Legislature(1997 - 1998)
01/21/1998 03:34 PM House L&C
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
January 21, 1998
3:34 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative John Cowdery, Vice Chairman
Representative Bill Hudson
Representative Tom Brice
MEMBERS ABSENT
Representative Jerry Sanders
Representative Joe Ryan
Representative Gene Kubina
COMMITTEE CALENDAR
* HOUSE BILL NO. 247
"An Act relating to escrow accounts; and providing for an effective
date."
- HEARD AND HELD
EXECUTIVE ORDER NO. 100
Moving The "Silver Hand" Program From DCED to DOE
- HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 247
SHORT TITLE: REGULATION OF ESCROW ACCOUNTS
SPONSOR(S): REPRESENTATIVES(S) ROKEBERG BY REQUEST
Jrn-Date Jrn-Page Action
04/11/97 1080 (H) READ THE FIRST TIME - REFERRAL(S)
04/11/97 1080 (H) LABOR & COMMERCE
WITNESS REGISTER
D.J. WEBB, Legislative Affairs Committee Chair
and Past President
Alaska State Escrow Association;
Senior Escrow Officer
First American Title Company of Alaska
510 West Tudor Road
Anchorage, Alaska 99503
Telephone: (907) 562-0504
POSITION STATEMENT: Testified in support of HB 247.
DAVID LAWER, Senior Vice President
First National Bank of Anchorage;
Alaska Bankers Association
101 West 36th Avenue
Anchorage, Alaska 99507
Telephone: (907) 777-3011
POSITION STATEMENT: Testified in opposition to HB 247.
WILLIS KIRKPATRICK, Director
Division of Banking, Securities and Corporations
Department of Commerce and Economic Development
P.O. Box 110807
Juneau, Alaska 99811-0807
Telephone: (907) 465-2521
POSITION STATEMENT: Testified on HB 247, proposed amendments.
TOM LAWSON, Acting Director of Administrative Services
Division of Trade and Development
Department of Commerce and Economic Development
P.O. Box 110803
Juneau, Alaska 99811-0803
Telephone: (907) 465-2017
POSITION STATEMENT: Testified in support of EO 100.
FRED SMITH, Economic Development Planner
Association of Village Council Presidents
P.O. Box 219
Bethel, Alaska 99559
Telephone: (907) 543-3541
POSITION STATEMENT: Testified in support of EO 100.
VERNON CHIMEGALREA, Native Arts Program Director
Alaska State Council on the Arts
411 West 4th Avenue, Suite 1E
Anchorage, Alaska 99501-2343
Telephone: (907) 269-6610
POSITION STATEMENT: Testified in support of EO 100.
HELEN HOWARTH, Executive Director
Alaska State Council on the Arts
411 West 4th Avenue, Suite 1E
Anchorage, Alaska 99501-2343
Telephone: (907) 269-6610
POSITION STATEMENT: Testified in support of EO 100.
ACTION NARRATIVE
TAPE 98-2, SIDE A
Number 0001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee meeting to order at 3:34 p.m. Members present
at the call to order were Representatives Rokeberg, Cowdery, Hudson
and Brice.
HB 247 - REGULATION OF ESCROW ACCOUNTS
Number 0070
CHAIRMAN ROKEBERG announced the first order of business was HB 247,
"An Act relating to escrow accounts; and providing for an effective
date." Chairman Rokeberg noted he had introduced HB 247 at the
request of the Alaska State Escrow Association.
Number 0105
CHAIRMAN ROKEBERG presented the sponsor statement for the record:
"This was introduced at the request of the Alaska State Escrow
Association in an effort to assure that consumers have their --
that their monies will be safe and properly accounted for when
delivered to a settlement agent for a property transaction. There
are no Alaskan laws concerning this now.
"The bill has the support of the Alaska Escrow Association and the
Alaska Association of Realtors. Consumers need to be assured that
their funds, which can be rather large amounts, will not be
jeopardized and will be available as needed during the course of a
real estate transaction. From the seller's viewpoint, the
execution of a deed and the - and the deposit of that deed will
bring forth proceeds upon recording of - of the deed. Under
current Alaskan business practices, a buyer deposits a cashier's
check prior to recording a property deed; however, this is not the
case if a lender provides the purchase funds. In the case of a
lender, the deed is recorded along with the lender's lien and the
funds are deposited after the deed and other documents have been
recorded.
"This procedure leaves sellers and settlement agents in the middle.
The seller's interest in the property has been transferred but no
funds have been received. This bill requires that before a
settlement agent records documents transferring property, or
creating a security interest in the property other than the
seller's current interest, that the money required under the escrow
agreement must be available for distribution in accordance with
Alaska Statute 34.75.040 as set forth in the bill.
Number 0238
"The basic thrust of this bill is to protect Alaskans that are
selling their property and to make sure that the funds due those
sellers are available in a timely fashion."
CHAIRMAN ROKEBERG summarized that HB 247 means the escrow agent has
to have the money in hand before the transaction closes and money
is disbursed. He noted currently that is not the case.
Number 0287
D.J. WEBB, Legislative Affairs Committee Chair and Past President,
Alaska State Escrow Association; Senior Escrow Officer, First
American Title Company of Alaska, testified via teleconference from
Anchorage.
MS. WEBB asked the committee to support HB 247 on behalf of the
Alaska State Escrow Association. She noted, with the recent
changes in lending closing activities, the association's members
have found they are being asked by many lenders to record the
warranty deed of a seller prior to receiving lender funds.
MS. WEBB stated the association is concerned that there is no way
to reference or determine the stability of lenders making these
requests, especially from out of state. There is no way to
determine if lenders will be funding on the date indicated or ever.
There have been a few cases where the deed was recorded and the
lender refused to fund for some reason. She related that the
seller was left with having (indisc.) interest in the property, and
no way to retrieve that without either filing a lawsuit or joining
with the buyers to execute a deed back.
Number 0330
MS. WEBB said the association is concerned that the general public
has no knowledge this practice is standard. She stated the public
suspects that, once they go into escrow and sign the documents,
funds will be available upon recording. The general practice is
that the lender funds after receiving confirmation the loan is of
record.
MS. WEBB commented that several other states have funds legislation
which mandates and requires lenders to fund into escrow prior to
the recording of the document. She stated, "In those states, where
their lenders are -- that are also lending up here, it's just
general practice for them to fund prior to recording when they know
that the state statutes requires that."
Number 0503
CHAIRMAN ROKEBERG cited Section 34.75.030, interest on escrow
money, "Notwithstanding any other provision of law, interest may
not be collected or paid by a settlement agent on money held in
escrow unless authorized in writing by the parties to the escrow,
including the settlement agent." He referred to the sectional
summary from Legal Services, Division of Legal and Research
Services, Legislative Affairs Agency, which reads, "Sec. 34.75.030.
Prohibits collection or paying interest on escrow money unless the
parties agree to do so."
CHAIRMAN ROKEBERG stated that this account is not your typical
escrow or impound account held by a "bank institution" for tax
insurance on a house loan, noting debate about interest on retained
escrow amounts. This bill provides that there can be an agreement
to pay interest if there is an escrow account specifically with a
settlement agent. This is not related to a typical situation in
which a lender holds an escrow account to pay the taxes, insurance
and other probated portions of a loan.
Number 0580
MS. WEBB agreed. She said it makes it clear that the funds held by
a settlement agent are not funds of the settlement agent. Usually,
the only time (indisc.) interest is paid is when funds will be held
for a period of time, for completion of items or for the final
preparation of closing, and all parties agree to enter into an
interest-bearing account. Typically, funds held in the normal
trust account of a settlement agent are not held for more than one
day to the next, between the time the funds are deposited and then
disbursed.
Number 0634
CHAIRMAN ROKEBERG noted some large commercial transactions contain
substantial amounts of money, possibly in the hundreds of thousands
of dollars, that can be held in escrow. The provision allowing
interest to be paid by agreement is appropriate for these
transactions. Chairman Rokeberg said he knew of situations where
provisions had been made for (indisc.) payments of interest when
$20,000 or $30,000 of option money was involved. He asked Ms. Webb
if that was correct.
Number 0670
MS. WEBB agreed. She noted, here again, the settlement agent would
initiate an interest-bearing account at a local financial
institution, rather than keep the money in a normal trust account.
All interest is passed on to the party designated to receive that
interest.
Number 0754
DAVID LAWER, Senior Vice President, First National Bank of
Anchorage; Alaska Bankers Association, testified via teleconference
on behalf of the Alaska Bankers Association.
Number 0782
MR. LAWER stated HB 247 was unnecessary in the view of the Alaska
Bankers Association. This legislation, in large part, is merely a
codification of what is already the law (indisc.) contracts. It
is, he said, already a term of the contract between the escrow
agent and the seller. Mr. Lawer commented that HB 247 appears to
make transactions involving financing marginally more expensive for
the borrower.
Number 0850
MR. LAWER further stated that HB 247, at least by its terms,
impacts the collection escrow business a number of the
association's members are involved in, although it appears some
effort has been made to restrict the impact of the legislation to
escrows involving real estate closings. He noted, since the
financial institutions of this state often close real estate
transactions that they are involved in as financer, as mortgage
lender, that the possible impact of this legislation on association
members is unclear. Mr. Lawer stated, for all of those reasons,
the Alaska Bankers Association recommends HB 247 not be enacted.
Number 0907
MR. LAWER commented that, as far as the title companies are
concerned and in so far as their activities as closing escrow
agents are concerned, this legislation is not necessary. He
stated, "They are simply in the position to refuse to go forward
and close a transaction by sending the ... instruments of
conveyance for recording until such time as they have the money
available for this person to the seller."
Number 0950
MR. LAWER continued, "It looks as if, by the terms of this
legislation, they're entitled to go forward and record upon receipt
of a cashier's check issued by a bank in this state. There is
nothing to prevent them, in connection with every one of these
transactions, from refusing to go forward and close the transaction
by sending the documents of conveyance to the recorder's office or
to - to the filing officer, until such time as they have in their
hands a cashier's check issued by a bank in this state." Mr. Lawer
noted again that the Alaska Bankers Association considers HB 247
unnecessary for all of the stated reasons.
Number 1006
REPRESENTATIVE BILL HUDSON asked Mr. Lawer to expand on his belief
that HB 247 might cost the borrower more money.
Number 1023
MR. LAWER answered that currently, for loans made by Alaskan banks
to finance the purchase and sale of real estate, the bank postpones
disbursement of loan proceeds until such time as the instrument of
conveyance and the mortgage have been recorded, and the title
company involved furnishes notice to the bank that it is in a
position to issue its title insurance in the form required by the
bank. Then, he said, "The bank disburses and that - that's a day
later."
Number 1068
MR. LAWER continued, under the proposed legislation, if the bank is
required to disburse in advance of closing, there will be at least
a day's worth of interest added to the cost of financing at the
buyer's expense. Mr. Lawer said that, if the lender disburses
against recording, interest accrues from the date of recording. On
the other hand, if the title company or escrow agent is required to
be in receipt of payment, according to this law, there will be
disbursement to the borrower in advance and additional interest
charges. Mr. Lawer stated this was the additional cost to the
borrower he had mentioned.
Number 1149
CHAIRMAN ROKEBERG noted the original intent of HB 247 was not to
impact business collections activities. He referred to the
definitions of "escrow" in the bill and asked Mr. Lawer if they
were the source of his concern.
Number 1185
MR. LAWER responded that the definition of "settlement agent" in
Section 34.75.090 (7) ("'settlement agent' means a person who
engages in the business of handling escrow accounts, but does not
include a person who collects money for the sole purpose of
applying the money to the payment of a loan during the term of the
loan: 'settlement agent' includes an employee of a person who
engages in the business of handling escrow accounts when the
employee is carrying out the employee's duties in the business.")
leads him to believe this legislation could impact collection
escrows.
Number 1212
CHAIRMAN ROKEBERG asked Mr. Lawer if he understood that definition
to apply to anyone handling funds in his collection escrow
department. Chairman Rokeberg noted the definition of escrow in HB
247 (Section 34.75.090 (3), "'Escrow' means a transaction where,
for the purpose of effecting the sale, transfer, encumbrance,
leasing, or other disposition of real or personal property to
another person, ..."), commenting that there is no existing law in
statute. Applying this to Mr. Lawer's situation, he said, "Of
course many of your collections are ... on, say, secondary deeds of
trust and things of that nature for real property, but they are run
through your collection department."
Number 1251
MR. LAWER agreed, noting his institution is involved in all sorts
of purchase and sale transactions, not only those pertaining to
real property, but also, for example, limited entry permits.
Number 1272
MR. LAWER noted he understood the intent was to define "settlement
agent" as, in fact, the closing agent at a closing between a buyer
and seller. However, he feels Section 34.75.090 (7) is not
effective.
Number 1294
CHAIRMAN ROKEBERG commented that he would have the same concern
about the breadth of the definition of "escrow."
Number 1301
MR. LAWER responded, "Exactly so, it's ... very difficult, for
instance, to reckon how this impacts the bank when it indeed is
closing a transaction that involves a purchase and sale of real
property ... and is also doing the financing. Under the definition
of escrow, escrow means a transaction where there is, to the effect
if you will, the sale, transfer, encumbrance, leasing -- all those
activities are part and parcel of one involving a loan by a bank
that it closes itself. I would agree with you that definition,
too, is perhaps overly broad, if not otherwise narrowed."
Number 1348
CHAIRMAN ROKEBERG noted it is clear many banking institutions would
be covered by HB 247 because they close home loans and other loans
"that would be appropriate for this purpose." He stated concern
over costs related to accrued interest and the alleged delay in
recording. He asked Mr. Lawer to explain, in steps, how his
institution would fund a typical home loan through a title company.
Number 1382
MR. LAWER replied that his institution furnishes written
instructions to the title company, as do the buyer and seller who
are involved. The buyer's instructions are: Pay the seller when
you are in a position to deliver a recorded deed to me. The
seller's instructions are: Deliver the deed when you are in a
position to pay me, in cash, the price.
MR. LAWER said the instructions from the bank that is financing the
transaction are: We will pay you the proceeds of a loan we are
making to the buyer as soon as you, title company, are in a
position to tell us: 1) the deed of conveyance in our mortgage has
been recorded and 2) you will issue to us your policy of title
insurance which is in keeping with our requirements.
Number 1459
MR. LAWER continued that the bank waits once those instructions are
issued, if this transaction is being closed at a title company,
until the seller has gone to the title company and executed the
deed, and the buyer has gone to the title company and executed a
note and the mortgage. Following that, the bank waits until the
deed is recorded and the title company notifies all parties, which
is normally at least a day after the documents are executed.
Number 1494
MR. LAWER explained, under those circumstances, the bank pays the
title company the proceeds of the loan when the title company
notifies the bank that the deed has been recorded. According to HB
247, the bank would have to pay the title company the proceeds of
the loan conditionally at least a day in advance of that recording.
He noted the bank would be charging its customer interest from its
disbursement date, not from the date the title company disburses.
Number 1532
CHAIRMAN ROKEBERG questioned Mr. Lawer briefly on occupancy and
closing dates.
Number 1580
CHAIRMAN ROKEBERG asked Mr. Lawer if he was suggesting that when
people execute their deeds and assume they now own their homes, the
money has not changed hands.
Number 1601
MR. LAWER said he wasn't sure he understood.
Number 1606
CHAIRMAN ROKEBERG said Mr. Lawer had stated that the lender had to
wait until the buyer and seller executed their note and their deed.
Then, usually at least a day after, the lender funded. Chairman
Rokeberg commented that most people assume they have purchased
their home at the point they executed the documents. He noted, "I
think the court of law would probably indicate that whatever cause
of (indisc.) you had, either in damages or equity, that you had
purchased your property then but you're suggesting that you
normally fund them a day later -- is that right?"
Number 1635
MR. LAWER disagreed. He stated, "Assuming I'm the buyer, I'm
telling the title company, 'Don't give the seller the money until
you have, to deliver to me, his deed of conveyance.' And vice
versa, the seller is saying, when - when he signs that deed on - on
Monday, and gives it to the title company, 'Don't give this to the
buyer and cause it to be recorded until you've got money in hand to
pay me.' So, on the day that the documents are executed, if you
will, ... there is not presently any - any conveyance. That's -
that's the law the way it is today."
MR. LAWER noted there is a constructive delivery to the title
company of a deed and maybe the proceeds, but the transaction
doesn't "incur" until a later point, when all conditions are
satisfied.
Number 1699
CHAIRMAN ROKEBERG noted that included the conveyance of the
consideration and the money. He further noted, "So people's
assumptions aren't quite correct. It's the operation of law that
dictates that."
Number 1709
MR. LAWER agreed and said, "I think you would find your way to that
same conclusion by reviewing the ... instructions that are
routinely furnished to the title companies ... in their own form.
It is a matter of contract, yes."
Number 1726
CHAIRMAN ROKEBERG noted he could appreciate many practical
implications in the process. He asked if the lender normally
waited until it was actually in receipt of the deed before issuing
the draft for the funds.
Number 1758
MR. LAWER said the lender waits until the title company notifies
the lender that it is in a position to go forward, and is prepared
to furnish the lender with the policy of title insurance required
by the lender in connection with the transaction. At that time the
lender funds the loan.
Number 1784
CHAIRMAN ROKEBERG mentioned variable occupancy and closing dates
and commented, "I guess that's the whole point of this bill -- is
when you're going to actually take possession legally, and you're
suggesting it's upon the receipt of the conveyance and the - the
completion of the transaction. ... I suggest that the intent here
is to make sure that those monies are in place so that the
transaction can be completed, and I think we should both be in
concurrence on that."
Number 1820
MR. LAWER said that objective is not necessarily offensive, at
least from the banker's standpoint. He noted the unintended
consequences of HB 247 raise, perhaps, the strongest objections.
Number 1844
CHAIRMAN ROKEBERG asked, "Do you actually don't accrue interest on
the date it was executed, the following date when it was recorded,
is that your practice?"
Number 1852
MR. LAWER answered in the affirmative.
Number 1878
WILLIS KIRKPATRICK, Director; Division of Banking, Securities and
Corporations; Department of Commerce and Economic Development, came
forward to testify on HB 247.
Number 1898
MR. KIRKPATRICK related a story about a friend, Lee Coffman (ph),
a former president of Alaska Federal Savings Bank, who purchased a
piece of property in Juneau and experienced an abnormal practice at
a title company which included a delay in recording. Mr.
Kirkpatrick noted this was not under his jurisdiction and he was in
the process of advising the Division of Insurance about the
situation.
Number 2012
MR. KIRKPATRICK recommended some amendments to HB 247. On page 4,
line 21, "financial institution," he suggested the committee
consider replacing (A) and (B) with "(A) whose deposits are insured
by an agency of the federal government." Mr. Kirkpatrick noted
this wording includes both (A) and (B), and has been used elsewhere
in Alaska statutes.
Number 2097
MR. KIRKPATRICK referred to Section 4, page 5, a proposed amendment
to Alaska Statute 45.55.110 (g), the Alaska Securities Act of 1959.
He noted the reference in (g) is in the offering of securities,
allowing a promoter to participate in a stock offering that is not
available to the public, but restricting those stocks from sale for
a period of three years.
MR. KIRKPATRICK mentioned, regarding the other provision, an
Anchorage structure known in the 1970s as the "Blue Birdcage." He
noted it was a public offering he had registered as a securities
examiner but hadn't provided for escrow collection. He described
the history of the structure and summarized the definition of
escrow collection as, "If you need to raise money for a certain
purpose and that purpose has a dollar amount, if you can't raise
that, we're not going to let you have it. You need to at least
raise that much, or a certain percentage of that much."
Number 2221
MR. KIRKPATRICK noted this section was kind of the "apple out of
this orange bill" and asked the committee to consider deleting it.
He said it had no other effect if left in.
Number 2251
MR. KIRKPATRICK referred to page 3, Section 34.75.070, department
supervision. He commented that he thought, possibly, the Division
of Banking, Securities, and Corporations might be appropriate.
However, he is concerned the legislation doesn't give enough
instruction to the division to act appropriately. He noted that if
the division finds a violation, it needs some sort of a means to
act upon that violation.
MR. KIRKPATRICK stated the division can use violation language from
the banking code or the securities act; this language instructs the
division how to proceed if a violation is found. He commented,
"The way that it stands now, I'm afraid there's an implied
responsibility of the state but if the state doesn't interpret this
properly, that it would perform a deep pocket to somebody for
neglect of the state."
MR. KIRKPATRICK suggested, if the division does have a
responsibility, that responsibility be better defined.
Number 2319
MR. KIRKPATRICK referred to page 3, Section 34.75.060, civil
penalty. He read, "the settlement agent who willfully violates
this chapter is liable to the state for five times the amount of
the consideration paid." Consideration paid is usually around
$230. He noted his trouble, as a bank regulator and a securities
regulator, with the wording "wilfully violates," which has the
connotation of intent.
Number 2366
MR. KIRKPATRICK commented it seems that if there is a problem with
someone intending to deceive, the civil penalty isn't spelled out.
He noted, "Then coupled with the Section 70, which says that - that
the only thing the department is to look at is the one that
contains the written complaint. But yet, if we find, on an audit
or an examination, that somebody is wilfully ... violating the law,
we're restricted from looking at other - other activities that the
escrow agent has."
Number 2394
CHAIRMAN ROKEBERG indicated the committee would take Mr.
Kirkpatrick's suggestions under advisement and asked Ms. Webb if
she would care to comment on any of the testimony.
Number 2427
MS. WEBB referred to Mr. Lawer's testimony stating HB 247 was
unnecessary. She said part of the reason the Alaska State Escrow
Association feels the proposed legislation is necessary is because
many lenders are unwilling to fund into escrow prior to recording
without legislation requiring them to do so. Although the escrow
companies can say they are unwilling to proceed, the lenders can go
to another title company or escrow company. She commented that
this allows for an uneven playing field with those parties who are
playing more involved in the risky business of not having funds in
their escrow accounts.
Number 2460
MS. WEBB stated it certainly was not the escrow association's
intent to include escrow collections in HB 247. She said she
thought that was why the definition existed out on page 5 ....
TAPE 98-2, SIDE B
Number 0001
MS. WEBB continued, "... (indisc.) They're technically a party to
that transaction and would have the loan funds, so I think the only
part of this [that] would apply to them would be any down payment
deposit that the buyer makes would need to be collected -- and I'm
not even sure if that would apply by the definition of who the
settlement agent is -- because if they're - if they're doing their
own in-house financing, I don't see how they could be considered as
a disinterested third party on an escrow."
MS. WEBB noted, "In regards to funds being funded before recording
and interest being charged by the buyer, those same loan funds that
are being disbursed into our escrow, we take those right back and
deposit them into our trust accounts at local banks, and we don't
receive interest on those. So, it's likely there would be a
scenario where a lender would funds to us and we would take those
funds right back and deposit right into their depository account,
if - if that's where we have our trust account. ... The funds
could be back in their own account if (indisc.) a local lender."
Number 0056
MS. WEBB stated, "Many out-of-state lenders who are in the habit of
funding before recording if ... that's required for them to do so,
they typically charge interest from the day the buyer signs the
note, not necessarily the date of recording."
MS. WEBB noted she wanted to clarify Mr. Lawer's comments about
next day loan disbursement. She said, "Typically, we record first
thing in the morning in order to make sure that those conveyances
and deeds of trust are in the first lien position, or a first
position, so we can check the title records. Typically a buyer and
a seller will sign the business day prior to our recording, and -
and it's just function of when we record that would cause the ...
one day delay on - on the funding from the date (indisc.) documents
are executed and the date that it's recorded."
Number 0101
CHAIRMAN ROKEBERG asked if there were problems that had come up in
the last couple of years because of the growing number of out-of-
state lenders delaying their funding for several days.
Number 0114
MS. WEBB responded that was certainly true, noting a few lenders
were known to take several weeks from the date documents were
forwarded down to them for review before funding. She thought many
local escrow companies have taken the position of not recording
until they receive loan funds from that particular lender.
Number 0141
MS. WEBB noted the industry is changing and growing all of the time
and the escrow association is concerned about mortgage brokers and
lenders entering this marketplace with no track record. She
commented that it is not possible to know all the companies one
works with.
Number 0158
CHAIRMAN ROKEBERG asked Ms. Webb if she would be comfortable
exempting Alaskan banks from HB 247 if that were possible.
Number 0168
MS. WEBB noted she thought the liability to the consumer was the
same whether a local or out-of-state bank was involved. More
knowledge might be available about a local lender, but, she said,
in the interest of consumer protection it didn't matter where a
lender was located.
Number 0199
CHAIRMAN ROKEBERG closed public comment on HB 247. He noted that
HB 247 would be held over for further consideration.
EO 100 - MOVING THE "SILVER HAND" PROGRAM FROM DCED TO DOE
Number 0224
CHAIRMAN ROKEBERG stated the next item of business, EO 100,
Moving the "Silver Hand" Program from DCED to DOE.
Number 0292
TOM LAWSON, Acting Director of Administrative Services, Division of
Trade and Development, Department of Commerce and Economic
Development (DCED), came forward to testify.
MR. LAWSON stated he would like to do three things: 1) briefly
describe the Silver Hand Program, 2) talk about its history with
the DCED, and 3) explain the recommendation and reasons for moving
the program to the Alaska State Council on the Arts (ASCA).
Number 0310
MR. LAWSON said that the Silver Hand Program is represented by the
silver hand on a black oval. The intent of the program is to
certify that any handicraft bearing the seal was crafted in Alaska
by an Alaskan Eskimo, Aleut or Indian. He commented that the seal
is intended to be a guarantee to a consumer of Native handicrafts
that the handicraft was indeed crafted by a Native person.
Number 0340
MR. LAWSON stated the program was enacted in state law in 1961.
There have been some small changes over the years, most recently in
1993, when the definition of Alaska Native was clarified. He added
that authorization to implement regulations and clarification of
allowed enforcement actions were also made at that time.
Number 0360
MR. LAWSON noted four areas of program operation: 1) Certification
of applicant eligibility - does he or she meet the definition of an
Alaska Native? 2) Education - educating Native handicrafters that
this program is available and may help them market their crafts
better. 3) Promotion - making consumers of Native handicrafts
aware of this program so that they request handicrafts with the
program sticker in order to avoid purchasing counterfeits. 4)
Enforcement of any violations that may occur.
Number 0437
MR. LAWSON stated the DCED has had the program since 1961. In
fiscal year 1997, DCED had $5,000 budgeted for the program, an
amount they felt was woefully inadequate. Mr. Lawson noted the
DCED has never truly had a professional staff person with expertise
in Native handicrafts to advocate for the program. When there has
been funding available for the program and the department has been
able to assign staff, allocated staff time has been minuscule.
MR. LAWSON said, at the end of 1996, the program contained
approximately 600 individual Native artists and about 27 Silver
Hand agents. Mr. Lawson noted a program provision allowing
individuals to become Silver Hand agents. These agents are then
able to issue Silver Hand permits.
Number 0494
MR. LAWSON stated, since last fall, the DCED has contracted with
the ASCA to operate the program. He referred to "Marketing Alaska,
The Governor's Economic Development Initiative, 1996 Summary." The
initiative's Cultural Resources Work Group stated, in their
recommendation 15, that the Silver Hand Program is better suited to
the ASCA. He noted this transfer is the intent of EO 100.
Number 0555
REPRESENTATIVE JOHN COWDERY asked if the participating artists were
charged fees.
Number 0563
MR. LAWSON replied that there are no fees for individual artists;
however, there is a fee to become a Silver Hand agent. Agents are
typically the retail gift shop owners and the wholesalers of Native
handicrafts. The Silver Hand agent is empowered, based on their
qualifications, to place a Silver Hand sticker or tag on a piece of
artwork if they know for a fact, and will guarantee, it was
produced by a Native artisan. The fee is $200 for a three-year
Silver Hand agent authorization.
Number 0613
REPRESENTATIVE COWDERY noted Mr. Lawson's comment that the law
defining Alaska Native was clarified in 1993. He presented the
scenario of a Native man married to a non-Native woman who both
contribute to a product. He asked if that product would be
considered a Native handicraft.
Number 0638
MR. LAWSON stated, in the strictest interpretation of the law and
the regulations, that if a non-Native person worked on a handicraft
then the Silver Hand sticker should not be applied. He noted
difficulties with enforcement.
Number 0667
REPRESENTATIVE HUDSON asked Mr. Lawson to again define Silver Hand
agent.
Number 0676
MR. LAWSON stated, again, that the Silver Hand agent is a person
who is authorized to do two things. The agent can personally affix
a Silver Hand sticker and tag to a handicraft if the agent has full
knowledge that the artisan is an Alaska Native. An agent can also
authorize an individual to be part of the Silver Hand Program as an
individual artist.
Number 0726
REPRESENTATIVE HUDSON stated, "I guess what I'm trying to figure
out -- any time I see something here where we're transferring, in
this particular case, a very pronounced program that obviously has
been developed over time to have a value. That is, that if you're
going to have the Silver Hand, you're going to have sort of a
statement of higher value somewhere along the line, ... it
signifies authenticity."
REPRESENTATIVE HUDSON noted he was trying to determine if the
Silver Hand Program dealt more with commodity or art. He stated
that it seems the program should rightfully be in the DCED if it
was more concerned with commodity, but it should be under the ASCA
if it dealt more with art. Representative Hudson expressed some
doubt, looking at long-range program cuts, that the ASCA would
continue to exist in the future. He commented on the possibility
of a private artists' council without government involvement.
Number 0819
REPRESENTATIVE HUDSON asked if the Governor felt, in this instance,
that moving the Silver Hand Program would allow for additional
funding by the legislature.
Number 0825
MR. LAWSON stated that the arts council has a full-time Native arts
and crafts person who travels all through the state working with
Native artisans; this person in a good position to inform the
Native artist community about the program. The ASCA also fund-
raises. He noted, unlike the DCED, the arts council is poised, and
has the expertise, to research federal grants for Native
handicrafts and pursue funding from private foundations. Mr.
Lawson stated, in his opinion, no one in this era is looking to the
legislature for additional funding.
Number 0884
REPRESENTATIVE HUDSON asked how much funding would be considered
necessary to reach the Silver Hand Program goals?
Number 0917
MR. LAWSON stated he would rather let the witnesses speaking for
the ASCA answer that question. He noted the amount would probably
be more than the DCED would be able to transfer to the arts
council.
Number 0924
CHAIRMAN ROKEBERG asked if the $5,000 budgeted to the program paid
for the actual decals, seals and tags.
Number 0932
MR. LAWSON answered that $5,000 has covered that cost in the past.
If the supply of stickers and tags was sufficient, the DCED did a
modest amount of advertising, attempting to reach tourists coming
to Alaska so that they would be aware of the program and seek out
genuine Native handicrafts with stickers.
Number 0955
CHAIRMAN ROKEBERG asked why EO 100 provides for the transfer of the
seal but not the emblem.
Number 0968
MR. LAWSON explained that the Made in Alaska Program and the Silver
Hand Program are "intertwined" in the statute. Whenever the term
emblem was used, it referred to the Made in Alaska Emblem; the
Silver Hand was always referred to as the Silver Hand Seal.
Number 1008
CHAIRMAN ROKEBERG noted the provision in Alaska Statute 45.65.020
that the Commissioner of Commerce is responsible for the
supervision of the use of the emblem.
Number 1025
MR. LAWSON explained the emblem in that instance refers to the Made
in Alaska Emblem and Program, which are staying with the DCED.
Number 1053
FRED SMITH, Economic Development Planner, Association of Village
Council Presidents (AVCP), testified via teleconference from
Bethel. He stated he works for the 50 or so communities in
Southwest Alaska.
MR. SMITH stated that the AVCP supports EO 100. Given the history
of the Silver Hand Program at the DCED, he noted the program has
never really reached any of its intentions. He said that there is
an opportunity with this move for the Silver Hand Program to more
fully meet some of those intentions.
MR. SMITH stated that moving the Silver Hand Program will help the
Alaska Native artists who use the program, the businesses who buy
and sell Native arts and crafts, and the customers of Native arts
and crafts.
Number 1128
MR. SMITH noted he disagreed with Representative Hudson's feeling
that the program should stay with the DCED for three reasons: 1)
the program's history, 2) the program's potential value, and 3) the
ASCA is the best-suited existing state structure for the Silver
Hand Program.
Number 1203
VERNON CHIMEGALREA, Native Arts Program Director, Alaska State
Council on the Arts, testified via teleconference from Anchorage.
He read the following statement into the record:
"The Alaska State Council on the Arts is in support of the
[Governor's] Marketing Alaska recommendation to transfer the Silver
Hand Program from the Department of Commerce and Economic
Development to the Alaska State Council on the Arts.
"The economic impact of the arts have been proven on a state to
national level. In Alaska, the arts are a viable industry with
annual economic impact to the nonprofit sector alone of over $23.5
million. The importance of the arts industry is especially evident
in rural Alaska where it may be a family's primary source of
income.
Number 1257
"ASCA, the Alaska State Council on the Arts, has long recognized
that communities and artisans need assistance in developing and
marketing local and regional cultural opportunities. It provides
grant funds, technical assistance and leadership to help develop
the arts industry in Alaska. For example, ASCA is in its third
year of a partnership with the Department of Community and Regional
Affairs to support community-based efforts to diversify and
strengthen rural economies through arts-related economic
development projects."
Number 1295
CHAIRMAN ROKEBERG noted the committee was in possession of Mr.
Chimegalrea's statement and it would be entered into the record.
In the interests of time Chairman Rokeberg asked Mr. Chimegalrea to
sum up his comments.
Mr. Chimegalrea submitted the following statement for the record:
The ASCA Rural Arts Initiative Grant Program has funded three arts
cooperatives being developed through the Association of Village
Council Presidents in the Yukon-Kuskokwim Delta, the Tribal Council
of St. Paul Island and the Tribal Council of Pt. Hope.
2) ASCA is co-sponsoring a technical assistance workshop February
18 to 20 for the planning and management of Alaska Native Museums
and Culture Centers. The workshop will include sessions on the
role of tourism, role of gift shops, collections management and
exhibit planning.
3) Last fiscal year ASCA made over $500,000 in grants to
organizations and individuals. Every grant we issue supports
Alaskan jobs and creates economic impact in the community it was
awarded.
4) Master Artist and Apprenticeship Program pairs apprentices
desiring to pursue serious study of a Native Art with an
acknowledged master artist. This program encourages the creation
of high quality products by master artists in traditional Native
art forms.
The Silver Hand Program was established to authenticate Native arts
for the retailers and consumers while protecting the work of Native
artists. The program began with good intentions but has languished
due to lack of commitment and resources at the Department of
Commerce and Economic Development. The Marketing Alaska task force
identified significant problems with the program calling it
"outdated, vague and ineffective." The Silver Hand Program has
been repeatedly criticized for failing to carry out its
obligations.
It is estimated that over 85 percent of art merchandise sold as
Native made is not authentic. In addition, Native artists lack
trust in the program and retailers are not educated on how to
market Native arts and crafts without misrepresenting the art and
its cultural origin.
In response to the Governor's Marketing Alaska findings, it was
recommended that the Alaska State Council on the Arts take over
management of the Silver Hand Program. This program goes hand in
hand with our existing Native Arts Program. As the Native Arts
Program director, I apply my art and language expertise as well as
a statewide networking to enhance and build the program. Since the
beginning of the fiscal year, ASCA has devoted considerable staff
resources to revitalize this important program.
1) We convened the advisory committee of both Native artists and
retailers. 2) We incorporated the Silver Hand Program into a
statewide Native arts outreach through exhibitions at major Native
conferences and gatherings as well as travel to major hub areas of
the state. 3) We produced video public service announcements
describing the program and the purpose of the Silver Hand tag. 4)
We increased enrollment in the program by 50 percent to over 600
artists. 5) We contacted Federal Trade Commission to discuss
enforcement issues. 6) We are working to make the Silver Hand
Program locally accessible by developing partnerships with village
corporations. 7) We placed advertisements in major tourist
publications alerting travelers to the importance of the Silver
Hand tag when purchasing authentic Native arts.
The council feels strongly that the Silver Hand Program will be
best served under the direction of the Alaska State Council on the
Arts. We will seek the public and private resources necessary to
enhance the economies of rural Alaska through arts-related program
like Silver Hand.
Number 1301
MR. CHIMEGALREA summed up the rest of his statement for the
committee. He noted that the Silver Hand Program authenticates
Native arts for retailers and consumers while protecting Native
artwork.
MR. CHIMEGALREA referred to the efforts the ASCA has already made
in regards to the Silver Hand Program since July 1997. He
commented that 200 new artists had entered into the program since
July 1997, as compared to the 600 over the past 36 years.
MR. CHIMEGALREA indicated the ASCA was not comfortable with the
current Silver Hand agent structure, and he mentioned the efforts
to contact the over 200 village corporations throughout the state
to encourage the corporations to become the Silver Hand agents for
their communities, paying the fees. He noted the Silver Hand
sticker would help local economies. Mr. Chimegalrea concluded
that, with all these facts, the ASCA is in support of the transfer.
Number 1466
CHAIRMAN ROKEBERG asked Mr. Chimegalrea how much money the ASCA
received from the legislature this fiscal year and how this
transfer would affect the ASCA's budgetary requests for next year.
Number 1500
HELEN HOWARTH, Executive Director, Alaska State Council on the
Arts, testified via teleconference from Anchorage. She stated that
she would like to address Chairman Rokeberg's question.
Number 1528
MS. HOWARTH, referring to the earlier hearing on EO 100 in the
House Community and Regional Affairs Standing Committee and
questions raised in this meeting, noted she understood the concerns
expressed about the ASCA's viability. Ms. Howarth noted the ASCA'S
appropriation this year from the state was approximately $460,000
and was matched by the federal government.
MS. HOWARTH stated that the ASCA feels very strongly it can
accommodate the Silver Hand Program within its current budget, and
with current staff to a certain extent. She noted the ASCA did ask
for a budget increase this year of approximately $32,000 to fund
the addition of the program to the ASCA's budget.
MS. HOWARTH stated that the council plans to seek private funding
to make up any additional budget needs it might have through the
operations of the program. She noted the council feels very
confident that it will be able to attract private support to help
fund the Silver Hand Program.
Number 1601
MS. HOWARTH continued, "I think, perhaps, the most important part
about us taking over this program is the fact that we - we consider
ourselves experts in Native arts. We have the contacts in the
communities; we have a Native arts panel that advises us on - on
matters of Native arts and culture; we do a lot within our current
existing structure, without having to add a lot of budget needs or
personnel costs, or anything like that, to actually manage the
Silver Hand Program in ... association with our Native Arts
Program. So, while it would certainly be nice to have additional
funding, we feel fairly strongly that we can manage the program
with the resources that we have, ... soliciting additional
resources from the private sector."
Number 1676
CHAIRMAN ROKEBERG, hearing no further comments, closed the public
hearing on EO 100.
ADJOURNMENT
Number 1682
CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing
Committee meeting at 4:58 p.m.
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