Legislature(1995 - 1996)

03/11/1996 03:10 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                          
                         March 11, 1996                                        
                           3:10 p.m.                                           
                                                                               
                                                                               
 MEMBERS PRESENT                                                               
                                                                               
 Representative Pete Kott, Chairman                                            
 Representative Norman Rokeberg, Vice Chairman                                 
 Representative Beverly Masek                                                  
 Representative Jerry Sanders                                                  
 Representative Brian Porter                                                   
 Representative Kim Elton                                                      
 Representative Gene Kubina                                                    
                                                                               
 MEMBERS ABSENT                                                                
                                                                               
 All members were present.                                                     
                                                                               
 COMMITTEE CALENDAR                                                            
                                                                               
 * HOUSE BILL NO. 490                                                          
 "An Act relating to grants and other financial assistance                     
 authorized or made by the Alaska Science and Technology Foundation            
 for the BIDCO assistance program."                                            
                                                                               
      - PASSED OUT OF COMMITTEE                                                
                                                                               
 * HOUSE BILL NO. 502                                                          
 "An Act relating to the auctioning of real estate."                           
                                                                               
      - PASSED OUT OF COMMITTEE                                                
                                                                               
 (* First public hearing)                                                      
                                                                               
 PREVIOUS ACTION                                                               
                                                                               
 BILL:  HB 490                                                               
 SHORT TITLE: FINANCIAL ASSISTANCE TO BIDCO                                    
 SPONSOR(S): REPRESENTATIVE(S) B.DAVIS, Robinson, Willis, Brown,               
 Elton                                                                         
                                                                               
 JRN-DATE     JRN-PG                  ACTION                                   
 02/09/96      2693    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 02/09/96      2693    (H)   L&C, STATE AFFAIRS, FINANCE                       
 02/21/96      2847    (H)   COSPONSOR(S): WILLIS, BROWN                       
 02/22/96      2862    (H)   COSPONSOR(S): ELTON                               
 03/11/96              (H)   L&C AT  3:00 PM CAPITOL 17                        
                                                                               
 BILL:  HB 502                                                               
 SHORT TITLE: CONDUCTING AUCTIONS OF REAL PROPERTY                             
 SPONSOR(S): REPRESENTATIVE(S) G.DAVIS, Navarre                                
 JRN-DATE     JRN-PG                  ACTION                                   
 02/12/96      2726    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 02/12/96      2726    (H)   LABOR & COMMERCE, FINANCE                         
 03/11/96              (H)   L&C AT  3:00 PM CAPITOL 17                        
                                                                               
 WITNESS REGISTER                                                              
                                                                               
 JONATHAN SPERBER, Legislative Aide to                                         
    Representative Bettye Davis                                                
 Alaska State Legislature                                                      
 State Capitol Building, Room 430                                              
 Juneau, Alaska  99801                                                         
 Telephone:  (907) 465-3875                                                    
 POSITION STATEMENT:  Provided sponsor statement for HB 490.                   
                                                                               
 JAMES KENWORTHY, Executive Director                                           
 Alaska Science and Technology Foundation                                      
 4500 Diplomacy, Suite 515                                                     
 Anchorage, Alaska  99508                                                      
 Telephone:  (907) 272-4333                                                    
 POSITION STATEMENT:  Testified on HB 490.                                     
                                                                               
 REPRESENTATIVE GARY DAVIS                                                     
 Alaska State Legislature                                                      
 Capitol Building, Room 420                                                    
 Juneau, Alaska 99801                                                          
 Telephone:  (907) 465-3835                                                    
 POSITION STATEMENT:  Sponsor of HB 502.                                       
                                                                               
 NORM "BUD" BLAKELY, Auctioneer                                                
 P.O. Box 537                                                                  
 Soldotna, Alaska 99669                                                        
 Telephone:  (907) 262-3536                                                    
 POSITION STATEMENT:  Testified in support of HB 502.                          
                                                                               
 KEN LANCASTER, Broker                                                         
 Beluga Realty                                                                 
 Box 104                                                                       
 Soldotna, Alaska 99669                                                        
 Telephone:  (907) 260-3575                                                    
 POSITION STATEMENT:  Testified in support of HB 502.                          
                                                                               
 ACTION NARRATIVE                                                              
                                                                               
 TAPE 96-20, SIDE A                                                            
 Number 001                                                                    
                                                                               
 The House Labor and Commerce Standing Committee was called to order           
 by Chairman Pete Kott at 3:10 p.m.  Members present at the call to            
 order were Representatives Kott, Masek, Sanders, Porter and Elton.            
 Members absent were Representatives Rokeberg and Kubina.                      
                                                                               
 HB 490 - FINANCIAL ASSISTANCE TO BIDCO                                      
                                                                               
 CHAIRMAN KOTT noted that the first item of business was HB 490 and            
 called upon Jonathan Sperber to introduce the bill.                           
                                                                               
 Number 030                                                                    
                                                                               
 JONATHAN SPERBER, Legislative Aide to Representative Bettye Davis,            
 sponsor of HB 490, presented the sponsor statement:                           
                                                                               
 "Under current law, the ability of the Alaska Science and                     
 Technology Foundation to authorize new financial assistance without           
 legislative approval will sunset on June 30th of this year.  House            
 Bill 490 would extend the sunset date to June 30, 2000.                       
                                                                               
 "The 18th Legislature appropriated $3 million to establish a BIDCO            
 fund, BIDCO standing for Business and Industrial Development                  
 Corporation Act, but Governor Hickel vetoed $2 million and no                 
 additional appropriations have been made.  The BIDCO fund has thus            
 been severely underfunded since it was established in 1992.                   
                                                                               
 "A successful BIDCO generally requires about $3-5 million in                  
 capitalization.  Both the state and private sectors have determined           
 that the $1 million in the BIDCO fund is not enough to allow an               
 otherwise acceptable request for proposal to be funded.  House Bill           
 490 would authorize the Alaska Science and Technology Foundation to           
 make grants to BIDCOs, thus overcoming this funding obstacle.                 
                                                                               
 "BIDCOs provide emerging, small- and medium-size businesses with              
 financing, management support and technical assistance.  BIDCOs               
 provide flexible financing for businesses with economically sound             
 financing needs, but which are considered too risky by conventional           
 lenders.  BIDCOs compensate for taking greater risks by providing             
 a much greater degree of hands-on support and management                      
 assistance, thus reducing the risk and facilitating the growth of             
 their portfolio companies.  Incentives are also included to assist            
 businesses that are minority-owned or located in distressed areas."           
                                                                               
 Number 201                                                                    
                                                                               
 JAMES KENWORTHY, Executive Director, Alaska Science and Technology            
 Foundation (ASTF), testified via teleconference from Anchorage.  He           
 cited three reasons why the legislation was a good idea.  "First of           
 all," he said, "there are (indisc. -- coughing) up here that are in           
 the risk capital business.  I would think of BIDCOs as doing less             
 risky deals than venture capital.  They're not all equity deals.              
 It's a much broader range of businesses in Alaska, as there have              
 been in Michigan, that would qualify for the debt/equity financing            
 that BIDCOs can provide.  Secondly, we're able to leverage our                
 funds.  Our spreadsheet analyses show that we think about $6                  
 million is the critical mass for the size of BIDCO capitalization             
 needed to launch these types of financial institutions.  The                  
 legislature, by earmarking $1 million of our budget, pretty much              
 hamstrung us from being able to have a successful proposal come               
 through our RFP process.  We would like to recommend that if the              
 legislature would extend the $1 million sunset, the ASTF board has            
 voted to put $2 million of our earnings into it, basically putting            
 $3 million of public funds to be matched one-to-one by the private            
 sector.  We think that's the proper critical mass to launch a                 
 BIDCO.  And we think it's most important for the infrastructure of            
 the state that that kind of institution be established outside the            
 public sector, in the private sector, with operators that could               
 provide hands-on management experience in the (indisc.) these                 
 start-up or turn-around business situations and be risking their              
 own capital in picking out those deals.                                       
                                                                               
 Number 388                                                                    
                                                                               
 MR. KENWORTHY continued:  "And lastly, the way we've constructed              
 the formulas, essentially, for the loaned state funds to be paid              
 back, is it's a performance-based formula, where essentially the              
 more jobs, in effect, payroll, that is created and the more sales             
 of the business, the less they have to pay back the fund.  That's             
 how this subsidy is, basically, it puts the private sector into               
 this riskier market (indisc.).  If they do good deals that create             
 jobs and sales, then (indisc.) economic development and their loan            
 to ASTF is hereby reduced.  If they don't do good deals, wherever             
 located, then they will still have the full obligation of the                 
 state's funds in launching the BIDCO."                                        
                                                                               
 Number 457                                                                    
                                                                               
 CHAIRMAN KOTT asked about Mr. Kenworthy's indication that ASTF                
 would take $2 million from its earnings to endow the fund, which              
 currently had $1 million in it.                                               
                                                                               
 MR. KENWORTHY replied, "Right.  The legislature in the current bill           
 gave us $1 million of our earnings and said, `put it toward                   
 BIDCOs.'  So we would take $2 million of unobligated funds from               
 ASTF and put that in the same pot, essentially, creating a $3                 
 million-dollar public fund that we would put an RFP out and say               
 should be matched one-to-one by the private sector, creating a $6             
 million capitalized institution."                                             
                                                                               
 Number 511                                                                    
                                                                               
 CHAIRMAN KOTT asked whether a grant made by using the endowment               
 would be an actual grant or a loan.                                           
                                                                               
 MR. KENWORTHY explained it was in the form of a loan, with the                
 statute allowing ASTF to set the terms of that loan.  In effect,              
 ASTF lent funds, at a rate approximating prime, to the successful             
 proposer, who would then loan that money to businesses.  Every                
 year, ASTF would audit sales and payrolls of the businesses to                
 determine increases of jobs and sales.  By the degree to which they           
 could show growth in those firms, BIDCOs would reduce their                   
 obligation to repay funds to ASTF.  Payback to the state would be             
 in increased economic development.                                            
                                                                               
 Number 597                                                                    
                                                                               
 CHAIRMAN KOTT referred to Mr. Kenworthy's comment that in order for           
 a BIDCO program to be successful, there needed to be a certain                
 amount of capitalization, with $6 million being the suggested                 
 amount.  Chairman Kott asked if that amount was compatible with               
 other states.                                                                 
                                                                               
 MR. KENWORTHY replied, "In the Michigan program, they launched 12             
 BIDCOs.  The smallest one was capitalized at only one-and-a-half,             
 and that's the only BIDCO that had to merge with a larger BIDCO.              
 The average was $8-10 million and almost all those BIDCOs have now            
 had a second round of financing.  So, the banks have come in and              
 further private investment has come in.  So, for the $20-30 million           
 the state put up to launch 12 BIDCOs, that was matched, first of              
 all, by the private sector, two-to-one.  And there's been a second            
 round of financing and that created, basically, $200 million of               
 capital.  We think, based upon that experience and adjusting for              
 the realities up here, we'll be asking for a one-to-one match.  We            
 think that this $6 million is the minimum size that creates a                 
 critical mass, because ... for your start-up costs, for the hands-            
 on management, you basically have to look at what interest they               
 could earn on that money to fully staff a BIDCO and provide those             
 kinds of management services."                                                
                                                                               
 Number 684                                                                    
                                                                               
 CHAIRMAN KOTT mentioned that the BIDCO assistance program had been            
 created in 1992, before he was in the legislature.  The                       
 appropriation made to the program in 1992 was $3 million, of which            
 the previous administration vetoed $2 million.  Representative Kott           
 asked whether Mr. Kenworthy recalled the reason for the veto.                 
                                                                               
 MR. KENWORTHY replied, "I'm sorry, I can't, even though I testified           
 as the person running the Michigan technology program at the time.            
 But I don't think it was related to the Hickel Administration's               
 position on BIDCOs.  I think it was related to the budget issue at            
 the time."                                                                    
                                                                               
 Number 720                                                                    
                                                                               
 CHAIRMAN KOTT asked:  "Do you envision just making a one-time $2              
 million influx of money through your earnings, or would this be a             
 continuous process?"                                                          
                                                                               
 MR. KENWORTHY responded, "A one time, for two reasons.  First of              
 all, we think it's important to capitalize that institution in the            
 private sector and not have them dependent on ongoing state                   
 support.  And secondly, because of the higher rates of return we're           
 earning this year, because of the permanent fund taking capital               
 gains, we have the ability to do that this year.  We would not                
 necessarily have the ability to do it next year."                             
                                                                               
 Number 763                                                                    
                                                                               
 REPRESENTATIVE BRIAN PORTER asked why the bill referred, in most              
 sections, to grants instead of loans.                                         
                                                                               
 MR. KENWORTHY replied, "Because our statutory authority allows us             
 to make grants, essentially.  So, the statute says we can grant to            
 the BIDCO assistance fund, but we structure those grants in the               
 form of a loan that must be repaid."                                          
                                                                               
 REPRESENTATIVE PORTER said he understood the sliding scale on                 
 interest for ability to meet goals of the program.  "But just so              
 that the record is clear," he stated, "what we're really saying               
 here is you're restructuring a loan, as opposed to a grant that               
 there is no requirement for repayment."                                       
                                                                               
 MR. KENWORTHY replied, "Correct."                                             
                                                                               
 Number 847                                                                    
                                                                               
 CHAIRMAN KOTT asked Mr. Kenworthy to point out the area in the bill           
 that would "lead us to believe that what you will be capitalizing             
 is, in fact, $2 million on a one-time basis."  He added, "It seems            
 to me that in 1992, the legislature, while giving up their                    
 statutory oversight authority for those grants, if you will,                  
 retained some authority through the appropriation process by                  
 appropriating from the general fund, I assume, $3 million.  In this           
 particular case, you're asking us to give up all authority for                
 oversight.  So, I'm curious as to what section of the bill I can              
 turn to that will suggest that we're only looking at a one-time               
 shot in the arm of $2 million, which would basically restore                  
 legislative intent, at least in 1992."                                        
                                                                               
 Number 0898                                                                   
                                                                               
 MR. KENWORTHY indicated he was giving a budget answer, not a legal            
 answer.  He said he understood they were asking for the amendment             
 to the bill just to extend the sunset date of the $1 million                  
 allocation that the legislature already had made.  "At the same               
 time," he said, "the board has made a parallel commitment to put $2           
 million in additional funds into the BIDCO fund.  So, this                    
 legislation does not speak to the additional $2 million we're                 
 talking about, it just speaks to not sunsetting the $1 million."              
                                                                               
 Number 937                                                                    
                                                                               
 CHAIRMAN KOTT asked about assurance that this board or future                 
 boards would not continue to appropriate money beyond what would              
 have been expected back in 1992.                                              
                                                                               
 MR. KENWORTHY responded, "You would have no other assurance except            
 that annually ... the ASTF comes back to the legislature and tells            
 them how we've allocated our funds, by project.  And the                      
 legislature can, in the future, as it does now, earmark some of our           
 earnings for non-ASTF purposes.  I think there's a credibility                
 issue there that we would want to continue to address."                       
                                                                               
 Number 977                                                                    
                                                                               
 REPRESENTATIVE BEVERLY MASEK referred to Section 7, page 2, line              
 30, which said, "the board of directors shall require that a fair             
 and reasonable return to the foundation".  She wanted to know what            
 "fair and reasonable" meant.                                                  
                                                                               
 MR. KENWORTHY indicated the primary goal was not repayment, but to            
 set up a private sector institution that eventually created enough            
 jobs and economic activity in Alaska "so that we're repaid by that            
 economic growth, not repaid to ASTF."  He said, "If ASTF was                  
 seeking to be fully repaid, then we would not, in effect, in any              
 way be sharing the additional risks of doing a BIDCO, and an                  
 effective private market could already have done that.  The reason            
 that the banks are not in this market is because it is a higher               
 risk than return from how they raise their funds.  So, we have to             
 use our public funds, essentially share that risk, and purchase               
 economic growth."                                                             
                                                                               
 Number 1090                                                                   
                                                                               
 REPRESENTATIVE MASEK indicated she understood that BIDCOs were not            
 set up to pay anybody back for money that would come from the                 
 grants.  She asked what interest would be paid to the grantor.                
                                                                               
 MR. KENWORTHY clarified, "This will be in the form of a deal that             
 must be repaid."  He added that it would be a loan with terms set             
 at the time of the investment.                                                
                                                                               
 Number 1148                                                                   
                                                                               
 REPRESENTATIVE MASEK again asked what was meant by "fair and                  
 reasonable".                                                                  
                                                                               
 MR. KENWORTHY said, "The terms that the board looked at last year,            
 when we had proposals in front of us, was to loan the funds at                
 prime and to (indisc.) a credit system."  For every increase of               
 sales of 1.5 percent, the principal of the loan would be reduced a            
 certain amount.  There would be a jobs credit as well.  "We tried             
 to restructure the loan so that if we got the appropriate level of            
 economic activity, the loan would earn out in approximately ten               
 years," he added.                                                             
                                                                               
 Number 1214                                                                   
                                                                               
 CHAIRMAN KOTT asked whether the "fair and reasonable" return                  
 specifically dealt with monetary return or whether there was a                
 return that combined monetary plus economic benefit.                          
                                                                               
 MR. KENWORTHY responded, "Well, it's a monetary return, but the               
 more economic return there is, the less they have to pay back [to]            
 ASTF.  The experience in Michigan was that, then, the credit system           
 was earned out in five to ten years.  And that allows them to be              
 recapitalized, essentially, and to have more conservative money               
 come in and have a second or third round of financing with                    
 businesses."                                                                  
                                                                               
 Number 1257                                                                   
                                                                               
 CHAIRMAN KOTT asked, "As a BIDCO, if I came to you and asked for a            
 grant of, say, a half a million dollars, would I have to repay a              
 half a million dollars back to the endowment?"                                
                                                                               
 MR. KENWORTHY replied, "If you formed a BIDCO and were successful             
 in our RFP process, and we selected you to negotiate these terms,             
 in effect, we would put $3 million in and at the end of the year,             
 you would owe us $3 million plus prime....  And each year, we would           
 monitor the economic activity of the deals that that BIDCO invested           
 in.  We would count the payroll and the sales....  And the degree             
 to which they had increased payroll and sales, we would reduce the            
 principal you owed to ASTF."                                                  
                                                                               
 Number 1310                                                                   
                                                                               
 REPRESENTATIVE JERRY SANDERS explained he had not been in the                 
 legislature in 1992.  He asked for examples of things that had been           
 funded in Michigan, as well as examples of things ASTF was                    
 considering funding in Alaska.                                                
                                                                               
 MR. KENWORTHY emphasized that ASTF would not be making the                    
 decisions of which businesses to fund.  The private operators of              
 the BIDCOs would make those decisions.  In Michigan, 30-35 percent            
 of the deals were in manufacturing turn-around situations.  "We               
 have them up here right now, with natural resource processing                 
 firms," he said.  "They don't have the assets to qualify for bank             
 lending but, essentially, if they can re-equip themselves and                 
 reorganize the business, those firms would be paying a higher-than-           
 prime rate and giving up a warrant or small-equity kicker to                  
 compensate for the extra risk.  And so, that's, I think, the best             
 market they would serve up here.  So, that's about 30-35 percent.             
 The other about 30 percent were service firms, but they were                  
 service firms that were selling their services nationally."  Mr.              
 Kenworthy noted that when BIDCOs lent money, they usually received            
 prime plus two or prime plus three, in addition to receiving a                
 piece of the business in the form of an equity or warrant kicker.             
 Mr. Kenworthy noted that the remaining 30 percent were "in                    
 commercial."                                                                  
                                                                               
 REPRESENTATIVE SANDERS indicated he did not see how any of this               
 applied to Alaska.                                                            
                                                                               
 Number 1425                                                                   
                                                                               
 REPRESENTATIVE PORTER asked if a BIDCO requested money to utilize             
 in a business or if it was an intermediary group or agency looking            
 for someone else in business to give money to.                                
                                                                               
 MR. KENWORTHY replied, "The latter.  Think of the BIDCO as a risk             
 capital financial institution."  He added it was like an investment           
 bank.                                                                         
                                                                               
 REPRESENTATIVE PORTER asked if the loan portion was between the               
 actual business and the BIDCO.  "And you're saying you'll deplete             
 the amount that the BIDCO will repay you, based on how good they              
 did with their business loans themselves," he suggested.                      
                                                                               
 MR. KENWORTHY agreed.                                                         
                                                                               
 Number 1483                                                                   
                                                                               
 REPRESENTATIVE NORMAN ROKEBERG referred to an indication in the               
 packet that ASTF had issued a Request for Proposals (RFP) in                  
 October and received two bids that had been turned down.  He asked            
 Mr. Kenworthy to explain who those bidders were.                              
                                                                               
 MR. KENWORTHY replied, "It was an open process.  We granted                   
 confidential status to the bids themselves.  But it's certainly a             
 matter of record who applied."  He said of three original bids, two           
 finalists were selected.  One was the Kenai economic development              
 corporation, for which he did not know the exact name.  The second            
 proposal was from Bart Wagman and Dave Rose in affiliation with               
 Northrim Bank.   "And both were turned down," Mr. Kenworthy said,             
 "because neither came up with the half a million required by the              
 legislation."  He explained that the legislation had set a minimum            
 match, with authority to raise that match.  He said that                      
 capitalizing a financial institution at $1.5 million was too low an           
 amount to cover operating expenses.  They now look at the $6                  
 million as being the proper critical size, based on the Michigan              
 experience.                                                                   
                                                                               
 Number 1571                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked if this legislation would require the           
 funding of $2 million more, with a one-to-one match.  He asked                
 whether a BIDCO operator would end up with a $6 million                       
 capitalization and have to bring $3 million to the table, or                  
 whether it could be shared among more than one BIDCO.                         
                                                                               
 MR. KENWORTHY responded, "I think $6 million would only capitalize            
 one BIDCO."                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked if Mr. Kenworthy knew of anyone                 
 interested in bringing another $3 million of private money to the             
 table.                                                                        
                                                                               
 MR. KENWORTHY replied, "There have been some expressions of                   
 interest, but until the legislature extends the sunset date, and              
 until it's more widely known that the ASTF is willing to put more             
 funds into it, I wouldn't expect serious proposers to go out and              
 start raising the necessary capital.  There's enough interest in              
 this that I'm putting the time in to try to ... ask the legislature           
 to put this bill in.  And I think the analysis of the previous bids           
 shows that there would be that degree of interest."  He added that            
 ASTF financed technology deals at three stages, a proof of concept            
 stage, a prototype stage and a commercialization stage.  "We're               
 starting to see a number of deals up here that, in effect, BIDCOs             
 could do if they were here," Mr. Kenworthy said, citing examples.             
                                                                               
 Number 1697                                                                   
                                                                               
 REPRESENTATIVE KOTT asked if those programs would not just be                 
 conducted under the ASTF mission, rather than through a BIDCO.                
                                                                               
 MR. KENWORTHY said, "I think we're better off getting to the                  
 prototype stage and proving out the technology.  And when you get             
 to the (indisc.) stage, I think it's best to have the private                 
 sector risking their own money to do that.  And we don't have a               
 group of people up here who are experienced doing equity lending              
 and doing that investment banking function.  And I think unless we            
 can capitalize institutions in the private sector, we're not going            
 to ... have that base of people who are experienced at putting                
 those deals together.  ASTF is creating a cadre of people who are             
 entrepreneurs.  We need another cadre of people who can help                  
 finance those businesses.  And we need to work on both sides of               
 that equation at once."                                                       
                                                                               
 Number 1737                                                                   
                                                                               
 REPRESENTATIVE SANDERS said, "I assume BIDCO is a group of people             
 that make these decisions."                                                   
                                                                               
 MR. KENWORTHY replied, "Yes, it's a financial institution that                
 would be regulated by the state."                                             
                                                                               
 REPRESENTATIVE SANDERS asked if it was already in existence.                  
                                                                               
 MR. KENWORTHY said, "No, there is no BIDCO formed right now.                  
 Essentially, if the proposal was acceptable and they capitalized a            
 BIDCO, then they would apply for a BIDCO license from the state               
 financial institutions bureau."  Unlike banks, which were regulated           
 for both risk and fraud, the BIDCOs would just be regulated for               
 fraud and disclosure, Mr. Kenworthy said.  They were a risk                   
 institution and investors in the BIDCO would be told that.                    
                                                                               
 Number 1770                                                                   
                                                                               
 REPRESENTATIVE SANDERS asked who would operated a BIDCO.                      
                                                                               
 MR. KENWORTHY replied, "The private sector board that made a                  
 successful proposal would operate the BIDCO."                                 
                                                                               
 REPRESENTATIVE SANDERS asked who made the decision to give them the           
 money.                                                                        
                                                                               
 MR. KENWORTHY answered, "ASTF would run an RFP, would make an award           
 decision, give the BIDCO time to complete the financing, and at the           
 point at which they raised their half of the match, then they would           
 establish a BIDCO and as a company, as a corporation that had an              
 agreement with ASTF to only loan funds in Alaska for these types of           
 deals, they would start operating."                                           
                                                                               
 Number 1825                                                                   
                                                                               
 REPRESENTATIVE PORTER asked Mr. Kenworthy whether, as a condition             
 of furnishing funds to the village of Tyonek, ASTF had received the           
 standard nondiscrimination pledge and waiver of any alleged                   
 sovereign immunity before granting that.                                      
                                                                               
 MR. KENWORTHY answered that the board had approved the grant at its           
 last meeting but had not yet finalized the negotiation.                       
                                                                               
 REPRESENTATIVE PORTER suggested that, since getting into the                  
 village of Tyonek required a 24-hour notice and their approval,               
 those elements should be considered.                                          
                                                                               
 Number 1916                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked whether an equity kicker was                    
 something the BIDCO or ASTF would do.                                         
                                                                               
 MR. KENWORTHY explained, "The terms of the deal between the                   
 operators of the BIDCO and the businesses they finance are their              
 business.  But based on the Michigan experience, they can't ask for           
 too high an interest rate, because that's what their enormous cash            
 needs demand on the businesses in the early years.  So, in return             
 for a more spread-out schedule in taking risks, they generally get            
 prime plus two or three points and then they take a warrant or an             
 option to buy so many shares, or a piece of the company.  In many             
 cases, the principals of the BIDCO are helping manage that company            
 or identify management to put that company together."                         
                                                                               
 Number 1916                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked about return back to the principal of           
 the foundation.                                                               
                                                                               
 MR. KENWORTHY replied, "Those terms will be set in the agreement              
 between ASTF and the BIDCO, and that's where the formula of how               
 much money they owe back to ASTF and the formula of how they can              
 repay that loan through sales and jobs, in effect, would be set."             
 He added, "Unless you do that, you can't get private investors to             
 help capitalize a higher-risk institution."                                   
                                                                               
 Number 1954                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked if there was not also a venture                 
 capital fund in Alaska.                                                       
                                                                               
 MR. KENWORTHY said the Polaris Fund did "all equity deals ... and             
 that's a much narrower, higher-risk, higher-reward market than                
 BIDCOs; BIDCOs are the middle-risk market."  He said ASTF hoped to            
 establish a network outside the state to foster a broker match                
 function.  "But we're not going to be helping to capitalize those             
 deals," he said.                                                              
                                                                               
 Number 2000                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG stated his understanding:  "A BIDCO is like           
 a bank and it is a high-risk, venture-capital-type bank that would            
 loan funds and expect payment like a bank.   But they would make              
 arrangements, as you've just described, in terms of their equity              
 being able to reduce them.  So, this would be a financial                     
 institution that would be capitalized with your grant and the                 
 infusion of private money."                                                   
                                                                               
 MR. KENWORTHY replied, "That's a correct description.  I'll just              
 make one modification.  Venture funds tend to do all equity deals.            
 They put money in and there's no assets there.  They're just funds.           
 They own a piece of the company.  And that's much higher risk.                
 Maybe there's two deals a year up here that would qualify for                 
 venture capital in Alaska."  He explained that BIDCOs were middle             
 risk because they were lending funds to businesses.  "So," he said,           
 "there's assets there that could be attached and they're doing some           
 equity on top of that."  He said there was a much broader range of            
 businesses that would qualify for that less-costly financing than             
 venture capital.  "But it is far more riskier than banks," he said,           
 "which only lend on assets.  If you think of the three different              
 windows, the highest risk is venture capital with all equity.  The            
 BIDCO is middle risk; it's a mixture of debt and equity.  And then            
 there's organizations like AIDEA, which essentially are pretty                
 bankable asset-based lending.  Three levels of risk and reward."              
                                                                               
 Number 2096                                                                   
                                                                               
 CHAIRMAN KOTT referred to repayment of principal and interest back            
 to ASTF and asked if that would end up in ASTF's earnings account             
 or elsewhere.                                                                 
                                                                               
 MR. KENWORTHY said, "It would end up in our earnings.  The                    
 legislature could reappropriate it for other purposes as we do our            
 budget each year."                                                            
                                                                               
 Number 2107                                                                   
                                                                               
 REPRESENTATIVE MASEK referred to Section 4, page 2, line 18, of the           
 bill, which read, "The board may exempt grants of $5,000 or less              
 from peer review."  She asked for an explanation.                             
                                                                               
 MR. KENWORTHY replied, "In ASTF's current statute, we do not have             
 to do technical or scientific reviews on grants under 5K.  We                 
 currently do some level of review for every grant we do."                     
                                                                               
 REPRESENTATIVE MASEK asked what "peer review" meant.                          
                                                                               
 Number 2156                                                                   
                                                                               
 MR. KENWORTHY answered, "Peer review tends to be scientific experts           
 we find in the field of the proposal.  In addition, since I became            
 director seven months ago, for technology deals, we also do a                 
 business review in which we'll have scientists assess the                     
 technology and we'll have business people assess the business or              
 economic logic of it.  And on top of that, the board, of course,              
 that the Governor appoints, of people who have some experience                
 growing technology-based businesses, and they look at all the                 
 reviews and make a decision."                                                 
                                                                               
 REPRESENTATIVE MASEK asked why it was necessary to remove the peer            
 review.                                                                       
                                                                               
 MR. KENWORTHY responded, "I think the amendment that's being                  
 proposed will not change ASTF's current requirement not to have the           
 peer review things under 5K.  It will not change our operating at             
 all.  Currently, ... grants under 20K get a staff peer review and             
 then the board reviews each of them individually."                            
                                                                               
 REPRESENTATIVE KOTT asked if that was under current statute, under            
 the ASTF program, for projects less than $5,000.                              
                                                                               
 MR. KENWORTHY replied, "Right.  We have that authority but we don't           
 use it."                                                                      
                                                                               
 Number 2209                                                                   
                                                                               
 REPRESENTATIVE MASEK referred to Section 5, which the sectional               
 analysis indicated removed endowment grants awards from the                   
 consistency requirement of the section.  She asked why that                   
 requirement was being removed.                                                
                                                                               
 MR. KENWORTHY indicated he did not have that in front of him and              
 could not answer the question.                                                
                                                                               
 REPRESENTATIVE KOTT clarified the question:  "Why are we carving              
 out an exception for this particular endowment grant from the rest            
 of the grants under ASTF?"                                                    
                                                                               
 Number 2285                                                                   
                                                                               
 MR. KENWORTHY reiterated that it was not in front of him.  He                 
 speculated that there might be one of two reasons.  "One is," he              
 said, "there's a requirement that half our grants have to be for              
 less than 100K.  Does that section refer to that?  And secondly,              
 there's a requirement that our grants be for research and                     
 development in commercialization activities.  So, since BIDCOs ...            
 do not invest in (indisc.) commercialization activities directly,             
 we are talking about financing a bank that will do those kinds of             
 deals, in part."                                                              
                                                                               
 REPRESENTATIVE ROKEBERG commented, "A BIDCO is not a research or              
 development project, it's a BIDCO.  So, you've got to exempt it,              
 that's all."                                                                  
                                                                               
 Number 2339                                                                   
                                                                               
 CHAIRMAN KOTT asked what the status was of the $1 million                     
 appropriated in 1992.                                                         
                                                                               
 MR. KENWORTHY replied, "We have set that aside in our budget                  
 projections.  We've carried those funds over each year; it was                
 Section 19 in our authorization language last year that allowed us            
 to do that, as well as other multi-year grant funds.  So, it                  
 carried it over."  He indicated it had not been formally escrowed             
 but had been set aside in their budget projections, for use if the            
 legislature extended the June 30th deadline and ASTF found a                  
 proposal to fund.  "Otherwise, I believe the funds will lapse to              
 ASTF," he added.                                                              
                                                                               
 Number 2371                                                                   
                                                                               
 CHAIRMAN KOTT asked if the $1 million was drawing interest.                   
                                                                               
 MR. KENWORTHY said, "It's drawing interest because we only draw               
 down our earnings to the permanent fund as we need them.  So the              
 interest is currently captured in the interest earnings of the                
 endowment."                                                                   
                                                                               
 Number 2395                                                                   
                                                                               
 REPRESENTATIVE ELTON moved that HB 490 move out of committee with             
 the attached zero fiscal note and individual recommendations.                 
                                                                               
 REPRESENTATIVE ROKEBERG objected.                                             
                                                                               
 CHAIRMAN KOTT noted there was a motion to move HB 490 with                    
 individual recommendations and accompanying zero fiscal note.  He             
 acknowledged the objection.                                                   
                                                                               
 Number 2401                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked Representative Elton, as co-sponsor             
 of the bill, why the year 2000 was proposed.                                  
                                                                               
 REPRESENTATIVE ELTON explained the sunset date was 1996.  If that             
 date was not changed, the forum or process would no longer be                 
 there.                                                                        
                                                                               
 Number 2424                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG said, "If you move it to the year 2000, the           
 million bucks just sits there for four years, although it's not               
 hurting the state particularly."  He noted that he supported the              
 BIDCO concept.                                                                
                                                                               
 REPRESENTATIVE ELTON added, "The simple and short answer for the              
 date is it extends the sunset date and under the provisions of this           
 bill, too, the BIDCO would be capitalized at the $3 million level             
 rather than the $1 million level."                                            
                                                                               
 CHAIRMAN KOTT asked, "Representative Elton, wouldn't the                      
 capitalization occur within 12 months if this bill were to pass,              
 that we would find ASTF capitalizing the fund at the tune of $2               
 million, which we'd bring up to $3 million, then we're looking for            
 a partnership out there?"                                                     
                                                                               
 Number 2456                                                                   
                                                                               
 REPRESENTATIVE ELTON said, "And you'd have until the year 2000, I             
 think, to do that."  He suggested if HB 490 did not pass, the $1              
 million would lapse back because there would be no authority for              
 the BIDCO process without it.                                                 
                                                                               
 REPRESENTATIVE ROKEBERG reiterated his support of the BIDCO                   
 concept.  He suggested it would not be easy to find a partner who             
 would come up with the $3 million.  "But four years is an awful               
 long time," he added.                                                         
                                                                               
 Number 2482                                                                   
                                                                               
 CHAIRMAN KOTT asked Mr. Kenworthy to comment on whether four years            
 was necessary.                                                                
                                                                               
 TAPE 96-20, SIDE B                                                            
 Number 001                                                                    
                                                                               
 MR. KENWORTHY said, "No, I don't think so, but please don't give me           
 less than two.  It takes about six months to get through the whole            
 RFP process again.  I'll have to go back on the street, do an RFP             
 and comment period, give people time to make a proposal, and the              
 finalist round.  And in Michigan, it usually took about 12 to 18              
 months once a commitment was made.  And Michigan did not run on a             
 competitive RFP process.  It ran on sort of a serial admission                
 process because they were launching many BIDCOs at a time.  But it            
 took proposers generally 12 to 18 months to finally come up with              
 the cash to meet the match, even after they had a commitment from             
 the state based upon their business plan."  To be safe, he                    
 suggested a minimum of two years but added that three years would             
 be nice.                                                                      
                                                                               
 Number 046                                                                    
                                                                               
 CHAIRMAN KOTT said, "Just again, to reiterate, if nothing happens             
 by June 30 of this year, will that $1 million lapse back into the             
 Science and Technology fund?"                                                 
                                                                               
 MR. KENWORTHY said, "Correct."                                                
                                                                               
 CHAIRMAN KOTT asked if it was available for appropriation.                    
                                                                               
 (Indisc. -- several overlapping comments and coughing)                        
                                                                               
 MR. KENWORTHY indicated it would be available for expenditure by              
 the legislature.                                                              
                                                                               
 Number 080                                                                    
                                                                               
 REPRESENTATIVE ELTON said, "I'm going to argue in favor of the                
 four-year sunset because I think if you make it too much shorter,             
 I would hate to see the pressure be to approve one of the bids they           
 might get in the first round, simply because they may run out of              
 authorization time if they decide to reject the first round of bids           
 and start over.  And I think that I'd rather have them feel free to           
 reject and not see a time pressure of two or three years."                    
                                                                               
 CHAIRMAN KOTT responded, "I think we've just heard Mr. Kenworthy              
 saying he'd like a minimum of two and, ideally, three.  But now               
 we're going more than the ideal."                                             
                                                                               
 MR. KENWORTHY clarified he was not criticizing the four years.  He            
 suggested it might be a moot issue because the legislature had                
 authority to appropriate when those funds lapsed.  He said he would           
 inform the legislature each year, at budget time, about the status            
 of the organization."                                                         
                                                                               
 Number 133                                                                    
                                                                               
 REPRESENTATIVE GENE KUBINA referred to the second page of the ASTF            
 position paper on BIDCOs and noted that ASTF had recommended four             
 years.  "And that was their recommendation and I believe that was             
 the amount of years in the original BIDCO legislation," he said.              
                                                                               
 CHAIRMAN KOTT concurred.  "It was four years originally, but here             
 we are four years later and we still have a million dollars and               
 nothing has been done," he said.                                              
                                                                               
 REPRESENTATIVE PORTER stated that unless ASTF actually encumbered             
 that money to a BIDCO, it was available for appropriation every               
 year, regardless.                                                             
                                                                               
 Number 167                                                                    
                                                                               
 REPRESENTATIVE ROKEBERG said, "I'd like to move a conceptual                  
 amendment to change the 2000 to 1999."  He noted that was on                  
 page3, Section 8, line 7.                                                     
                                                                               
 REPRESENTATIVE KUBINA objected for the purpose of discussion.                 
                                                                               
 CHAIRMAN KOTT stated there was a motion to amend line 7 of the bill           
 from 2000 to 1999 and noted the objection.                                    
                                                                               
 REPRESENTATIVE ROKEBERG said, "I was under the impression it would            
 be available for reappropriation."                                            
                                                                               
 REPRESENTATIVE PORTER said, "It is, unless they actually take the             
 money and encumber it with a deal with a BIDCO and transfer it to             
 a BIDCO to do business, however they've made the deal."  He                   
 referred to a superior court decision dealing with the                        
 constitutional budget reserve issue of what was and was not                   
 available for appropriation.  "All of those kinds of funds that are           
 just laying out there are available for appropriation," he said.              
                                                                               
 REPRESENTATIVE ROKEBERG responded, "So the legislature, in its                
 wisdom, could appropriate it (indisc.).                                       
                                                                               
 REPRESENTATIVE PORTER replied, "That's right, next year, the whole            
 thing, right back."                                                           
                                                                               
 REPRESENTATIVE ROKEBERG said, "Because I was concerned if we went             
 up the $3 million level and (indisc. -- overlapping conversations).           
                                                                               
 REPRESENTATIVE PORTER reiterated it was still available unless they           
 used it.                                                                      
                                                                               
 Number 235                                                                    
                                                                               
 REPRESENTATIVE ELTON referred to earlier testimony and said, "If we           
 capitalize it at the $3 million level, as proposed in this bill,              
 this is probably enough for one BIDCO.  And I would hate to see us            
 get into a position where they go up for an RFP, they select a                
 BIDCO, they give that BIDCO, as Mr. Kenworthy said, 12 to 18 months           
 to find the private capital, and 14 months later, the BIDCO comes             
 back and says, `sorry, we can't capitalize it.'  A three-year time            
 limit may mean that that's the last shot they've got.  A four-year            
 time limit may mean they can start the process over and try to                
 create a new BIDCO."                                                          
                                                                               
 Number 282                                                                    
                                                                               
 REPRESENTATIVE ROKEBERG pointed out a college education took four             
 years and that was two terms in the Army.  "That's a long time," he           
 said.                                                                         
                                                                               
 REPRESENTATIVE ELTON said he wished the RFP process could be                  
 condensed.                                                                    
                                                                               
 REPRESENTATIVE ROKEBERG indicated he would like the program to come           
 to fruition and not languish for a number of years without                    
 activity.  He said that was the reason he had brought the amendment           
 forward.                                                                      
                                                                               
 CHAIRMAN KOTT suggested that in the same respect, they did not want           
 people rushing in and later finding out it should have been worked            
 out more thoroughly.  "Like Representative Elton suggests," he                
 said, "if one fails, for whatever reason, at least they have one              
 more shot at it."  He reiterated Representative Porter's comment              
 that as long as the money was not encumbered, it was always                   
 available for appropriation.  He thought there would be a strong              
 urge to encumber those dollars to avoid appropriation by the                  
 legislature.                                                                  
                                                                               
 Number 335                                                                    
                                                                               
 REPRESENTATIVE ROKEBERG withdrew his amendment.                               
                                                                               
 CHAIRMAN KOTT noted that the conceptual amendment had been                    
 withdrawn and that there was still a motion to move the bill out of           
 committee.  There being no objection, HB 490 moved from the House             
 Labor and Commerce committee with individual recommendations and              
 attached zero fiscal note.                                                    
 HB 502 - CONDUCTING AUCTIONS OF REAL PROPERTY                               
                                                                               
 Number 376                                                                    
                                                                               
 CHAIRMAN KOTT announced HB 502, "An Act relating to the auctioning            
 of real estate," was the next order of business.                              
                                                                               
 REPRESENTATIVE GARY DAVIS, sponsor of HB 502, said he doesn't know            
 how many people in the state realize that you have to have a real             
 estate brokers license to auction off real estate.  He said he                
 didn't think you'd need a real estate license to be an auctioneer.            
 Representative Davis said HB 502 corrects that situation.  He told            
 the committee he doesn't know why the original statute was written,           
 but maybe there were some "fly by night" auctioneers in the state             
 several years ago.  The legislation makes it legal for an                     
 auctioneer to auction off real estate.  The language in the bill is           
 meant to allow a real estate auction to be performed by an                    
 auctioneer who has developed specific qualifications.  If a person            
 has completed a certified program in auctioneering and that program           
 includes a course in real estate sales, then that person can                  
 auction real estate as long as a licensed real estate broker is               
 present to supervise.  This way, experts in both fields of                    
 auctioneering and real estate will be present to conduct their                
 specified duties without inflicting an unnecessary hardship on the            
 auctioneer.  Representative Davis pointed out that there are                  
 boroughs and cities that have foreclosure auctions.  He noted there           
 are auctioneers in the state that do have a real estate brokers               
 license, but there are also several who don't.                                
                                                                               
 Number 513                                                                    
                                                                               
 CHAIRMAN KOTT said if he wanted to auction off real estate, as an             
 auctioneer, he would not only have to have an auctioneer license              
 but also a real estate license.                                               
                                                                               
 REPRESENTATIVE DAVIS said he believes that is true.  He noted the             
 license is a real estate "brokers" license.                                   
                                                                               
 REPRESENTATIVE SANDERS said he knows real estate auctioneers who              
 aren't brokers, they're real estate salesmen.                                 
                                                                               
 Number 532                                                                    
                                                                               
 REPRESENTATIVE ROKEBERG said the committee has information which              
 discusses the license requirements under AS 08.88.161, which says,            
 "Unless a licensed real estate broker, associate broker salesman,             
 etc., they may not auction."  That is the prohibition.  So it's any           
 licensed real estate agent or above.                                          
                                                                               
 REPRESENTATIVE ELTON asked what the process of an auction is.  He             
 said he has always considered an auctioneer as a middle person who            
 promotes a sale and not the person that consummates the sale.                 
 Representative Elton said he thought sale was consummated between             
 the owner and the new buyer.  He asked if that is the way that an             
 auction usually works or does the property transfer to the                    
 auctioneer who then transfers it through the auction process.                 
                                                                               
 REPRESENTATIVE DAVIS said he isn't sure of the answer.  He asked if           
 there was anyone on teleconference waiting to testify.                        
                                                                               
 CHAIRMAN KOTT said there was Mr. Blakely.  REPRESENTATIVE DAVIS               
 said he may be able to answer the question.                                   
                                                                               
 Number 612                                                                    
                                                                               
 REPRESENTATIVE PORTER pointed out there are auctions where the                
 auctioneer actually owns the property.  Normally the auctioneer               
 doesn't own the property but he does cut the final deal for selling           
 by virtue of sole if it's an open auction.  He said the terms of              
 the sale contract would be the last bid that was awarded to bid.              
                                                                               
 REPRESENTATIVE ELTON said that would set the value, but somebody              
 else might actually be conducting the sale.                                   
                                                                               
 REPRESENTATIVE PORTER said the auctioneer would offer the property            
 in compliance with the owner's specifications.                                
                                                                               
 REPRESENTATIVE ELTON asked if the owner or the owner's agent could            
 be a realtor.                                                                 
                                                                               
 Number 664                                                                    
                                                                               
 REPRESENTATIVE ROKEBERG asked if there was a licensure for                    
 auctioning in Alaska.                                                         
                                                                               
 REPRESENTATIVE DAVIS said he would defer the question to Mr.                  
 Blakely.                                                                      
                                                                               
 Number 691                                                                    
                                                                               
 NORM "BUD" BLAKELY, Auctioneer, referred to a letter in the                   
 committee files dated July 8, 1993, and said the letter was written           
 by him in conjunction with Ron Johnson, a real estate broker.  At             
 the time the letter was written, Mr. Johnson was on the Real Estate           
 Board.  Mr. Johnson brought the issue before the board.  He said he           
 was told that this is a state law and in order for him to be able             
 to sell any type of real estate, he would have to get a real estate           
 license.  Mr. Blakely informed the committee he went to school to             
 become an auctioneer and has had, from time to time, opportunities            
 to sell real estate, but under the present statute he cannot do so.           
 He said he would like to be able to sell real estate.  He noted he            
 doesn't want to sell real estate full time and doesn't want to have           
 to take the classes or the time to sell real estate.  Mr. Blakely             
 referred to the question regarding auctioneers having to have a               
 license and said they are licensed through the state like any other           
 business.                                                                     
                                                                               
 CHAIRMAN KOTT asked Mr. Blakely to guess how many auctioneers there           
 are that hold dual licenses.                                                  
                                                                               
 MR. BLAKELY responded that he has no idea how many there are.                 
                                                                               
 CHAIRMAN KOTT asked if the number of auctioneers is small.                    
                                                                               
 MR. BLAKELY said he doesn't have any idea, but said he thinks there           
 may be about 12 in the Anchorage area.                                        
                                                                               
 REPRESENTATIVE PORTER asked if the license Mr. Blakely holds is a             
 regular business license or if it is an occupational license with             
 certain criteria and training required in auctioneering.                      
                                                                               
 MR. BLAKELY said he thinks the state requires a business license.             
 He noted he went to a school in Montana that has certain criteria             
 which he had to meet.  He said he was tested at the end of the term           
 and was given a certificate from that school.                                 
                                                                               
 REPRESENTATIVE PORTER asked if that is a requirement for an                   
 occupational license.                                                         
                                                                               
 MR. BLAKELY said he doesn't think it is in the state of Alaska, but           
 pointed out some states require it.                                           
                                                                               
 Number 827                                                                    
                                                                               
 REPRESENTATIVE KUBINA said his thoughts of an auctioneer is a guy             
 that is up there almost "yodeling," calling out, and recognizing              
 people who are giving bids.  He said to him the bill sounds like it           
 is saying that you can have an auctioneer doing that.  He referred            
 to subparagraph (2) and said it seems to him that there would be a            
 person doing the calling and a licensed broker who would actually             
 make the transaction.                                                         
                                                                               
 CHAIRMAN KOTT said that is his interpretation of the bill.                    
                                                                               
 REPRESENTATIVE PORTER noted you don't have to be a veterinarian to            
 auction off a horse.                                                          
                                                                               
 Number 908                                                                    
                                                                               
 REPRESENTATIVE DAVIS said Representative Kubina's statement is                
 correct.  The transfer of real estate is a legal document, so an              
 auctioneer wouldn't want that responsibility to make sure the                 
 process moves forward correctly when it comes to the consummation             
 of the deal.  He said that the bill says that a broker needs to be            
 present for those purposes.                                                   
                                                                               
 REPRESENTATIVE ROKEBERG asked how many people would be affected by            
 the legislation.                                                              
                                                                               
 REPRESENTATIVE DAVIS pointed out there was testimony indicating               
 that we don't know how many auctioneers are in the state, but there           
 was a guess of 12 in the Anchorage area.                                      
                                                                               
 REPRESENTATIVE ROKEBERG asked if there are licensed real estate               
 brokers and competent auctioneers in the state of Alaska.                     
                                                                               
 REPRESENTATIVE DAVIS said he thinks there are two.                            
                                                                               
 REPRESENTATIVE ROKEBERG pointed out that there has been real estate           
 auctions going on in the state of Alaska for a number of years.               
                                                                               
 REPRESENTATIVE DAVIS said he isn't sure how the court house                   
 foreclosure auctions/sales are have been pursued.                             
                                                                               
 REPRESENTATIVE ROKEBERG said there have been a number of auctions             
 in the state of Alaska for real property over the years.  He said             
 he doesn't think there has ever been a problem before.  The fact of           
 the matter is several auctioneers are licensed real estate agents             
 that do perform this function.                                                
                                                                               
 KEN LANCASTER, Broker, Beluga Realty, came before the committee to            
 testify.  He said he fully supports Representative Davis' bill                
 agrees totally with his sponsor statement.  Mr. Lancaster informed            
 the committee said he has been in real estate and has been licensed           
 for 20 years.  He said he believes there is one licensed real                 
 estate broker auctioneer combination on the Kenai Peninsula, one in           
 Anchorage and he has heard of one in Fairbanks.  He said there is             
 a lot of property being auctioned off, obviously not by realtors,             
 and that's where the possibility of some misdoing could happen.  If           
 there isn't a realtor involved, maybe it isn't being done properly.           
                                                                               
 Number 1116                                                                   
                                                                               
 CHAIRMAN KOTT asked Mr. Lancaster if he is suggesting that there              
 are about three people in the state that have a dual license.                 
                                                                               
 REPRESENTATIVE ROKEBERG said he would like to point out that there            
 is not a license procedure for auctioneers in the state and he has            
 introduced a bill that would address the licensing of auctioneers.            
                                                                               
 REPRESENTATIVE PORTER said it seems to him that there is a                    
 requirement in the Municipality of Anchorage to license                       
 auctioneers.                                                                  
                                                                               
 REPRESENTATIVE ROKEBERG said it seems to him it is just a business            
 license.                                                                      
                                                                               
 REPRESENTATIVE PORTER said he thinks that in addition to the state            
 business license, the Municipality of Anchorage requires an                   
 auctioneer license with occupational criteria.                                
                                                                               
 REPRESENTATIVE ROKEBERG referred to selling real estate and asked             
 how often auctions are used.                                                  
                                                                               
 MR. LANCASTER informed the committee that auctions aren't a common            
 element of real estate marketing, but they do come up occasionally.           
 He said there are probably about six a year that he is aware of.              
 He noted with state sales, many auctions are related to                       
 subdivisions with recreational property.                                      
                                                                               
 MR. LANCASTER informed the committee that in other countries one of           
 the rules is that after property is on the market so long, like six           
 months, it automatically goes to auction.  Their auctioneers are              
 licensed professionally by the country.  He noted New Zealand is              
 one he is familiar with.                                                      
                                                                               
 Number 1290                                                                   
                                                                               
 REPRESENTATIVE PORTER said from the testimony he has heard, there             
 just could be some auctions of real estate going on where the                 
 auctioneer doesn't have a real estate license and the bill would              
 provide some additional protection.                                           
                                                                               
 REPRESENTATIVE ROKEBERG asked Mr. Lancaster if he has ever used an            
 auction to sell property.                                                     
                                                                               
 MR. LANCASTER said he hasn't.  He explained he has never found the            
 opportunity to have that licensed auctioneer in the vicinity where            
 they could do that.  What typically happens, those sales are held             
 over and are taken to Anchorage or Homer to auction them off with             
 Dick Sinhorst (Sp.?) or Gold Strike Realty of Anchorage.                      
                                                                               
 Number 1401                                                                   
                                                                               
 MR. BLAKELY pointed out an auctioneer is a professional like any              
 other.  He said he has had an opportunity to sell a subdivision for           
 an estate but he couldn't do it because he was not a licensed real            
 estate person.  Mr. Blakely referred to cities and boroughs that              
 sometimes have auction sales on properties which are delinquent for           
 taxes and said he isn't able to do that without obtaining a real              
 estate license.  He said he really doesn't want to sell real estate           
 as a real estate sales person.                                                
                                                                               
 Number 1471                                                                   
                                                                               
 REPRESENTATIVE KUBINA made a motion to move HB 502 with individual            
 recommendations.                                                              
                                                                               
 REPRESENTATIVE ROKEBERG objected.  He said he has given committee             
 members a letter from the Alaska Association of Realtors objecting            
 to HB 502.  He said he thinks the reason there is one word in the             
 real estate licensing statute where realtors are (indisc.) perhaps            
 professional profession, but they are certainly a licensed                    
 profession with significant education, continuing education, and              
 other safeguards for the consuming public that requires that they             
 perform their jobs in a responsible manner.  Representative                   
 Rokeberg said there is no licensure for auctioneers in Alaska.  He            
 said a constituent in his district requested he introduce a bill              
 that requires licensing of auctioneers, but because of the crunch             
 of business, it hasn't been able to be pursued.  However, he thinks           
 there is a need for this type of thing and as a result, he is very            
 concerned that we would allow a totally unlicensed person to have             
 the ability to market real estate.  Notwithstanding the fact, the             
 bill rightly conjoins the operation of auctioneering with a                   
 licensed broker.  Representative Rokeberg said HB 502 is an                   
 addition to the real estate law.  It is a number of pages long and            
 is an intrusion of the auctioneers into the real estate title and             
 statute.  He noted there are individuals who are dually qualified             
 to do this, they have businesses and are protecting a business they           
 have worked hard for.  By passing HB 502, we could be allowing                
 people who are unlicensed auctioneers to encroach on certain areas            
 and could possibly destroy certain businesses that are in                     
 existence.  Representative Rokeberg said he thinks HB 502 should be           
 put in a subcommittee.                                                        
                                                                               
 Number 1692                                                                   
                                                                               
 REPRESENTATIVE KUBINA said as he reads the bill, it gives all real            
 estate people who don't feel comfortable about (indisc.) people, to           
 be sitting right next to an auctioneer as he auctions off real                
 estate and then the real estate broker would still do all the work.           
 He said the bill gives the ability to have things auctioned, to all           
 real estate people and not only the three in the state.                       
                                                                               
 REPRESENTATIVE ROKEBERG indicated the bill would allow auctioneers            
 to enter the real estate market sales.  As things currently are, it           
 offers real estate people to get into the auctioneering business              
 and visa versa.  It certainly isn't a total effort for auctioneers            
 to enter into real estate with the caveat that a broker be present,           
 which he thinks is a strong recommendation in the legislation and             
 it serves the purpose that the realtors are objecting to.                     
                                                                               
 REPRESENTATIVE ELTON said he would like to point out that not only            
 does a real estate broker or an associate broker have to be                   
 present, they have to be supervising.  The bill allows a broker to            
 contract with an auctioneer to move a piece of property.  He said             
 he sees the bill as something that enhances the realtor and gives             
 the realtor another option.                                                   
                                                                               
 REPRESENTATIVE ROKEBERG said he thinks he heard testimony that                
 there has been real estate auctions in Alaska that were probably              
 carried out without the auctioneer being a licensed broker.  There            
 has been clear breaches of this existing statute previously.  The             
 reason there probably hasn't been problems is that there is no                
 enforcement.  The Real Estate Commission has one executive director           
 and one or two investigators in which to police their entire                  
 industry of 2,200 people.  He asked Chairman Kott if he could tell            
 him how many enforcement people the Department of Commerce has to             
 enforce their licensing.  They've got very little.  He said he is             
 looking at the (indisc.).  The bill would allow someone to conduct            
 a real estate auction because they say there is nothing forbidding            
 it.  They could say, "Well, we're under the supervision of a                  
 broker."  Right now, the only enforcement procedure to police this            
 is to have it done under the Department of Commerce, the Real                 
 Estate Commission and the executive director and investigators.  By           
 passing this bill, it would be taken out from underneath them.                
                                                                               
 REPRESENTATIVE PORTER said if there are or aren't enough resources            
 to do inspections, there are aren't enough resources to do                    
 inspections under this bill or under the existing situation.  He              
 said he would submit whoever is supposed to be doing those things,            
 all they have to do is get a copy of the newspapers to find out               
 where the auctions are and who is doing them.  It is not that tough           
 of a deal.  Representative Porter said he sees HB 502 as                      
 eliminating perhaps several of those sales that aren't occurring              
 under the correct supervision, enhancing realtors positions to do             
 more and perhaps taking a little work away from three people, which           
 isn't a big deal when you're balancing the betterment for the most.           
 He said he would submit that the committee move HB 502.                       
                                                                               
 Number 2103                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG withdrew his objection.                               
                                                                               
 CHAIRMAN KOTT said there is a motion to move HB 502 from committee            
 with individual recommendations and the accompanying zero fiscal              
 note.  He asked if there was an objection.  Hearing none, HB 502              
 moved from the House Labor and Commerce Committee.                            
 ADJOURNMENT                                                                   
                                                                               
 CHAIRMAN KOTT adjourned the House Labor and Commerce Committee                
 meeting at 4:40.                                                              
                                                                               

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