodology rather than a specific number.
Interest would then become fixed at the time of contract
negotiation rather than revised on an annual basis. It was
suggested that CSSB 162 (Res) mirror that approach, but the
sponsor chose another route.
In response to a question from Senator Sharp concerning the
traditional size of an agricultural parcel, Ms. Angvik noted
that of the existing 475 parcels, the majority are between
40 and 320 acres with the bulk at 160. Senator Randy
Phillips questioned the number of acres that are actually
farmed. One of the remaining dairy farmers has indicated
that "You can't farm and make it economically feasible on 40
acres." The Senator then suggested that the minimum
subdivision be 160 acres. Senator Green stressed that
several hundred existing parcels are already smaller. Ms.
Angvik advised of over 600,000 acres of agricultural land in
private hands. The department assumes that those holding
the lands operate within the covenants and use the land only
for agricultural purposes.
Co-chairman Frank suggested that rather than the legislature
dictating what size a farm should be, the market should make
that decision. He indicated that farmers may wish to use
different 40-acre parcels for different types of farming and
improvements and obtain separate financing for each parcel.
There may be valid reasons for subdivision, other than
conveyance. Ms. Angvik reiterated the policy question
associated with whether the state, as the owner of the
agricultural land, should be compensated for increased value
created by ability to subdivide. Co-chairman Frank
suggested that there might be valid public purpose in
encouraging development of farm land by providing greater
financing opportunities via subdivision.
In response to a question from Co-chairman Frank, Senator
Green explained that the purpose behind CSSB 162 (Res)
"never addressed that right to pass the land on to heirs in
subdivision." That was one of the issues raised as the bill
was discussed, but it was not a primary goal. The basic
purpose is to allow an agricultural landholder fee simple
title so the farmer may develop the land and make a living.
One cannot necessarily do that with a large parcel in
Alaska. There is great demand for smaller parcels. When
land is returned to the state, the state has the ability to
subdivide and sell 40-acre parcels. The proposed bill would
allow landholders to do the same.
Senator Donley voiced his understanding that, per
constitutional provisions, the state must be compensated for
conveyance of a state asset or resource. He then directed
attention to enforcement provisions at page 7, line 17, and
asked if civil action would be consistent with existing law.
Co-chairman Halford voiced his understanding that the
language relates to "the old reversionary clause."
Speaking to concern that agricultural land might be
subdivided by speculators and used for other purposes, Co-
chairman Frank suggested that no financial institution would
provide financing for such development under existing
agricultural covenants. He then voiced his believe that
provisions for subdivision contained in CSSB 162 (Res) would
not greatly change the market value of the land because of
lack of demand for farm land in Alaska. He further noted a
valid public purpose associated with making farming more
economically viable.
Co-chairman Halford directed that the bill be held on the
calendar for further discussion.
ADJOURNMENT
The meeting was adjourned at approximately 11:25 a.m.
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