Legislature(1995 - 1996)

04/13/1996 01:25 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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                     HOUSE FINANCE COMMITTEE                                   
                         APRIL 13, 1996                                        
                            1:25 P.M.                                          
                                                                               
  TAPE HFC 96 - 118, Side 1, #000 - end.                                       
  TAPE HFC 96 - 118, Side 2, #000 - end.                                       
  TAPE HFC 96 - 119, Side 1, #000 - #536.                                      
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Co-Chair  Mark Hanley  called  the  House Finance  Committee                 
  meeting to order at 1:25 P.M.                                                
                                                                               
  PRESENT                                                                      
                                                                               
  Co-Chair Hanley               Representative Martin                          
  Co-Chair Foster               Representative Mulder                          
  Representative Brown          Representative Navarre                         
  Representative Grussendorf    Representative Parnell                         
  Representative Kelly          Representative Therriault                      
                                                                               
  Representative Kohring was not present for the meeting.                      
                                                                               
  ALSO PRESENT                                                                 
                                                                               
  Representative Norman Rokeberg;  Representative Gary  Davis;                 
  Kurt    Parkan,    Deputy   Commissioner,    Department   of                 
  Transportation and Public  Facilities; Elisabeth  Hickerson,                 
  (Testified via teleconference), Assistant  Attorney General,                 
  Department of Law, Anchorage; Stephen Cooper, (Testified via                 
  teleconference),   Attorney,   Fairbanks;    Charles   Cole,                 
  (Testified via teleconference),  Attorney, Fairbanks;  Diane                 
  Banth,  (Testified  via  teleconference),  Leasing  Officer,                 
  Department of Transportation and Public Facilities.                          
                                                                               
  SUMMARY                                                                      
                                                                               
  HB 543    An  Act establishing  a  preference when  entering                 
            into state airport land leases.                                    
                                                                               
            HB  543  was   HELD  in   Committee  for   further                 
            consideration.                                                     
  HOUSE BILL 543                                                               
                                                                               
       "An Act  establishing a  preference when  entering into                 
       state airport land leases."                                             
                                                                               
  Representative Mulder noted  a conflict  of interest in  the                 
  proposed legislation.                                                        
                                                                               
                                                                               
                                1                                              
                                                                               
                                                                               
  Representative Kelly MOVED  to adopt 9-LS1769\0,  Bannister,                 
  4/9/96, as the version before the Committee.  There being NO                 
  OBJECTION, it was so ordered.                                                
                                                                               
  Representative  Kelly  MOVED  to   adopt  Amendment  #1,  9-                 
  LS1769\0.4,  Bannister,  4/12/96.     Representative   Brown                 
  OBJECTED requesting  an explanation  of the  effects of  the                 
  amendment.                                                                   
                                                                               
  REPRESENTATIVE  NORMAN  ROKEBERG  stated  that Amendment  #1                 
  would make adjustments to the bill.  He noted that the terms                 
  and conditions of the existing leases may  be different than                 
  new leases offered  by the Department of  Transportation and                 
  Public  Facilities  (DOTPF).    He   thought  that  a  lease                 
  extension would be better and  suggested that it be included                 
  as a portion of the bargaining process.                                      
                                                                               
  Representative Brown suggested that the question be divided.                 
  She added  that the  State's concern  should include  "broad                 
  public interest".                                                            
                                                                               
  Representative Brown MOVED to divide Amendment #1.  Lines  1                 
  & 2 of the Amendment would  become Amendment #1(a) and Lines                 
  3 through Line 9 would become  Amendment #1(b).  There being                 
  NO OBJECTION, it was divided.                                                
                                                                               
  Representative Kelly MOVED to adopt  Amendment #1(b).  There                 
  being NO OBJECTION, it was adopted.  Representative Rokeberg                 
  pointed out a  technical change to  Line #6, "an" should  be                 
  replaced with "and".                                                         
                                                                               
  Representative  Kelly   MOVED  to  adopt   Amendment  #1(a).                 
  Representative Brown OBJECTED.                                               
                                                                               
  Co-Chair Foster referenced  Amendment #1(b)  stating that  a                 
  master plan has existed for nearly  fifteen years.  He noted                 
  that  a "master term" should  work with a "master terminal",                 
  and at this point does not exist.                                            
                                                                               
  Representative  Brown  requested  word  from the  Department                 
  regarding new  leases and/or  an extension  of the  existing                 
  leases.      She  suggested   that  lessees   receiving  the                 
  opportunity  for  extension  without  competition are  being                 
  provided  a significant benefit  and suggested  new language                 
  address that concern.                                                        
                                                                               
  KURT    PARKAN,    DEPUTY   COMMISSIONER,    DEPARTMENT   OF                 
  TRANSPORTATION  AND PUBLIC  FACILITIES, agreed that  some of                 
  the current  language should  not  be carried  forward.   He                 
  requested the Department of Law comment on that concern.                     
                                                                               
  ELISABETH   HICKERSON,   (TESTIFIED   VIA   TELECONFERENCE),                 
                                                                               
                                2                                              
                                                                               
                                                                               
  ASSISTANT ATTORNEY  GENERAL, DEPARTMENT  OF LAW, noted  that                 
  two issues of concern  exist for the Department of  Law when                 
  providing an extension without competition.                                  
                                                                               
       *    Would that action  decrease the  Department's                      
            ability  to be successful on a public purpose                      
            argument.                                                          
                                                                               
       *    Would  the  action  provide  for  a  material                      
            change in the contract.                                            
                                                                               
  Ms. Hickerson elaborated that if an extension was added to a                 
  lease, would  that action then provide a  material change to                 
  an old lease.   She suggested that  it would be sound  legal                 
  practice to begin with a new lease.                                          
                                                                               
  Co-Chair  Hanley  remarked  that the  inclusion  of  "or" in                 
  Amendment  #1(a)  would allow  the  Department to  offer the                 
  extension of  the lease  "or" a  new lease.   Ms.  Hickerson                 
  advised that it was the intent of the amendment to allow for                 
  an  existing lease  to be  extended  up to  55  years.   She                 
  reiterated that if the concept was an extension of the "old"                 
  terms, that  would then warrant  a material amendment  to an                 
  extension contract.                                                          
                                                                               
  Co-Chair Hanley questioned Ms. Hickerson's interpretation of                 
  the  language.   He thought  that  addition of  the language                 
  would create  important flexibility.   Representative  Brown                 
  thought that incorporating that language  into the law would                 
  not be a sound approach.  She advised the legislation should                 
  address  the  problem  of   making  the  extensions  without                 
  competition.                                                                 
                                                                               
  REPRESENTATIVE GARY DAVIS questioned the basic intent of the                 
  amendment.    He  asked  if  it  would  provide measures  to                 
  renegotiate  an existing lease or would it address a shorter                 
  period  of  time in  which an  existing  lease retires.   He                 
  remarked that the intent of the amendment was to renegotiate                 
  an existing lease.                                                           
                                                                               
  Representative Rokeberg  stated that  the  intention of  the                 
  language would be  to provide DOTPF the  needed flexibility.                 
  He  noted  that  it  was  a  matter  of  interest  that  the                 
  Department be allowed to have the  choice.  He added, if the                 
  tenant intended  to extent  their lease term  as opposed  to                 
  creating  a  new lease,  this  would be  a  bargaining point                 
  between the State and the tenant.                                            
                                                                               
  STEPHEN  COOPER,  (TESTIFIED VIA  TELECONFERENCE), ATTORNEY,                 
  FAIRBANKS,  commented that  the proposed  language  could be                 
  useful in order to readjust a minor matter  as to the length                 
  of the term.   He  remarked that if  the Department  assumed                 
                                                                               
                                3                                              
                                                                               
                                                                               
  that the extension of the lease was a material alteration to                 
  the existing lease, they would need to issue a public notice                 
  in order to make the alteration.  He pointed out that  DOTPF                 
  has misinterpreted the regulations in the past.  There is no                 
  language  stating  that   to  issue  a  public   notice,  an                 
  invitation  for  public  bid  must  be  included.    If  the                 
  Department thought that  there was a material  alteration in                 
  the terms of the lease, they could issue a public  notice to                 
  recover that.  He advised that option would allow the needed                 
  flexibility.                                                                 
                                                                               
  Ms. Hickerson responded that if the Committee intend that an                 
  extension  be  allowed without  competition  for only  minor                 
  adjustments for short periods of  time, that language should                 
  be  clearly  defined in  the  legislation.   Co-Chair Hanley                 
  inquired if it was  up to the Department to decide  if a new                 
  lease would be offered or if  there would be an extension to                 
  the old lease.                                                               
                                                                               
  Mr.  Parkan   maintained   that   DOTPF   would   appreciate                 
  incorporating  the  suggested flexibility.    He  added, the                 
  Department  of  Law  would  not  have a  legally  defensible                 
  position if  there was  only an  extension  of the  existing                 
  terms.    Co-Chair  Hanley  elaborated  that  "some"  future                 
  Department  or  "some"  future  attorney  general  may   not                 
  understand the leasing law and grant an illegal extension.                   
                                                                               
  In response to Representative Rokeberg, Representative Brown                 
  commented  that this  legislation  should  not  address  the                 
  commercial real estate world.  This  is the "world of public                 
  land  management"  and  the   obligation  that  public  land                 
  managers  have  as specified  under  the constitution.   She                 
  emphasized the main contention being that a material term of                 
  a contract can not be changed.                                               
                                                                               
  Representative Kelly asked  if there was a term  which could                 
  quantify  the extension  for a  short time.    Ms. Hickerson                 
  suggested placing a time limit  and extension on an existing                 
  lease  for  six  months  would  then  add definition.    She                 
  suggested that  there were  two  issues at  hand; the  legal                 
  concern   and  the  directive  issue  for  the  Department's                 
  extension.  Co-Chair Hanley recommended  adding the notation                 
  "Under any circumstances which are legal".                                   
                                                                               
  A  roll  call was  taken on  the  MOTION to  adopt Amendment                 
                                                                               
       IN FAVOR:      Martin,  Mulder,   Parnell,  Therriault,                 
                      Kelly, Hanley, Foster.                                   
       OPPOSED:       Brown, Grussendorf.                                      
                                                                               
  Representatives Navarre and Kohring were not present for the                 
                                                                               
                                4                                              
                                                                               
                                                                               
  vote.                                                                        
                                                                               
  The MOTION PASSED (7-2).                                                     
                                                                               
  Representative  Kelly   MOVED   to   adopt   Amendment   #2.                 
  Representative  Brown  OBJECTED.    Representative  Rokeberg                 
  explained that the  amendment was based on  suggestions from                 
  the   Airmen's  and   Air  Carriers   Association.     These                 
  suggestions would  include issues  put forward  by DOTPF  to                 
  cover the  circumstances when  the reversionary  interest of                 
  the lease  improvements are  addressed.   The amendment  was                 
  drafted with  the  intention of  granting  the right  to  an                 
  existing lessee to have and retain  the title of property of                 
  purchase and then  allowing them  to sell that  improvement.                 
  The amendment would also provide the Department reversionary                 
  interest in cases of abandonment of the lease by a tenant.                   
                                                                               
  Amendment #2  was  intended to  clarify  the rights  of  the                 
  lessee  and to  provide for  the rights  of  the Department.                 
  Representative Rokeberg added,  the reason for  drafting the                 
  legislation resulted from  DOT&PF issuing  a standard  lease                 
  form  and then  not  bargaining  in  "good faith"  with  the                 
  tenants.  It is the intention  of the amendment to guarantee                 
  that "good  faith" bargaining  and negotiations  are carried                 
  out.                                                                         
                                                                               
  (Tape Change, HFC 96-118, Side 2).                                           
                                                                               
  Co-Chair Hanley asked  if the language of  the amendment was                 
  better than the language in  the version of the  legislation                 
  before the  Committee.  Mr. Parkan acknowledged  that it was                 
  better, but  not ideal.  Mr. Parkan questioned the situation                 
  in which an improvement  belonged to one party and  the land                 
  to a different party.   He asked if there would  then be two                 
  land-lords.  He  recommended that the language  specify that                 
  the  improvements  to   the  land   went  with  the   lease.                 
  Representative  Rokeberg stated that  the title would remain                 
  with the tenant  who would  then be the  one responsible  to                 
  bargain with the  new lessee.   He stressed  that the  State                 
  should  not  be  in  the  position  of  bargaining  for  the                 
  improvements made to the land.                                               
  Representative  Brown     understood  the   intent  of   the                 
  amendment,  although, suggested  that the  language  did not                 
  accomplish the intent.  She maintained that the language was                 
  ambiguous.    Representative  Brown asked  if  the  existing                 
  leases  provide  for  entitlement  to maintain  improvements                 
  which are constructed.  If leases exist which do not provide                 
  that, would it  then be considered  a material change.   Mr.                 
  Parkan responded that the language would not change existing                 
  leases.                                                                      
                                                                               
  Representative  Brown  understood  that  the language  would                 
                                                                               
                                5                                              
                                                                               
                                                                               
  apply to  existing  leases.   Mr.  Parkan  stated  that  the                 
  Department could not  change the  language of each  existing                 
  lease.   When the  old lease is  terminated, the legislation                 
  would apply only to the  new lease as would the  "options of                 
  competition".  It would not change existing leases.                          
                                                                               
  Ms. Hickerson commented  that the lease would  be protective                 
  in   application.       She   agreed   with   Mr.   Parkan's                 
  interpretation.     Ms.   Hickerson  voiced   legal  concern                 
  regarding the  intent.   She asked if  it was the  intent to                 
  offer ownership of the improvements to exist separately from                 
  the lease.  Representative Rokeberg advised it was.                          
                                                                               
  Ms. Hickerson  stated the  effect would  be to  have a  non-                 
  resident tenant having  title to  the improvement and  being                 
  the landlord of  the improvements,  while at  the same  time                 
  having the State being landlords of the land lease.                          
                                                                               
  Ms.  Hickerson recommended  adding "hazard  to property"  to                 
  Page 2, Line 17. Representative  Kelly asked what a "hazard"                 
  to a property  would be other than  health and safety.   Ms.                 
  Hickerson suggested a situation could exist with asbestos in                 
  a building.  Committee members agreed that would be a hazard                 
  to  the "public"  and that  language already  exists in  the                 
  bill.                                                                        
                                                                               
  Mr. Cooper commented on Representative Brown's suggestion on                 
  Line  5 of  Amendment #2,  "by any  successor  who purchases                 
  them, or by any lawful successor or assignee of the lessee".                 
  He stated that language would be  applicable to the title of                 
  improvement.    The  language would  not  relate  to whoever                 
  becomes the tenant  of the lease holder.   It would  only be                 
  applicable to the ownership of the improvements.                             
                                                                               
  Mr.  Parkan  pointed out  that  Representative  Rokeberg had                 
  stated that  it would  be possible to  have an  "improvement                 
  landlord" and a "property landlord".   Mr. Parkan maintained                 
  that would  be confusing  and cumbersome.   Co-Chair  Hanley                 
  asked if at this  time, all the lease hold  improvements are                 
  owned by the same people that lease the land.                                
                                                                               
  DIANE   BANTH,   (TESTIFIED  VIA   TELECONFERENCE),  LEASING                 
  OFFICER, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES,                 
  ANCHORAGE,  responded that  at  the Anchorage  International                 
  Airport, all the property improvements are owned by the same                 
  entities who are leasing the land.  Co-Chair Hanley asked if                 
  that was a requirement of the leases.  Ms. Banth stated that                 
  it was.  There  have been no contrary situations  which have                 
  come forward to  date, although, a  situation now exists  in                 
  which  the  new  successful  bidder  for  a  lease  will  be                 
  negotiating with the existing tenant.   The negotiation must                 
  take  place  within  a  specified  period of  time  and  the                 
                                                                               
                                6                                              
                                                                               
                                                                               
  successful bidder will continue to move forward even without                 
  the successful resolution  of the tenant.   She acknowledged                 
  that it was very difficult to have the owner of the property                 
  different from the tenant.  Co-Chair Hanley pointed out that                 
  the amendment would leave the same process in place.                         
                                                                               
  Representative  Rokeberg  stated that  the  language  of the                 
  amendment was intended to protect the rights of the owner of                 
  the improvements.   If the new  tenant cannot make a  "deal"                 
  with the old  tenant, the old tenant  has the right  to take                 
  the building to another location.                                            
                                                                               
  Representative Parnell  questioned how  the amendment  would                 
  address the  concern of  protecting the  "old  tenant".   He                 
  asked   how    it   would   impact    prospective   lessees.                 
  Representative  Brown  reiterated  that   the  language  was                 
  ambiguous when addressing existing leases.  The terms of the                 
  existing contract  will be changed  through the legislation.                 
  She  suggested  that  the   language  should  be  clarified,                 
  specifying that it will only apply to prospective leases.                    
                                                                               
  Representative Parnell  asked if  there was  a provision  in                 
  existing leases  which make them subject to changes in State                 
  statute.  Co-Chair Hanley said that language would not apply                 
  to  current leases.    Representative Rokeberg  agreed  that                 
  Amendment  #2 should  specify  more  clearly that  language.                 
  Representative Kelly recommended making changes to Amendment                 
                                                                               
  Co-Chair Hanley questioned if the Legislature  could legally                 
  change   in   statute   the    language   of   the   leases.                 
  Representative  Brown pointed  out  that the  Legislature is                 
  always making  changes to  the terms  and provisions  within                 
  contracts.  Ms. Hickerson advised that would be considered a                 
  material amendment to the contracts.  The issue being if the                 
  change was for the benefit of a private or a public purpose.                 
  Whenever a  provision becomes  retroactive, it  can then  be                 
  argued unjust on the basis of material change.                               
                                                                               
  In response to  Co-Chair Hanley, Mr.  Cooper stated that  he                 
  agreed that under  the federal  constitution, the State  can                 
  not impair the  obligation of the contract.   He recommended                 
  that  it  should be  left  flexible and  to  delete language                 
  "entered  into under this section".   He thought that change                 
  would provide the terms  of the existing lease to  either be                 
  governed by this or not.  Mr Cooper added  that there exists                 
  many leases carried in a hold-over status.                                   
                                                                               
  Representative  Brown  suggested language  be  adopted which                 
  would include:  "Unless an existing lease provided otherwise                 
  the title to lease hold  improvements".  She considered that                 
  removing  "entered into"  would not  adequately address  the                 
                                                                               
                                7                                              
                                                                               
                                                                               
  concern.                                                                     
                                                                               
  (Tape Change, HFC 96-119, Side 1).                                           
                                                                               
  Representative   Brown   recommended   additional  language:                 
  "These two subsections apply to leases that expire after the                 
  effective day of this act".   Representative Rokeberg agreed                 
  that language  would work and that it  was the intent of the                 
  amendment.                                                                   
                                                                               
  Representative Brown asked Mr. Parkan if this language would                 
  provide a material concession of valuable property which the                 
  State otherwise  would receive title to and  sell to someone                 
  else.  Mr. Parkan thought the recommended language attempted                 
  to  achieve what  is currently  existing.   Each lease  does                 
  address  the  improvements,  although  not  as   clearly  as                 
  recommended.                                                                 
                                                                               
  Representative Rokeberg understood that the current language                 
  would  provide  the commissioner  complete discretion.   The                 
  intent  of  the   legislation  would  be  to   overcome  the                 
  discretion as a matter  of law.  Co-Chair Hanley  noted that                 
  when the original leases were signed, it was understood that                 
  when improvements or buildings were  made to the leases, the                 
  property then belonged to that person.  Representative Kelly                 
  noted that the constitution states that person deserves just                 
  compensation.    He thought that the constitution would take                 
  precedence over the lease.                                                   
                                                                               
  In response to  Co-Chair Hanley,  Ms. Hickerson stated  that                 
  language   would   not   be   a   constitutional   "taking".                 
  Constitutional  "taking"  refers  to  situations  where  the                 
  person has a right, beyond the time in which the State comes                 
  to  take.    Mr. Cooper  commented  that  the parties  could                 
  bargain for whatever they want.   The problem is whether the                 
  Legislature  should pass a statute saying that no one should                 
  get a lease unless they agree to that condition.  What would                 
  then occur, would be  relinquishing the constitutional right                 
  to that compensation.  The issue is  whether the Legislature                 
  should impose upon  the public,  the precondition that  they                 
  have to give up their constitutional rights for compensation                 
  for improvements if the State so decides.                                    
                                                                               
  Representative Brown asked where in  the bill, that language                 
  was mentioned.   Mr.  Cooper replied that  language was  not                 
  included in the current version before the Committee.                        
                                                                               
  CHARLES  COLE,  (TESTIFIED  VIA  TELECONFERENCE),  ATTORNEY,                 
  FAIRBANKS, advised that in the  legislation supported by the                 
  State, Subsection (f) contains  a provision which  clarifies                 
  that the "land lessee owns  title permit to the improvements                 
  that the lessee constructed or purchased  during the term of                 
                                                                               
                                8                                              
                                                                               
                                                                               
  the lease", unless  the lease  expressively states that  the                 
  State is the owner of the improvements.  [Copy on file].  He                 
  noted  that the State  has indicated  their support  of that                 
  language and thought it was applicable to existing leases.                   
                                                                               
  Representative   Brown  agreed  that  language  was  a  more                 
  straightforward   approach.   Mr.   Parkan  referenced   the                 
  attachment, pointing  out that  the underlined language  was                 
  the language agreed upon by the Department of Transportation                 
  and   Public  Facilities   and   the   Department  of   Law.                 
  Representative Brown asked if the underlined language was in                 
  existing  law.    Co-Chair  Hanley  advised that  was  "new"                 
  language.                                                                    
                                                                               
  Mr. Cooper commented that he  had referred to Subsection (g)                 
  in the  State's proposal.   There  is in  existence at  this                 
  time, a written airport operations  policy, stating that the                 
  airport retains the option of whether  to decide if a person                 
  must remove the  improvements off the  land or to allow  the                 
  person to  sell them.   The  "so-called" right  is illusory.                 
  The lessee  has the  right if the  "State wishes to  let him                 
  have the right".  Presently, this  is the mode of operation.                 
  Mr. Cole interjected that he disagreed  with Mr. Cooper.  He                 
  noted  it  would need  to be  in  condition with:   "Written                 
  airport operational policy".  That  language was included by                 
  the State.                                                                   
                                                                               
  Co-Chair  Hanley  stated   that  if   that  was  a   written                 
  operational policy, it would then be totally in favor of the                 
  State, and there  would not  need to be  negotiations.   Mr.                 
  Parkan  responded  that  it  was  not  the  intent  of   the                 
  Department to assume  total control.   What the  operational                 
  policy refers to  mostly is not  the lease terms but  rather                 
  operating of the premises and the airport.                                   
                                                                               
  Ms.  Hickerson added if  the provision was  passed, it would                 
  have the effect  of repealing the  operation of law and  any                 
  inconsistent regulations.   Airport operational  policy only                 
  intends what  the airport has to  do in order to  respond to                 
  directives given by the  Federal Aviation Association (FAA).                 
  Statute   currently   prohibits   duplicating  or   adopting                 
  inconsistent regulations of federal directives.  The written                 
  operational   policy   is   intended   to  address   federal                 
  directives.                                                                  
                                                                               
  Co-Chair Hanley  asked why  the exception  was needed.   Ms.                 
  Hickerson  replied that  the proposed  legislation does  not                 
  effect the law  of condemnation  and the need  to condemn  a                 
  building  because  of airport  expansion and  airport needs.                 
  Co-Chair  Hanley  asked  why  the  State needed  the  option                 
  indicating  that  they  could  sell  the improvements  to  a                 
  succeeding lessee on  the same  land.  He  asked what  would                 
                                                                               
                                9                                              
                                                                               
                                                                               
  occur  without that language.   Ms. Hickerson stated that it                 
  would not affect the State's ability to offer the new lease.                 
  She referenced Section (c) of the State's proposed language,                 
  addressing    that  concern.    She  emphasized  that  it is                 
  important that the continued presence should comply with the                 
  federally approved plan, standards, and requirements.                        
                                                                               
  Representative  Brown  maintained   that  the   Department's                 
  proposal  addresses problems  which the  Committee struggled                 
  with in  Amendment #2.   Discussion  followed regarding  the                 
  language of the bill.   Co-Chair Hanley recommended that the                 
  bill be further discussed in subcommittee.                                   
                                                                               
  HB 543 was HELD in Committee for further discussion.                         
  ADJOURNMENT                                                                  
                                                                               
  The meeting adjourned at 3:25 P.M.                                           
                                                                               
                                                                               
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