Legislature(1995 - 1996)
02/01/1996 09:10 AM Senate FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE February 1, 1996 9:10 a.m. TAPES SFC-96, #17, Side 1 and 2 SFC-96, #18, Side 1 (000-466) CALL TO ORDER Senator Rick Halford, Co-chairman, convened the meeting at approximately 9:10 a.m. PRESENT All committee members (Co-chairmen Halford and Frank and Senators Donley, Phillips, Rieger, Sharp, and Zharoff) were present. ALSO ATTENDING: Senator Lyda Green; Jim Baldwin, Assistant Attorney General, Governmental Affairs Section, Dept. of Law; Pamela LaBolle, President, Alaska State Chamber of Commerce; Jim Collard, President, Juneau Chamber of Commerce; Jane Angvik, Director, Division of Land, Dept. of Natural Resources; Nico Bus, Acting Director, Division of Support Services, Dept. of Natural Resources; Mike Greany, Director, Legislative Finance Division; Ted Popely, aide to House Speaker Gail Phillips; Brett Huber, aide to Senator Lyda Green; and aides to committee members and other members of the legislature. SUMMARY INFORMATION HJR 1 - REPEAL OF REGULATIONS BY LEGISLATURE Testimony was presented by Ted Popely, Jim Collard, Pam LaBolle, and Jim Baldwin. An amendment by Senator Rieger was proposed and adopted. SCS HJR 1 (Fin) was REPORTED OUT of committee with a $2.2 fiscal note from the Office of the Governor/Elections. SJR 14 - CONFIRMATION OF BD MANAGING PERM FUND Discussion was had with Jim Baldwin. The resolution was subsequently placed in a subcommittee consisting of Co-chairman Halford and Senators Donley and Rieger. SB 89 - PERMANENT FUND BOARD MEMBERS & STAFF Discussion was had with Jim Baldwin. The bill was then held in committee for further discussion. SB 162 - AGRICULTURAL LAND Testimony was presented by Senator Lyda Green, Jane Angvik, and Brett Huber. Amendments 1 and 2, by the sponsor, were noted. The bill was subsequently held in committee for further discussion. HOUSE JOINT RESOLUTION NO. 1 Proposing an amendment to the Constitution of the State of Alaska relating to repeal of regulations by the legislature. Co-chairman Halford directed that HJR 1 be brought on for consideration. TED POPELY, aide to House Speaker Gail Phillips, came before committee. He referenced the sponsor statement (copy on file in the original Senate Finance Committee file for HJR 1) and noted that, if placed on the ballot, the resolution would provide voters an opportunity to amend the state constitution to allow for legislative repeal of administrative regulations, by joint resolution. Repeal would apply to regulations that ignore or extend beyond the scope of enabling legislation. Mr. Popely acknowledged that the measure had been before the voters on three previous occasions and had failed. However, a significantly growing number of regulations which do not fulfill the purpose and intent of legislation make it timely once more. JIM COLLARD, President, Juneau Chamber of Commerce, next came before committee and voiced support for the resolution. He said that regulatory compliance is often one of the biggest costs of doing business. While many regulations accurately implement both the letter and intent of law, many go far beyond or appear to ignore intent. Regulations have the force of law for businesses, and they are often promulgated without public input. When agencies craft regulations that depart from legislative instructions, the agency becomes the lawmaker without having to answer to voters. HJR 1 provides an effective tool by which to ensure adherence to legislative intent and return the making of law to the legislature. PAM LaBOLLE, President, Alaska State Chamber of Commerce, next spoke on behalf of the chamber's 700 member-businesses which provide jobs to 70,000 employees. She said that mission of the chamber is to create a climate conducive to a strong private-sector economy. Mrs. LaBolle voiced support for HJR 1, advising that reform of the present regulatory system is second in priority to need to close the fiscal gap. Referencing a chamber resolution in support of the effort, she noted that the resolution asks the legislature and administration to "provide for an effective oversight mechanism to assure that regulations are producing effective results that follow legislative intent." She cited complaints regarding regulations that ignore or miss the point of legislation. Presently, the only recourse is passage of "corrective legislation." Since the governor can veto that legislation, the current system allows the executive branch to usurp the power of the legislature. Throughout the legislative process, the public has opportunity to provide input. The regulatory process is not so open or receptive, and regulations are sometimes adopted in spite of public sentiment. Co-chairman Frank asked if the chamber would fund and undertake a campaign to inform the public of the benefits of HJR 1. He noted that because of lack of explanation and understanding, prior votes on the issue were viewed as "a power grab by the legislature." Mrs. LaBolle said that the chamber is committed to utilization of its resources and network of local chambers to educate and inform the public. Both Co-chairman Frank and Senator Randy Phillips stressed need for the educational effort to extend beyond chambers and business groups to the public at large. Further discussion of need for adequate funding of a public awareness effort followed. Co-chairman Frank suggested that a financial commitment from the business community similar to the effort to close the fiscal gap should be devoted to changing the regulatory process. JIM BALDWIN, Assistant Attorney General, Governmental Affairs Section, Dept. of Law, advised that HJR 1 would dramatically changed the legislative process. He queried members concerning specific regulations giving rise to public complaint. He suggested that, as an institution, the legislature should be concerned about "this sort of power." As an example, he cited fish and game regulations and noted that the board of fish and game was created in territorial days and continued in statehood to place regulatory power in the hands of experts. He questioned whether fishing interests should come directly to the legislature to undo regulations adopted by the board. Mr. Baldwin further cited an earlier attempt by the legislature to annul regulations by statute (AS 44.62.320) and noted that the effort was ruled unconstitutional (State v. A.L.I.V.E Voluntary). He stressed that regulations involve more than just businesses. Senator Randy Phillips noted that the supreme court ruling was three to two. The question of unconstitutionality was thus not unanimous. Senator Phillips directed attention to page 1, lines 6 and 7, and referenced language calling for repeal via joint resolution. He then noted language at AS 44.62.320 requiring repeal by concurrent resolution and questioned which form of resolution should be utilized. Co-chairman Halford said that provisions in HJR 1 would supercede the statute. He informed members that the effective difference is "to elevate the kind of resolution to one requiring three readings so that it does . . . get treated exactly as a bill would." As examples of overreaching regulations, Senator Sharp cited the Forestry Practices Act which provides statutory review to the Dept. of Fish and Game. Regulations, however, call for both review and approval. Proposed air quality regulations set standards that are technically impossible for coal-fired power plants to achieve when, after routine maintenance, they are refired from a cold start. Federal law says that states are not to impose more stringent requirements. Proposed state regulations do so. The Senator further noted that past governors have overridden board of fish and board of game decisions, and he cited the False Pass fishery as an example, suggesting that politics is more involved at the administrative than at the legislative level. Mr. Baldwin stressed that the legislature presently has the power to correct problem regulations via statute. Senator Sharp noted that corrective legislation is also subject to veto. Co-chairman Frank voiced his belief that legislative repeal would provide greater opportunity for public input into the regulatory process. He suggested that such repeal would result in only a slight rather than substantial shift in the balance of power. Senator Sharp noted that the legislature, rather than the administration, is often mistakenly blamed for passage of onerous regulations. Senator Rieger referenced language at page 1, line 9, and asked if it would permit retroactive or merely prospective repeal. Mr. Baldwin informed members that the broad wording could be construed to apply retroactively. He advised that he would have to review the Administrative Procedures Act. He then voiced his belief that "We're limited in regulations with retroactive effect." Senator Rieger stressed that the record should indicate that retroactive repeal is not contemplated. Mr. Baldwin concurred that repeal power would not apply to existing regulations. Co-chairman Halford referenced a $2.2 fiscal note accompanying the resolution and queried members concerning disposition of HJR 1. Senator Rieger indicated that conversation with staff of the sponsor evidenced no objection to clarification of language giving rise to concern regarding retroactive repeal. He then formally MOVED to insert the word "prospective" following the word "different" at page 1, line 9. That would prevent ability to backtrack ten years and repeal a regulation upon which businesses and individuals have relied for a substantial period of time. Discussion followed among members relating to the House majority needed to approve Senate changes to HJR 1. Senator Sharp voiced reluctance to place the resolution in jeopardy by effecting a change. Co-chairmen Halford and Frank concurred. Co-chairman Frank also noted need to keep resolution language as simple as possible. Senator Sharp suggested that a letter of intent might accomplish the same end as the proposed amendment. Senator Rieger told members that careful reading of the supreme court ruling on the budget reserve fund evidences that regardless of intent language or the wording of ballot propositions, the court takes "the wording of the constitution on its face." That overrides all else. The wording must thus be clear. Co-chairman Halford voiced opposition to the proposed amendment and called for a show of hands. The amendment was ADOPTED on a vote of 4 to 3 (Senators Rieger, Phillips, Donley, and Zharoff supported the amendment, and Co-chairmen Halford and Frank and Senator Sharp were opposed). End: SFC-96, #17, Side 1 Begin: SFC-96, #17, Side 2 Co-chairman Halford directed that the amendment be incorporated within a Senate Finance Committee Substitute for HJR 1. Senator Sharp MOVED that SCS HJR 1 (Finance) pass from committee with individual recommendations and the accompanying fiscal note. No objection having been raised, SCS HJR 1 (Finance) was REPORTED OUT of committee with a $2.2 fiscal note from the Office of the Governor/Elections. Co-chairmen Halford and Frank and Senators Rieger, Phillips, and Sharp signed the committee report with a "do pass" recommendation. Senators Donley and Zharoff signed "no recommendation." SPONSOR SUBSTITUTE FOR SENATE JOINT RESOLUTION NO. 14 Proposing amendments to the Constitution of the State of Alaska relating to confirmation of appointments of public members who serve on a board or commission involved with managing the assets of the Alaska permanent fund. [Tape malfunction. The following portion of the meeting was not recorded. Minutes reflect transcription of shorthand notes.] Co-chairman Halford directed that SSSJR 14 be brought on for discussion and explained that while the original resolution applied to a number of public corporations, the sponsor substitute deals only with the permanent fund board. He noted the inherent irony in the fact that the legislature confirms appointments to the board of barbers and hairdressers but does not confirm appointment of those who oversee management of the state's $15 billion savings account. Senator Donley voiced his belief that the broader reach of the original resolution was worth consideration. He expressed need for a legal opinion covering all corporations that manage state assets. He also noted need for a definition of "state asset" and recommended first defining the term and then passing the resolution. He suggested that a state assets consists of tangible property or a block of money under a particular agency's control. Senator Rieger advised he was comfortable with the original version of the resolution but concurred in need for statutory definition of "state asset." JIM BALDWIN, Assistant Attorney General, Governmental Relations Section, Dept. of Law, again came before committee. He confirmed that the sponsor substitute narrows the scope of the original resolution and stressed that some public corporations have corporate rather than state assets. The power of appointment is an executive branch function. The resolution goes beyond the constitutional division of powers between the branches. Referencing legislation relating to a similar issue (SB 89 PERMANENT FUND BOARD MEMBERS & STAFF) Mr. Baldwin expressed concern over "removal for cause" provisions. [The tape recording problem was corrected at this point. Minutes reflect transcription of the tape.] Mr. Baldwin explained that under present SB 89 language, it is unclear whether "removal for cause" would involve due process and require a hearing and trial-like procedures. He further questioned language indicating that: The governor shall base the decision to appoint or remove a board member solely on the financial best interest of the fund. He then asked what would occur if a board member committed an offense involving moral turpitude but unrelated to finances of the fund. Under present language it appears the individual could not be removed, even though he or she might be undesirable as well as charged with and convicted of a criminal act. There are real problems associated with both the "cause" requirement and implementation of the requirement. The process is not simple. Senator Rieger told members that the purpose of staggered terms was to prevent the "wholesale sacking of the board of trustees which has occurred in the last two administrations." Co-chairman Halford added that staggered terms are meaningless if members are removed without cause during a change in administration. Mr. Baldwin reiterated concern that present language might involve a lengthy due process procedure. The bill is vague and ambiguous and requires work in that area. Co-chairman Halford explained that he simplified SSSJR 14 because of difficulties and questions raised by the original. A super majority is needed to achieve consensus for a constitutional amendment. He then queried members regarding whether the resolution should address only the permanent fund board or other major corporations that handle "billions of dollars in state assets" and operate totally outside the appointment and confirmation process. Co- chairman Frank voiced support for the original. Senator Donley reiterated need for a legal opinion defining what constitutes a state asset versus a corporate asset. Co- chairman Frank suggested that it would be difficult to infer that a state-owned corporation does not consist of state- owned assets. Senator Donley concurred but noted that there may be instances where provisions within the articles of incorporation insulate the state from lawsuits or liability for actions of the public corporation. Senator Zharoff inquired concerning the current definition of "cause." Mr. Baldwin informed members that removal for cause generally involves the offense of moral turpitude unless removal for incompetence or inattention to duty is expressly stated. Application differs from board to board. The permanent fund statute states that the governor may remove a trustee by merely stating his reasons in writing. That is, in essence, an at-pleasure appointment. In the course of further discussion of for-cause removal, Mr. Baldwin referenced a past conflict between 39.05.080 (a general right to remove at pleasure) and appointments to the board of fisheries. The legislature subsequently removed the ambiguity. Mr. Baldwin concurred that if the statute for a particular board is silent, everyone serves at the pleasure of the governor. When again queried by the Co-chairman regarding whether the resolution should be restricted to the permanent fund or cover a number of public corporations, Senator Randy Phillips voiced support for broad application. Both Senator Zharoff and Senator Donley reiterated need for definition of "state asset." Co-chairman Halford acknowledged that the definition is inherent in expanded coverage of the resolution. He then directed that SSSJR 14 be further reviewed by himself, Senator Donley, and Senator Rieger. SSSJR 14 was thus held in subcommittee. SENATE BILL NO. 89 An Act relating to the members of the board and staff of the Alaska Permanent Fund Corporation. In directing that a brief introduction to SB 89 be presented, Co-chairman Halford noted need for consistency between the bill and SSSJR 14. Senator Rieger advised of a 100% turn over in top management of the Alaska Permanent Fund Corporation over the last two years. That includes the executive director, chief investment officer, and all six trustees. The purpose of SB 89 is to provide greater continuity in management of the fund. Provisions make clear that removal of a trustee must be for cause. Further provisions reduce the number of cabinet-member appointees from two to one and increase the number of public members from four to six. Public members also have staggered terms. The aggregate board would thus be seven rather than six members. SB 89 also clarifies that investment policies and staffing decisions must be made solely in the best interest of the fund. The over $18 billion fund is more than seven times the amount of general funds used in annual operating and capital budgets. CSSB 89 (STA) clarifies that at least two of the public members must have recognized competence and wide experience in investment portfolio management. The committee substitute further defines "cause" and clarifies what removal for cause would entail. Co-chairman Halford voiced his understanding that the limitation on contracts applies to permanent fund employees rather than management contracts. Senator Rieger concurred. JIM BALDWIN, Assistant Attorney General, Governmental Relations Section, Dept. of Law, remained before committee. He initially spoke to possible conflicts between contractual hire terms and an executive director who might serve at the pleasure of the board. He later advised that he had not yet reviewed CSSB 89 (STA) and would reserve further comment until he had done so. In his closing remarks, he reiterated concern that imposition of removal for cause provisions would be bad for the permanent fund board. Senator Donley acknowledged a possible conflict between employment contract provisions and service at the pleasure of the board and suggested that the bill contain language specifying that the contractual employee serve at the pleasure of the board. Senator Rieger acknowledged that the suggestion was reasonable and requested time to explore proper language to ensure consistency with existing statutes. Co-chairman Halford directed that SB 89 be held in committee for further discussion. SENATE BILL NO. 162 An Act relating to land used for agricultural purposes and to state land classified for agricultural purposes or subject to the restriction of use for agricultural purposes only; and annulling certain program regulations of the Department of Natural Resources that are inconsistent with the amendments made by this Act. Co-chairman Halford directed that SB 162 be brought on for hearing and directed attention to CSSB 162 (Res) and Amendments 1 and 2, proposed by the sponsor. SENATOR LYDA GREEN came before committee. She explained that the bill responds to numerous requests for improvements from owners of agricultural land to make ownership of farm land more attractive. The legislation expands state ability to convey interest in lands classified for agriculture purposes. The state presently conveys agriculture interest only, and the state retains all other interest. Passage of SB 162 would authorize state conveyance of fee simple title, subject to certain restrictive covenants that maintain use of the land for agriculture. This change would allow owners of agricultural parcels to obtain financing from institutions other than the state. Senator Sharp inquired concerning the size of parcels that may be subdivided and sold. Senator Green described the process by which a parcel may be divided "by fours" every four years. Resulting parcels may not be less than 40 acres. Senator Zharoff voiced concern that agricultural land might be used for non-agricultural purposes and asked if the proposed bill would allow for other use. Senator Green stressed that the bill maintains covenants for use for agricultural purposes only. Instead of agricultural designation being a departmental decision, it would become a judicial decision. The reversionary clause that allows the commissioner to decide if land is being used according to plan would no longer remain in place. The landholder would pay the cost of survey, subdivision, and title. Senator Green referenced Amendment No. 2 and noted that the change from agricultural rights to fee simple title would be an applicant-driven process. The department will not go through its files and issue a new deed for every agricultural parcel. Discussion followed regarding whether a 40-acre subdivision would be of productive size and whether subdivision might eventually result in agricultural land being devoted to other use. Senator Green noted that ability to subdivide down to 40 acres is presently in statute. It is not a new provision within CSSB 162 (Res). Co-chairman Halford informed members that under existing law a landholder may separate off a 40-acre parcel, but no improvements may be made to the parcel. The proposed bill would allow for improvements. Senator Green concurred and reiterated that the change from agricultural rights to fee simple title would allow for financing of improvements on the subdivided property through entities other than the existing state agricultural loan program. She explained that some agricultural endeavors do not require large parcels of land. In response to a question from Senator Donley, BRETT HUBER, aide to Senator Green, advised that local property taxes are presently set by boroughs and municipalities. The breakout for agricultural purposes is based on utilization of the land rather than the size of the parcel or improvements. Under the proposed bill, utilization would not change. Co- chairman Halford added that landholders pay property taxes on "the portion of the value that is contained in the agricultural rights." That is much less than the value of the whole land eligible for unlimited subdivision or use. Since the state initially sold only agricultural rights, local governments could only tax those rights. If the ability to subdivide increases the value, it will also increase potential taxation of the property. Discussion followed regarding impact of the legislation on Delta and Point MacKenzie agricultural projects. Senator Green advised that there would be no difference in application in any region of the state aside from parcels involved in mental health trust lands. She stressed that the major impact of the bill would allow those with high interest loans to refinance at a lower rate. There are no private loans on agricultural rights at the present time. Conversion to fee simple title would provide the collateral needed to obtain financing from entities other than the state. Further discussion ensued concerning the Delta project and the size of the parcels as well as the current status of Point MacKenzie farms. JANE ANGVIK, Director, Division of Land, Dept. of Natural Resources, next came before committee. She voiced her understanding that the bill would: 1. Allow individuals with agricultural rights to exchange those rights for fee simple title to enhance ability to secure financing in the private sector. End: SFC-96, #17, Side 2 Begin: SFC-96, #18, Side 1 2. Allow for subdivision down to 40-acre parcels and improvements on subdivided parcels. 3. Allow landholders to secure a lower interest rate on state repayment schedules if they apply for refinancing. Ms. Angvik voiced support for proposed amendments to make the process applicant-driven. Individual landholders would be responsible for appraisal, title search, and other conversion costs. Referencing the second portion of the legislation, Ms. Angvik raised policy questions regarding ability to subdivide. The question is: If by the act of subdividing we have . . . created a substantial increase in the value of the property, should the state be compensated for that increased value? Provisions allow for subdivision into only four parcels, once every four years. Further comments by Ms. Angvik followed regarding testimony before the Senate Resources Committee to the effect that subdivision provisions were designed to allow individuals to convey land to heirs. She said it was not the intention to allow individuals to speculate and increase the value of land obtained at a low price because purchase involved agricultural rights only. Ms. Angvik suggested that policy concerns could be mitigated by either: 1. Appraising the land at subdivision and making the difference in value due to the state. 2. Allowing subdivision every generation (30 years) to convey lands to heirs. If the foregoing issues can be addressed, the administration feels it is in the best interest of the public to provide greater access to financing for farmers. Discussion followed regarding criteria used to obtain refinancing through the state. Ms. Angvik explained that the division has no ability to screen individuals for ability to pay. The division would merely apply statutory interest rate provisions (not to exceed "nine point something") to applications for refinancing. Further discussion of the process ensued. Co-chairman Frank noted that it is unusual for legislation to be worded to imply discretion when discretion is not expected to be utilized. Ms. Angvik voiced her understanding that the legislation would provide impetus to utilize federal moneys for agricultural endeavors. Federal rates are lower than those of the state. The average rate of existing agricultural loans is 11.8 percent. Co-chairman Halford asked if landholders would have to be current in their loan payments to refinance through the state. Ms. Angvik responded affirmatively. Discussion followed regarding an adjustable rather than fixed interest rate for state agricultural loans. Ms. Angvik voiced concern over additional paperwork associated with application of adjustable rates. She further advised of Commissioner Shively's goal that: We basically get out of the banking business. That we do everything that we can possibly do to no longer be the financing source for the purchase of state lands. Ms. Angvik advised that in other legislation containing a rewrite of Title 38, the department is suggesting that the interest rate for sale of all lands be the current prevailing rate plus a percentage. That would then become the statutory methodology rather than a specific number. Interest would then become fixed at the time of contract negotiation rather than revised on an annual basis. It was suggested that CSSB 162 (Res) mirror that approach, but the sponsor chose another route. In response to a question from Senator Sharp concerning the traditional size of an agricultural parcel, Ms. Angvik noted that of the existing 475 parcels, the majority are between 40 and 320 acres with the bulk at 160. Senator Randy Phillips questioned the number of acres that are actually farmed. One of the remaining dairy farmers has indicated that "You can't farm and make it economically feasible on 40 acres." The Senator then suggested that the minimum subdivision be 160 acres. Senator Green stressed that several hundred existing parcels are already smaller. Ms. Angvik advised of over 600,000 acres of agricultural land in private hands. The department assumes that those holding the lands operate within the covenants and use the land only for agricultural purposes. Co-chairman Frank suggested that rather than the legislature dictating what size a farm should be, the market should make that decision. He indicated that farmers may wish to use different 40-acre parcels for different types of farming and improvements and obtain separate financing for each parcel. There may be valid reasons for subdivision, other than conveyance. Ms. Angvik reiterated the policy question associated with whether the state, as the owner of the agricultural land, should be compensated for increased value created by ability to subdivide. Co-chairman Frank suggested that there might be valid public purpose in encouraging development of farm land by providing greater financing opportunities via subdivision. In response to a question from Co-chairman Frank, Senator Green explained that the purpose behind CSSB 162 (Res) "never addressed that right to pass the land on to heirs in subdivision." That was one of the issues raised as the bill was discussed, but it was not a primary goal. The basic purpose is to allow an agricultural landholder fee simple title so the farmer may develop the land and make a living. One cannot necessarily do that with a large parcel in Alaska. There is great demand for smaller parcels. When land is returned to the state, the state has the ability to subdivide and sell 40-acre parcels. The proposed bill would allow landholders to do the same. Senator Donley voiced his understanding that, per constitutional provisions, the state must be compensated for conveyance of a state asset or resource. He then directed attention to enforcement provisions at page 7, line 17, and asked if civil action would be consistent with existing law. Co-chairman Halford voiced his understanding that the language relates to "the old reversionary clause." Speaking to concern that agricultural land might be subdivided by speculators and used for other purposes, Co- chairman Frank suggested that no financial institution would provide financing for such development under existing agricultural covenants. He then voiced his believe that provisions for subdivision contained in CSSB 162 (Res) would not greatly change the market value of the land because of lack of demand for farm land in Alaska. He further noted a valid public purpose associated with making farming more economically viable. Co-chairman Halford directed that the bill be held on the calendar for further discussion. ADJOURNMENT The meeting was adjourned at approximately 11:25 a.m.