Legislature(1995 - 1996)
01/19/1996 01:05 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE January 19, 1996 1:05 P.M. MEMBERS PRESENT Representative Brian Porter, Chairman Representative Joe Green, Vice Chairman Representative Con Bunde Representative Bettye Davis Representative Al Vezey Representative Cynthia Toohey Representative David Finkelstein MEMBERS ABSENT All members present COMMITTEE CALENDAR HOUSE BILL NO. 379 "An Act authorizing establishment of alternative dispute resolution centers to foster the resolution of disputes between juvenile offenders and their victims." - MOVED CSHB 379(JUD) OUT OF COMMITTEE HOUSE BILL NO. 308 "An Act relating to the Uniform Probate Code, including non-probate transfers, guardianships, trusts, and multiple-party accounts; relating to the Uniform Simultaneous Death Act; amending Alaska Rule of Probate Procedure 5; and providing for an effective date." - MOVED CSHB 308(JUD) OUT OF COMMITTEE HOUSE BILL NO. 154 "An Act requiring the Department of Law to provide guidelines regarding unconstitutional state and municipal takings of private real property; relating to the taxation of private real property taken unconstitutionally by state or municipal action; establishing a time limit for bringing an action for an unconstitutional state or municipal taking of private real property; and providing for an effective date." - HEARD AND HELD PREVIOUS ACTION BILL: HB 379 SHORT TITLE: VICTIM/JUVENILE OFFENDER MEDIATION SPONSOR(S): REPRESENTATIVE(S) PORTER, Green, Kelly JRN-DATE JRN-PG ACTION 12/29/95 2365 (H) PREFILE RELEASED 01/08/96 2365 (H) READ THE FIRST TIME - REFERRAL(S) 01/08/96 2365 (H) JUDICIARY, FINANCE 01/17/96 (H) JUD AT 01:00 PM CAPITOL 120 01/17/96 (H) MINUTE(JUD) 01/19/96 (H) JUD AT 01:00 PM CAPITOL 120 BILL: HB 308 SHORT TITLE: UNIFORM PROBATE CODE REVISIONS SPONSOR(S): REPRESENTATIVE(S) PARNELL JRN-DATE JRN-PG ACTION 04/13/95 1318 (H) READ THE FIRST TIME - REFERRAL(S) 04/13/95 1318 (H) JUDICIARY 10/16/95 (H) JUD AT 09:00 AM JUNEAU LIO 01/19/96 (H) JUD AT 01:00 PM CAPITOL 120 BILL: HB 154 SHORT TITLE: REGULATORY TAKING OF PRIVATE PROPERTY SPONSOR(S): REPRESENTATIVE(S) KOHRING, Rokeberg, Kott, Kelly, Vezey, Martin, Barnes Ogan, G.Davis, James, Mulder JRN-DATE JRN-PG ACTION 02/03/95 237 (H) READ THE FIRST TIME - REFERRAL(S) 02/03/95 237 (H) CRA, JUD, FIN 02/16/95 (H) CRA AT 1:00 PM CAPITOL 124 02/16/95 (H) MINUTE(CRA) 02/21/95 (H) CRA AT 1:00 PM CAPITOL 124 02/21/95 (H) MINUTE(CRA) 03/01/95 550 (H) COSPONSOR(S): ROKEBERG 03/09/95 (H) CRA AT 1:00 PM CAPITOL 124 03/09/95 (H) MINUTE(CRA) 03/16/95 (H) CRA AT 1:00 PM CAPITOL 124 03/16/95 (H) MINUTE(CRA) 03/24/95 919 (H) COSPONSOR(S): KOTT 03/25/95 (H) CRA AT 1:00 PM CAPITOL 124 03/25/95 (H) MINUTE(CRA) 04/20/95 (H) CRA AT 1:00 PM CAPITOL 124 04/20/95 (H) MINUTE(CRA) 04/21/95 1421 (H) CRA RPT CS(CRA) NT 1DP 1DNP 2NR 1AM 04/21/95 1421 (H) DP: VEZEY 04/21/95 1422 (H) DNP: ELTON 04/21/95 1422 (H) NR: AUSTERMAN, IVAN 04/21/95 1422 (H) AM: KOTT 04/21/95 1422 (H) INDETERMINATE FISCAL NOTE (LAW) 04/21/95 1422 (H) 2 FISCAL NOTES (DCRA, DNR) 11/21/95 (H) JUD AT 10:00 AM JUNEAU LIO 01/08/96 2382 (H) COSPONSOR(S): KELLY, VEZEY, MARTIN 01/09/96 2396 (H) COSPONSOR(S): BARNES 01/10/96 2404 (H) COSPONSOR(S): OGAN, G.DAVIS 01/11/96 2418 (H) COSPONSOR(S): JAMES, MULDER 01/19/96 (H) JUD AT 1:00 PM CAPITOL 120 01/19/96 (H) MINUTE(JUD) WITNESS REGISTER BOB MANLY, Esq. 324 East Cook Anchorage, Alaska 99501 Telephone: (907) 263-8251 POSITION STATEMENT: Testified on HB 308. BRUCE MOORE, Broker; and Second Vice President of the State of Alaska Association of Life Underwriters 2242 Arcadia Anchorage, Alaska 99517 Telephone: (907) 279-9952 POSITION STATEMENT: Testified on HB 308. PETER BRAUTIGAN, Esq. 2170 Belmont Anchorage, Alaska 99517 Telephone: (907) 276-1592 POSITION STATEMENT: Testified on HB 308. NANCY WALLACE New York Life Insurance 51 Madison Avenue, Room 910 New York City, NY 10010 Telephone: (212) 576-4473 POSITION STATEMENT: Opposed HB 308. RICHARD V. WELLMAN, Executive Director Editorial Board Uniform Probate Code Athens, Georgia (ZIP) Telephone: (706) 549-1718 POSITION STATEMENT: Testified on HB 308. L.S. (JERRY) KURTZ, JR., Esq. Alaska Commissioner National Conference of Commissioners on Uniform State Laws 1050 Beech Lane Anchorage, Alaska 99501 Telephone: (907) 258-6051 POSITION STATEMENT: Testified on HB 308 TODD THACKER, Vice President Governmental Affairs Prudential Insurance Companies of America P.O. Box 9220 Van Nuyes, California 91409 Telephone: (916) 447-8229 POSITION STATEMENT: Opposed HB 308 DAVID LIFER, Counsel American Counsel of Life Insurance 1001 Pennsylvania Avenue, N.W. WASHINGTON, D.C. 20004 Telephone: (202) 624-2017 POSITION STATEMENT: Opposed HB 308 DEBORAH RANDALL, Esq. Alaska Bar Association Probate & Estate Planning 8601 Pioneer Drive Anchorage, Alaska 99504 Telephone: (907) 561-4420 POSITION STATEMENT: Testified on HB 308 ART PETERSON, Esq. Alaska Uniform Law Commissioner National Conference of Commissioners on Uniform State Laws Dillon & Findley, P.C. 350 North Franklin Street Juneau, Alaska 99801 (907) 586-4000 POSITION STATEMENT: Testified on HB 308 REPRESENTATIVE VIC KOHRING Alaska State Legislature Capitol Building, Room 428 Juneau, Alaska 99801-1182 Telephone: (907) 465-2186 POSITION STATEMENT: Sponsor of HB 154 CRAIG TILLERY Assistant Attorney General Department of Law 1031 W 4th Avenue, Suite 200 Anchorage, Alaska 99501-1994 Telephone: (907) 269-5100 POSITION STATEMENT: Testified on HB 154 ACTION NARRATIVE TAPE 96-3, SIDE A Number 000 The House Judiciary Standing Committee was called to order at 1:05 p.m. Members present were Chairman Porter, Representatives B. Davis, Vezey, Green, Bunde, and Toohey. Representative Finkelstein was absent. HB 379 - VICTIM/JUVENILE OFFENDER MEDIATION The first order of business to come before the House Judiciary Committee was HB 379. CHAIRMAN BRIAN PORTER recognized the arrival of Representative David Finkelstein. CHAIRMAN PORTER recalled the dilemma in the confidentiality mediation process and reporting results to various agencies such as the Division of Family and Youth Services (DFYS). He referred the committee to CS, version "k", page 5, number 7 which read, "For communicating to the agency making the referral under this act or the court making the referral under the act as appropriate the following: (A) notice that the minor and victim have been unable to enter into a written agreement....". He continued that (B) addresses notice that the minor and victim have entered into a written agreement; (C) speaks to notice that the minor has failed to perform the obligations; and (D) is notice that it has been successfully completed. That is the dispositional information that DFYS was requesting. He stated DFYS was satisfied with the CS. Number 259 REPRESENTATIVE JOE GREEN moved that version "k" of CSHB 379, dated 1/18/96 be adopted as the working document. There being no objection, it was so ordered. REPRESENTATIVE GREEN made a motion that CSHB 379(JUD) move from committee. Hearing no objection, CSHB 379(JUD) was moved out of the House Judiciary Committee with the attached fiscal note and individual recommendations. HB 308 - UNIFORM PROBATE CODE REVISIONS Number 312 The next order of business to come before the House Judiciary Committee was HB 308. CHAIRMAN PORTER said HB 308 was discussed during the interim with another bill. Chairman Porter recognized Representative Sean Parnell. Number 453 REPRESENTATIVE SEAN PARNELL introduced Bob Manly via teleconference in Anchorage to present information on HB 308. Number 579 CHAIRMAN PORTER announced there were no attorneys by profession on the House Judiciary Committee. Therefore, he asked Mr. Manly to clarify terms such as "augmented estates." Number 610 BOB MANLY said Alaska has had the Uniform Probate Code since about 1976. Alaska adopted the 1969 version of the Uniform Act. He pointed out the legislation before the committee was the first major update to the Probate Code. Mostly, it decodifies (indisc.) the Probate Code. There are some policy changes. MR. MANLY explained the Uniform Law Commissioners promulgate uniform laws, and every one of those uniform laws has policy modifications. He thought it was important for the legislature in each state to look at those policy modifications. (Indisc.) has been endorsed by the American Association of Retired Persons, specifically addressing the inclusion of life insurance. Other groups involved with this legislation are, the American Bar Association, the American College of Trusts and Estate Council; basically those groups involved with and concerned with the field. An area of dispute arises as to whether or not life insurance should be included in what is known as the spouses's elective share or the augmented estate. Mr. Manly commented that since the middle ages, governing bodies have recognized that a person shouldn't be able to totally disinherit a spouse. The public policy attitude is either divorce your spouse and sell off while you're alive, but a person can't just die and leave a surviving spouse (indisc.). Number 730 MR. MANLY explained the current law in Alaska provides that a surviving spouse must get at least one-third of the augmented estate. In short form, the augmented estate is everything you own and everything you control, including things governed by your will, joint bank accounts, IRAs, et cetera. He said one thing the augmented estate doesn't include under current Alaska law, is life insurance which the holder can designate someone other than their spouse as the beneficiary. MR. MANLY further explained that life insurance to the surviving spouse is included in the calculation of the augmented estate. But life insurance to a third party is not. When the Uniform Law Commissioners passed the current version of the Uniform Probate Code used in Alaska, they specifically addressed that issue, and did not include it because in their opinion it is not very often that people try to disinherit their spouse by buying life insurance and naming someone else as beneficiary. But, the natural outgrowth to that is to set up a barrier to disinherit your spouse by leaving a loophole. Anyone who wants to disinherit their spouse is inclined to gravitate toward that loophole. MR. MANLY stated the issue before the legislature now is whether or not this loophole be left open. He said he has discussed this issue with members of the insurance industry and there have been some questions and concerns raised. He thought these could be rectified by proper drafting. He used banks as an example. How do you protect the interest of the bank who makes a client buy a life insurance policy. To put it simply, the bank either takes over ownership of the policy or the bank establishes a security interest in the proceeds. Mr. Manly said he has the greatest respect for banks and for their ability to adjust their form to make sure they are adequately protected. He didn't think the legislature needed to worry about those kinds of concerns. Number 968 MR. MANLY added there is now a uniform 120-hour survival requirement to determine a beneficiary. Mr. Manly said right now, if he had a joint bank account with his wife or a life insurance policy designating his wife as the beneficiary, if she survived him by a tenth of a mili-second, she would take that property. The new law imposes a 120-hour requirement. This falls under a near- simultaneous death situation. MR. MANLY gave an illustration of two people, husband and wife, with children on both sides of their own, but no shared children. There is a plane crash. Who survives who? Did the husband die first of impact injuries and the wife died subsequently of bleeding to death or vice a versa? Why should we care? Because these people owned a house on the hill worth a half million dollars and a $100,000 life insurance policy. If the wife died first, then it all goes to the husband's kids of his prior marriage. If the husband died first, it all goes to the wife's family by a prior relationship. He explained this legislation eliminates those near- simultaneous death calls; you have to survive 120 hours to take under a life insurance policy unless the person who bought the life insurance policy does otherwise. A person is certainly free to change those rules in anything they write down on the beneficiary designation. MR. MANLY outlined another way life insurance has changed under the concept of anti-lapse, which he stated was most easily illustrated by an example. A father had a life insurance policy and he named his three children as beneficiaries. One of those children died before the father died, but the child that died left a couple of children of his own. Currently under Alaska law, unless the life insurance policy has a beneficiary designation that says otherwise, the two surviving kids take and the grandchildren of the pre- deceased child get nothing. The new law would change the default rule; it would change the rule applicable if nobody says otherwise and would instead send the deceased child's share to the deceased child's children. It wouldn't go to the spouse, just to the actual dependents. Mr. Manly said he didn't think there was any legitimate justification, at this point, for excluding life insurance from the application of any of these provisions. He said he was focusing on life insurance because that seemed to be the hot topic at the moment. Number 1147 REPRESENTATIVE AL VEZEY questioned why it took 93 pages of statutes to accomplish this. Number 1169 MR. MANLY responded it was due to the requirements of the Internal Revenue Service (IRS), families fighting after a death, and to avoid litigation. Number 1196 REPRESENTATIVE VEZEY asked if there really were 93 pages of changes in existing probate statutes. MR. MANLY said a lot of it was simply renumbering of existing code sections. Number 1210 REPRESENTATIVE VEZEY said it was a voluminous work and he had no intention of reading it. Number 1210 REPRESENTATIVE JOE GREEN asked if a person had a large life insurance policy, stocks and a house on the hill, would the spouse get one-third of the total assets or one-third of the individual assets. Number 1242 MR. MANLY said the spouse would get the value of the total assets unless it was specified otherwise in a will. However, if a will specified less than one-third, the spouse would have the right to fight for the remaining excluded value. Number 1279 REPRESENTATIVE CYNTHIA TOOHEY asked if wills, trusts and annuities were grandfathered in. Number 1300 MR. MANLY responded there was no grandfathering in unless a person dies before the effective date of the act (indisc.) the 120 hour survival requirement. For example, a joint bank account set up before the effective date of the act for somebody who died after the effective date of the act, would still be subject the new 120 hour survival requirement. Number 1334 REPRESENTATIVE TOOHEY asked if life insurance was lumped into the augmented estate, did it become subject to federal taxes. Number 1350 MR. MANLY replied no, it would not change it a bit. He stated that in fact, it might actually reduce the overall tax burden if the wife were getting more, because of the unlimited marital deduction. It certainly would not increase the tax, and might decrease it. Number 1375 CHAIRMAN PORTER asked if there were a representative of the American Council of Life Insurance who could testify. Number 1395 BRUCE MOORE, Broker, and Second Vice President of the State of Alaska Association of Life Underwriters, testified via teleconference from Anchorage. He noted that he was not a member of the American Council of Life Insurance. He said he had some concerns and questions, some of which Mr. Manly had addressed. However, he said, there were other issues of concern. He explained that the purchase of life insurance was a result of a plan that an individual put into play. The beneficiary designation allowed the individual to direct large sums of money to those designated. Removing the life insurance exemption in an augmented estate raised a number of issues. For example, there could be an unintentional deletion of a spouse, who still had care of the children, as beneficiary upon divorce. MR. MOORE cited a further concern that although no one wanted to disinherit their spouse, by including life insurance, the spouse was entitled to one-third of a person's estate. He added that in many cases, life insurance was the biggest asset in an estate, no matter how long a couple had been married. A spouse superseded any type of beneficiary designation made in the past. Mr. Moore asked the committee to give his organization more time to address these issues. Number 1597 REPRESENTATIVE DAVID FINKELSTEIN questioned Mr. Moore's emphasis. Representative Finkelstein expressed that other assets were often the largest part of a person's estate, including retirement funds. He said the only argument he had heard was that in cases of divorce many participants forgot to change their beneficiary designations. However, he said, the potential to forget to make changes existed with retirement and other assets as well. He asked why this one asset should be exempted from the rules for other assets. Number 1687 MR. MOORE replied that life insurance was a unique asset. The other assets Representative Finkelstein had mentioned, such as retirement funds, accumulated during a marriage should be protected. Life insurance however, could be changed or purchased at any time. Number 1729 REPRESENTATIVE FINKELSTEIN said he understood Mr. Moore's argument was that it accumulated during a lifetime and was directed as a person pleased. Representative Finkelstein asserted that was true for retirement funds as well, and he could not see the difference. Number 1744 CHAIRMAN PORTER commented that he believed there was federal case law involving distribution of retirement income to spouses in the case of divorce. Number 1757 REPRESENTATIVE FINKELSTEIN replied that he understood the money was paid into a pool based on the one-third determination. If the criteria was met, it did not matter where the money came from. He explained he had chosen retirement as an example, but that other investments used to achieve retirement would have the same factors described by Mr. Moore. They accumulated over time; they could be invested in over time or all at once; and there was a beneficiary designated. He said he still did not see the difference. Number 1790 REPRESENTATIVE GREEN offered an example for clarification, citing a hypothetical divorce scenario where the wife got a settlement which she gambled away. The husband died, leaving the wife as sole custodian of their children, and perhaps of other children as well. He asked how the settlement would be divided, as she was no longer the spouse. Number 1842 PETER BRAUTIGAN, Attorney, asked if a will existed. He asserted that would determine the outcome. Number 1865 MR. MANLY said a new spouse was entitled to a minimum of one-third of the estate, to the exclusion of the children of the former marriage. Beyond that one-third, the estate could be distributed any way the man desired. Number 1884 REPRESENTATIVE GREEN modified his cited example to include a $100,000 life insurance policy, only $20,000 of other collateral, and no second wife. Number 1909 MR. MANLY clarified that only a current wife, not a former wife, had the right to claim the one-third share. He added that a person could disinherit his children or ex-spouse freely. Number 1939 NANCY WALLACE, NEW YORK LIFE INSURANCE, testified via teleconference from New York City. The following text is a verbatim version of Ms. Wallace's written testimony. "New York Life opposed House Bill 308's adoption of this amendment to the UPC because it reflects a complete reversal of the Code's original philosophy of the relationship between non-testamentary devises and the augmented estate and more specifically because it fails to recognize the role of insurance in helping individuals to address valid estate planning concern which the insured is best suited to evaluate. "Including insurance in the augmented estate undermines the very nature of the business of insurance which is to provide insurers with a means to contract specific insurance benefits to designated individuals. For many, insurance provides a much needed tool to address specific individual life situations which the insured is in the best position to evaluate. A number of specific scenarios our agents have encountered may elucidate this concern. Insurers frequently purchase policies for a number of reasons which Bill 308 would undermine. For example: "an insured might purchase a policy to ensure funding for his children's education, housing or welfare which is particularly a concern for children from previous marriages; "or an insured might purchase a policy to secure payment for the care of his aging parents or a handicapped child, who will need to be cared for for the rest of their natural lives; "an insured might also purchase insurance to provide liquidity for an estate so probate costs, estate taxes, etc. can be paid for from the proceeds of the policy rather than from a forced liquidation of real estate at an inopportune time such as when real estate values are low, or in situations where the family does not want to sell family property, such as in family farms. "These examples demonstrate just a few of the many reasons an insured might consider in planning his estate. These situations are unique to the individual. Consequently, that individual is the person most capable of assessing and providing for those needs. Insurance is an invaluable tool for such individuals to prepare to address their unique needs. The individual's wishes in providing this protection to their family and loved ones should not be overridden by a probate court's application of a uniform distribution of part of those proceeds. Those who advocate inclusion of insurance proceeds in the augmented estate contend that this bill is necessary to protect surviving spouses. Their concern is that unscrupulous individuals will purchase insurance as a means of defrauding their spouses of their elective share in an estate. However, these advocates have never advanced any evidence that insurers are actually using insurance in this manner. "Given that there is no real world harm that this change would address, and given the plethora of legitimate estate planning concerns that individuals currently use insurance to address, the most prudent policy decision seems to be to leave the choice of an insurance policy's beneficiary up to the person most capable of assessing the insured's specific family needs--that person is the insured. For these reasons I hope you will oppose this amendment to the UPC." CHAIRMAN PORTER informed Ms. Wallace that she, or anyone else on teleconference, could send written testimony by facsimile at (907) 465-3834. Number 2133 REPRESENTATIVE FINKELSTEIN asked whether in cases where there was a dependent or family member needing long-term care, with one spouse attempting to direct all the life insurance there, why they could not just get the consent of the other spouse ahead of time. Number 2158 MS. WALLACE responded that in some cases involving children of prior marriages, there could be a difficulty. There might be different opinions as to the actual amounts required to support a child with special needs. However, that should not preclude an individual from purchasing future assets for a child, which should not diminish assets available to the spouse. Number 2185 REPRESENTATIVE FINKELSTEIN replied that of course that would diminish assets available to the spouse. Policies cost money, and some of them require regular payout over a long period of time. He asked how Ms. Wallace could say it did not diminish the holdings. MS. WALLACE responded that while it may diminish the holdings, it did not diminish the extent of the assets in the longer term. For $1 million in life insurance, one did not pay $1 million in premiums. It was not removing $1 million from the spouse's estate. Number 2217 RICHARD V. WELLMAN, Executive Director, Editorial Board, Uniform Probate Code, testified via teleconference from Athens, Georgia. He said the board was of the view, shared by Representative Finkelstein, that insurance was an investment. He said there was no just economic reason for singling out life insurance and making it a way to avoid marital property obligations to a spouse, leaving that spouse without adequate participation in family economics. He said the insurance industry is seeking an exemption with the claim that there is something unique about life insurance. Mr. Wellman asserted there was nothing unique about life insurance; it was another form of investment or death benefit contract. He said they find no reason for an exemption; they feared that if there was an exemption, it would merely create a new marketing device for life insurance to make it attractive to those rare people who are determined to stay married but nonetheless defeat their spouses' expectations of sharing in the estate. He said that needs to support dependents are met by one form of investment or another; life insurance should not be distinguished as unique. Number 2387 REPRESENTATIVE VEZEY asked Mr. Wellman if there was anything in HB 308 precluding a spouse from waiving their rights. MR. WELLMAN replied there was nothing whatsoever. He added there was no probate court order addressed, but rather an option to the surviving spouse of obtaining the guaranteed minimum. Number 2417 REPRESENTATIVE VEZEY asked how it would impact the use of life insurance for guaranteeing the financial stability and continuity of small businesses, for example, where there were partners or associates with life insurance policies on each other. MR. WELLMAN replied that excluded from any death benefit was that for which the deceased paid fair consideration. Where business contracts and agreements between partners existed, the survivor would have insurance. He said those instances would not be included in the augmented estate to the extent they had been bought and paid for by the deceased. REPRESENTATIVE VEZEY said he had not realized it would be normal for the deceased to buy it; he had thought the partnership or business entity (portion missing--end of tape). TAPE 96-3, SIDE B Number 000 REPRESENTATIVE VEZEY asked if it was Mr. Wellman's opinion that the proposed changes in the probate law would affect the ability of small businesses to use insurance to provide for the fiscal stability and continuity of a business? Number 072 MR. WELLMAN answered no, none whatsoever. REPRESENTATIVE CON BUNDE set up a hypothetical situation regarding a business partnership between a person and the chairman of the board of a sparkplug company. This person wants to invest with this company, but wants to make sure that the chairman will be around for a while. The partner asks that the chairman take out a million dollar insurance policy, naming the partner as the beneficiary. If the chairman dies, the million dollars would not go into the augmented estate, but would go to the partner directly and not impact the survivors of this chairman's family? MR. WELLMAN answered that's correct. This would be true under a policy purchased by the beneficiary in an arms length arrangement and the insured person is willing to go along with a gain such as this one. These types of factors would be considered equivalents by the bargainers. This is a death benefit where consideration has been paid by the beneficiary. Number 033 JERRY KURTZ, CODE REVIEW COMMITTEE, UNIFORM LAW COMMISSIONER FOR ALASKA, testified by teleconference from Anchorage and responded to Representative Vezey's question regarding the length of the probate code. He pointed out that probate law has its roots in 15th century England and the uniform code has attempted to refine and condense this history. MR. KURTZ has practiced law since 1961. He spoke specifically to the insurance issue. As a bank attorney he sees no problem with the change in the law regarding banks securing loans with small and large businesses. He added there had been no discussion about single premium life insurance, used more by persons who attempt to get money out of their augmented estates in places where the probate code exists. Most life insurance is bought with installment payments, but he pointed out there's nothing to prevent someone from buying a million dollar insurance policy for $800,000 presently because their life expectancy is short. This loophole will be closed by the proposed change before the committee. Number 181 TODD THACKER, PRUDENTIAL INSURANCE, testified by teleconference and said he wished to echo the comments made by Nancy Wallace. Number 200 DAVID LIFER, COUNSEL, AMERICAN COUNCIL OF LIFE INSURANCE, testified by teleconference from Washington, D.C. and he also echoed what Ms. Wallace said. He doesn't view this issue as a loophole. The key thing to remember is that people should be allowed to purchase insurance for all the reasons Ms. Wallace outlined. No one has come forward with horror stories of abuse. He recalled no single example of someone using this so-called loophole to defraud their spouse. He added that there's good reason why life insurance is not part of an augmented estate and absent any evidence that it's causing harm, he urged the committee to leave things the way they are. Mr. Lifer's business associate, Alicia Cordova, had nothing to add. DEBORAH RANDALL, testified by teleconference from Anchorage. Ms. Randall commented that these code revisions before the committee are extremely complicated. She suggested that the insurance community review them very carefully. The only time insurance will be brought back into the augmented estate, is if the insurance is owned by (indisc.) The examples the insurance companies used in non-support of HB 308 can be easily rectified by transferring the ownership of an insurance policy to a trust created for children, say for an education fund for example. The objective of including life insurance into the code is because of the perceived loophole. If there are individuals taking advantage of this situation, then these revisions will prevent that from happening. MS. RANDALL said there are two places in the statute which specifically grants a spouse the right to waive their claim to the elective share. They can waive it totally, along with their other rights and they can also agree to the purchase of a life insurance policy. Number 384 PETER BRAUTIGAN, MEMBER BAR ASSOCIATION, PROBATE SECTION, testified by teleconference from Anchorage and wished to echo what Ms. Randall had said. As past chairman of the probate section for the Alaska Bar Association, they have reviewed the code on numerous occasions, which has resulted in many revisions. He had not heard of any horror stories related to this life insurance loophole, but was exposed to a circumstance which came very close to this situation. Mr. Brautigan wholeheartedly supported this bill and encouraged passage of it. Number 441 ART PETERSON, ATTORNEY, UNIFORM LAW COMMISSIONER FOR ALASKA, testified that this bill was a product of the uniform laws conference based on three decades of work. Alaska enacted this original probate code bill in 1972. Alaska has 25 years of experience with the original version. The bill before the committee attempts to incorporate the current recommendations of the uniform laws conference to address all the questions that have arisen over the years and to avoid litigation, and to generally simplify probate. He briefly outlined the proposed amendments to this bill. MR. PETERSON pointed out as an aside that Mr. Wellman, who testified, was also a Uniform Law Commissioner and was generally considered the father of the probate code. He is the leading expert on the subject. MR. PETERSON then referred to his letter of September 5, 1995, which summarized his position. There was one issue of dispute between the Alaska attorneys in Anchorage and the Uniform Law Commissioners regarding the elective share and whether to use the version in the bill, which essentially continues Alaska's current one-third provision for the surviving spouse or to use the Uniform Law Commissioner's recommendation to use a phase-in approach. They all agreed on the life insurance issue. The phase-in approach would recognize that a late in life marriage does not provide the surviving spouse the opportunity to participate in the development of the martial estate the same as the long term marriage does. Is it fair to provide the late in life spouse with as much of a share in the estate as the long term marriage spouse? This goes to the heart of the matter. MR. PETERSON further outlined that the elective share cuts into what the testator might have granted to the children of the former marriage. Should the one year spouse be able to take the same amount as the 30 year spouse? The Uniform Law Commissioners have said no and have developed a phase-in approach for this. He understood that Representative Finkelstein had some materials on this issue, but he didn't know if these would be presented. Mr. Peterson recommended this issue be presented in a separate bill. Number 663 REPRESENTATIVE TOOHEY asked about a first marriage situation that produces three children and only lasts three years. The husband remarries and this relation lasts a long time. How does this work? MR. PETERSON responded that the second wife, if she's the surviving spouse, will get 50 percent of the estate instead of the 33 percent. The length of the marriage is the common denominator of the phase-in approach. REPRESENTATIVE TOOHEY then asked about this situation under the existing law. MR. PETERSON said that if the first wife stayed with the husband for a long time, but ended in divorce and the second wife stays with this person for a very short time, then the second wife gets the full third. The surviving spouse is the common denominator in this situation. Number 720 REPRESENTATIVE BUNDE had some concerns about the phase-in concept. He pointed out that a very good wife who was only married for two years before her husband died, could have intended to stay in the marriage a long time. If the intent is to address a late in life marriage, then maybe an age qualification should be applied. MR. PETERSON summed up this related conversation by stating that if a late in life marriage is amicable then there's a good chance this woman will be provided for in a will. Again, he spoke to the life insurance issue. He said that it's such a small provision of the overall legislation that to vote down the entire revised code is foolish. Number 817 REPRESENTATIVE FINKELSTEIN referred to the life insurance issue. He asked if there was a unanimous agreement within the Uniform Probate Committee regarding the life insurance clause. MR. PETERSON said that was correct. REPRESENTATIVE FINKELSTEIN then asked about the amendment regarding the 30 percent in relation to the Uniform Probate Code. He said he believed in the uniform code, as an attempt to make these probate issues around the country consistent. He did not intend for this phase-in amendment to totally change the direction of this probate issue. MR. PETERSON assured him that the amendment would serve to further standardize the code. There were seven deviations from the national version proposed by the group of attorneys in Anchorage. The Uniform Law Commissioners of Alaska agreed to six of them. The seventh related to this phase-in concept of the elective share. They have not reached agreement on this issue. The phase-in amendment is the version recommended by the national conference, it is the version endorsed nationally, and he urged for the sake of uniformity to have this separate amendment adopted. REPRESENTATIVE FINKELSTEIN asked Mr. Peterson if he had any opposition to present a phase-in amendment at this time. He pointed out that if this amendment is already in the uniform code, then it would be illogical to pass it as separate legislation. MR. PETERSON said the proposed amendment would be in reference to Section 202 now contained in the bill. He suggested they draft this phase-in concept into a separate bill with a concurrent effective date, the same as HB 308. His only concern is that they don't burden a bill for which there is virtual unanimity on everything in it except this phase-in provision. REPRESENTATIVE FINKELSTEIN offered that this issue of graduated percentages versus the 30 percent would probably move with the bill through committees. Number 983 REPRESENTATIVE GREEN asked if the graduated appropriation would be in effect when a husband marries his wife and subsequently buys a life insurance policy. Would the graduated proposal allowed to the first wife of longer duration end up with the majority of the proceeds? MR. PETERSON answered no, only the surviving spouse. The prior wife is out of the picture. If the decedent had purchased a life insurance policy for the first wife, then the current surviving wife will have under this bill the elective right to take a percentage of this policy under the augmented estate. Number 1053 REPRESENTATIVE BETTYE DAVIS asked for clarification about the dissemination of the estate based on the one-third concept. Chairman Porter explained that if the surviving wife received more than one-third of the estate, the insurance policy payment would go to the named beneficiary on the policy. Representative Davis questioned why this division of the estate issue was in question when this insurance benefit would go to the named beneficiary anyway. CHAIRMAN PORTER answered that the insurance company's concerns were based on the possibility that the insurance policy could make up the lion's share of the estate. MR. PETERSON referred to the December 6, 1994, letter from Jerry O'Leary, former chief counsel for the Life Insurance Association, which indicates a confusion about life insurance provisions in the probate estate versus the augmented estate. The augmented estate is affected only in these rare instances. The probate estate can include items which are considered non-probate transfers. The bill does not make life insurance part of a probate estate. REPRESENTATIVE DAVIS asked how many other states have adopted this same code? MR. PETERSON could not answer exactly, but thought around seven. REPRESENTATIVE DAVIS asked why Mr. Peterson recommended the 30 percent rather than 50 percent? Why can't a provision be made for 50 percent right away? MR. PETERSON answered that the 30 percent was the basic provision in current Alaska law. The idea was to stay with the current arrangement. Number 1268 REPRESENTATIVE VEZEY asked about how this bill would affect a prenuptial agreement? MR. PETERSON thought the prenuptial agreement would be enforceable and would govern if the wife in the prenuptial agreed not to pursue the elective share. If she agreed not to go after more than one- third of the estate, the prenuptial agreement would hold. Mr. Wellman agreed with this analysis. REPRESENTATIVE VEZEY asked what happened to people who die without estate provisions? MR. PETERSON responded that the spouse's benefits in this instance would be improved, regardless of the makeup of the surviving family members. This bill improves the percentage for the surviving spouse to help clarify how the statute should deal with the variety of situations presented. REPRESENTATIVE VEZEY understood that the spouse of someone who died intestate would get 100 percent of so much of the first part of the estate. MR. WELLMAN added that the surviving spouse would get 100 percent of the first $50,000, which would apply to most average estates. The augmented estate takes into account and builds onto what the spouse already receives through testate succession, which could include a will, probate transfers, et cetera. All of this would add up. The spouse's position is accessed. The improved position for intestate succession of the spouse is built in and reflected when deliberating the assets. There's less likelihood of a foreswore if the spouse is taken care of through the probate estate and the intestacy laws. REPRESENTATIVE VEZEY was still confused about existing law where the wife would receive 100 percent of the first $50,000 of an intestate estate. MR. WELLMAN answered that the current law provides for the intestate share of the spouse as $50,000 off the top. REPRESENTATIVE VEZEY asked if these amounts shouldn't be adjusted to allow for inflation, cost of living, et cetera. MR. WELLMAN pointed out that these numbers had been built into the bill. Number 1609 REPRESENTATIVE BUNDE referred back to the earlier discussion about the life insurance partnership relationship. He asked again if this life insurance arrangement would not fall into part of the augmented estate. MR. PETERSON said yes, if the policy is owned by the partnership it would not become part of the descendent's estate. MR. WELLMAN also reiterated that if the decedent was the insured and the insured controlled the policy, the insurance is subjected to the augmented estate, unless that insurance is part of a partnership agreement that provided to pay the partners of the company. Number 1736 MR. MANLY spoke to this issue. The durable way this situation could be set up is with the insurance in a trust, owned by the trust with a cross purchase arrangement where the other partner owns the policy or the company owns the policy. In all these cases, someone other than the insured owns the policy, which takes it outside of the augmented estate. What happens if the descendent owns the policy? In this instance this policy is subjected to the augmented estate. If this was not the intent of the company, somebody is going to get sued because this arrangement was set up incorrectly. MR. MANLY also suggested strongly that the committee adopt Mr. Peterson's suggestion that a phase-in amendment be drafted. Number 1912 REPRESENTATIVE TOOHEY moved to adopt Amendment 1, Title C.2 1996 for discussion purposes. REPRESENTATIVE SEAN PARNELL, Sponsor, stated the amendment has already been described by Mr. Peterson. He felt the first half of the first page is self-explanatory. There was just a technical change to the section of the bill regarding safekeeping of the will by the court during the testator's lifetime. He asked Mr. Manly to address the second half of the first page. MR. MANLY explained the language on page 78, following line 30, would insert a new subsection (b) that is simply a clarification to avoid confusion indicating that someone can name the trustee on a testamentary trust as a beneficiary of a life insurance policy. A testamentary trust is one created under a will. A will has no force or effect until a person dies. If a trust is set up under a will this trust does not go into effect until a person dies. In some court cases a concern has been raised as to whether someone can name as a beneficiary of a life insurance policy, a trustee of a testamentary trust under a will. This language simply clarifies that someone is able to do this. REPRESENTATIVE PARNELL clarified that the rest of the amendment is fairly self-explanatory except for the deletion of the material regarding amending Alaska Rule of Probate Procedure 5 which is part of the title, and the last section of the amendment. Mr. Manly was asked to address why this material was being deleted. MR. MANLY pointed out that both sections provide for the safekeeping of wills by the court before someone passes away, rather than keeping a will in a safe deposit box, et cetera. A person can deposit the will with the court for safekeeping. Under the rules it is kept confidential until a person passes away. This part of the amendment simply modifies the bill so it comes into compliance with Section 5. Number 2290 REPRESENTATIVE TOOHEY made a motion to adopt Amendment 1, C.2. There being no objection, Amendment 1 was adopted. REPRESENTATIVE FINKELSTEIN said the reasoning behind Amendment 2, C.1 is that first it is part of the uniform code and second, the concept of the marital contract and how it splits up the assets. While he agreed with the concepts of the bill, he thought this better reflects the actual situation. He explained that anyone who wants to can give 100 percent of their assets to their spouse. This amendment addresses the case where there isn't such an allocation or the allocation is less than the minimum. TAPE 96-4, SIDE A Number 000 REPRESENTATIVE FINKELSTEIN cited the example of monetary and non- monetary assets as contributions are built over time and are much greater in a 20-year marriage versus a 5-year marriage. There is more invested the longer people stay together. One of the effects of this amendment is to reach the 50 percent. If someone stays married 15 years, the 50 percent level has been reached. It's a big investment and that person deserves at least half of the assets of the estate. Representative Finkelstein withdrew the amendment. He commented he had been convinced by the sponsor and others that the amendment would not be in the best interest of the legislation. He wanted to at least get onto the record the amendment itself so the split in concepts was reflected. Number 103 CHAIRMAN PORTER recognized the withdrawal of Amendment 2. REPRESENTATIVE TOOHEY made a motion to move HB 308 from the House Judiciary Committee with individual recommendations and zero fiscal notes. There being no objection, it was so ordered. HB 154 - REGULATORY TAKING OF PRIVATE PROPERTY Number 270 CHAIRMAN PORTER announced the next order of business would be HB 154 regarding the regulatory taking of private property. He commented this bill had received interim consideration and hearing. He asked Representative Vezey, chairman of the subcommittee to give a report of the subcommittee hearings. REPRESENTATIVE VEZEY said subcommittee hearings were held in Fairbanks and Wasilla with teleconference testimony from around the state. The result of the testimony was incorporated into a committee substitute prepared by the sponsor. He added that the subcommittee had received some real quality testimony from people with a lot of background, both from an administrative and legal viewpoints. Number 409 REPRESENTATIVE VIC KOHRING, sponsor of HB 154, said he was pleased that so many people have testified on this bill; most of them testified in support, which indicated to him that a major problem did indeed exist. The major problem that he saw and which prompted him to introduce this legislation was the issue of excessive regulation in society which prevents an individual from being able to use their private property and better their lives through economic gain. He referred to the constitution, Article 8, Section 16, which states, "No person shall be involuntarily divested of his right to the use of waters, his interest in lands or improvements affecting either, except for a superior beneficial use of public purpose and then only with just compensation by the operation of law." He interpreted this to mean that if a governmental entity were to take a person's private property through restriction of its use, then there should be compensation for any loss in economic value that results. REPRESENTATIVE KOHRING said this legislation provides a person an opportunity to seek recourse by exercising their constitutional right. He said those of us in the legislature are here on behalf of constituents, who have said enough is enough to big government and excessive regulation. This hinders a person's ability to better his or her life and hinders the growth of Alaska's economy. He pointed out that regulation in society on a national level is estimated at a cost of $640 billion a year. He coined the term that this legislation is the "private property owner's bill of rights." REPRESENTATIVE KOHRING referred to the intent of the bill and said it had to do with providing an opportunity to seek compensation in the event there's an economic loss to a person's property. When he referred to a taking it was not in the context of eminent domain, but a taking in the sense of economic value. The reason for filing this legislation was because Representative Kohring felt there was a need for regulatory reform in society as a whole, and there was a need for protecting the property rights for Alaska's citizens. REPRESENTATIVE KOHRING stated he has been informed of numerous cases in which property rights were taken away from people. He cited the retiree in Wasilla who was forced to quit building his home on a lake in the middle of the project due to new setback restrictions, the gold miner in Fairbanks who was forced to pay hundreds of thousands of dollars to keep up with the water quality requirements, to the subdivider on the Kenai Peninsula who went bankrupt because of unreasonable sewer and water regulations, to the homeowner in Willow whose property was rendered worthless because of wetlands designation. As elected officials, Representative Kohring felt it was incumbent upon them to go to bat for these people. REPRESENTATIVE KOHRING added that in regards to a governmental entity paying for the loss of economic value, they can withdraw at any time. If there's a claim that's filed and a loss of economic value is proven, then the regulation can be withdrawn, instead of the claim being paid out. Representative Kohring said the net effect of this legislation would be a blunting of the impact of regulation in the state of Alaska. It would also make a governmental entity think twice before a regulation is implemented. He thought there would be a lot more careful thought going into deciding if regulations should be imposed or if there should be restrictions on the use of property. It will also force a government entity to think of alternative ways to achieve their objective and to what extent should they take a piece of property; should it just be a certain portion, et cetera. REPRESENTATIVE KOHRING stressed he was not saying that regulations are bad per se and recognized the basic intent of a regulation is to protect the health and well being of society. For example, if there was a factory on a river which was polluting the air and causing potential illnesses to the public, or polluting a waterway and damaging a fish resource, this would be a justifiable taking if the government came in and shut that factory down. However, if an unjustified, unreasonable regulation was to be implemented where a person was financially devastated, government just simply can't walk away void of responsibility in regards to compensation. Number 882 REPRESENTATIVE KOHRING addressed the issue of paying out for a claim. When it comes to imposition of a regulatory restriction, there is going to be a cost incurred. The question is who is going to pay that cost? If there is a regulation that is imposed and a government entity has to bear that cost as a result of the implementation of this legislation, assuming it did become law, that government agency would pay that cost. Without this law, it would be the little guy, the property owner, who would have to pay that cost. REPRESENTATIVE KOHRING commented that this takings concept is not a quirk, but rather a concept that is sweeping the nation. As a matter of fact, 47 out of 50 states have filed regulatory takings bills in their legislatures. In addition, Congress has a similar bill as an element to their Contract for America. Our own legislative leadership has made this bill a part of their commitment to Alaska. He pointed out this was not an unfunded mandate; it would not be a cost to society to the tune of many millions of dollars, as people believe. It would be up to the regulatory agency to decide if they're going to impose a restriction that will cost them money. REPRESENTATIVE KOHRING said he wanted to be perfectly up-front with the committee with regard to supporters and opposition to the bill. As he stated previously, this legislation is widely supported but, certainly not by government, environmental groups, or the Alaska Municipal League. Those that do support the bill are basically the little guy; the average hard-working person. There are numerous documented cases of takings throughout the state of Alaska. He added this bill has generated a lot of support among their colleagues; there are 10 members on the House side that have co-sponsored and added their name to this bill. Additionally, they have received support from members of the Alaska State Chamber of Commerce, the Alaska State Home Builders Association and the National Federation of Business. He referred to a survey that was recently conducted by the latter agency. Two questions were asked in the survey. The first was, should private property owners be compensated for the reduction in value of their property by state or municipal action. The response was 91 percent yes, 3 percent no, and 5 percent undecided. The second question was, should a state agency proposing or modifying a rule or regulation complete an analysis prior to adoption to determine if the action constitutes a taking and if so, the value involved. The response was 88 percent yes, 3 percent no, and 8 percent undecided. In conclusion, REPRESENTATIVE KOHRING said our freedoms and rights as individuals have gradually eroded over the years and that America and Alaska is not what it used to be. He pointed out that this can change by passage of HB 154 which will send a message to their constituents that the legislature is serious about taking a strong stand against over-zealous government. He pointed out the private property owner in the state of Alaska owns one-half of 1 percent of the land in Alaska. Number 1181 REPRESENTATIVE FINKELSTEIN said he has often heard reference made to 1 million acres of private land; the figure is actually 46 million acres of private land in the state of Alaska. Also, many of the Native corporation lands, which make up the bulk of it, are moving into various private uses through leases and outright sales. He said he had a hard time understanding this issue. He presented a hypothetical situation where there are a bunch of people in a borough, city or state who are living on a stream or a river. Everyone puts all their stuff out on the shore and then it turns out these activities are impacting the salmon. These folks, through the laws they've passed or the people they've elected, have set up agencies to help figure out these issues for the use of all. He said the Kenai River is regulated for the good of all and many people lose uses. On the Kenai River and other places, the issue is what to do with the riverfront land. It was his understanding that under this bill they can still regulate it, but if they lose 30 percent of land value, the agency has to pay that somehow. REPRESENTATIVE KOHRING answered that was correct. REPRESENTATIVE FINKELSTEIN continued that now everyone gets paid off, now the salmon do better, the habitat is restored, recreation use increases, and property values goes up. He asked if the property owners have to pay back the state? The common good is what has gained that public benefit. REPRESENTATIVE KOHRING answered no, and added government is here for the people, not the other way around. He referenced the issue of property owners impacting habitat along stream negatively, and said if a governmental entity decides that it is important to preserve that habitat, who should be responsible to pay for this property loss? In his view the governmental agency representing the community should pay that so in a sense the cost is spread among a lot of people, instead of financially ruining one person individually. Number 1390 CHAIRMAN PORTER announced that it is the intent of the sponsor to amend the retroactive portion of the bill. In other words, there is within the bill, a provision that states if any of these unlawful takings have occurred, they would be assessed retroactively. This has caused some concern for a number of people and it is the intent of the sponsor to offer an amendment to remove this provision. It would then become a proactive piece of legislation, rather than retroactive. Number 1470 REPRESENTATIVE GREEN referred to the fiscal note and said it is quite substantial, and even more so upon reviewing the background materials which speak to hundreds of millions of dollars of potential costs. He asked Representative Kohring if that seemed reasonable and if so, would that represent the amount of loss from private property owners undergoing these takings. REPRESENTATIVE KOHRING answered he was not sure how those numbers were calculated. He was fairly confident however that those numbers represent the value of the loss that the private property owner would incur. He pointed out the numbers do reflect the retroactive provision of the bill; in his view the numbers would be zero if the retroactive provision is taken out, which is what he advocates. Number 1555 CRAIG TILLERY, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW testified on CSHB 154. Mr. Tillery initially wanted to clarify that he had been working from version (M) and had also seen a version (R) of CSHB 154. He asked which version was before the committee. Number 1583 REPRESENTATIVE GREEN moved to adopt version 9-LS0602\R dated 1/17/96, as the working document. Number 1600 CHAIRMAN PORTER asked if there was any objection. Hearing no objection, version 9-LS0602\R was before the committee. Number 1615 MR. TILLERY clarified what he understood to be a "taking" under the constitution versus what this bill before the committee would provide. Under the statute, any restraint on the use of property by an agency, municipality, or other entity, would be a per se taking and it would be compensable. Under the constitution, only if there is a physical invasion of the property or in the regulatory standard, if you deprive somebody of all the use of their property, this is considered a per se taking and damages would be allowed. If there was only a partial deprivation of property then an analysis is applied, such as what the nature of the governmental action was, the economic impact and whether or not there was some kind of interference with a reasonable business expectation of the use of the property. Mr. Tillery pointed out that this latter factor was fairly important, since this concept of business expectation was alluded to in the CS version before the committee. It is an important concept to note because it prevents windfalls. MR. TILLERY continued the second difference here in relation to a "taking" is that the statute covers the repeal of statutes and regulations. It appears this CS does not provide for repeals. Section 110 of the CS would suggest that it does cover repeals, but the related definition section of CSHB 154 is ambiguous, in that it doesn't include the discontinuation of government programs. Mr. Tillery said he didn't understand what this meant, but he believed that it would not cover say, the repeal of an individual zoning ordinance, for instance. MR. TILLERY stated thirdly, the constitution provides exceptions for public and private nuisances. The statute only provides an exception for a public nuisance and that is only as to one version of the taking, subsection (a) under the definition of a taking. Subsections (b) and (c) together essentially encompass anything that's in (a). In the department's view, private and public nuisances are not excepted and even though someone might be abating a public or private nuisance, it would still be a taking under this bill. Number 1736 MR. TILLERY outlined his understanding of how this law would work in specific exemplary instances and the potential economic impacts it could have. He proposed to review specific sections of the CS to point out situations the Department of Law felt were contrary to the constitution, are internally contradictory or sections they seem to have some particular problem with. MR. TILLERY began his review of the CS by referring to section 130, page 4, line 30, which provides that full compensation will be required. A governmental entity may not engage in a action which constitutes a taking of private property unless they pay full compensation to the property owner. Mr. Tillery alluded to the state law requirement for buffers along water bodies in timber operations. These buffer zones are mandated by statute. After review of this CS by DNR (Department of Natural Resources) they felt the ramifications under this proposed definition of a taking could mean approximately 200 million dollars paid the first year to property owners, with approximately 40 million dollars paid each year thereafter. MR. TILLERY added that the Department of Law (DOL) believes the bill provides a revolving payment on the amounts as listed previously. Again, the example of the buffer zones was used. If an entity makes a taking claim, was paid for those buffers and then subsequently sells the property to another entity, is this new owner compensated as well? This was ambiguous. There are other sections of this legislation which relate to this concept of retroactivity as well. MR. TILLERY said another way this legislation could affect DNR would be if the department wanted to lease oil and gas in Katchemak Bay or Cook Inlet for example, or land leases for minerals. This leasing would be considered a governmental action. This action under the statute would in some instances have an affect on adjacent land owners. These owners could then submit compensation claims, since DNR would have lowered their property values by granting leases to a business entity. MR. TILLERY added that with respect to the Department of Fish and Game (ADF&G), Mr. Tillery cited the example of fish allocation when applied to this new legislation, such as fisherman harvesting fish at False Pass versus fish caught at the Yukon Kuskokwim Delta. Mr. Tillery argued that he was of the opinion that fish are a common resource for everyone and the lack of a catch should not be compensated against the value of a fisherman's permit. He did note though that in the present CSHB 154 the definition of real property reads, "resources capable of being harvested or extracted." He also used the example of the state allocating more fish to the sport fisherman on the Kenai River and how that would impact say, a setnetter. Because of the decreased property value, i.e. the fishing site, nets, etcetera, should the state be liable under the "resources" definition to pay compensation? MR. TILLERY also used the example of the Exxon Valdez Oil Spill when the ADF&G, after the spill, closed specific fisheries because of a zero tolerance policy. The state legitimately wished to prevent any taint on the reputation of their salmon. Under this bill this closure would have been a governmental action, it decreases the value of boats, etcetera. The state, rather than Exxon could have faced these claims. Number 1999 MR. TILLERY stated that the Department of Environmental Conservation (DEC) has a number of regulatory functions. For instance, this department is responsible to carry out emission inspections. There is a federal mandate that requires this. If these inspections are not instituted, Alaska would loose highway funds, which Mr. Tillery roughly stated as being 900 million dollars. If requiring these emission tests is a governmental action, it would appear that the state would likely be responsible to pay for these tests. It could be that emission tests would be illegal under this bill because under section 34.50.160, page five, line 30, "A governmental entity may not require an owner of private property, (for instance a car) to provide or pay for studies, maps, plans, reports, (again, an emission report) or other information used ...to impose a restraint on private property use." Mr. Tillery pointed out that this is precisely the function of an emissions test. It imposes a restraint. MR. TILLERY added that these concerns are not fully explained in this bill. He's particularly concerned about matters related to the Alaska Oil and Gas Commission. This commission deals with maximizing oil and gas resources and enforcing safety standards in the course of extractions, such as blow-out prevention, well casing requirements, prohibition of co-mingling of reservoirs, injection of wastes into the ground and possibly the formation of exploratory units, etcetera. These may be considered compensable takings under the terms of this bill. To not do these things, compromises safety and the royalty interests of the State of Alaska in oil and gas. He also used the example of flaring. He was not sure if flaring could be prohibited under the bill without paying for it. Number 2114 MR. TILLERY outlined how this legislation affects the Commercial Fisheries Entry Commission (CFEC) would be in this entity's regulation of the issuance of limited entry permits. It is anticipated in the future that there will be only so many permits made available for fishermen and it is a legitimate concern under this legislation that the state would be forced to compensate those fishermen who did not make the final cut for acquiring permits. This is especially true if it is determined that these permits are considered a property interest loss. MR. TILLERY also added that it would appear zoning under this legislation would no longer be permissible, unless the regulating entity would be willing to pay for exclusion. This bill provides that zoning would be allowed if health and safety are at risk, but then under the takings section of this legislation compensation would be forthcoming. For example, if someone wanted to put a seafood processing plant next to a beach house in a neighborhood zoned residential, the seafood processing company would have to be compensated for the loss of expectation in this property interest if they were unable to place their company there. On the other hand, if the local governmental entity gives them a variance and allows this company in, the beach house owner could put a claim in for his loss of real estate value. Number 2205 MR. TILLERY then testified to the retroactive clause of this new version of legislation, located on page 8, line 29. Initially he understood that this legislation would not be retroactive, even though it clearly stated in the present legislation that it is not retroactive. Clearly this would not apply to someone who wasn't able to log last year in the buffer zone, for example. If so, this same person could file a logging plan again in the buffer zone and get compensated for a foreseeable season. The statute, even though it is an ambiguous, seems to allow this. Under full compensation this would mean a reduction in monetary value, but would it be reduced from where it was at a particular date and reduced from what? Would it be reduced from what the regulation said, the statute, or from what is constitutionally permissible? MR. TILLERY stressed that all these questions come back to the business expectations of the owner. When this person buys timber for example, knowing that these laws are in place, he'll hopefully buy it at a lower price. He shouldn't have a business expectation for a higher price, because this would be foolish, although this notion is not included in the pending legislation. On the other hand, if this law was in effect now or constitutionally permissible, this person would have a right to ask for a variance in this buffer zone. DNR could give him a variance for every tree in that buffer zone if ADF&G went along with it. By not giving him a variance, would that be a compensable action? If you're required to give them a variance, this person would stand to make a lot of money. Number 2316 MR. TILLERY then highlighted those areas which were not as ambiguous in the CS, but ones he also had problems with. If an agency established a particular restriction then they can either choose to get rid of a restriction or pay for it's enforcement out of it's budget. Clearly the attorney fees would come out of this bill, but this is ambiguous. If in fact, it is the intent of the CS delegate funds, then without question Mr. Tillery stated that this was an unconstitutional delegation of the legislature's authority over appropriations. The legislature in any given year can reduce an agency's budget to reflect the need to pay off it's judgments. Mr. Tillery was referring to section 34.50.100 on page four, line 13. In addition, on the bottom of page 4, section 34.50.120, Mr. Tillery made a reference to the ambiguity of what governmental agency specifically would be required to compensate a party. He also cited on page 6, line 22, section 34.50.200 as a reference to the agency responsible for compensation. Number 2386 REPRESENTATIVE GREEN asked if it was possible where the state is admonished to do something by the federal government, would an impasse be created when a question of compensation was at issue? Number 2407 MR. TILLERY understood that no, this would not be an issue. The federal government rarely makes the state do something by force. The federal government usually sets up a program with funding incentives attached, such as highway speeds. If a state doesn't enforce these speed limits, then they will not get any federal funds to help with highways, for example. Mr. Tillery referred to section 150, page 5, line 24, which speaks to access. In addition to full compensation, if a regulation is adopted and it restrains or deprives the owner of access to their property, the owner must also be provided an alternative access. Mr. Tillery wanted to make two points about this. First, this section is ambiguous whether it means deprivation of the owner to all access of the property or some access. But, more importantly the provision requires full compensation. Full compensation includes loss of access. To then require the agency to revisit this issue and require the remedy of access is double recovery. A deduction would need to be made to allow for this additional recovery, which would be very difficult to do. TAPE 96-4, SIDE B Number 000 MR. TILLERY made some reference to attorney's fees, but because of the break in the tape, his comments were incomplete. MR. TILLERY referred to section 160, page 5, line 30 regarding the prohibition against imposing costs. This section does not require a property owner to provide information related to an entity which is attempting to formulate a regulation or ordinance attached to a particular parcel of land. This clause would force the agency to pay for this investigative information. He used this law in relation to polluting a salmon stream, but it was unclear as to what conclusions he was attempting to reach with this particular illustration. MR. TILLERY then moved to section 110, page 4, which prohibits the adoption of regulations to private property unless it has a least possible effect on the property. Under section (b) this must be supported by a full analysis of the total economic effect. As an editorial note, Mr. Tillery pointed out that section (a), line 18, refers to private property and in section (b) there is reference to private real property. MR. TILLERY further added that it seemed this section was essentially requiring a NEPA (National Environmental Impact Act) statement. This section would probably be used by people opposed to development or in support of development to thwart the opposing view point. This would result in agencies going through a lot of expense to compile hugh records of analysis or simply not doing an action. One concern he has heard from the Alaska Oil & Gas Conservation Commission (AOGCC) is that they're currently working with the oil companies to come up with a modern set of regulations to governor oil exploration and development. Because of the nuances outlined in this legislation, ones which would be impossible to comply with, they could potentially thwart the entire process. Mr. Tillery said this appeared to be adding a layer of government, not reducing it, as well as, adding a layer of expense. Number 136 MR. TILLERY moved on to section 190, page 6, line 11 which concerned the adjustment of value for property tax. If a taking has been instigated the municipality is required to reduce the property's value. In part (b), line 17 of this CS, if the owner contests this valuation, the owner can secure an independent appraiser and apply this value instead. The State Appraiser after consultation with various municipalities was adamantly opposed to this. Mr. Tillery stressed that this practice was unprecedented and it was contrary to good appraisal practices. Number 181 TOM BOUTIN, STATE FORESTER, DIVISION OF FORESTRY, DEPARTMENT OF NATURAL RESOURCES testified to the large fiscal note attached to this legislation and cited this as his reasons for being present at the meeting. This fiscal note was very large, but is accurate as to the buffer zone issue as outlined by Mr. Tillery. This buffer zone is required by statute and there are hundreds and millions of dollars of trees left standing in these buffers. As far as retroactivity, forestry areas are quite often submitted for re- logging as the market changes. Number 235 CHAIRMAN PORTER acknowledged that Mr. Tillery had raised a plethora of issues and stated that it would be a great benefit to the committee and sponsor if he could put his concerns on paper in order that the committee could pour over it. He stated this legislation would be rescheduled with full notice requirements. Number 350 CHAIRMAN PORTER asked Mr. Tillery about the title to this legislation having been shortened to "regulatory taking." Would he be correct in assuming that an agency enforcing a statute under one of these categories of diminishing property values, in dealing with someone that fell within the purviews of this scenario, demanding compensation; could they prevail, notwithstanding a regulation? He referred to page 4, line 15, which read, "A governmental entity may not adopt, amend, or repeal a regulation or ordinance relating to private property, or impose..." He pointed out there was no mention of a statute. Number 405 MR. TILLERY stated that the legislature could not be bound to not adopt, amend or repeal a statute. These can always be changed, but he pointed out that this section wasn't the takings clause. This one particular clause related to adopting a regulation. In no way can a legislature be bound from changing the timber buffer law, for example. Number 418 CHAIRMAN PORTER stated that if for some reason the timber buffer law were revisited and revised, say for example, to 100 feet from 60 feet, hence reducing the property value. If there were no regulation that applied under this scenario, but a clause in the statute needed to be enforced. Does the statute then result in a taking that would fall into the compensation requirement? Number 450 MR. TILLERY said the statute would not result in a taking, but the executive branch's implementation would result in a taking that would require compensation. Number 465 CHAIRMAN PORTER responded that in other words they were not talking here about regulations that seem to exceed a statute, but about regulations that implement the intent of the statute. Number 474 MR. TILLERY said that was correct. Theoretically regulations are not really the issue here because a regulation can't exist outside of a statute. A regulation has to be empowered by a statute. Even if all the regulations were done away with, the bureaucracy implementing the statute would still be in effect. Number 489 REPRESENTATIVE FINKELSTEIN pointed out that all existing property that anyone owns in Alaska was bought with existing regulations as a constraint on price. If he was to predict this bill's passage and purchase land along a stream with timber, the state might be required to pay for every tree within his buffer zones, and he would become a millionaire. The only other option would be to log the land right down to the stream. ADJOURNMENT Number 604 CHAIRMAN PORTER adjourned the House Judiciary Committee meeting at 3:40 p.m.