Legislature(1997 - 1998)

01/21/1998 03:34 PM House L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
    HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                
                  January 21, 1998                                             
                     3:34 p.m.                                                 
                                                                               
                                                                               
MEMBERS PRESENT                                                                
                                                                               
Representative Norman Rokeberg, Chairman                                       
Representative John Cowdery, Vice Chairman                                     
Representative Bill Hudson                                                     
Representative Tom Brice                                                       
                                                                               
MEMBERS ABSENT                                                                 
                                                                               
Representative Jerry Sanders                                                   
Representative Joe Ryan                                                        
Representative Gene Kubina                                                     
                                                                               
COMMITTEE CALENDAR                                                             
                                                                               
* HOUSE BILL NO. 247                                                           
"An Act relating to escrow accounts; and providing for an effective            
date."                                                                         
                                                                               
     - HEARD AND HELD                                                          
                                                                               
EXECUTIVE ORDER NO. 100                                                        
Moving The "Silver Hand" Program From DCED to DOE                              
                                                                               
     - HEARD AND HELD                                                          
                                                                               
(* First public hearing)                                                       
                                                                               
PREVIOUS ACTION                                                                
                                                                               
BILL: HB 247                                                                   
SHORT TITLE: REGULATION OF ESCROW ACCOUNTS                                     
SPONSOR(S): REPRESENTATIVES(S) ROKEBERG BY REQUEST                             
                                                                               
Jrn-Date    Jrn-Page           Action                                          
04/11/97      1080     (H)  READ THE FIRST TIME - REFERRAL(S)                  
04/11/97      1080     (H)  LABOR & COMMERCE                                   
                                                                               
WITNESS REGISTER                                                               
                                                                               
D.J. WEBB, Legislative Affairs Committee Chair                                 
   and Past President                                                          
Alaska State Escrow Association;                                               
Senior Escrow Officer                                                          
First American Title Company of Alaska                                         
510 West Tudor Road                                                            
Anchorage, Alaska 99503                                                        
Telephone:  (907) 562-0504                                                     
POSITION STATEMENT:  Testified in support of HB 247.                           
                                                                               
                                                                               
DAVID LAWER, Senior Vice President                                             
First National Bank of Anchorage;                                              
Alaska Bankers Association                                                     
101 West 36th Avenue                                                           
Anchorage, Alaska 99507                                                        
Telephone:  (907) 777-3011                                                     
POSITION STATEMENT:  Testified in opposition to HB 247.                        
                                                                               
WILLIS KIRKPATRICK, Director                                                   
Division of Banking, Securities and Corporations                               
Department of Commerce and Economic Development                                
P.O. Box 110807                                                                
Juneau, Alaska 99811-0807                                                      
Telephone:  (907) 465-2521                                                     
POSITION STATEMENT:  Testified on HB 247, proposed amendments.                 
                                                                               
TOM LAWSON, Acting Director of Administrative Services                         
Division of Trade and Development                                              
Department of Commerce and Economic Development                                
P.O. Box 110803                                                                
Juneau, Alaska 99811-0803                                                      
Telephone:  (907) 465-2017                                                     
POSITION STATEMENT:  Testified in support of EO 100.                           
                                                                               
FRED SMITH, Economic Development Planner                                       
Association of Village Council Presidents                                      
P.O. Box 219                                                                   
Bethel, Alaska 99559                                                           
Telephone:  (907) 543-3541                                                     
POSITION STATEMENT:  Testified in support of EO 100.                           
                                                                               
VERNON CHIMEGALREA, Native Arts Program Director                               
Alaska State Council on the Arts                                               
411 West 4th Avenue, Suite 1E                                                  
Anchorage, Alaska 99501-2343                                                   
Telephone:  (907) 269-6610                                                     
POSITION STATEMENT:  Testified in support of EO 100.                           
                                                                               
HELEN HOWARTH, Executive Director                                              
Alaska State Council on the Arts                                               
411 West 4th Avenue, Suite 1E                                                  
Anchorage, Alaska 99501-2343                                                   
Telephone:  (907) 269-6610                                                     
POSITION STATEMENT:  Testified in support of EO 100.                           
                                                                               
ACTION NARRATIVE                                                               
TAPE 98-2, SIDE A                                                              
                                                                               
Number 0001                                                                    
                                                                               
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce                   
Standing Committee meeting to order at 3:34 p.m.  Members present              
at the call to order were Representatives Rokeberg, Cowdery, Hudson            
and Brice.                                                                     
                                                                               
HB 247 - REGULATION OF ESCROW ACCOUNTS                                         
                                                                               
Number 0070                                                                    
                                                                               
CHAIRMAN ROKEBERG announced the first order of business was HB 247,            
"An Act relating to escrow accounts; and providing for an effective            
date."  Chairman Rokeberg noted he had introduced HB 247 at the                
request of the Alaska State Escrow Association.                                
                                                                               
Number 0105                                                                    
                                                                               
CHAIRMAN ROKEBERG presented the sponsor statement for the record:              
                                                                               
"This was introduced at the request of the Alaska State Escrow                 
Association in an effort to assure that consumers have their --                
that their monies will be safe and properly accounted for when                 
delivered to a settlement agent for a property transaction.  There             
are no Alaskan laws concerning this now.                                       
                                                                               
"The bill has the support of the Alaska Escrow Association and the             
Alaska Association of Realtors.  Consumers need to be assured that             
their funds, which can be rather large amounts, will not be                    
jeopardized and will be available as needed during the course of a             
real estate transaction.  From the seller's viewpoint, the                     
execution of a deed and the - and the deposit of that deed will                
bring forth proceeds upon recording of - of the deed.  Under                   
current Alaskan business practices, a buyer deposits a cashier's               
check prior to recording a property deed; however, this is not the             
case if a lender provides the purchase funds.  In the case of a                
lender, the deed is recorded along with the lender's lien and the              
funds are deposited after the deed and other documents have been               
recorded.                                                                      
                                                                               
"This procedure leaves sellers and settlement agents in the middle.            
The seller's interest in the property has been transferred but no              
funds have been received.  This bill requires that before a                    
settlement agent records documents transferring property, or                   
creating a security interest in the property other than the                    
seller's current interest, that the money required under the escrow            
agreement must be available for distribution in accordance with                
Alaska Statute 34.75.040 as set forth in the bill.                             
                                                                               
Number 0238                                                                    
                                                                               
"The basic thrust of this bill is to protect Alaskans that are                 
selling their property and to make sure that the funds due those               
sellers are available in a timely fashion."                                    
                                                                               
CHAIRMAN ROKEBERG summarized that HB 247 means the escrow agent has            
to have the money in hand before the transaction closes and money              
is disbursed.  He noted currently that is not the case.                        
                                                                               
Number 0287                                                                    
                                                                               
D.J. WEBB, Legislative Affairs Committee Chair and Past President,             
Alaska State Escrow Association; Senior Escrow Officer, First                  
American Title Company of Alaska, testified via teleconference from            
Anchorage.                                                                     
                                                                               
MS. WEBB asked the committee to support HB 247 on behalf of the                
Alaska State Escrow Association.  She noted, with the recent                   
changes in lending closing activities, the association's members               
have found they are being asked by many lenders to record the                  
warranty deed of a seller prior to receiving lender funds.                     
                                                                               
MS. WEBB stated the association is concerned that there is no way              
to reference or determine the stability of lenders making these                
requests, especially from out of state.  There is no way to                    
determine if lenders will be funding on the date indicated or ever.            
There have been a few cases where the deed was recorded and the                
lender refused to fund for some reason.  She related that the                  
seller was left with having (indisc.) interest in the property, and            
no way to retrieve that without either filing a lawsuit or joining             
with the buyers to execute a deed back.                                        
                                                                               
Number 0330                                                                    
                                                                               
MS. WEBB said the association is concerned that the general public             
has no knowledge this practice is standard.  She stated the public             
suspects that, once they go into escrow and sign the documents,                
funds will be available upon recording.  The general practice is               
that the lender funds after receiving confirmation the loan is of              
record.                                                                        
                                                                               
MS. WEBB commented that several other states have funds legislation            
which mandates and requires lenders to fund into escrow prior to               
the recording of the document.  She stated, "In those states, where            
their lenders are -- that are also lending up here, it's just                  
general practice for them to fund prior to recording when they know            
that the state statutes requires that."                                        
                                                                               
Number 0503                                                                    
                                                                               
CHAIRMAN ROKEBERG cited Section 34.75.030, interest on escrow                  
money, "Notwithstanding any other provision of law, interest may               
not be collected or paid by a settlement agent on money held in                
escrow unless authorized in writing by the parties to the escrow,              
including the settlement agent."  He referred to the sectional                 
summary from Legal Services, Division of Legal and Research                    
Services, Legislative Affairs Agency, which reads, "Sec. 34.75.030.            
Prohibits collection or paying interest on escrow money unless the             
parties agree to do so."                                                       
                                                                               
CHAIRMAN ROKEBERG stated that this account is not your typical                 
escrow or impound account held by a "bank institution" for tax                 
insurance on a house loan, noting debate about interest on retained            
escrow amounts.  This bill provides that there can be an agreement             
to pay interest if there is an escrow account specifically with a              
settlement agent.  This is not related to a typical situation in               
which a lender holds an escrow account to pay the taxes, insurance             
and other probated portions of a loan.                                         
                                                                               
Number 0580                                                                    
                                                                               
MS. WEBB agreed.  She said it makes it clear that the funds held by            
a settlement agent are not funds of the settlement agent.  Usually,            
the only time (indisc.) interest is paid is when funds will be held            
for a period of time, for completion of items or for the final                 
preparation of closing, and all parties agree to enter into an                 
interest-bearing account.  Typically, funds held in the normal                 
trust account of a settlement agent are not held for more than one             
day to the next, between the time the funds are deposited and then             
disbursed.                                                                     
                                                                               
Number 0634                                                                    
                                                                               
CHAIRMAN ROKEBERG noted some large commercial transactions contain             
substantial amounts of money, possibly in the hundreds of thousands            
of dollars, that can be held in escrow.  The provision allowing                
interest to be paid by agreement is appropriate for these                      
transactions.  Chairman Rokeberg said he knew of situations where              
provisions had been made for (indisc.) payments of interest when               
$20,000 or $30,000 of option money was involved.  He asked Ms. Webb            
if that was correct.                                                           
                                                                               
Number 0670                                                                    
                                                                               
MS. WEBB agreed.  She noted, here again, the settlement agent would            
initiate an interest-bearing account at a local financial                      
institution, rather than keep the money in a normal trust account.             
All interest is passed on to the party designated to receive that              
interest.                                                                      
                                                                               
Number 0754                                                                    
                                                                               
DAVID LAWER, Senior Vice President, First National Bank of                     
Anchorage; Alaska Bankers Association, testified via teleconference            
on behalf of the Alaska Bankers Association.                                   
                                                                               
Number 0782                                                                    
                                                                               
MR. LAWER stated HB 247 was unnecessary in the view of the Alaska              
Bankers Association.  This legislation, in large part, is merely a             
codification of what is already the law (indisc.) contracts.  It               
is, he said, already a term of the contract between the escrow                 
agent and the seller.  Mr. Lawer commented that HB 247 appears to              
make transactions involving financing marginally more expensive for            
the borrower.                                                                  
                                                                               
Number 0850                                                                    
                                                                               
MR. LAWER further stated that HB 247, at least by its terms,                   
impacts the collection escrow business a number of the                         
association's members are involved in, although it appears some                
effort has been made to restrict the impact of the legislation to              
escrows involving real estate closings.  He noted, since the                   
financial institutions of this state often close real estate                   
transactions that they are involved in as financer, as mortgage                
lender, that the possible impact of this legislation on association            
members is unclear.  Mr. Lawer stated, for all of those reasons,               
the Alaska Bankers Association recommends HB 247 not be enacted.               
                                                                               
Number 0907                                                                    
                                                                               
MR. LAWER commented that, as far as the title companies are                    
concerned and in so far as their activities as closing escrow                  
agents are concerned, this legislation is not necessary.  He                   
stated, "They are simply in the position to refuse to go forward               
and close a transaction by sending the ... instruments of                      
conveyance for recording until such time as they have the money                
available for this person to the seller."                                      
                                                                               
Number 0950                                                                    
                                                                               
MR. LAWER continued, "It looks as if, by the terms of this                     
legislation, they're entitled to go forward and record upon receipt            
of a cashier's check issued by a bank in this state.  There is                 
nothing to prevent them, in connection with every one of these                 
transactions, from refusing to go forward and close the transaction            
by sending the documents of conveyance to the recorder's office or             
to - to the filing officer, until such time as they have in their              
hands a cashier's check issued by a bank in this state."  Mr. Lawer            
noted again that the Alaska Bankers Association considers HB 247               
unnecessary for all of the stated reasons.                                     
                                                                               
Number 1006                                                                    
                                                                               
REPRESENTATIVE BILL HUDSON asked Mr. Lawer to expand on his belief             
that HB 247 might cost the borrower more money.                                
                                                                               
Number 1023                                                                    
                                                                               
MR. LAWER answered that currently, for loans made by Alaskan banks             
to finance the purchase and sale of real estate, the bank postpones            
disbursement of loan proceeds until such time as the instrument of             
conveyance and the mortgage have been recorded, and the title                  
company involved furnishes notice to the bank that it is in a                  
position to issue its title insurance in the form required by the              
bank.  Then, he said, "The bank disburses and that - that's a day              
later."                                                                        
                                                                               
Number 1068                                                                    
                                                                               
MR. LAWER continued, under the proposed legislation, if the bank is            
required to disburse in advance of closing, there will be at least             
a day's worth of interest added to the cost of financing at the                
buyer's expense.  Mr. Lawer said that, if the lender disburses                 
against recording, interest accrues from the date of recording.  On            
the other hand, if the title company or escrow agent is required to            
be in receipt of payment, according to this law, there will be                 
disbursement to the borrower in advance and additional interest                
charges.  Mr. Lawer stated this was the additional cost to the                 
borrower he had mentioned.                                                     
                                                                               
Number 1149                                                                    
                                                                               
CHAIRMAN ROKEBERG noted the original intent of HB 247 was not to               
impact business collections activities.  He referred to the                    
definitions of "escrow" in the bill and asked Mr. Lawer if they                
were the source of his concern.                                                
                                                                               
Number 1185                                                                    
                                                                               
MR. LAWER responded that the definition of "settlement agent" in               
Section 34.75.090 (7) ("'settlement agent' means a person who                  
engages in the business of handling escrow accounts, but does not              
include a person who collects money for the sole purpose of                    
applying the money to the payment of a loan during the term of the             
loan:  'settlement agent' includes an employee of a person who                 
engages in the business of handling escrow accounts when the                   
employee is carrying out the employee's duties in the business.")              
leads him to believe this legislation could impact collection                  
escrows.                                                                       
                                                                               
Number 1212                                                                    
                                                                               
CHAIRMAN ROKEBERG asked Mr. Lawer if he understood that definition             
to apply to anyone handling funds in his collection escrow                     
department.  Chairman Rokeberg noted the definition of escrow in HB
247 (Section 34.75.090 (3), "'Escrow' means a transaction where,               
for the purpose of effecting the sale, transfer, encumbrance,                  
leasing, or other disposition of real or personal property to                  
another person, ..."), commenting that there is no existing law in             
statute.  Applying this to Mr. Lawer's situation, he said, "Of                 
course many of your collections are ... on, say, secondary deeds of            
trust and things of that nature for real property, but they are run            
through your collection department."                                           
                                                                               
Number 1251                                                                    
                                                                               
MR. LAWER agreed, noting his institution is involved in all sorts              
of purchase and sale transactions, not only those pertaining to                
real property, but also, for example, limited entry permits.                   
                                                                               
Number 1272                                                                    
                                                                               
MR. LAWER noted he understood the intent was to define "settlement             
agent" as, in fact, the closing agent at a closing between a buyer             
and seller.  However, he feels Section 34.75.090 (7) is not                    
effective.                                                                     
                                                                               
Number 1294                                                                    
                                                                               
CHAIRMAN ROKEBERG commented that he would have the same concern                
about the breadth of the definition of "escrow."                               
                                                                               
Number 1301                                                                    
                                                                               
MR. LAWER responded, "Exactly so, it's ... very difficult, for                 
instance, to reckon how this impacts the bank when it indeed is                
closing a transaction that involves a purchase and sale of real                
property ... and is also doing the financing.  Under the definition            
of escrow, escrow means a transaction where there is, to the effect            
if you will, the sale, transfer, encumbrance, leasing -- all those             
activities are part and parcel of one involving a loan by a bank               
that it closes itself.  I would agree with you that definition,                
too, is perhaps overly broad, if not otherwise narrowed."                      
                                                                               
Number 1348                                                                    
                                                                               
CHAIRMAN ROKEBERG noted it is clear many banking institutions would            
be covered by HB 247 because they close home loans and other loans             
"that would be appropriate for this purpose."  He stated concern               
over costs related to accrued interest and the alleged delay in                
recording.  He asked Mr. Lawer to explain, in steps, how his                   
institution would fund a typical home loan through a title company.            
                                                                               
Number 1382                                                                    
                                                                               
MR. LAWER replied that his institution furnishes written                       
instructions to the title company, as do the buyer and seller who              
are involved.  The buyer's instructions are:  Pay the seller when              
you are in a position to deliver a recorded deed to me.  The                   
seller's instructions are:  Deliver the deed when you are in a                 
position to pay me, in cash, the price.                                        
                                                                               
MR. LAWER said the instructions from the bank that is financing the            
transaction are:  We will pay you the proceeds of a loan we are                
making to the buyer as soon as you, title company, are in a                    
position to tell us:  1) the deed of conveyance in our mortgage has            
been recorded and 2) you will issue to us your policy of title                 
insurance which is in keeping with our requirements.                           
                                                                               
Number 1459                                                                    
                                                                               
MR. LAWER continued that the bank waits once those instructions are            
issued, if this transaction is being closed at a title company,                
until the seller has gone to the title company and executed the                
deed, and the buyer has gone to the title company and executed a               
note and the mortgage.  Following that, the bank waits until the               
deed is recorded and the title company notifies all parties, which             
is normally at least a day after the documents are executed.                   
                                                                               
Number 1494                                                                    
                                                                               
MR. LAWER explained, under those circumstances, the bank pays the              
title company the proceeds of the loan when the title company                  
notifies the bank that the deed has been recorded.  According to HB
247, the bank would have to pay the title company the proceeds of              
the loan conditionally at least a day in advance of that recording.            
He noted the bank would be charging its customer interest from its             
disbursement date, not from the date the title company disburses.              
                                                                               
Number 1532                                                                    
                                                                               
CHAIRMAN ROKEBERG questioned Mr. Lawer briefly on occupancy and                
closing dates.                                                                 
                                                                               
Number 1580                                                                    
                                                                               
CHAIRMAN ROKEBERG asked Mr. Lawer if he was suggesting that when               
people execute their deeds and assume they now own their homes, the            
money has not changed hands.                                                   
                                                                               
Number 1601                                                                    
                                                                               
MR. LAWER said he wasn't sure he understood.                                   
                                                                               
Number 1606                                                                    
                                                                               
CHAIRMAN ROKEBERG said Mr. Lawer had stated that the lender had to             
wait until the buyer and seller executed their note and their deed.            
Then, usually at least a day after, the lender funded.  Chairman               
Rokeberg commented that most people assume they have purchased                 
their home at the point they executed the documents.  He noted, "I             
think the court of law would probably indicate that whatever cause             
of (indisc.) you had, either in damages or equity, that you had                
purchased your property then but you're suggesting that you                    
normally fund them a day later -- is that right?"                              
                                                                               
Number 1635                                                                    
                                                                               
MR. LAWER disagreed.  He stated, "Assuming I'm the buyer, I'm                  
telling the title company, 'Don't give the seller the money until              
you have, to deliver to me, his deed of conveyance.'  And vice                 
versa, the seller is saying, when - when he signs that deed on - on            
Monday, and gives it to the title company, 'Don't give this to the             
buyer and cause it to be recorded until you've got money in hand to            
pay me.'  So, on the day that the documents are executed, if you               
will, ... there is not presently any - any conveyance.  That's -               
that's the law the way it is today."                                           
                                                                               
MR. LAWER noted there is a constructive delivery to the title                  
company of a deed and maybe the proceeds, but the transaction                  
doesn't "incur" until a later point, when all conditions are                   
satisfied.                                                                     
                                                                               
Number 1699                                                                    
                                                                               
CHAIRMAN ROKEBERG noted that included the conveyance of the                    
consideration and the money.  He further noted, "So people's                   
assumptions aren't quite correct.  It's the operation of law that              
dictates that."                                                                
                                                                               
Number 1709                                                                    
                                                                               
MR. LAWER agreed and said, "I think you would find your way to that            
same conclusion by reviewing the ... instructions that are                     
routinely furnished to the title companies ... in their own form.              
It is a matter of contract, yes."                                              
                                                                               
Number 1726                                                                    
                                                                               
CHAIRMAN ROKEBERG noted he could appreciate many practical                     
implications in the process.  He asked if the lender normally                  
waited until it was actually in receipt of the deed before issuing             
the draft for the funds.                                                       
                                                                               
Number 1758                                                                    
                                                                               
MR. LAWER said the lender waits until the title company notifies               
the lender that it is in a position to go forward, and is prepared             
to furnish the lender with the policy of title insurance required              
by the lender in connection with the transaction.  At that time the            
lender funds the loan.                                                         
                                                                               
Number 1784                                                                    
                                                                               
CHAIRMAN ROKEBERG mentioned variable occupancy and closing dates               
and commented, "I guess that's the whole point of this bill -- is              
when you're going to actually take possession legally, and you're              
suggesting it's upon the receipt of the conveyance and the - the               
completion of the transaction.  ... I suggest that the intent here             
is to make sure that those monies are in place so that the                     
transaction can be completed, and I think we should both be in                 
concurrence on that."                                                          
                                                                               
Number 1820                                                                    
                                                                               
MR. LAWER said that objective is not necessarily offensive, at                 
least from the banker's standpoint.  He noted the unintended                   
consequences of HB 247 raise, perhaps, the strongest objections.               
                                                                               
                                                                               
Number 1844                                                                    
                                                                               
CHAIRMAN ROKEBERG asked, "Do you actually don't accrue interest on             
the date it was executed, the following date when it was recorded,             
is that your practice?"                                                        
                                                                               
Number 1852                                                                    
                                                                               
MR. LAWER answered in the affirmative.                                         
                                                                               
Number 1878                                                                    
                                                                               
WILLIS KIRKPATRICK, Director; Division of Banking, Securities and              
Corporations; Department of Commerce and Economic Development, came            
forward to testify on HB 247.                                                  
                                                                               
Number 1898                                                                    
                                                                               
MR. KIRKPATRICK related a story about a friend, Lee Coffman (ph),              
a former president of Alaska Federal Savings Bank, who purchased a             
piece of property in Juneau and experienced an abnormal practice at            
a title company which included a delay in recording.  Mr.                      
Kirkpatrick noted this was not under his jurisdiction and he was in            
the process of advising the Division of Insurance about the                    
situation.                                                                     
                                                                               
Number 2012                                                                    
                                                                               
MR. KIRKPATRICK recommended some amendments to HB 247.  On page 4,             
line 21, "financial institution," he suggested the committee                   
consider replacing (A) and (B) with "(A) whose deposits are insured            
by an agency of the federal government."  Mr. Kirkpatrick noted                
this wording includes both (A) and (B), and has been used elsewhere            
in Alaska statutes.                                                            
                                                                               
Number 2097                                                                    
                                                                               
MR. KIRKPATRICK referred to Section 4, page 5, a proposed amendment            
to Alaska Statute 45.55.110 (g), the Alaska Securities Act of 1959.            
He noted the reference in (g) is in the offering of securities,                
allowing a promoter to participate in a stock offering that is not             
available to the public, but restricting those stocks from sale for            
a period of three years.                                                       
                                                                               
MR. KIRKPATRICK mentioned, regarding the other provision, an                   
Anchorage structure known in the 1970s as the "Blue Birdcage."  He             
noted it was a public offering he had registered as a securities               
examiner but hadn't provided for escrow collection.  He described              
the history of the structure and summarized the definition of                  
escrow collection as, "If you need to raise money for a certain                
purpose and that purpose has a dollar amount, if you can't raise               
that, we're not going to let you have it.  You need to at least                
raise that much, or a certain percentage of that much."                        
                                                                               
Number 2221                                                                    
                                                                               
MR. KIRKPATRICK noted this section was kind of the "apple out of               
this orange bill" and asked the committee to consider deleting it.             
He said it had no other effect if left in.                                     
                                                                               
Number 2251                                                                    
                                                                               
MR. KIRKPATRICK referred to page 3, Section 34.75.070, department              
supervision.  He commented that he thought, possibly, the Division             
of Banking, Securities, and Corporations might be appropriate.                 
However, he is concerned the legislation doesn't give enough                   
instruction to the division to act appropriately.  He noted that if            
the division finds a violation, it needs some sort of a means to               
act upon that violation.                                                       
                                                                               
MR. KIRKPATRICK stated the division can use violation language from            
the banking code or the securities act; this language instructs the            
division how to proceed if a violation is found.  He commented,                
"The way that it stands now, I'm afraid there's an implied                     
responsibility of the state but if the state doesn't interpret this            
properly, that it would perform a deep pocket to somebody for                  
neglect of the state."                                                         
                                                                               
MR. KIRKPATRICK suggested, if the division does have a                         
responsibility, that responsibility be better defined.                         
                                                                               
Number 2319                                                                    
                                                                               
MR. KIRKPATRICK referred to page 3, Section 34.75.060, civil                   
penalty.  He read, "the settlement agent who willfully violates                
this chapter is liable to the state for five times the amount of               
the consideration paid."  Consideration paid is usually around                 
$230.  He noted his trouble, as a bank regulator and a securities              
regulator, with the wording "wilfully violates," which has the                 
connotation of intent.                                                         
                                                                               
Number 2366                                                                    
                                                                               
MR. KIRKPATRICK commented it seems that if there is a problem with             
someone intending to deceive, the civil penalty isn't spelled out.             
He noted, "Then coupled with the Section 70, which says that - that            
the only thing the department is to look at is the one that                    
contains the written complaint.  But yet, if we find, on an audit              
or an examination, that somebody is wilfully ... violating the law,            
we're restricted from looking at other - other activities that the             
escrow agent has."                                                             
                                                                               
Number 2394                                                                    
                                                                               
CHAIRMAN ROKEBERG indicated the committee would take Mr.                       
Kirkpatrick's suggestions under advisement and asked Ms. Webb if               
she would care to comment on any of the testimony.                             
                                                                               
Number 2427                                                                    
                                                                               
MS. WEBB referred to Mr. Lawer's testimony stating HB 247 was                  
unnecessary.  She said part of the reason the Alaska State Escrow              
Association feels the proposed legislation is necessary is because             
many lenders are unwilling to fund into escrow prior to recording              
without legislation requiring them to do so.  Although the escrow              
companies can say they are unwilling to proceed, the lenders can go            
to another title company or escrow company.  She commented that                
this allows for an uneven playing field with those parties who are             
playing more involved in the risky business of not having funds in             
their escrow accounts.                                                         
                                                                               
Number 2460                                                                    
                                                                               
MS. WEBB stated it certainly was not the escrow association's                  
intent to include escrow collections in HB 247.  She said she                  
thought that was why the definition existed out on page 5 ....                 
                                                                               
TAPE 98-2, SIDE B                                                              
Number 0001                                                                    
                                                                               
MS. WEBB continued, "... (indisc.)  They're technically a party to             
that transaction and would have the loan funds, so I think the only            
part of this [that] would apply to them would be any down payment              
deposit that the buyer makes would need to be collected --  and I'm            
not even sure if that would apply by the definition of who the                 
settlement agent is -- because if they're - if they're doing their             
own in-house financing, I don't see how they could be considered as            
a disinterested third party on an escrow."                                     
                                                                               
MS. WEBB noted,  "In regards to funds being funded before recording            
and interest being charged by the buyer, those same loan funds that            
are being disbursed into our escrow, we take those right back and              
deposit them into our trust accounts at local banks, and we don't              
receive interest on those.  So, it's likely there would be a                   
scenario where a lender would funds to us and we would take those              
funds right back and deposit right into their depository account,              
if - if that's where we have our trust account.  ... The funds                 
could be back in their own account if (indisc.) a local lender."               
                                                                               
Number 0056                                                                    
                                                                               
MS. WEBB stated, "Many out-of-state lenders who are in the habit of            
funding before recording if ... that's required for them to do so,             
they typically charge interest from the day the buyer signs the                
note, not necessarily the date of recording."                                  
                                                                               
MS. WEBB noted she wanted to clarify Mr. Lawer's comments about                
next day loan disbursement.  She said, "Typically, we record first             
thing in the morning in order to make sure that those conveyances              
and deeds of trust are in the first lien position, or a first                  
position, so we can check the title records.  Typically a buyer and            
a seller will sign the business day prior to our recording, and -              
and it's just function of when we record that would cause the ...              
one day delay on - on the funding from the date (indisc.) documents            
are executed and the date that it's recorded."                                 
                                                                               
Number 0101                                                                    
                                                                               
CHAIRMAN ROKEBERG asked if there were problems that had come up in             
the last couple of years because of the growing number of out-of-              
state lenders delaying their funding for several days.                         
                                                                               
Number 0114                                                                    
                                                                               
MS. WEBB responded that was certainly true, noting a few lenders               
were known to take several weeks from the date documents were                  
forwarded down to them for review before funding.  She thought many            
local escrow companies have taken the position of not recording                
until they receive loan funds from that particular lender.                     
                                                                               
Number 0141                                                                    
                                                                               
MS. WEBB noted the industry is changing and growing all of the time            
and the escrow association is concerned about mortgage brokers and             
lenders entering this marketplace with no track record.  She                   
commented that it is not possible to know all the companies one                
works with.                                                                    
                                                                               
Number 0158                                                                    
                                                                               
CHAIRMAN ROKEBERG asked Ms. Webb if she would be comfortable                   
exempting Alaskan banks from HB 247 if that were possible.                     
                                                                               
Number 0168                                                                    
                                                                               
MS. WEBB noted she thought the liability to the consumer was the               
same whether a local or out-of-state bank was involved.  More                  
knowledge might be available about a local lender, but, she said,              
in the interest of consumer protection it didn't matter where a                
lender was located.                                                            
                                                                               
Number 0199                                                                    
                                                                               
CHAIRMAN ROKEBERG closed public comment on HB 247.  He noted that              
HB 247 would be held over for further consideration.                           
                                                                               
EO 100 - MOVING THE "SILVER HAND" PROGRAM FROM DCED TO DOE                     
                                                                               
Number 0224                                                                    
                                                                               
CHAIRMAN ROKEBERG stated the next item of business, EO 100,                    
Moving the "Silver Hand" Program from DCED to DOE.                             
                                                                               
Number 0292                                                                    
                                                                               
TOM LAWSON, Acting Director of Administrative Services, Division of            
Trade and Development, Department of Commerce and Economic                     
Development (DCED), came forward to testify.                                   
                                                                               
MR. LAWSON stated he would like to do three things:  1) briefly                
describe the Silver Hand Program, 2) talk about its history with               
the DCED, and 3) explain the recommendation and reasons for moving             
the program to the Alaska State Council on the Arts (ASCA).                    
                                                                               
Number 0310                                                                    
                                                                               
MR. LAWSON said that the Silver Hand Program is represented by the             
silver hand on a black oval.  The intent of the program is to                  
certify that any handicraft bearing the seal was crafted in Alaska             
by an Alaskan Eskimo, Aleut or Indian.  He commented that the seal             
is intended to be a guarantee to a consumer of Native handicrafts              
that the handicraft was indeed crafted by a Native person.                     
                                                                               
Number 0340                                                                    
                                                                               
MR. LAWSON stated the program was enacted in state law in 1961.                
There have been some small changes over the years, most recently in            
1993, when the definition of Alaska Native was clarified.  He added            
that authorization to implement regulations and clarification of               
allowed enforcement actions were also made at that time.                       
                                                                               
Number 0360                                                                    
                                                                               
MR. LAWSON noted four areas of program operation:  1) Certification            
of applicant eligibility - does he or she meet the definition of an            
Alaska Native?  2) Education - educating Native handicrafters that             
this program is available and may help them market their crafts                
better.  3) Promotion - making consumers of Native handicrafts                 
aware of this program so that they request handicrafts with the                
program sticker in order to avoid purchasing counterfeits.  4)                 
Enforcement of any violations that may occur.                                  
                                                                               
Number 0437                                                                    
                                                                               
MR. LAWSON stated the DCED has had the program since 1961.  In                 
fiscal year 1997, DCED had $5,000 budgeted for the program, an                 
amount they felt was woefully inadequate.  Mr. Lawson noted the                
DCED has never truly had a professional staff person with expertise            
in Native handicrafts to advocate for the program.  When there has             
been funding available for the program and the department has been             
able to assign staff, allocated staff time has been minuscule.                 
                                                                               
MR. LAWSON said, at the end of 1996, the program contained                     
approximately 600 individual Native artists and about 27 Silver                
Hand agents.  Mr. Lawson noted a program provision allowing                    
individuals to become Silver Hand agents.  These agents are then               
able to issue Silver Hand permits.                                             
                                                                               
Number 0494                                                                    
                                                                               
MR. LAWSON stated, since last fall, the DCED has contracted with               
the ASCA to operate the program.  He referred to "Marketing Alaska,            
The Governor's Economic Development Initiative, 1996 Summary."  The            
initiative's Cultural Resources Work Group stated, in their                    
recommendation 15, that the Silver Hand Program is better suited to            
the ASCA.  He noted this transfer is the intent of EO 100.                     
                                                                               
Number 0555                                                                    
                                                                               
REPRESENTATIVE JOHN COWDERY asked if the participating artists were            
charged fees.                                                                  
                                                                               
Number 0563                                                                    
                                                                               
MR. LAWSON replied that there are no fees for individual artists;              
however, there is a fee to become a Silver Hand agent.  Agents are             
typically the retail gift shop owners and the wholesalers of Native            
handicrafts.  The Silver Hand agent is empowered, based on their               
qualifications, to place a Silver Hand sticker or tag on a piece of            
artwork if they know for a fact, and will guarantee, it was                    
produced by a Native artisan.  The fee is $200 for a three-year                
Silver Hand agent authorization.                                               
                                                                               
Number 0613                                                                    
                                                                               
REPRESENTATIVE COWDERY noted Mr. Lawson's comment that the law                 
defining Alaska Native was clarified in 1993.  He presented the                
scenario of a Native man married to a non-Native woman who both                
contribute to a product.  He asked if that product would be                    
considered a Native handicraft.                                                
                                                                               
Number 0638                                                                    
                                                                               
MR. LAWSON stated, in the strictest interpretation of the law and              
the regulations, that if a non-Native person worked on a handicraft            
then the Silver Hand sticker should not be applied.  He noted                  
difficulties with enforcement.                                                 
                                                                               
Number 0667                                                                    
                                                                               
REPRESENTATIVE HUDSON asked Mr. Lawson to again define Silver Hand             
agent.                                                                         
                                                                               
Number 0676                                                                    
                                                                               
MR. LAWSON stated, again, that the Silver Hand agent is a person               
who is authorized to do two things.  The agent can personally affix            
a Silver Hand sticker and tag to a handicraft if the agent has full            
knowledge that the artisan is an Alaska Native.  An agent can also             
authorize an individual to be part of the Silver Hand Program as an            
individual artist.                                                             
                                                                               
Number 0726                                                                    
                                                                               
REPRESENTATIVE HUDSON stated, "I guess what I'm trying to figure               
out -- any time I see something here where we're transferring, in              
this particular case, a very pronounced program that obviously has             
been developed over time to have a value.  That is, that if you're             
going to have the Silver Hand, you're going to have sort of a                  
statement of higher value somewhere along the line, ... it                     
signifies authenticity."                                                       
                                                                               
                                                                               
REPRESENTATIVE HUDSON noted he was trying to determine if the                  
Silver Hand Program dealt more with commodity or art.  He stated               
that it seems the program should rightfully be in the DCED if it               
was more concerned with commodity, but it should be under the ASCA             
if it dealt more with art.  Representative Hudson expressed some               
doubt, looking at long-range program cuts, that the ASCA would                 
continue to exist in the future.  He commented on the possibility              
of a private artists' council without government involvement.                  
                                                                               
Number 0819                                                                    
                                                                               
REPRESENTATIVE HUDSON asked if the Governor felt, in this instance,            
that moving the Silver Hand Program would allow for additional                 
funding by the legislature.                                                    
                                                                               
                                                                               
Number 0825                                                                    
                                                                               
MR. LAWSON stated that the arts council has a full-time Native arts            
and crafts person who travels all through the state working with               
Native artisans; this person in a good position to inform the                  
Native artist community about the program.  The ASCA also fund-                
raises.  He noted, unlike the DCED, the arts council is poised, and            
has the expertise, to research federal grants for Native                       
handicrafts and pursue funding from private foundations.  Mr.                  
Lawson stated, in his opinion, no one in this era is looking to the            
legislature for additional funding.                                            
                                                                               
Number 0884                                                                    
                                                                               
REPRESENTATIVE HUDSON asked how much funding would be considered               
necessary to reach the Silver Hand Program goals?                              
                                                                               
Number 0917                                                                    
                                                                               
MR. LAWSON stated he would rather let the witnesses speaking for               
the ASCA answer that question.  He noted the amount would probably             
be more than the DCED would be able to transfer to the arts                    
council.                                                                       
                                                                               
Number 0924                                                                    
                                                                               
CHAIRMAN ROKEBERG asked if the $5,000 budgeted to the program paid             
for the actual decals, seals and tags.                                         
                                                                               
Number 0932                                                                    
                                                                               
MR. LAWSON answered that $5,000 has covered that cost in the past.             
If the supply of stickers and tags was sufficient, the DCED did a              
modest amount of advertising, attempting to reach tourists coming              
to Alaska so that they would be aware of the program and seek out              
genuine Native handicrafts with stickers.                                      
                                                                               
Number 0955                                                                    
                                                                               
CHAIRMAN ROKEBERG asked why EO 100 provides for the transfer of the            
seal but not the emblem.                                                       
                                                                               
Number 0968                                                                    
                                                                               
MR. LAWSON explained that the Made in Alaska Program and the Silver            
Hand Program are "intertwined" in the statute.  Whenever the term              
emblem was used, it referred to the Made in Alaska Emblem; the                 
Silver Hand was always referred to as the Silver Hand Seal.                    
                                                                               
Number 1008                                                                    
                                                                               
CHAIRMAN ROKEBERG noted the provision in Alaska Statute 45.65.020              
that the Commissioner of Commerce is responsible for the                       
supervision of the use of the emblem.                                          
                                                                               
Number 1025                                                                    
                                                                               
MR. LAWSON explained the emblem in that instance refers to the Made            
in Alaska Emblem and Program, which are staying with the DCED.                 
                                                                               
Number 1053                                                                    
                                                                               
FRED SMITH, Economic Development Planner, Association of Village               
Council Presidents (AVCP), testified via teleconference from                   
Bethel.  He stated he works for the 50 or so communities in                    
Southwest Alaska.                                                              
                                                                               
MR. SMITH stated that the AVCP supports EO 100.  Given the history             
of the Silver Hand Program at the DCED, he noted the program has               
never really reached any of its intentions.  He said that there is             
an opportunity with this move for the Silver Hand Program to more              
fully meet some of those intentions.                                           
                                                                               
MR. SMITH stated that moving the Silver Hand Program will help the             
Alaska Native artists who use the program, the businesses who buy              
and sell Native arts and crafts, and the customers of Native arts              
and crafts.                                                                    
                                                                               
Number 1128                                                                    
                                                                               
MR. SMITH noted he disagreed with Representative Hudson's feeling              
that the program should stay with the DCED for three reasons:  1)              
the program's history, 2) the program's potential value, and 3) the            
ASCA is the best-suited existing state structure for the Silver                
Hand Program.                                                                  
                                                                               
Number 1203                                                                    
                                                                               
VERNON CHIMEGALREA, Native Arts Program Director, Alaska State                 
Council on the Arts, testified via teleconference from Anchorage.              
He read the following statement into the record:                               
                                                                               
"The Alaska State Council on the Arts is in support of the                     
[Governor's] Marketing Alaska recommendation to transfer the Silver            
Hand Program from the Department of Commerce and Economic                      
Development to the Alaska State Council on the Arts.                           
                                                                               
"The economic impact of the arts have been proven on a state to                
national level.  In Alaska, the arts are a viable industry with                
annual economic impact to the nonprofit sector alone of over $23.5             
million.  The importance of the arts industry is especially evident            
in rural Alaska where it may be a family's primary source of                   
income.                                                                        
                                                                               
Number 1257                                                                    
                                                                               
"ASCA, the Alaska State Council on the Arts, has long recognized               
that communities and artisans need assistance in developing and                
marketing local and regional cultural opportunities.  It provides              
grant funds, technical assistance and leadership to help develop               
the arts industry in Alaska.  For example, ASCA is in its third                
year of a partnership with the Department of Community and Regional            
Affairs to support community-based efforts to diversify and                    
strengthen rural economies through arts-related economic                       
development projects."                                                         
                                                                               
Number 1295                                                                    
                                                                               
CHAIRMAN ROKEBERG noted the committee was in possession of Mr.                 
Chimegalrea's statement and it would be entered into the record.               
In the interests of time Chairman Rokeberg asked Mr. Chimegalrea to            
sum up his comments.                                                           
                                                                               
Mr. Chimegalrea submitted the following statement for the record:              
                                                                               
The ASCA Rural Arts Initiative Grant Program has funded three arts             
cooperatives being developed through the Association of Village                
Council Presidents in the Yukon-Kuskokwim Delta, the Tribal Council            
of St. Paul Island and the Tribal Council of Pt. Hope.                         
                                                                               
2) ASCA is co-sponsoring a technical assistance workshop February              
18 to 20 for the planning and management of Alaska Native Museums              
and Culture Centers.  The workshop will include sessions on the                
role of tourism, role of gift shops, collections management and                
exhibit planning.                                                              
                                                                               
3) Last fiscal year ASCA made over $500,000 in grants to                       
organizations and individuals.  Every grant we issue supports                  
Alaskan jobs and creates economic impact in the community it was               
awarded.                                                                       
                                                                               
4) Master Artist and Apprenticeship Program pairs apprentices                  
desiring to pursue serious study of a Native Art with an                       
acknowledged master artist.  This program encourages the creation              
of high quality products by master artists in traditional Native               
art forms.                                                                     
                                                                               
The Silver Hand Program was established to authenticate Native arts            
for the retailers and consumers while protecting the work of Native            
artists.  The program began with good intentions but has languished            
due to lack of commitment and resources at the Department of                   
Commerce and Economic Development.  The Marketing Alaska task force            
identified significant problems with the program calling it                    
"outdated, vague and ineffective."  The Silver Hand Program has                
been repeatedly criticized for failing to carry out its                        
obligations.                                                                   
                                                                               
It is estimated that over 85 percent of art merchandise sold as                
Native made is not authentic.  In addition, Native artists lack                
trust in the program and retailers are not educated on how to                  
market Native arts and crafts without misrepresenting the art and              
its cultural origin.                                                           
                                                                               
In response to the Governor's Marketing Alaska findings, it was                
recommended that the Alaska State Council on the Arts take over                
management of the Silver Hand Program.  This program goes hand in              
hand with our existing Native Arts Program.  As the Native Arts                
Program director, I apply my art and language expertise as well as             
a statewide networking to enhance and build the program.  Since the            
beginning of the fiscal year, ASCA has devoted considerable staff              
resources to revitalize this important program.                                
                                                                               
1) We convened the advisory committee of both Native artists and               
retailers.  2) We incorporated the Silver Hand Program into a                  
statewide Native arts outreach through exhibitions at major Native             
conferences and gatherings as well as travel to major hub areas of             
the state.  3) We produced video public service announcements                  
describing the program and the purpose of the Silver Hand tag.  4)             
We increased enrollment in the program by 50 percent to over 600               
artists.  5) We contacted Federal Trade Commission to discuss                  
enforcement issues.  6) We are working to make the Silver Hand                 
Program locally accessible by developing partnerships with village             
corporations.  7) We placed advertisements in major tourist                    
publications alerting travelers to the importance of the Silver                
Hand tag when purchasing authentic Native arts.                                
                                                                               
The council feels strongly that the Silver Hand Program will be                
best served under the direction of the Alaska State Council on the             
Arts.  We will seek the public and private resources necessary to              
enhance the economies of rural Alaska through arts-related program             
like Silver Hand.                                                              
                                                                               
Number 1301                                                                    
                                                                               
MR. CHIMEGALREA summed up the rest of his statement for the                    
committee.  He noted that the Silver Hand Program authenticates                
Native arts for retailers and consumers while protecting Native                
artwork.                                                                       
                                                                               
MR. CHIMEGALREA referred to the efforts the ASCA has already made              
in regards to the Silver Hand Program since July 1997.  He                     
commented that 200 new artists had entered into the program since              
July 1997, as compared to the 600 over the past 36 years.                      
                                                                               
MR. CHIMEGALREA indicated the ASCA was not comfortable with the                
current Silver Hand agent structure, and he mentioned the efforts              
to contact the over 200 village corporations throughout the state              
to encourage the corporations to become the Silver Hand agents for             
their communities, paying the fees.  He noted the Silver Hand                  
sticker would help local economies.  Mr. Chimegalrea concluded                 
that, with all these facts, the ASCA is in support of the transfer.            
                                                                               
Number 1466                                                                    
                                                                               
CHAIRMAN ROKEBERG asked Mr. Chimegalrea how much money the ASCA                
received from the legislature this fiscal year and how this                    
transfer would affect the ASCA's budgetary requests for next year.             
                                                                               
Number 1500                                                                    
                                                                               
HELEN HOWARTH, Executive Director, Alaska State Council on the                 
Arts, testified via teleconference from Anchorage.  She stated that            
she would like to address Chairman Rokeberg's question.                        
                                                                               
Number 1528                                                                    
                                                                               
MS. HOWARTH, referring to the earlier hearing on EO 100 in the                 
House Community and Regional Affairs Standing Committee and                    
questions raised in this meeting, noted she understood the concerns            
expressed about the ASCA's viability.  Ms. Howarth noted the ASCA'S            
appropriation this year from the state was approximately $460,000              
and was matched by the federal government.                                     
                                                                               
MS. HOWARTH stated that the ASCA feels very strongly it can                    
accommodate the Silver Hand Program within its current budget, and             
with current staff to a certain extent.  She noted the ASCA did ask            
for a budget increase this year of approximately $32,000 to fund               
the addition of the program to the ASCA's budget.                              
                                                                               
MS. HOWARTH stated that the council plans to seek private funding              
to make up any additional budget needs it might have through the               
operations of the program.  She noted the council feels very                   
confident that it will be able to attract private support to help              
fund the Silver Hand Program.                                                  
                                                                               
Number 1601                                                                    
                                                                               
MS. HOWARTH continued, "I think, perhaps, the most important part              
about us taking over this program is the fact that we - we consider            
ourselves experts in Native arts.  We have the contacts in the                 
communities; we have a Native arts panel that advises us on - on               
matters of Native arts and culture; we do a lot within our current             
existing structure, without having to add a lot of budget needs or             
personnel costs, or anything like that, to actually manage the                 
Silver Hand Program in ... association with our Native Arts                    
Program.  So, while it would certainly be nice to have additional              
funding, we feel fairly strongly that we can manage the program                
with the resources that we have, ... soliciting additional                     
resources from the private sector."                                            
                                                                               
Number 1676                                                                    
                                                                               
CHAIRMAN ROKEBERG, hearing no further comments, closed the public              
hearing on EO 100.                                                             
                                                                               
ADJOURNMENT                                                                    
                                                                               
Number 1682                                                                    
                                                                               
CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing              
Committee meeting at 4:58 p.m.                                                 

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