Legislature(1997 - 1998)
03/14/1997 03:20 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE March 14, 1997 3:20 p.m. MEMBERS PRESENT Representative Norman Rokeberg, Chairman Representative John Cowdery Representative Bill Hudson Representative Jerry Sanders Representative Joe Ryan Representative Tom Brice MEMBERS ABSENT Representative Gene Kubina COMMITTEE CALENDAR *HOUSE BILL NO. 178 "An Act relating to letters of credit under the Uniform Commercial Code; and providing for an effective date." - HEARD AND HELD *HOUSE BILL NO. 33 "An Act relating to real estate licensing and the real estate surety fund; and providing for an effective date." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 178 SHORT TITLE: UNIFORM COMMERCIAL CODE:LETTERS OF CREDIT SPONSOR(S): LABOR & COMMERCE BY REQUEST JRN-DATE JRN-PG ACTION 03/06/97 561 (H) READ THE FIRST TIME - REFERRAL(S) 03/06/97 561 (H) LABOR & COMMERCE 03/14/97 (H) L&C AT 3:15 PM CAPITOL 17 BILL: HB 33 SHORT TITLE: REAL ESTATE LICENSING SPONSOR(S): REPRESENTATIVE(S) ROKEBERG BY REQUEST JRN-DATE JRN-PG ACTION 01/13/97 36 (H) PREFILE RELEASED 1/3/97 01/13/97 36 (H) READ THE FIRST TIME - REFERRAL(S) 01/13/97 36 (H) LABOR & COMMERCE, FINANCE 03/14/97 (H) L&C AT 3:15 PM CAPITOL 17 WITNESS REGISTER ART PETERSON, Attorney Uniform Law Commissioner State of Alaska 350 N. Franklin Street Juneau, Alaska 99801 Telephone: (907) 789-9830 POSITION STATEMENT: Testified on HB 178 L. S. KURTZ, JR., Attorney Uniform Law Commissioner Uniform Commercial Code 1050 Beech Lane Anchorage, Alaska 99501 Telephone: (907) 258-6051 POSITION STATEMENT: Testified on HB 178 DOUGLAS LOTTRIDGE, Assistant Attorney General Commercial Section Department of Law State of Alaska 1031 W 4th Avenue, Suite 200 Anchorage, Alaska 99801 Telephone: (907) 269-5100 POSITION STATEMENT: Testified on HB 178 ELEANOR "GRAYCE" OAKLEY, Executive Administrator Real Estate Commission P.O. Box 4072 Palmer, Alaska 99645 Telephone: Unavailable POSITION STATEMENT: Testified on HB 33 KENNETH TRUITT, Assistant Attorney General Department of Law, Commercial Section State of Alaska P.O. Box 110300 Juneau, Alaska 99811-0300 Telephone: (907) 465-3600 POSITION STATEMENT: Testified on HB 33 CATHERINE REARDON, Director Department of Commerce and Economic Development Division of Occupational Licensing P.O. Box 110806 Juneau, Alaska 99811-0806 Telephone: (907) 465-2534 POSITION STATEMENT: Testified on HB 33 KRISTAN TANNER, Real Estate Practitioner 1830 E Parks Street, Number 386 Wasilla, Alaska 99654 Telephone: (907) 373-3575 POSITION STATEMENT: Testified on HB 33 TERRY MCGILLIVARY, Staff Member Real Estate Commission 3601 C Street, Number 722 Anchorage, Alaska 99503 Telephone: (907) 269-8768 POSITION STATEMENT: Testified on HB 33 CHRIS STEPHENS, Commercial Real Estate Broker President Bond, Stephens and Johnson 3000 A Street, Number 200 Anchorage, Alaska 99503 Telephone: (907) 786-7305 POSITION STATEMENT: Testified on HB 33 ACTION NARRATIVE TAPE 97-21, SIDE A Number 001 CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce Standing Committee to order at 3:20 p.m. Members present at the call to order were Representatives Cowdery, Hudson, Ryan and Brice. Representative Sanders arrived at 3:21 p.m. Number 056 HB 178 - UNIFORM COMMERCIAL CODE:LETTERS OF CREDIT CHAIRMAN ROKEBERG indicated that the committee would address HB 178, "An Act relating to letters of credit under the Uniform Commercial Code; and providing for an effective date." Number 103 ART PETERSON, Attorney, Uniform Law Commissioner, State of Alaska, came forward to testify on HB 178. He noted that another Law Commissioner was in attendance via teleconference in Anchorage. He wished to cover some general points of this legislation. Mr. Peterson continued that the National Conference of Commissioners in Uniform State Laws, the body that promulgated the original Uniform Commercial Code (UCC), including this Article 5 on Letters of Credit, is a 105 year organization. Alaska has adopted about 70 to 75 of the Uniform Acts promulgated by this group. The bill before the committee is the UCC's latest amendment of a substantial part of this Commercial Code. MR. PETERSON added that the organization takes many years to develop any revision, such as what's before the committee currently. One of the main points of this legislation, dealing with letters of credit, is that it brings the law current with practices and customs in international trade. Alaska is becoming more involved with international trade and they don't want to be lagging behind the rest of the country in this area. Fifteen states have already enacted this revision before the committee. Twelve states have introduced it in the 1997 session and it was only promulgated by the national conference in 1995. MR. PETERSON noted as a general matter, this legislation revises the law that was enacted and developed about 40 years ago. There has been no significant amendment of the law since then. In this revision the law is simplified and it resolves questions which have arisen, especially with regard to the developing use of computers and modern technology. It clarifies that the parties to a transaction can rely on the international standards of practice. It conforms to international law and practice. The letter of credit industry which is the main means of financing international credit is a two hundred billion dollar industry in the United States. This legislation helps to avoid litigation in a number of areas. Number 432 JERRY KURTZ, JR., Attorney, Uniform Law Commissioner, Alaska, testified via teleconference from Anchorage. Throughout the years he's represented financial institutions on a fairly steady basis. A typical attorney in Alaska has never seen a letter of credit. There are no reported Supreme Court, Alaska cases involving letters of credit. Letters of credit are rare in the litigation world. This is due in part to the Uniform Act. The big problem that's come up in the last twenty years with letters of credit has been the advent of computers. There have been some problems applying the forty year old statute to present commerce as it is being conducted. A lot of letters of credit are still hard paper documents between individuals and banks, businesses, etc. More and more of these types of transactions are being done by some type of electronic communication. MR. KURTZ stated that from the standpoint of Alaska he couldn't stress enough the importance of letters of credit in foreign commerce. They are best thought of as a bridge, a device whereby both a person in Japan and Korea, for example, can deal with an Alaskan company and do so without worrying whether they will be paid for the goods delivered and visa versa. The letters of credit are primarily used in international commerce to assure that a party in one country that is owed money for goods provided in another country will be paid for these goods. MR. KURTZ added that countries have language differences and different banking systems with lots of distance in-between, including a time lag based on what type of transport is involved and the risk of not being paid. A letter of credit is a device to help solve these problems. The practice of letters of credit in international trade has been used for many decades. He emphasized that Alaska is heavily involved in international trade and is becoming more and more so. Number 805 DOUGLAS LOTTRIDGE, Assistant Attorney General, Commercial Section, testified via teleconference from Anchorage on HB 178. He is the attorney assigned to review this legislation. In so doing, he has talked extensively with both the previous gentlemen who testified. He added that his review of the bill comports with what they have testified to. He stated that on behalf of the Department of Law, they have no legal problems with this bill and they support it. He reiterated the fact that because Alaska is so involved in international trade, it only makes sense for them to have a uniform law that other international attorneys and businesses can rely on as being consistent with the law they are familiar with. Number 917 REPRESENTATIVE JOHN COWDERY asked if this legislation would affect the state's AIDEA loan programs. MR. LOTTRIDGE stated that he had not specifically discussed this possibility with the Alaska Industrial Development & Export Authority (AIDEA), but certainly any international transaction using letters of credit would be affected by legislation, whether it's AIDEA or any other organization. Anyone using a letter of credit would be doing so with this law in place, which this law would certainly facilitate their dealings with other private enterprise or other countries. Number 1044 REPRESENTATIVE JOE RYAN referred to the fact that a letter of credit requires seven days for the bank to honor it once all the contract conditions are met. When the person who's paying receives this letter of credit, the funds that are required are deposited in the bank where the letter is issued. The corresponding bank on the other side receives a wire transfer. At the maximum there's about three days that they need to fulfill federal requirements to handle this. Otherwise, they take the other four days and they put the money in a money market at three percent and they make money off of the other party's float. If a party wants to get this money sooner a discount note is signed which is commonly known as a banker's acceptance. The bank charges a fee for giving the money up front. Representative Ryan didn't see why a person has to pay a tribute to a bank to do the normal course of business if they chose that in three days period of time they wanted their money and met all the requirements. They should be able to be paid out if everything is as stated in a letter of credit. He said he didn't see anything in this legislation calling for a dispute resolution. Alaska has a great set of statutes on arbitration. He thought these should be referenced in this legislation. He noted the different types of letters of credit and it's become a practice lately in the market for people to try and get some unsuspecting person to send them a revolving letter of credit for purchases that are made on a continuing basis. Some people sell these revolving letters of credit on the market and leave the purchaser stuck having received nothing. A lot of due diligence is involved by the person issuing the letter of credit and with the institutions with which they're dealing. He stated that he's consulted with individuals regarding this legislation and was waiting for some responses. He wanted to make sure there were no loopholes to this legislation. REPRESENTATIVE ROKEBERG stated that he would also like answers to some of the questions Representative Ryan raised. He thought this was an important piece of legislation and something that should be considered properly. He then asked Mr. Kurtz to give an explanation of some of the concerns which Representative Ryan raised. Number 1295 MR. KURTZ noted Sec. 45.05.108, on page eight of the legislation dealing with the seven day float issue. He stated that this was a delicate issue. This gets into the area of forgeries which is an enormous problem in the banking world. He asked how long do they give a bank or somebody else that has issued a letter of credit to determine whether the documentation is adequate to require someone to pay. He said he was well aware of the problem of bankers making money on float. Not very many people like this practice, but on the other hand the problem of proper documentation and times cannot (indisc.) by looking at what's on the table in front of them. This section is a compromise in that seven business days is an outer limit. There was considerable discussion regarding the wording of this section. There should be a reasonable time after presentation of the documents to produce the money, but whether it's reasonable or not, someone doesn't have more than seven days to either do this or say they aren't going to pay, period. There is no answer to the problem which Representative Ryan has presented. Verifying documents before the letter of credit is honored, is a difficult thing to do, yet one of the advantages of a letter of credit is that they do in a rather expeditious manner, make money move. Three days or five days could be used but this could create a uniformity problem. If this language is out of phase with what the rest of the world is doing this makes it more difficult for a business man to operate under these parameters. Number 1479 MR. PETERSON added that he could make available to Representative Ryan the official Uniform Laws Conference commentary under this section. REPRESENTATIVE RYAN stated that one of the biggest things someone does when engaged in international trade is to exercise due diligence. If someone looses money on a deal because of fraud or some other problem and they've engaged in proper due diligence, well then, "shame on you." The nature of business being what it is, it behooves the person who's handling these things to do so. It's a common practice in the banking community that what they make on their overnight deposits is enough to pay the interest they pay out to the depositors. What they make on their loans, is in effect, a net profit other than taxes. They do quite well and some people would like to have this money invested. Number 1576 CHAIRMAN ROKEBERG clarified that this depends on whether banking institutions are buying or selling federal funds overnight in order to make money. He asked about the issue regarding the lack of any dispute resolution. MR. KURTZ said he would be glad to respond, but wanted to finish with his comments on the previous issue and pointed out that this legislation is a default act. "This is what goes unless it's varied by agreement." He stated that there's nothing wrong with someone negotiating with their banker along with the other parties involved to require that they pay interest for the period they loaned this money while they investigate. He suspects that this has been done at times. On the issue of arbitration. Agreements to arbitrate in the event of dispute on letters of credit are allowed, but generally this is not normally done. Arbitration is a concept unheard of in many places. Alaska has the Uniform Arbitration Act and it's worked very well, but not all states have this Act and other countries probably have something similar. In terms of something that will be readily understood, most other countries have some idea how the United States court system works and visa-versa. MR. KURTZ continued that international commerce looks very strongly for certainty of what laws will govern. In arbitration, it's never known how the arbitrators got where they got. He stated that he was a strong fan of arbitration, but inserting anything like this into the present arbitration would do a disservice to Alaskan business people because if someone from another state or country who doesn't have an effective arbitration system encountered this, they would be very reluctant to go ahead without getting attorneys involved and then spending more money and delay. He thought this was a good concept but didn't feel Alaska was in the position to lead this movement. Number 1717 CHAIRMAN ROKEBERG asked how someone would find themselves in a dispute that would require resolution. He asked if a letter of credit denominated in a monetary amount might be disputed regarding currency rates or asked for an example of any other dispute that might be raised. MR. KURTZ responded that a typical dispute arises when the issuer of the letter of credit refuses to pay out the money they agreed to pay under this document because they feel they have not been given the documentation in genuine form, say for example, if it's fraudulent. It is required to be given before the money is released. This relates to the forged document concept which is a cause of a certain number of these disputes. If it turns out that the documentation is alright and the bank held the money for twenty days, which it's not suppose to do under this bill version unless a party says specifically they will not pay after the seventh day, there have been problems with banks saying, "well, this looks awfully fishy to us. We really don't want to pay you, but we don't want to reject it yet...so we'll just take a few more days." Number 1816 CHAIRMAN ROKEBERG stated that, "so the forgery or somebody presenting themselves or misrepresenting themselves as an authorized party when in fact they weren't and then the institution issuing the draft, if you will, of money to that person as a form of forgery or embezzlement or something." MR. KURTZ responded yes and pointed out a good example of what happens is that suppose a party buys oil from Saudi Arabia, that party relies on a letter of credit from a Saudi bank that is getting help in dealing with the transaction from a New York bank and a question arises as to whether some of the documentation from Saudi Arabia has been properly notarized. This sounds like a simple thing, but there are a lot of false acknowledgments in the world. Number 1880 CHAIRMAN ROKEBERG clarified that the form available for any conflict would be the typical judicial system. MR. KURTZ responded that this was correct. Number 1905 REPRESENTATIVE RYAN stated that he had participated in some of these trades and offered to give an example. He pointed out cargo ships on the ocean with valuable cargo such as wheat, oats, etc. In the process of delivery a party cancels on the deal. He then proceeded to outline in detail the makeup of a transaction such as this with contracts outlining how and when the goods will be delivered. Along with any contracts for sale, a clause might be added that if a dispute arises, it would spell out what laws would govern. He made a point of stating that terms of dispute resolution are written specifically into related contracts. He pointed out that he didn't see anything in the bill before the committee which specifies how disputes would be resolved. MR. PETERSON noted that one of the points that's significant with revisions to Article 5 is the reliance on the body of material regarding the "customs and practices, this international body of material that's developed by the International Chamber of Commerce used in all countries." He added that it's now referred to in this Article as a fall back position, but he would imagine within this body of materials there are such provisions dealing with such things as the forum, the procedures for dispute resolution, etc. He thought this bill adequately takes care of this point. MR. PETERSON stated that this legislation related to proposed Section 45.05.108 and this is the National Conference of Commissioners on Uniform State Laws (NCCUSL) official comment pertaining to this section. As mentioned previously, this is a comment in single space that runs more pages than the section itself. He noted that this was an indication of how much thought went into this legislation. Number 2183 CHAIRMAN ROKEBERG stated that he wished to appoint a subcommittee to review this legislation to be led by Representative Ryan and to include Representatives Cowdery and Kubina. He suggested that a subcommittee could be convened if there was a compelling reason to do so, but if Representative Ryan wished to do some further research and report back to the Chair, they could determine if a subcommittee meeting is necessary. REPRESENTATIVE COWDERY asked the subcommittee Chair to address the problem of a bank being recognized by other banks. HB 33 - REAL ESTATE LICENSING CHAIRMAN ROKEBERG indicated to the committee that the next legislation to consider would be HB 33, "An Act relating to real estate licensing and the real estate surety fund; and providing for an effective date." Chairman Rokeberg noted a possible conflict of interest that might exist with this legislation since he is currently a real estate broker in the state of Alaska. This legislation will have a direct affect on his conduct of business. He continued that he is the sole proprietor and broker for the Rokeberg Company located in Anchorage, Alaska. CHAIRMAN ROKEBERG noticed the committee substitute related to this legislation labeled LS-0197\B, Lauterbach, 3/11/97 and entertained a motion to adopt this version. Number 2407 REPRESENTATIVE COWDERY made a motion to adopt the committee substitute for HB 33 as noted. Hearing no objection it was so adopted and before the committee for review. CHAIRMAN ROKEBERG mentioned that this bill was introduced at the request of the Real Estate Commission. The primary reason for this bill was in the interest of consumer protection. He added that there had been some conversion embezzlement of funds from a number of businesses in the Anchorage area over a number of years. Over the course of an investigation under a task force appointed by the commission there was discovered a very large case that affected as many as nineteen different condominium associations. Large amounts of embezzled money was involved. TAPE 97-21, SIDE B Number 000 CHAIRMAN ROKEBERG continued that this particular bill provides for the establishment of endorsements related to both Real Estate Property Managers and Community Association Managers. He pointed out that the real estate statute is probably the most perused part of the Alaska statutes because it is required reading by all people who wish to come before the department and take the examination to become a real estate practitioner, broker or associate broker. As part of this examination there is a difficult and long portion of it that is taken out of the statute and the regulations that pertain to operating a real estate business in Alaska. Number 060 ELEANOR "GRAYCE" OAKLEY, Executive Administrator, Real Estate Commission, came forward to testify on HB 33. She referred to a letter in the committee packet which she prepared at the request of Chairman Rokeberg as an introduction to this legislation which sets out the recommendations from the Task Force. It took the Task Force about a year to study the issues affected by this legislation and the Task Force was made up of all realms of the property management population, big and small firms alike. They studied the issues to decide what would work and what wouldn't. They solicited comments from their colleagues and they were operating on a directive from the Real Estate Commission to draft recommendations to deal with Property Management and Community Association Management and how they should handle separate licensing for each. MS. OAKLEY continued that there had been a number of pleas from the property managers themselves and the association managers. They didn't mind taking an exam and being licensed, but they did resent the fact that virtually everything in the exam and in the pre- licensing education, along with the continuing education, seem to be oriented towards sales. This is not what they were practicing. They wanted the education to be part of what they would eventually be practicing. Number 161 MS. OAKLEY said she had looked at the number of surety claims that had been filed in the last ten years against sales persons and against property managers. She then broke these numbers down into five year increments, the first, from 1986 to 1990 there were 58 claims filed against sales persons and only sixteen against property managers. In the second five year period, from 1991 to 1996, there were 42 claims against sales people and 25 against property managers. The percentage for property managers has increased significantly and the dollar amount paid out was about a two to three ratio, about $127,800 for property managers in the first five year period, $177,000 against sales. In the second five year period it was $86,600 to $81,600. The amount of money paid out against property managers surpassed during the second five year period. Number 250 REPRESENTATIVE RYAN stated that he would like to claim a potential conflict since he holds an active real estate salesman license from the state of Alaska. Number 266 MS. OAKLEY mentioned that the bill is lengthy because the entire Chapter 88 is being opened up. Implementation of an endorsement program, as proposed, involves changes of terminology that are found throughout the legislation. She directed the committee's attention to Section .168, which starts on page 9, line 11. This is the very essence of what this legislation proposed to do. It spells out endorsements for three specialties, for Sales, Property Management and for Community Association Management. A person getting a new license after this bill becomes effective would have to declare at least one endorsement in order to get a license. They could get more than one, but there would have to be at least one attached to any active license. Number 343 MS. OAKLEY stated that a core body of knowledge would be required, such as property law and how title is held, fiduciary duties of agency, conflict of interest, etc., those types of things that would be common to all three endorsements would be covered in all three exams and then there would be topics applicable to each of the specialized practices for sales, such as financing, contracts used in sales transactions, for example. Property management would have such things as the contracts used in property management, landlord tenant law, Americans with Disabilities Act, etc. For the Community Associations there would be the Uniform Common Interest Ownership Act and the types of documents used in condominium projects, such as declarations, etc. This legislation proposes to establish these areas of expertise by regulation. MS. OAKLEY continued that there would be an entry level examination specific to each area. She has been in contact with the testing service contracted with the state of Alaska as far as the restructuring of the exam necessary to implement this. She stated that it is doable. The three tiers as are now defined in real estate licensing, an entry level, an associate broker and a broker would still remain intact in each of the three specialties. The chief person in a real estate office would be a broker with an endorsement for the specialty area in this office. If there is more than one specialty area in an office all the proper endorsements would be required. Number 465 MS. OAKLEY stated that Section 171 covers what the individual criteria would be for the specialty areas. She said she'd like to cover some of the areas outlined at the beginning of the bill which deal with some additional changes incorporated. One of the things that happened in 1994 was the issuance of two different Attorney General opinions that basically said that whereever the statute says the commission shall or the board shall do something, they cannot delegate this to a staff person. Language in Section .061 on page 2, makes it possible for the commission to use some discretion to delegate some of the authority and carry out some things that are necessary to implement the real estate statute. Section .071 also on page 2, not only incorporates endorsement changes, but two other things that are very important to the success of this, one of which is that unlicensed activity is a major problem. The number of complaints coming into the commission office of people conducting property management business without having a license is significant and on the rise. MS. OAKLEY offered that their frustration with the unlicensed individuals is that they can write a letter stating that they're required to be licensed, but in order to enforce them to get a license they are required to go to court. This takes the cooperation of the District Attorney's office. This office is so overwhelmed with criminal matters. This legislation allows the ability to levy civil fines and to administer this through administrative hearings in the Department of Commerce rather than relying on the Department of Law and the District Attorney. This would also be an effective vehicle for violations regarding advertizing, where someone is not following the provisions of the statute about the way they advertize with their company name. She then went into specific examples of these violations and the specifics of levying fines. Number 688 REPRESENTATIVE COWDERY asked how they would define how many units managed as applying to this section. MS. OAKLEY noted that this is outlined in the exceptions. Number 707 REPRESENTATIVE COWDERY used the example of managing property for his elderly mother, a 10 to 20 unit condominium facility. He asked if a situation such as this is addressed in this legislation. MS. OAKLEY responded that this is specifically addressed as to the number of units managed, but a person can certainly manage their own property. As for relatives in the exceptions under Section .900, it does spell out that anyone managing a total of four units or less are not required to have a license. The task force was aware that an arbitrary limit was needed in order to enforce consistently. CHAIRMAN ROKEBERG suggested that Representative Cowdery research this issue and propose a possible amendment concerning the same. Number 793 REPRESENTATIVE RYAN asked about the procedure for fining an individual that is out of compliance with advertizing. If the board finds someone in violation and they levy a fine, is that person is required to come before the board for a hearing? MS. OAKLEY responded that if the individual does not think they are guilty and shouldn't have to pay the fine, then they would have an administrative hearing as opposed to going to court. A hearing officer from the Department of Commerce would make a recommendation to the board. REPRESENTATIVE RYAN said he was not comfortable with this hearing officer concept. Number 909 KEN TRUITT, Assistant Attorney General, Commercial Section, Department of Law, came forward to testify on HB 33. He was assigned to review and track this legislation. He referred to Section 13 of the bill, page 9, lines 5 through 9 regarding the civil fine provision. As the language currently exists, he interprets this to mean that this would go through the Administrative Procedures Act which would be before a hearing officer. The commission is given the authority to hear issues before it; it delegates this authority to a hearing officer for expediency sake. The hearing officer takes evidence, makes findings of fact, conclusions of law and renders a proposed decision. CHAIRMAN ROKEBERG asked if Mr. Truitt thought it troublesome that the Department of Commerce would do this rather than the Department of Law. Number 1025 MR. TRUITT responded that they were referring to constitutional provisions for the rights of due process. He noted that they've been working with this specific Administrative Procedures Act for a number of years which is based on the California Act initiated in 1945. Alaska's Administrative Procedures Act affords more protections for due process than the constitution requires. REPRESENTATIVE RYAN noted as an example that most Administrative Law Judges for the Federal Aviation Association (FAA) were formally prosecutors. He found it very difficult to believe that these people were being objective. He felt as though someone in these situations is seen as guilty before they're charged and they have to spend a lot of time and expense. Number 1138 CHAIRMAN ROKEBERG noted that the request for the Department of Commerce to hear these cases rather than the Department of Law was due to timeliness. The main purpose of this legislation is to shift the portion of responsibility to the Department of Commerce. MR. TRUITT responded that this was not really a question of law. He stated that he was not necessarily allowed to make comments regarding policy. The Department of Law handles all the Administrative Procedures Act cases for the Department of Commerce as it stands now. Number 1226 CATHERINE REARDON, Director, Department of Commerce and Economic Development, Division of Occupational Licensing came forward to testify on HB 33. She said that there seemed to be some confusion. The Department of Law serves in the role of prosecutorial assistants. It's not because they don't have time to be judges, this is not a role that the Department of Law has ever served. The hearing officers are employed by the Department of Commerce. The Division of Occupational Licensing provides the funding, but the Department hires and supervises the hearing officers. MS. OAKLEY stated that it was their intent, but the thought was that "there are a number of things that are violations of the statute but they're not the kind of violations that are robbing people of their life savings, yet they are still violations." These usually aren't important enough to warrant taking Attorney General time that is available to go ahead and prosecute. She suggested that maybe they should allow levying a fine with a cap for lesser offenses. The language suggested and recommended by the task force is already in the statute. This might be looked at. Number 1412 REPRESENTATIVE RYAN suggested that they allow an individual to take a case against them directly to court rather than require a hearing before an officer. Number 1538 MS. OAKLEY continued that the she would briefly review particular sections to this legislation. Section .081 simply makes more specific the scope of the commission's authority to adopt regulations. Section .091 would expand the areas where the education appropriation from the surety fund could be used for. It's presently very broad and general. This would also authorize the commission to deposit any monies that might be collected at a course that was offered to be deposited back into the surety fund. She noted an AG opinion that says money can be taken out of the surety fund to pay for these courses, but if any monies are collected or publication products are sold, this money has to be deposited back into the general fund. MS. OAKLEY continued that Section .161 outlines those things that would require a license and it's broken out from the existing statute to make it specific for each of the three specialized endorsement areas. Section .171 lists what the minimum qualifications are to get a license in each of these endorsement areas. Also, currently the language says that a person has to have 24 consecutive months, but it doesn't say when and the commission had a regulation that was "shot down" which attempted to make this more definitive. Now they are asking that in this statute this be defined and tightened up to 24 consecutive months within the last 36. Number 1721 MS. OAKLEY stated that Section .173 would provide for mandatory Errors and Ommissions (E&O) insurance if it could be made available at a reasonable premium. The rational behind this is that the surety fund is a protection for consumers to be reimbursed for losses. The E&O insurance is a means for licensees to give themselves some guarantee of being able to pay what might be held against them. This would be contingent strictly on whether a policy could be made available at a premium that would not exceed $200 a year which could be billable along with the license figures. MS. OAKLEY continued that Sections .181 through .201 deal with the examination process and being able to contract with a testing service. Section .221 is the authorization to the Department of Commerce to set fees which is no different than what is done right now except they would be setting them for the individual endorsements. These fees have not been determined at this point. Number 1868 REPRESENTATIVE RYAN asked that if someone has to take a course and pass a test, he asked to what purpose did the Department of Commerce put an endorsement on a license and charge a fee. MS. OAKLEY stated that this person would be getting a license just like Representative Ryan received his license for real estate, except under new circumstances this license would be for a particular endorsement. There would undoubtedly be some graduated fees if a person had more than one endorsement. Number 1950 CHAIRMAN ROKEBERG asked if they intended to set these fees by regulation. MS. OAKLEY responded yes. Number 2006 MS. OAKLEY noted that the section regarding inactive licenses was housekeeping language to make it clear. A person can have a license in a "holding pattern" for up to two years. Section .262 is an enabling section for reciprocity. There are a number of states that have reciprocal agreements with other states that allow for license holders of one state to practice in the other. The key phrase in this section is that a negotiated agreement between the two states is involved. Alaska does not have any reciprocal agreements at this time. Section .263 allows for an endorsement which provides for recognizing that someone has a license in another state with whom they have no reciprocal agreement, but the state recognizes that they have qualified for a license in another state. By providing proof of this license and passing the Alaska law portion of the exam, they can get an Alaska license. MS. OAKLEY continued that Section .281 outlines that any outstanding obligations of a licensee to the surety fund must be cleared before a license can be reinstated. Sections .291 through .321 deal with the location and registration of branch offices and the timing of registration or notice of changes. Section .331 spells out that any transaction must be through the employing broker. This will have some ramifications with going to the endorsement system because the broker needs to have these same endorsements as the licensee in his office and if they're working outside of a particular endorsement some clarifying needs to be done. A broker is the one who is responsible for making sure their licensees "tow the mark" and therefore the transactions have to be run through the brokers office. This is not a change of what's in place presently. Number 2266 CHAIRMAN ROKEBERG noted that this is the section where he parts company from the commission's recommendations. MS. OAKLEY noted that in Section .341 "the personal services contract that terminology has been used in another context recently and I may give some, some rise to concern, the Task Force thinking on this particular instance, the section was formally headed, 'listings.' The listing is the typical personal service contract in a sales transaction. In using, substituting the label 'personal service contract' was simply to broaden the scope so that it would cover the contracts for Property Management and for Community Association Management as well. Listings would not be ruled out, but they would be one of three different kinds of contracts that might be under the general heading of a personal services contract." MS. OAKLEY continued that Section .351 delineates the types of records that need to be maintained. Section .361 addresses when a commission or other fee is earned and it's contingent on this, there needs to be a written contract in order for commissions to be collected if it's challenged. Section .381 has to do with signs and their standardized measurements in order to regulate. TAPE 97-22, SIDE A Number 000 MS. OAKLEY generally commented on audits of the agency. A recommendation was made that the commission should define what constitutes a conflict of interest. This is the reason for the thorough definition that's incorporated into Section .391. Section .394 is a new section that ties in with the agency disclosure. "One of the things that the industry has asked for and that the commission has attempted and not been able to achieve is to have a standardized form for the initial disclosure of agency, of who a person is working for and this one would simply make that a requirement. It would be, the form itself would be a regulation as the property disclosure form is a regulation of AS 34.70 that is not part of the real estate commission, but part of the property law section. But, that's what is being, would be accomplished by enactment of Section .394." MS. OAKLEY noted that Section .396 is essentially the same as it now is with the housekeeping of the terminology to match the endorsements. In subsection (c) the word "joint" agency was used originally and this has caused a lot of confusion about what is actually used interchangeably with "dual" agency. The phrase "dual" is used in this section to avoid this confusion. Section .401 expands and clarifies the types of behavior that are not condoned and also reiterates that compensation for licensed activity must be paid by the broker to the appropriate licensee and on the part of the licensee can be accepted only from the broker. Number 211 MS. OAKLEY continued that Section .450 deals with the surety fund and adds language that corresponds to the language in Section .091 regarding fees received from educational offerings. Section .460 includes a filing deadline for a surety claim which is something that was done at one time with regulations. This was overturned by a Supreme Court decision and this would put it into statute that if a claim was going to be filed it had to be done so in two years after the infraction occurred. MS. OAKLEY added that Section .472 outlines a change that would allow the costs of surety fund hearings to be charged to the fund as they occur. Now when a claim is awarded the costs can be charged to the fund. But as indicated, very rarely are the checks from the surety fund cut in the same fiscal year as the claim is filed. A lot of the hearing activity is not necessarily in the same year that the check is cut and yet the appropriation and the money funding source is on a fiscal year basis. It is not realistic to try to calculate what the hearing costs are when it's finally determined whether a claim is going to be awarded and have it be paid based on the activity in the fiscal year when the check is cut because it doesn't track with the amount of time and expense incurred. Number 391 MS. OAKLEY added that Sections .474 through .495 were editorial changes. Number 395 REPRESENTATIVE RYAN noted that the last class he took dealt with the dissatisfaction of the people in the real estate industry and the uses that the surety fund was set up for. They felt as though they were being taxed over and above the purposes for which the fund was set. His understanding was that the fund was set up to pay claims. CHAIRMAN ROKEBERG stated that Representative Ryan's concerns were noted. Number 511 MS. OAKLEY responded that as for the surety fee escalating there is a cap in the statute and there is no proposal to change this. MS. REARDON noted that in regards to conducting hearings and the associated costs to determine whether someone wins or loses their claim are very legitimate things to be paid out of the surety fund. Without the hearings the whole surety fund structure cannot operate. Number 639 MS. OAKLEY continued regarding the transitional sections and the effective date of the bill. In this committee substitute the effective date is different than what it was in the original House bill. If this statute were put in place, the regulation project to set the educational curriculum, this would mean revamping the exam. The effective date would be January 1, 1999. Anyone currently licensed would renew in January 1998, and anyone new coming into the business after January 1, 1999, would have to meet the new initial criteria. The first time that the currently licensed people would have to meet the new education criteria would be for the renewal in January 2000. This gives a long lead time to get ready for this bill. Number 808 KRISTAN TANNER, Real Estate Practitioner, testified via teleconference from Wasilla on HB 33. She stated that real estate practitioners pay two fees when they renew their licenses. They pay one to the surety fund and one to renew their licenses. Whether or not the money is paid out of the surety fund for the hearings or out of their budget the net result is the same. If these costs are paid out of the budget this means that the cost for renewing licenses will go up. This has to come from one of these two places and regardless of which it comes from the organization will have to pay the cost. MS. TANNER continued that under the exceptions in the legislation, when the task force compiled their recommendations, they noted that there were many things over a period of years which were exceptions and are currently in violation of the law. She gave an example that took place during the downturn of the real estate industry in the late 80's. They found that many people were in the process of trying to keep their homes by renting after they moved out of state. Unfortunately, they could not afford a property manager. With the law that is in place today, this is a violation of the law. One of the exceptions in this new proposed plan is for an exception of a total of four units. Generally anything over a four plex is considered commercial property. Number 968 MS. TANNER generally listed the other exceptions such as bookkeeper performing bookkeeping functions, tradesman or vendors performing maintenance, etc. They wanted to make sure these exceptions were in this legislation so there wasn't any misunderstanding of who needed a license or who didn't. In response to a question raised by Chairman Rokeberg regarding management of larger real estate units and people looking for exceptions so that family members or friends could manage them, Ms. Tanner responded that for the protection of the public a property of this size, for example, a building with ten units needs to be managed by a licensed practitioner who has the education and the understanding of the laws in order to apply them when needed. REPRESENTATIVE RYAN asked about the surety fund and stated that this bill was a major expansion of power for the commission. He wasn't sure that if they took a vote of the licensed practitioners that they would find this legislation to be very popular. He had some concerns that with the more authority they take on and exercise, the higher the cost might be. Number 1138 MS. TANNER stated that the majority of the information that is in this work draft came out of "and let me just say that the two and a half years that I was on the commission we saw a number of different violations by practitioners which clearly harmed the public and, yes, the surety fund did pay for that, but what we try to do is look at what were the causes. Forget that the money is being paid, but let's look at what are the really the root causes of these claims that are being filed." They set out to develop some different education and endorsements so that clearly the people operating in Property Management, Community Association Management or in Sales get the education that they need for each of these. She stated that she as a general nature did not support more regulation or to expand the statute, but unfortunately she has seen a lot of abuses. REPRESENTATIVE RYAN stated that this was reasonable and understood her concern. Number 1326 CHAIRMAN ROKEBERG pointed out that this bill did not expand the scope of the real estate licensure except as to Community Associations, it merely defines what previously was under the statute regarding property management in such a way that clarifies this responsibility to the public. MS. OAKLEY also noted that this legislation does allow for current license holders to be grandfathered in. Number 1398 TERRY MCGILLIVARY, Staff Member, Real Estate Commission, testified via teleconference from Anchorage on HB 33. She stated that she worked directly with the task force. She was asked to discuss the anticipated transition process from the current system to a system of specialty endorsements. Under the current law real estate licensees are permitted to practice real estate sales, property management or both. Therefore, the task force came up with a transitional plan under where existing licensees during the first year after the proposed effective date of this measure would either have an endorsement for sales or property management or both simply by applying for it. Community Association Managers on the other hand are not currently licensed or regulated by the state. The transitional measure for existing Community Association Managers would permit them to obtain a real estate license with an endorsement for Community Association Management by providing evidence that they are currently practicing as Community Association Managers. MS. MCGILLIVARY stated that those endorsed during the transitional period would be required to accomplish the continuing education for each specialty endorsement they hold before the first license renewal after the effective date. If the required education was not accomplished, no licensee would be eligible to renew. The proposed transitional schedule would require that new licensees requesting licensure after January 1, 1999, would be required to take pre-licensing courses for each endorsement and pass the examination weighted for each endorsement requested. New licenses would be issued only with endorsements beginning January 1, 1999. Any licensee re-activating an inactive license or re-instating an existing license after January 31, 1999, would do so under the transitional provisions just described who apply for endorsements according to those requirements. MS. MCGILLIVARY continued that all licensees renewing at the bi- annual renewal deadline date of January 31, 2000, would renew only on completing required continuing education hours for each endorsement. She reiterated that the purpose of this legislation is to protect Alaska consumers by ensuring the competency of the real estate professionals. This legislation is the product of cooperation of consumer representatives and industry representatives who participated extensively in the drafting of this legislation. This legislation is supported by the Alaska Association of Realtors, the Alaska Chapter of the Institute of Real Estate Management and the Alaska Chapter of the Community Associations Institute. Number 1559 CHAIRMAN ROKEBERG asked if Ms. McGillivary's salary was paid out of the surety fund. MS. MCGILLIVARY stated that, yes, it was and she stated that she worked mainly in real estate education. She publishes the Alaska Real Estate News which is a newsletter published six times a year. It keeps licensees up to date on legal information and keeps consumers from inadvertently becoming victimized. This newsletter is the only direct communication between the department and the industry. She also works on the landlord/tenant brochure distributed statewide, as well as, a broker manual to help people set up their real estate businesses. Number 1719 CHAIRMAN ROKEBERG asked Ms. Tanner to respond to what the nature of the task force's conclusions were about allowing for an additional endorsement for commercial real estate practices. MS. TANNER noted that they did have this discussion and they concluded that, whether it be residential sales or commercial sales, the point of contention in the industry over licensing education to renew wasn't a dispute over sales, but there was a big dispute with the property management licensees who did not feel that the education provided was helpful to them in their business. Rather than make a fourth category, it seemed from all the testimony given, that the sales category was an umbrella for both residential and commercial brokers. Number 1719 CHAIRMAN ROKEBERG noted that under the new endorsement regime for property management, these individuals are exclusively allowed to conduct the renting and leasing of space so to be a commercial lease agent someone would have to have a property management endorsement. MS. TANNER responded that this would be correct. MS. MCGILLIVARY concurred and added that the commission has also discussed this matter. Although this was not addressed by the task force specifically, it does seem to be the opinion of many, that this would be very logical for someone in this situation have a commercial endorsement. Number 1935 CHRIS STEPHENS, Commercial Real Estate Broker; President, Bond, Stephens and Johnson testified via teleconference from Anchorage on HB 33. He noted that he would testify more extensively at a later time, but did comment on the issue of commercial endorsements. He felt as though commercial real estate practice is distinctly different from residential. He shared his experience of selling his home through a broker, even though he is a commercial agent himself. In commercial transactions agents deal in business transactions in leasing and acquiring commercial real estate. These skills are totally different. He also noted that many times the continuing education he is required to take has nothing to do with commercial real estate transactions as well. MR. STEPHENS mentioned the issue of establishing agency disclosure provided to a client which has been controversial. He felt they needed to be careful. How this is done between commercial and residential is greatly different. He said he was not sure about the ramification of this. Number 1975 CHAIRMAN ROKEBERG said he also shared this concern and noted that they would take a look at this issue carefully. MS. OAKLEY pointed out that approving courses for continuing education over the years all of the various national organizations providing education have consistently had courses approved which are ones that commercial brokers thrive on. She noted that these types of courses are offered, but not necessarily allocated to schedules that are always convenient for everyone. Number 2038 CHAIRMAN ROKEBERG stated that the committee has taken it upon themselves to inject a provision for the National Association of Realtors approved courses leading to designations and making them acceptable for elective hours in the statute. He also mentioned some technical amendments to the bill which will be addressed at a later time. House Bill 33 was held over for further discussion. ADJOURNMENT Number 2100 CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing Committee at 5:33 p.m.