Legislature(1995 - 1996)

02/09/1996 09:10 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    SENATE FINANCE COMMITTEE                                   
                        February 9, 1996                                       
                            9:10 a.m.                                          
  SFC-96, #23, Side 1 (000-575)                                                
  SFC-96, #23, Side 2 (575-431)                                                
  CALL TO ORDER                                                                
  Senator Rick Halford,  Co-chairman, convened the  meeting at                 
  approximately 9:10 a.m.                                                      
  All  members (Co-chairmen  Halford  and Frank  and  Senators                 
  Donley, Phillips, Rieger, Sharp, and Zharoff) were present.                  
  ALSO  ATTENDING:    Gordon  Evans, representing  the  Health                 
  Insurance Association of America;  Katie Campbell, Assistant                 
  Actuarial, Division  of  Insurance, Dept.  of  Commerce  and                 
  Economic Development; Nico Bus, Acting Director, Division of                 
  Support Services,  Dept. of Natural  Resources; Mike Greany,                 
  Director, Legislative Finance Division; Brett Huber, aide to                 
  Senator Lyda Green; and aides to committee members and other                 
  members of the legislature.                                                  
  ALSO PARTICIPATING VIA TELECONFERENCE:  Trae Anderson, Vice-                 
  President of  Blue Cross, Seattle, Washington;  Ron Swanson,                 
  Director,  Division of  Land,  Dept. of  Natural  Resources,                 
  Anchorage, Alaska.                                                           
  SUMMARY INFORMATION                                                          
  SB 162 -  AGRICULTURAL LAND                                                  
            Discussion  was had  with  Ron Swanson  and  Brett                 
            Huber.  Amendments  1, 2, and  3 were adopted  for                 
            incorporation   within    a   finance    committee                 
            substitute.  CSSB 162 (Fin)  was then REPORTED OUT                 
            of committee with a new $15.0 fiscal note from the                 
            land  development component and  a $28.5 note from                 
            the  agricultural  development  component  of  the                 
            Dept. of Natural Resources.  (Transmission of  the                 
            bill to the floor to be read across into Rules was                 
            delayed until 2/13/96 for review and approval of a                 
            draft  CSSB   162  (Fin)   containing  the   above                 
  SB 178 -  SMALL EMPLOYER HEALTH INSURANCE                                    
            Discussion  was  had   with  Gordon  Evans,  Katie                 
            Campbell, and Trae  Anderson.   The bill was  then                 
            REPORTED OUT of committee with  a zero fiscal note                 
            from   the   Dept.   of  Commerce   and   Economic                 
  SENATE BILL NO. 178                                                          
       An   Act   relating  to   small   employer  health                      
  Co-chairman Halford  directed that SB 178 be  brought on for                 
  discussion.  Senator Rieger described  the operation of 1993                 
  legislation creating an association  of insurers to  provide                 
  health  insurance  in  Alaska.    The  legislation  required                 
  insurers  to join  an  association as  a condition  of doing                 
  business in  the  state.   It set  up a  pool which  allowed                 
  reinsurance  of  health  coverage for  small  employers  and                 
  required the  small employer insurer  to offer at  least two                 
  health  benefit  plans.   The  definition of  small employer                 
  ranged from  2 to 25 employees.   The only change  within SB                 
  178 would increase the ceiling to 50 members.  The remaining                 
  provisions of reinsurance  and small group health  plans are                 
  the same.                                                                    
  In response to a question by Senator Randy Phillips, Senator                 
  Rieger explained that the  1997 date was "picked out  of the                 
  air  when  we first  passed  that  law as  a  five-year-type                 
  window."  That date would be extended two years by SB 178.                   
  KATIE CAMPBELL,  Assistant Actuary,  Division of  Insurance,                 
  Dept.  of Commerce  and  Economic  Development, came  before                 
  committee, saying that since no  comprehensive study has yet                 
  been done regarding the impact  of earlier legislation, both                 
  the division  and administration  are neutral  on the  bill.                 
  She commented that  a survey was  issued several weeks  ago.                 
  Responses are expected by February 20, 1996.  The results of                 
  that survey should provide pertinent information.                            
  Co-chairman  Halford acknowledged the argument that when new                 
  requirements or action are mandated, concern is that "people                 
  will drop out of the argument."  He then asked if the number                 
  of   insurers  had  diminished   since  passage  of  earlier                 
  legislation.   Ms. Campbell cited only  Traveler's Insurance                 
  transfer of health  insurance operations  to a new  company,                 
  Metro Health.                                                                
  In response to a question from Senator Zharoff regarding the                 
  definition of a "small  business," Senator Rieger  explained                 
  that the definition is employment based.   It was formerly 2                 
  to 25 employees.  SB 178 extends  it to 50.  The reinsurance                 
  mechanism   attempts    to   create   "some    large   group                 
  characteristics   among   a    pool   of   smaller   insured                 
  populations."  Beyond 50, the group  is large enough so that                 
  extra provisions for  insurance of  small businesses are  no                 
  longer needed.                                                               
  GORDON EVANS, representing the Health Insurance  Association                 
  of America, next  came before  committee and voiced  support                 
  for  the  bill.   Earlier-passed  legislation  emanated from                 
  studies by the state health resources and access  task force                 
  indicating  that approximately half  of all uninsured adults                 
  in  Alaska were  employed by  small businesses.    While the                 
  ceiling of 2  to 25 employees impacted  approximately 85% of                 
  the businesses in Alaska, increase  to 50 would impact  92%.                 
  Forty-three  states  have   enacted  small  employer   group                 
  insurance legislation.  Seventeen have established 50 as the                 
  As  an  example  of operation  of  the  legislation, Senator                 
  Rieger described  the process  by which  the small  employer                 
  population would  be aggregated  into one  large group.   An                 
  insurer seeking to underwrite health  insurance for the pool                 
  would establish a rate  adequate to pay claims on  the large                 
  pool.  The process  for underwriting a small group  does not                 
  look at averages  but evaluates  those to be  insured on  an                 
  individual basis and selects out  those who are uninsurable.                 
  That changes  the characteristics  of the  remainder.   That                 
  type of  dynamic has caused  insurance to be  less available                 
  for  small groups.  The legislation attempts to recreate the                 
  large  group  characteristic.   An  escape  provision allows                 
  insurers to  move "your rate  up or down  by up to  35% from                 
  what that average rate would have been."  Further ability to                 
  buy into  the reinsurance pool spreads risk  "across all the                 
  people doing business in the state."  Buffers allow insurers                 
  to do  business in  Alaska and  have some  flexibility while                 
  attempting    to    avoid   the    individual   underwriting                 
  characteristic  that   was  making  small   group  insurance                 
  Mr. Evans described an example  whereby an employer with ten                 
  employees might have nine that are  good risks but the tenth                 
  has had medical problems.  Often  the employer could not get                 
  a group  policy that insured  that individual.   Under small                 
  employer health insurance legislation, the individual has to                 
  be  included.     There   is  guaranteed  availability   and                 
  accessibility.  Only two high-risk employees are included in                 
  the reinsurance pool at this time.  The legislation has thus                 
  provided insurance to small businesses without the necessity                 
  of excluding certain employees.                                              
  Co-chairman Halford expressed  concern that  those with  low                 
  risks  not be  utilized to  fund high-risk individuals.   He                 
  said  he  had no  problem with  the  legislation as  long as                 
  employers  with  low-risk  employees  may  "opt out  to  the                 
  Senator Sharp described his experience in having established                 
  a group insurance trust for Alaska utilities.  He noted that                 
  eight  of the 17  utilities were unable  to obtain insurance                 
  prior to the trust.   The largest utility experienced  a 20%                 
  reduction in its rate because the  group of 17 utilities was                 
  large enough.                                                                
  TRAE  ANDERSON,  Senior  Vice   President,  Blue  Cross   of                 
  Washington  and   Alaska,  spoke  via   teleconference  from                 
  Seattle,  Washington.  He said  that while Blue Cross agrees                 
  with  the  intent  of  the   legislation  and  some  of  its                 
  provisions, the company has reservations about the bill as a                 
  whole.  Blue Cross supports health reform designed to:                       
       1.   Contain the  growth of medical  and administrative                 
       2.   Increase access  to health care  and coverage  for                 
  the       uninsured.                                                         
       3.   Assure the quality of health care services.                        
  The  proposed  bill  would  require  guaranteed issue  of  a                 
  standard  and basic plan  to all groups  sized 2 to  50.  It                 
  would implement guaranteed renewability,  limitations on use                 
  of   previous   conditions,   and  portability   provisions.                 
  However,   Blue   Cross   has  reservations   about   rating                 
  restrictions imposed by  the bill.  Those provision may have                 
  unintended consequences which  run counter to the  intent of                 
  the legislation.    Implementation of  rate-change caps  may                 
  have a destablizing impact on the small group market.  While                 
  Blue  Cross  has  no  empirical  evidence  to  support  that                 
  conclusion,  because it  is too  early to  tell what  impact                 
  rating provisions have had  on the 2 to 25 market,  there is                 
  concern that rating  provisions will  result in  diminishing                 
  choices and access for consumers.                                            
  Co-chairman  Halford  voiced  his  understanding  that   the                 
  foregoing  comments pertain  to earlier  passed legislation.                 
  Areas highlighted would be made either better or worse by SB                 
  178 provisions which  increase the ceiling  from 25 to 50.                   
  Mr. Anderson reiterated concern that  if insurers are unable                 
  to   achieve   compensatory   rates,  the   market   may  be                 
  destabilized, and  the goal of  increased access may  not be                 
  Senator Phillips MOVED that SB  178 pass from committee with                 
  individual recommendations and the accompanying fiscal note.                 
  No objection having been raised, SB  178 was REPORTED OUT of                 
  committee with a zero fiscal note from the Dept. of Commerce                 
  and Economic Development.  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."                                          
  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                 
  discussion.  Co-chairman Frank  referenced Amendments 1  and                 
  2,  suggested  by  the  sponsor.   He  then  explained  that                 
  Amendment No. 1  would change  "shall" to "may"  at page  4,                 
  line 22.  Co-chairman Halford  voiced his understanding that                 
  the  amendment allows  rather than  requires aliquot  parts.                 
  The Co-chairman then  called for  objections to adoption  of                 
  Amendment No. 1.   Senator  Donley requested testimony  from                 
  the department.                                                              
  RON SWANSON, Director,  Division of  Land, Dept. of  Natural                 
  Resources,  testified  via  teleconference  from  Anchorage,                 
  advising that  the department  recommended the  change.   No                 
  objection having been raised, Amendment No. 1 was ADOPTED.                   
  Co-chairman  Frank explained  that  Amendment  No.  2  would                 
  insert new language at page 7, line 31.  Co-chairman Halford                 
  voiced his understanding  that new  language would make  the                 
  process applicant driven.  BRETT HUBER, aide to Senator Lyda                 
  Green,  concurred that  holders of  agricultural only  lands                 
  would have to apply for conveyance  of fee simple title with                 
  a restricted agricultural  covenant.   The landholder  would                 
  provide title insurance  and cover  survey costs.   Original                 
  bill language mandated  that the department issue  new title                 
  conveyances for all agricultural  parcel holders.  Amendment                 
  No. 2 was recommended by the  department and is supported by                 
  the sponsor.                                                                 
  Senator  Zharoff  voiced his  understanding  that  all costs                 
  would be borne by the applicant, and there would be limited,                 
  if any, cost  to the state.   Mr. Huber concurred.   He then                 
  advised that the  present $242.4 fiscal note from  the Dept.                 
  of  Natural Resources  reflects  mandated conveyance  by the                 
  department   and  department-borne   costs.     Making   the                 
  legislation  applicant-driven  should  eliminate or  greatly                 
  reduce costs.                                                                
  Senator Rieger  referenced language  at page  3, line  14 of                 
  Amendment No.  2 and  questioned whether  "shall" should  be                 
  changed to "may" in the subparagraph relating to enforcement                 
  of  the  state's  interest.    Mr.  Swanson  suggested  that                 
  language should use  "may" rather than  "shall."  It  allows                 
  the  department  to  enforce  the  agricultural covenant  by                 
  administrative  means  for  those  holding  the  "old  style                 
  patent."  For the new process,  the department would have to                 
  go  through the  courts.    Mr.  Swanson  advised  that  the                 
  department recommended and supports Amendment No. 2.                         
  Senator  Rieger next  referenced the  following  language at                 
  page 1, line 16 of Amendment No. 2:                                          
       or  a  title  report  affirming  ownership  of the                      
  and  asked what  the department  would accept.   Mr. Swanson                 
  cited  a litigation  report issued  by a  title company  and                 
  signed by an attorney.   The report verifies that  the title                 
  is proper and no liens are attached.                                         
  Senator Phillips MOVED  for adoption of Amendment No. 2 with                 
  the change  from "shall" to  "may" at page  2, line 14.   No                 
  objection having been raised, Amendment No. 2 was ADOPTED as                 
  In response to an inquiry from Co-chairman Halford regarding                 
  the  department position  on  the legislation,  Mr.  Swanson                 
  referenced the following areas of concern:                                   
       1.   The interest rate (Sec. 8).                                        
       2.   Need for compensation to the state  from increased                 
  value          generated by ability to subdivide (Sec. 9).                   
  He stressed that  the department will use  whatever interest                 
  rate the legislature  sets "only  for new  financing."   The                 
  department does not  plan to "go  back and allow anybody  to                 
  refinance  their existing  contract."   Mr.  Swanson further                 
  stressed that  the  proposed bill  establishes  a  different                 
  interest rate  for agricultural  loans than  other types  of                 
  loans handled by the department.                                             
  Under current  law, agricultural  landholders may  subdivide                 
  land  but  no  new  construction  can  occur  on  subdivided                 
  parcels.   The proposed bill allows for agricultural-related                 
  construction.   That would allow for  construction of a home                 
  or other  structure on  each 40 acres.   Department  concern                 
  relates to the impact  of ability to subdivide on  the value                 
  of the property.   Mr. Swanson  cited a recent appraisal  of                 
  the  James'  farm  at  Point   MacKenzie.    The  value   of                 
  agricultural   interest   on  a   40-acre  parcel   with  no                 
  construction  is  $160   per  acre.     Allowance  of   both                 
  subdivision and construction increases the  value to $250 to                 
  $300  per  acre.   The department  feels that  under Article                 
  VIII, Sec.  2 of the  Alaska State  Constitution, the  state                 
  should  be  compensated  for that  increase.    The Attorney                 
  General  advises  that  there could  be  a  legitimate legal                 
  challenge unless the state  is compensated in some form.   A                 
  possible solution is a  limitation on the number of  times a                 
  parcel  may  be  subdivided  and  what  may  be  constructed                 
  thereon.   Co-chairman  Halford noted  that the  legislation                 
  limits the number  of parcels to  four.  The restriction  on                 
  the  number  of  times  a  parcel could  be  subdivided  was                 
  intended to deal  with the  question of value  accrual.   He                 
  suggested   that  the  appraisal,   the  difference  in  the                 
  appraisal, and payment of the amount of the difference would                 
  become  more  cumbersome  than  it  would accomplish.    Mr.                 
  Swanson suggested  that subdivision  be limited  to once  or                 
  twice  and the time period be  longer than four years.  That                 
  would help to equalize values.  Co-chairman Halford asked if                 
  limitations allowing the  parcel to be divided  into no more                 
  than four subparcels  with no provisions for  subdivision in                 
  the  future would  satisfy  concerns.   Further  subdivision                 
  could  then  be  addressed at  a  later  date  if there  was                 
  considerable pressure  for smaller  parcels in  agricultural                 
  use.   Mr. Swanson  concurred in  that approach,  suggesting                 
  that the amount of  increased value would be "so  minimal it                 
  would not be worth trying to figure out."                                    
  In response to a question from Co-chairman Halford asking if                 
  the commissioner would support the  bill under the foregoing                 
  proposal, Mr. Swanson noted that he would have to speak with                 
  the commissioner.   He  also expressed his  belief that  the                 
  foregoing  would be acceptable since  it was discussed as an                 
  option that "would work."                                                    
  Senator  Randy  Phillips  inquired   concerning  the  viable                 
  acreage  for  a  farm.    Mr.  Swanson  said  that  existing                 
  regulations allow for parcels as small  as forty acres.  The                 
  division of agriculture considers 160 acres, plus, to be the                 
  viable  commercial  size.   Below  that number,  parcels are                 
  hobbies, truck farms, etc.                                                   
  In response to  a question  from Co-chairman Halford,  Brett                 
  Huber observed that  the original intent of  subdivision was                 
  to  benefit  the state  in that  a  landholder with  a large                 
  parcel who is  "squeaking by"  and making contract  payments                 
  could subdivide a  piece of ground and  bring "somebody else                 
  into the business  and use that  to cash flow the  operation                 
  and  keep  the contract  current  .  .  .  ."   The  initial                 
  subdivision   is  thus   more   important  than   subsequent                 
  Lengthy discussion followed regarding subsequent subdivision                 
  of the  property and  proposed language  changes within  the                 
  bill.     Co-chairman   Halford   sought   suggestions   for                 
  alternative language clarifying  that "the subdivision would                 
  be one time and for no more than four  parcels . . . ."  The                 
  Co-chairman  asked   department   staff   if   deletion   of                 
  subparagraph (3) at page 6, lines 7 through 12, and addition                 
  of the word "once" following "subdivide"  at page 6, line 5,                 
  would make clear that each parcel could be divided into four                 
  parcels, but a  subdivided parcel could not  be subsequently                 
  divided.   Mr.  Swanson suggested that  "and sell  the land"                 
  also be deleted  at page 6, line 5.  That would clarify that                 
  subdivision would occur  only once while sale  could "happen                 
  at  any  time."   Brett Huber  asked that  language prohibit                 
  subsequent subdivision  of subdivided land rather than allow                 
  subdivision only once.                                                       
  End:      SFC-96, #23, Side 1                                                
  Begin:    SFC-96, #23, Side 2                                                
  In response to a  question from Senator Phillips, Mr.  Huber                 
  explained that the "main thrust and intent of the bill is to                 
  take what was  ag-interest only  land and turn  it into  fee                 
  simple land with an agricultural covenant."                                  
  Discussion followed  regarding the size of  parcels required                 
  for different agricultural purposes.  Mr. Huber told members                 
  that many parcels of 320 acres  and over do not contain  320                 
  acres  of  plantable  soil.    Further,  many  parcels  have                 
  substantially  less   than   100%  of   plantable  soil   in                 
  Senator  Sharp MOVED  to  add "none  of  the four  allowable                 
  parcels  may be  further resubdivided"  at  page 6,  line 6,                 
  following the word "and."  There would thus be no time limit                 
  on  subdivision  into fourths  of  no  less than  40  acres.                 
  Further discussion followed and examples of  how subdivision                 
  would  work  were  presented.   Senator  Sharp  restated his                 
  motion and  acknowledged that it would likely be "cleaned up                 
  dramatically  by the  drafter."   He then  MOVED to  include                 
  deletion of subsection  (3) at page  6, lines 7 through  12,                 
  within his original amendment which was designated Amendment                 
  No. 3.                                                                       
  Further discussion followed  in response to a  question from                 
  Senator Zharoff  regarding determination of  the base parcel                 
  upon which  subdivision is predicated.   Co-chairman Halford                 
  said that:                                                                   
       The individual  doing the  subdivision makes  that                      
       determination  within the bounds  of no  more than                      
       four parcels  (in any  combination) [and]  no less                      
       than 40-acres (in any combination).                                     
  Members acknowledged that  the covenant goes with  the land.                 
  Mr. Swanson said  that the department  would "make sure  the                 
  covenant went with the original parcel  in the patent."  Co-                 
  chairman Frank cited  as an example a  landholder with 1,600                 
  acres  who  subdivides, keeps  40 acres,  and sells  off the                 
  remaining 1,560.  Both Co-chairman Halford and Senator Sharp                 
  concurred that  the 1,560  acres could  be subdivided  three                 
  more times.   Co-chairman  Halford voiced his  understanding                 
  that the covenant and sale agreement would control the right                 
  to subdivide.                                                                
  Mr. Huber voiced his  belief that Senator Green, sponsor  of                 
  the  legislation, would be comfortable with committee intent                 
  but raised concern and questions as  to whether new language                 
  conveys that  intent.  Co-chairman Halford acknowledged that                 
  CSSB  162 (Fin) would  contain the drafter's  version of the                 
  foregoing amendment.   If  the rewrite  of the amendment  is                 
  significant,  the   draft  will  be   brought  back   before                 
  committee.  The  Co-chairman then  called for objections  to                 
  adoption  of  Amendment No.  3.   No  objection  having been                 
  raised, Amendment No. 3 was ADOPTED.                                         
  In response to an additional  question from Senator Zharoff,                 
  Mr. Swanson  reiterated earlier  comments that  the interest                 
  rate of not  more than 9.5  percent would be different  than                 
  other loans on land.   He also stressed that  the department                 
  would not be refinancing existing  contracts "when they come                 
  in wanting  a new  patent."   The interest  rate at  initial                 
  purchase will remain in place.                                               
  Senator  Sharp MOVED  for  passage of  CSSB  162 (Fin)  with                 
  individual  recommendations  and accompanying  fiscal notes.                 
  No objection having been raised, CSSB 162 (Fin) was REPORTED                 
  OUT of  committee with  a $15.0  fiscal note  from the  land                 
  development component and a $28.5 note from the agricultural                 
  development  component  within  the  Department  of  Natural                 
  Resources.  Co-chairmen Halford and  Frank and Senator Sharp                 
  signed the committee report with a "do pass" recommendation.                 
  Senators  Rieger,   Phillips,   and   Zharoff   signed   "no                 
  The meeting was adjourned at approximately 10:15 a.m.                        

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