Legislature(2007 - 2008)BELTZ 211

03/28/2007 01:30 PM Senate JUDICIARY


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 18 PROPERTY FORECLOSURES AND EXECUTIONS TELECONFERENCED
Heard & Held
*+ SB 132 ASSESSMENT REVIEW BOARD APPEALS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
             SB 132-ASSESSMENT REVIEW BOARD APPEALS                                                                         
                                                                                                                                
2:26:26 PM                                                                                                                    
CHAIR FRENCH announced the consideration of SB 132.                                                                             
                                                                                                                                
SENATOR  WIELECHOWSKI,  Sponsor  of   SB  132,  stated  that  the                                                               
Department of Law  and the Palin Administration  are seeking this                                                               
legislation, which  would change  the rules regarding  appeals of                                                               
decisions made by the State  Assessment Review Board (SARB). This                                                               
board  consists of  five expert  members who  adjudicate property                                                               
tax disputes between  petroleum companies, municipal governments,                                                               
and the state that could not be settled at the department level.                                                                
                                                                                                                                
2:28:26 PM                                                                                                                  
SENATOR   WIELECHOWSKI  explained   that  if   the  municipality,                                                               
borough, city or  a producer isn't able to settle  the dispute at                                                               
the  department level,  the appeal  goes  before the  SARB for  a                                                               
hearing. At  that time  valuation evidence  is presented  and the                                                               
board  makes  a decision.  If  there  is  a dispute  after  that,                                                               
current law allows the  party a third bite at the  apple to go to                                                               
superior court. This is unlike  any other property tax assessment                                                               
appeal in  Alaska and unlike  most appeals from other  boards and                                                               
commissions, he  stated. The  superior court  hears the  case and                                                               
then has the ability to completely disregard the SARB decision.                                                                 
                                                                                                                                
SENATOR  WIELECHOWSKI pointed  out that  these are  complex cases                                                               
that take  several months  of a  judge's time  to try.  There's a                                                               
judicial  shortage in  the state  and there's  a huge  backlog of                                                               
criminal cases  so these property  tax assessment appeals  add to                                                               
the problem. To address this, SB  132 establishes the appeal as a                                                               
review on  the record and  not as a trial  de novo. No  one loses                                                               
the  right to  appeal,  but  the judge  simply  reviews the  SARB                                                               
decision based  on the written  record. Then the case  is decided                                                               
in a relatively  short time saving everyone time  and money. This                                                               
is the process  that is available to every other  taxpayer in the                                                               
state, he said. The fiscal note is zero.                                                                                        
                                                                                                                                
2:32:36 PM                                                                                                                    
CHAIR FRENCH opened public testimony.                                                                                           
                                                                                                                                
STEVE VAN SANT,  Chair, State Assessment Review  Board, said this                                                               
bill is  sorely needed. He  explained that the five  member board                                                               
was initially set  up to have a panel of  experts listen to these                                                               
appeals and make  these decisions. To circumvent the  SARB and go                                                               
to trial de novo makes him  feel that the board's services aren't                                                               
appreciated or that  the appellants want to  sandbag the evidence                                                               
and present it to the court  rather than the board. Every hearing                                                               
we bend  over backwards to help  both sides of the  issue present                                                               
evidence over  the objections  of the  opposing party  because we                                                               
want  to hear  all  the  evidence before  making  a decision,  he                                                               
stated.  If the  de  novo  language stays  and  the  SARB can  be                                                               
circumvented  it  doesn't  do  the appellants  any  good  and  it                                                               
certainly doesn't do the residents of the state any good.                                                                       
                                                                                                                                
2:37:22 PM                                                                                                                    
SENATOR WIELECHOWSKI asked  what kind of hearing  the parties get                                                               
before the SARB.                                                                                                                
                                                                                                                                
MR. VAN SANT replied the board  hears all appeals for any oil and                                                               
gas  property across  the state.  The  evidence that's  presented                                                               
varies, but the  board bends over backwards to  get everything it                                                               
can  to make  a complete  decision. Some  cases are  drilling rig                                                               
appeals,  sometimes it's  a TAPS  appeal, and  once the  seawater                                                               
treatment  plant was  appealed. "I  can't  think of  a time  that                                                               
we've excluded information  that would help us  make a decision,"                                                               
he said.                                                                                                                        
                                                                                                                                
2:39:12 PM                                                                                                                    
KEN  DIEMER, Assistant  Attorney  General,  Civil Division,  Oil,                                                               
Gas, & Mining Section, Department  of Law, Anchorage, pointed out                                                               
that  in  accordance with  Alaska  law,  SB 132  would  establish                                                               
consistency with the  state court's recognition that  the norm of                                                               
judicial review of  agency action will be on the  record that was                                                               
developed  for   the  agency.  Therefore  SB   132  reflects  the                                                               
established rule in  Alaska that when a question  of law involves                                                               
agency expertise, the  court will review the  SARB decision under                                                               
a  reasonable  basis  test  and  defer  to  the  board  when  the                                                               
interpretation is reasonable.                                                                                                   
                                                                                                                                
2:40:46 PM                                                                                                                    
CHAIR  FRENCH asked  if he  had participated  in the  SARB review                                                               
hearing process.                                                                                                                
                                                                                                                                
MR. DIEMER said  he participated in the SARB  hearing relating to                                                               
the 2005 assessment of TAPS.                                                                                                    
                                                                                                                                
CHAIR FRENCH asked if the  proceedings are conducted according to                                                               
rules of evidence or more informally.                                                                                           
                                                                                                                                
MR.  DIEMER  replied  they're  conducted   very  much  like  most                                                               
administrative   agency   proceedings.  There's   a   pre-hearing                                                               
conference where the  parties meet with Mr. Van  Sant and discuss                                                               
pre-hearing deadlines for filing  briefs or opening statements as                                                               
well as  all documentary  evidence. The  hearing is  convened and                                                               
can last up to nine hours a  day for three days. During that time                                                               
there's opening  statement, presentation of witnesses  along with                                                               
the  ability  for  cross  examination.  Documentary  evidence  is                                                               
presented   and  on   occasion   parties  will   object  to   the                                                               
introduction of certain evidence  on various evidentiary grounds.                                                               
But because it is an  administrative agency hearing, the rules of                                                               
evidence,  by  law  and  by  regulation,  are  somewhat  relaxed.                                                               
Therefore the board  has the authority to admit  lots of evidence                                                               
over objections  from the parties.  At the end there  are closing                                                               
statements so it's similar to a courtroom proceeding.                                                                           
                                                                                                                                
CHAIR  FRENCH  asked  if  the  appeals  are  conducted  before  a                                                               
superior court jury or before a bench trial.                                                                                    
                                                                                                                                
MR. DIEMER replied it's strictly a bench trial.                                                                                 
                                                                                                                                
2:44:35 PM                                                                                                                    
SENATOR WIELECHOWSKI  asked if there's potential  for the parties                                                               
to present  entirely new argument  and evidence before  the judge                                                               
that wasn't brought before the SARB.                                                                                            
                                                                                                                                
MR. DIEMER said  DOL understands that new facts  and evidence can                                                               
be  presented, which  may not  have been  presented to  the SARB.                                                               
Current  statute provides  that a  municipal property  owner "may                                                               
appeal to  the superior  court for  and is  entitled to  trial de                                                               
novo of the board's action."                                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI asked  how much time a  superior court judge                                                               
spends on these trials.                                                                                                         
                                                                                                                                
MR.  DIEMER said  it depends.  A  SARB decision  is currently  on                                                               
appeal  and  pending  in  superior court,  but  the  trial  isn't                                                               
scheduled until  February 2008. Pretrial hearings  and procedures                                                               
began  in  August  or  September  of  2006.  These  matters  will                                                               
presumably continue right up until the trial date.                                                                              
                                                                                                                                
2:46:35 PM                                                                                                                    
SENATOR WIELECHOWSKI asked how long the actual trial would take.                                                                
                                                                                                                                
MR. DIEMER  replied it depends  on the amount of  evidence that's                                                               
presented,  but some  of  the parties  have  indicated the  trial                                                               
could last upwards of 6 to 7 weeks.                                                                                             
                                                                                                                                
CHAIR  FRENCH  asked how  many  SARB  decisions are  appealed  to                                                               
superior court, and how  much of the 6 to 7  weeks would not take                                                               
place if the standard were to change to a hearing on the record.                                                                
                                                                                                                                
MR. DIEMER said a minimal number  of appeals come out of the SARB                                                               
to the court. He didn't want to speculate about the timing.                                                                     
                                                                                                                                
2:48:51 PM                                                                                                                    
BERNARD   HAJNY,  Manager,   Production  Tax   and  Royalty,   BP                                                               
Exploration (Alaska)  Inc., said  the point he  wants to  make is                                                               
that the  administrative hearing  before the SARB  is inadequate.                                                               
It simply provides an  expedited administrative proceeding that's                                                               
geared  for  a  quick  review and  provides  the  opportunity  to                                                               
correct obvious  errors. A real  trial is provided  following the                                                               
SARB presentation to fully address issues it it's necessary.                                                                    
                                                                                                                                
MR.  HAJNY said  that  in  a recent  case  the  taxpayer and  the                                                               
municipality estimated that  a fair trial would take  40 days. In                                                               
another  case both  parties  said that  the  SARB procedures  are                                                               
inadequate and each  asked to augment the record.  A second issue                                                               
relates to  the short time  limitations that are imposed  by law.                                                               
Sometimes the SARB  has just a week to consider  the evidence and                                                               
write and  issue a decision.  The SARB proceeding is  summary and                                                               
not intended to provide a full  and thorough hearing. The task is                                                               
too big  and the time is  too short, but it's  acceptable because                                                               
the parties  are able  to augment the  record in  superior court.                                                               
The proposed  change unbalances  the process.  "Trial de  novo is                                                               
the  cornerstone of  a fair  tax appeal  system and  is a  way of                                                               
ensuring…a fair and adequate  hearing, which protects…due process                                                               
rights," he stated.                                                                                                             
                                                                                                                                
2:52:00 PM                                                                                                                    
SENATOR  WIELECHOWSKI questioned  if any  other taxpayers  in the                                                               
state are entitled to a trial de novo.                                                                                          
                                                                                                                                
MR. HAJNY replied he isn't  familiar with the property tax appeal                                                               
process other than for AS 43.56 [oil and gas] property.                                                                         
                                                                                                                                
SENATOR WIELECHOWSKI  asked if  he's familiar  with the  Board of                                                               
Equalization process.                                                                                                           
                                                                                                                                
MR. HAJNY said he's familiar with its process in other states.                                                                  
                                                                                                                                
SENATOR WIELECHOWSKI  asked if  he's ever  requested a  change to                                                               
the  SARB statute  to provide  a more  adequate means  to present                                                               
evidence or obtain a decision.                                                                                                  
                                                                                                                                
MR.  HAJNY said  he  isn't aware  that BP  has  brought any  such                                                               
legislation forward.                                                                                                            
                                                                                                                                
CHAIR FRENCH  asked if  there's an  explicit statute  that limits                                                               
the time  that SARB can  consider a case  to just three  days. Is                                                               
that how it works?                                                                                                              
                                                                                                                                
MR. HAJNY  said he  doesn't know if  there's a  specific statute,                                                               
but  his experience  is that  these cases  involve large  complex                                                               
properties  and   the  proceeding  is  limited   to  three  days.                                                               
Generally  three parties  are involved-the  oil and  gas company,                                                               
the  state, and  the  municipality where  the  property sits.  He                                                               
noted that  the property that  Mr. Diemer mentioned  has multiple                                                               
owners and  each one is  entitled to  file an appeal  and present                                                               
evidence, but there simply isn't time.                                                                                          
                                                                                                                                
2:54:58 PM                                                                                                                    
SENATOR HUGGINS asked how this system compares to other states.                                                                 
                                                                                                                                
MR. HAJNY  said he  knows for certain  that California  and Texas                                                               
allow trial de novo after  the administrative hearing process has                                                               
been completed. He believes most other states do as well.                                                                       
                                                                                                                                
SENATOR HUGGINS commented that this  system is consistent with at                                                               
least some other states.                                                                                                        
                                                                                                                                
MR. HAJNY said yes.                                                                                                             
                                                                                                                                
2:56:05 PM                                                                                                                    
MICHAEL FRAILEY, Tax  Attorney, ConocoPhillips, stated opposition                                                               
to SB 132. He said  that ConocoPhillips believes the SARB process                                                               
is  expedited and  that it  doesn't provide  enough time  for any                                                               
appellant to build  a sufficient record. Thus a trial  de novo is                                                               
necessary  to  supplement   the  record.  ConocoPhillips  further                                                               
believes that AS 43.56 properly provides  a trial de novo to deal                                                               
with the  extremely complex  and expensive  oil and  gas property                                                               
tax valuations.                                                                                                                 
                                                                                                                                
SENATOR McGUIRE questioned how  often ConocoPhillips has appealed                                                               
a SARB decision.                                                                                                                
                                                                                                                                
2:57:50 PM                                                                                                                    
MR.  FRAILEY said  a few  times. He  explained that  the assessor                                                               
comes out with the valuation  and the company or the municipality                                                               
has opportunity  to appeal the  decision. An  informal conference                                                               
follows and  the state  assessor is  allowed to  make adjustments                                                               
based on that  conference. If the parties still  don't agree with                                                               
the state  then they are allowed  to appeal to the  SARB. At that                                                               
level there  is a  somewhat truncated  process. Appeal  after the                                                               
SARB is  rare and in  his experience  that hasn't been  done many                                                               
times. ConocoPhillips did appeal the  TAPS 2006 assessment but it                                                               
didn't appeal the  2005 assessment even though it  didn't get the                                                               
desired result at the SARB.                                                                                                     
                                                                                                                                
SENATOR  McGUIRE asked  if the  bill  eliminates the  lower-level                                                               
municipal board and bumps it to SARB immediately.                                                                               
                                                                                                                                
SENATOR WIELECHOWSKI  said the  parties still  have the  right to                                                               
appeal, but it's not a trial de novo.                                                                                           
                                                                                                                                
SENATOR McGUIRE added "you can't do the full record."                                                                           
                                                                                                                                
2:59:18 PM                                                                                                                    
CHAIR  FRENCH clarified  that  you'd  do a  full  record of  what                                                               
happened at  the SARB, but  you can't supplement the  record with                                                               
new evidence.                                                                                                                   
                                                                                                                                
SENATOR  HUGGINS said  he'd like  information from  the producers                                                               
about how often the SARB decisions are appealed.                                                                                
                                                                                                                                
CHAIR FRENCH asked  Mr. Frailey to look at the  number of appeals                                                               
ConocoPhillips and BP filed in the last ten years.                                                                              
                                                                                                                                
MR. FRAILEY agreed to get the information.                                                                                      
                                                                                                                                
SENATOR HUGGINS  commented that if  more information makes  for a                                                               
better  decision   he'd  support  it,  but   he  doesn't  support                                                               
stringing the process out a long time.                                                                                          
                                                                                                                                
3:00:57 PM                                                                                                                    
CHAIR FRENCH asked what sets the length of the SARB hearings.                                                                   
                                                                                                                                
MR.  DIEMER  replied  it isn't  set  statutorily.  Generally  the                                                               
parties  meet at  a  pre-hearing conference  and  the SARB  chair                                                               
dictates the  length of time for  the hearing. At that  point the                                                               
parties can make their objections  known. Noting that that hasn't                                                               
been  done in  quite some  time, he  said that  the timeframe  is                                                               
circumscribed   by  the   overall  statutory   scheme  concerning                                                               
assessments of oil and gas property. He added:                                                                                  
                                                                                                                                
     The legislature  provided three months from  March 1 to                                                                    
     the date  that the department has  to issue assessments                                                                    
     on  all oil  and gas  properties in  the state.  That's                                                                    
     hundreds  of  thousands  of assets  owned  by  numerous                                                                    
     taxpayers.  This  is  the  time  period  in  which  the                                                                    
     department has to provide  the opportunity for informal                                                                    
     conference  appeals  and   decisions,  formal  hearings                                                                    
     before  the  board,  and  the  certification  of  these                                                                    
     assessments…Once  the assessments  go out  on March  1,                                                                    
     taxpayers  have  until April  20  of  the tax  year  to                                                                    
     appeal to  the board  for a  formal hearing.  The board                                                                    
     has to convene hearing in order to allow time to hear                                                                      
     the appeal and render a reasoned decision in time for                                                                      
     the assessment rolls to be certified on June 1.                                                                            
                                                                                                                                
CHAIR  FRENCH  said the  committee  may  consider adjusting  that                                                               
timeframe because there  should be adequate time  for all parties                                                               
to a complex dispute to  marshal their arguments and evidence and                                                               
do it in one place.                                                                                                             
                                                                                                                                
SENATOR McGUIRE stated that oil  and gas property tax appeals are                                                               
more analogous to  an RCA appeal than a  homeowner's property tax                                                               
appeal so she'd  like to know more about the  RCA appeal process.                                                               
With  regard to  the decade  long look-back  on appeals  she said                                                               
she'd like  to know what  kind of information wouldn't  have been                                                               
allowed without de novo.                                                                                                        
                                                                                                                                
CHAIR FRENCH advised that Senator McGuire  is asking for a bit of                                                               
commentary on each case he finds.                                                                                               
                                                                                                                                
MR. FRAILEY  said he'd  try to  do that  but unless  the evidence                                                               
that was brought in was specifically  a part of the ruling it may                                                               
be difficult to tell what tipped the balance.                                                                                   
                                                                                                                                
3:06:18 PM                                                                                                                    
CHAIR FRENCH added that  it may be a story that  you pick up from                                                               
a  colleague  more  than  something  that's  in  the  record.  He                                                               
announced he would hold SB 132 in committee.                                                                                    

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