Legislature(1995 - 1996)
02/09/1996 09:10 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
February 9, 1996
9:10 a.m.
TAPES
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.
PRESENT
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
amendments.)
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
Development.
SENATE BILL NO. 178
An Act relating to small employer health
insurance.
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
maximum.
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
unavailable.
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
marketplace."
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
costs.
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
achieved.
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
rights
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
amended.
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
subdivision.
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
production.
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
recommendation."
ADJOURNMENT
The meeting was adjourned at approximately 10:15 a.m.
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