HOUSE STATE AFFAIRS STANDING COMMITTEE February 1, 1996 8:00 a.m. MEMBERS PRESENT Representative Jeannette James, Chair Representative Scott Ogan, Vice Chair Representative Joe Green Representative Ivan Ivan Representative Brian Porter Representative Caren Robinson Representative Ed Willis MEMBERS ABSENT All members present. COMMITTEE CALENDAR HOUSE BILL NO. 363 "An Act requiring banks to pay interest on money in reserve accounts held in connection with mortgage loans." - HEARD AND HELD * HOUSE BILL NO. 422 "An Act prohibiting the adoption of regulations by an agency of the executive branch of state government, annulling all regulations adopted by an agency of the executive branch, repealing provisions of the Administrative Procedure Act, and relating to additional legislation to carry out the purposes of this Act; and providing for an effective date." - HEARD AND HELD * CS FOR HOUSE JOINT RESOLUTION NO. 49(STA) Proposing amendments to the Constitution of the State of Alaska creating a highway fund from state taxes on fuel used for the propulsion of highway or road use motor vehicles. - CSHJR 49(STA) PASSED OUT OF COMMITTEE HOUSE BILL NO. 368 "An Act relating to election campaigns, election campaign financing, the oversight and regulation of election campaigns by the Alaska Public Offices Commission, the activities of lobbyists that relate to election campaigns, and the definitions of offenses of campaign misconduct; and providing for an effective date." - SCHEDULED BUT NOT HEARD SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 317 "An Act relating to election campaigns, election campaign financing, the oversight and regulation of election campaigns by the Alaska Public Offices Commission, the activities of lobbyists that relate to election campaigns, and the definitions of offenses of campaign misconduct; and providing for an effective date." - SCHEDULED BUT NOT HEARD (* First public hearing) PREVIOUS ACTION BILL: HB 363 SHORT TITLE: INTEREST ON MORTGAGE ESCROW ACCTS SPONSOR(S): REPRESENTATIVE(S) BUNDE JRN-DATE JRN-PG ACTION 12/29/95 2361 (H) PREFILE RELEASED 01/08/96 2361 (H) READ THE FIRST TIME - REFERRAL(S) 01/08/96 2361 (H) STATE AFFAIRS, L&C, FINANCE 01/18/96 (H) STA AT 08:00 AM CAPITOL 102 01/18/96 (H) MINUTE(STA) 01/23/96 (H) STA AT 08:00 AM CAPITOL 102 02/01/96 (H) STA AT 08:00 AM CAPITOL 102 BILL: HB 422 SHORT TITLE: ANNUL ALL ADMIN. REGS; REPEAL APA SPONSOR(S): REPRESENTATIVE(S) VEZEY, Foster JRN-DATE JRN-PG ACTION 01/16/96 2454 (H) READ THE FIRST TIME - REFERRAL(S) 01/16/96 2454 (H) STATE AFFAIRS, JUDICIARY 02/01/96 (H) STA AT 08:00 AM CAPITOL 102 BILL: HJR 49 SHORT TITLE: DEDICATED HIGHWAY FUND SPONSOR(S): REPRESENTATIVE(S) JAMES JRN-DATE JRN-PG ACTION 05/16/95 2238 (H) READ THE FIRST TIME - REFERRAL(S) 05/16/95 2239 (H) STATE AFFAIRS, TRANSPORTATION, FINANCE 02/01/96 (H) STA AT 08:00 AM CAPITOL 102 BILL: HB 368 SHORT TITLE: ELECTION CAMPAIGN FINANCE REFORM SPONSOR(S): REPRESENTATIVE(S) JAMES JRN-DATE JRN-PG ACTION 12/29/95 2362 (H) PREFILE RELEASED 01/08/96 2362 (H) READ THE FIRST TIME - REFERRAL(S) 01/08/96 2362 (H) STA, JUDICIARY, FINANCE 01/25/96 (H) STA AT 08:00 AM CAPITOL 102 01/30/96 (H) STA AT 08:00 AM CAPITOL 102 02/01/96 (H) STA AT 08:00 AM CAPITOL 102 BILL: HB 317 SHORT TITLE: ELECTION CAMPAIGN FINANCE REFORM SPONSOR(S): REPRESENTATIVE(S) FINKELSTEIN JRN-DATE JRN-PG ACTION 04/21/95 1427 (H) READ THE FIRST TIME - REFERRAL(S) 04/21/95 1427 (H) STATE AFFAIRS, JUDICIARY, FINANCE 01/08/96 2358 (H) SPONSOR SUBSTITUTE INTRODUCED-REFERRALS 01/08/96 2358 (H) STATE AFFAIRS, JUDICIARY, FINANCE 01/25/96 (H) STA AT 08:00 AM CAPITOL 102 01/30/96 (H) STA AT 08:00 AM CAPITOL 102 02/01/96 (H) STA AT 08:00 AM CAPITOL 102 WITNESS REGISTER REPRESENTATIVE CON BUNDE Alaska State Legislature State Capitol, Room 108 Juneau, Alaska 99801-1182 Telephone: (907) 465-4843 POSITION STATEMENT: Sponsor of HB 363. RICHARD ENBERG, Executive Vice President First National Bank of Anchorage 646 West 4th Avenue Anchorage, Alaska 99510 Telephone: (907) 265-3563 POSITION STATEMENT: Provided testimony in opposition to HB 363. ROBIN WARD, President Summit Title Insurance Agency Ltd. 341 West Tudor Road Anchorage, Alaska 99503 Telephone: (907) 562-3770 POSITION STATEMENT: Provided testimony in opposition to HB 363. GARY ROTH, President Denali State Bank 119th North Cushman Street Fairbanks, Alaska 99701 Telephone: (907) 456-1400 POSITION STATEMENT: Provided testimony in opposition to HB 363. HEATHER BOSTLEY Alaska Public Interest Research Group 507 "E" Street Anchorage, Alaska 99501 Telephone: (907) 278-3661 POSITION STATEMENT: Provided testimony in support of HB 363. LUCILLE STIETZ, Senior Vice President National Bank of Alaska P.O. Box 107025 Anchorage, Alaska 99510 Telephone: (907) 257-3442 POSITION STATEMENT: Provided testimony on HB 363. LISA BELL, Senior Vice President Alaska Federal Savings Bank 2094 Jordan Avenue Juneau, Alaska 99801 Telephone: (907) 790-5104 POSITION STATEMENT: Provided testimony on HB 363. JOE RYAN, Legislative Assistant to Representative Al Vezey State Capitol, Room 216 Juneau, Alaska 99801-1182 Telephone: (907) 465-3719 POSITION STATEMENT: Provided sponsor statement for HB 422. JOHN LINDBACK, Chief of Staff Office of the Lieutenant Governor P.O. Box 110015 Juneau, Alaska 99811-0015 Telephone: (907) 465-3520 POSITION STATEMENT: Provided testimony in opposition to HB 422. DEBORAH BEHR, Assistant Attorney General Legislation and Regulations Section Civil Division Department of Law P.O. Box 110300 Juneau, Alaska 99811-0300 Telephone: (907) 465-3600 POSITION STATEMENT: Provided testimony in opposition to HB 422. GERALD NEWTON 2616 West Lancelot Drive North Pole, Alaska 99705 Telephone: (907) 488-4839 POSITION STATEMENT: Provided testimony in opposition to HB 422. BARBARA COTTING, Legislative Assistant to Representative Jeannette James State Capitol, Room 102 Juneau, Alaska 99801-1182 Telephone: (907) 465-3743 POSITION STATEMENT: Provided sponsor statement for HJR 49. SAM KITO III, Legislative Liaison/Special Assistant Office of the Commissioner Department of Transportation and Public Facilities 3132 Channel Drive Juneau, Alaska 99801-7898 Telephone: (907) 465-3904 POSITION STATEMENT: Provided testimony in support of HJR 49. ROBERT EAKMAN, General Manager Alaska Independent Truckers Association P.O. Box 220366 Anchorage, Alaska 99522 Telephone: (907) 276-1934 POSITION STATEMENT: Provided testimony in support of HJR 49. JACK WIEGEL, President Alaska Independent Truckers Association 7227 Bosel Anchorage, Alaska 99507 Telephone: (907) 344-8939 POSITION STATEMENT: Provided testimony in support of HJR 49. TED DEBOER, Alaska Operations Manager Totem Ocean Trailer Express 2511 Tidewater Road Anchorage, Alaska 99501 Telephone: (907) 265-7211 POSITION STATEMENT: Provided testimony in support of HJR 49. DUANE SAULNIER P.O. Box 90500 Anchorage, Alaska 99509 Telephone: (907) 344-8799 POSITION STATEMENT: Provided testimony in support of HJR 49. BLAINE GHAN, Anchorage Terminal Manager Lynden Transport 3027 Rampart Drive Anchorage, Alaska 99501 Telephone: (907) 276-4800 POSITION STATEMENT: Provided testimony in support of HJR 49. KYM SWIFT P.O. Box 202087 Anchorage, Alaska 99520 Telephone: (907) 276-7648 POSITION STATEMENT: Provided testimony in opposition to HJR 49. ACTION NARRATIVE TAPE 96-08, SIDE A Number 0000 The House State Affairs Committee was called to order by Chair Jeannette James at 8:00 a.m. Members present at the call to order were Representatives James, Ivan, Porter, and Willis. Members absent were Representatives Ogan, Green, and Robinson. HB 363 - INTEREST ON MORTGAGE ESCROW ACCTS The first order of business to come before the House State Affairs Committee was HB 363. CHAIR JAMES called on Representative Con Bunde, sponsor of HB 363. REPRESENTATIVE CON BUNDE said he appreciated the House State Affairs Committee for hearing HB 363 again. He said additional research had been done to determine the actual cost to service an account, and the amount of money made in interest on accounts held in escrow. However, the information and numbers were not available today. He mentioned the concern regarding an increase in mortgage prices according to testimony from the industry. He alleged there were people who serviced mortgages and did not have a piece of the action so they were obviously making a profit from the escrow account. He also stated there were people who kept the mortgage and serviced it doubling their profits. Representative Bunde further stated the Real Estate Settlement Procedures Act (RESPA) law was passed in 1970 prohibiting lenders and mortgage servicers from requiring consumers to maintain more than an extra two months' cushion in their accounts. He alleged this was widely ignored. He read the following statement into the record. "In issuing this proposed rule HUD reviewed the existing escrow accounting procedures. The prevalent practice exists called single item analysis where the lender accounts for each escrow item separately. The lender may collect more money under the single item then under aggregate." REPRESENTATIVE BUNDE further said the lending institutions had been ignoring RESPA since the 1970's and more regulation was needed. He cited institutions simply ignored the two month limitation and used the single item accounting process to make more money. He asserted he was not against a profit being made, but rather he wanted to bring some sunshine into the industry so the consumer could make an informed decision. Representative Bunde, in conclusion, said fences needed to be placed appropriately to encourage due diligence. The record reflected the presence of Representatives Robinson, Green and Ogan. CHAIR JAMES called on the next witness via teleconference in Anchorage, Richard Enberg. Number 0410 RICHARD ENBERG, Executive Vice President, First National Bank of Anchorage, said he was opposed to HB 363 because it was liable to cause lending operations to reconsider what they were doing. The banks in Alaska were subject to the federal laws mentioned and the appropriate violations under the laws, he stated. He further said mortgages had become a commodity item sold to a national market. Those mortgages, he said, were serviced by people outside of Alaska, and alleged a law of this nature would put Alaskan mortgage firms at a distinct disadvantage. Mr. Enberg said he would have to look at both the originating and servicing side to determine the impact HB 363 would have on his business. He further said the other problems associated with HB 363 would be reprogramming computers, changing rates on mortgages, and slowing down municipal tax collections. In conclusion, he said, to offset the problems, a service charge would have to be required. Number 0662 CHAIR JAMES wondered if the work done on mortgage escrow accounts was comparable to other escrow accounts. Number 0680 MR. ENBERG replied he was not sure what other escrow accounts she was referring to. However, if she was referring to collection escrows, there were three parties involved - the bank, the buyer, and the seller. He further said a collection escrow was not the same as an escrow mortgage account as each involved different duties. Number 0720 CHAIR JAMES said she wanted to compare the work load for a bank between mortgage escrow accounts and other escrow accounts. Number 0736 MR. ENBERG asked if she meant the other escrow collection services. Number 0740 CHAIR JAMES replied, yes, she wanted to compare the work load between an escrow collection and a mortgage escrow. She said she understood there were more payouts because of insurance and taxes for a mortgage escrow account compared to an escrow where there was only a buyer and a seller. She wondered again if the work load was the same. Number 0775 MR. ENBERG replied the work load was not the same. He cited the fees depended on the size of the escrow rather than the type of account. He further said there were a variety of things a fiduciary agent could do for a seller and a buyer, and these were two separate issues. Number 0820 CHAIR JAMES said she was trying to determine what the service charge would be on servicing a mortgage escrow account if there was no interest to cover the fees. Number 0860 MR. ENBERG said he would have to look at both the servicing and the originating operations. He said it cost money to originate a loan. He further stated it was important to look at establishing a long- term relationship with the customer, which would hopefully offset the cost of producing a loan. Number 0890 CHAIR JAMES asked if an origination fee was paid separately. Number 0900 MR. ENBERG replied, yes, an origination fee was paid separately, but it did not cover the cost. He cited the First National Bank of Anchorage was offering a $150 coupon off loan origination and closing fees. He said the bank was eating those fees. Number 0940 CHAIR JAMES said she understood the business decisions and the net result was to make a profit. She further said she wanted to know what was fair and if the interest on the escrow accounts was contributing in a major way to offset the cost of maintaining the accounts. She commented on the varying sizes of escrow accounts and wondered if individuals were paying disproportionately. Number 0990 MR. ENBERG said he did not know if they were paying disproportionately as taxes and insurance were based on the value of the property. Number 1000 CHAIR JAMES said she meant the balance in the escrow was different based on the value of the property and wondered if the cost of servicing the accounts was the same. Number 1015 MR. ENBERG said the cost of servicing a loan was the same whether it was for $50 thousand or $150 thousand. Number 1028 CHAIR JAMES said there were varying balances in escrow accounts and the interest would be more for those with a bigger balance. Number 1040 MR. ENBERG said he agreed, but it was a dollar cost averaging situation. He alleged all mortgages would be covered to make a profit. Number 1059 CHAIR JAMES said she did not want people to pay more for the services they were currently getting. She thanked Mr. Enberg for his time today. CHAIR JAMES called on the next witness via teleconference in Anchorage, Robin Ward. Number 1088 ROBIN WARD, President, Summit Title Insurance Agency Ltd., said the testimony regarding the abuse of over escrowing was six years old, and aggressive action had been taken to correct the abuses nationwide. She said she was concerned about another regulation over correcting the situation. She also said she was concerned about the administrative cost for reporting interest, and was more concerned it would end-up costing the consumer more. She thanked the committee members and said she was available to answer any questions. CHAIR JAMES called on the next witness via teleconference in Fairbanks, Gary Roth. Number 1175 GARY ROTH, President, Denali State Bank in Fairbanks, said he was opposed to HB 363. He said it was poorly worded, but more importantly he wanted to see the bill killed. He said his customers were happy to escrow their insurance and tax payments so they did not have to worry about delinquency. Mr. Roth further said the cost of administering an escrow was costly to the bank. He cited, Denali State Bank subscribed to a service that provided information on taxes from the borough. He also said HB 363 referred to banks only and would jeopardize entry into a secondary market, and was concerned the secondary market would withdrawal from Alaska as a result. He cited the contract collection fees associated with an escrow account were a $100 set-up fee, $50 annual fee and $5 per month dispersement fee, and was viewed as a service to the community rather than a profit maker. In conclusion, he cited an example of interest paid on escrow. He said a $2,000 escrow account for taxes and insurance on the mortgage loan would produce a $1,000 average balance throughout the year yielding $30 in interest at passbook savings, which was much less than what the contract collection holder in the bank was charged. He thanked the committee members and said he was available to answer any questions. Number 1360 CHAIR JAMES thanked Mr. Roth for his testimony. She said the escrow account varied based on the value of the property, and was concerned about the disproportionate interest and service fees. She was concerned legislation would affect those with smaller escrow accounts by paying more. Number 1412 MR. ROTH said he understood and agreed with Chair James. He cited his previous example of a $2,000 escrow account with an average monthly balance of $1,000. He further said the more expensive homes in Fairbanks would probably double to an average monthly balance of $2,000. CHAIR JAMES called on the next witness via teleconference in Anchorage, Heather Bostley. Number 1450 HEATHER BOSTLEY representing the Alaska Public Interest Research Group (AKPIRG), said she was concerned about the cost. She said she supported HB 363 because at the end of a 30 year mortgage loan, if no interest was paid the money would work less. She stated other states such as Iowa and California were practicing this and doing it well. She cited the interest rates were ranging from 2 percent to 5 percent. She reiterated she was in favor of HB 363. CHAIR JAMES called on the next witness via teleconference in Anchorage, Lucille Stietz. Number 1530 LUCILLE STIETZ, Senior Vice President, National Bank of Alaska (NBA), said she agreed with Mr. Enberg's and Ms. Ward's testimony. She said the average mortgage loan was written for a 15 or 30 year period. The average life of a loan nationwide was six years due to refinancing and moving. She said NBA provided local servicing for Alaskan borrowers and if HB 363 was passed, the loans, she alleged, would go to an outside servicer affecting the 56 people employed by NBA's Servicing Loan Department. She thanked the committee members and said she would be happy to answer any questions. CHAIR JAMES called on the next witness in Juneau, Lisa Bell. Number 1650 LISA BELL, Senior Vice President, Alaska Federal Savings Bank, said she supported the previous testimony. She stated Alaska Federal Savings Bank had been a mortgage banking participant since 1935. She said the headquarters was located in Juneau and the bank served four southeast communities. She said the servicing portfolio was similar in size to Mt. McKinley's. She commented smaller banks would be more affected by HB 363 compared to larger banks. She alleged the bill would be burdensome to the banks and probably provide very little benefit to the borrowers. She felt her bank was already a conservative custodian of the customer's money and exercised due diligence. She cited in the wake of RESPA's changes trial runs were tested and discovered more money would need to be collected from the borrowers therefore it was decided to adopt a more conservative approach. She announced the bank now collected only a one month cushion. She cited the average escrow balance was $1,000 over the course of the year. According to a profitability analysis of the servicing department in September of 1995, she found the bank was barely making a profit and the scales would tip easily if required to pay interest on escrow accounts. She further commented on accounts served at the local community level. She said she felt strongly the citizens needed instate servicing. Ms. Bell said California paid 2 percent in interest which equated to about $20 a year on a $1,000 average balance. She asserted that was not a lot of money especially coupled with taxes. She also said the California law did not provide for payment of interest to out-of-state borrowers if the land was not located in California. She said she could see a situation whereby HB 363 would scare the borrowers out of Alaska. Number 1880 REPRESENTATIVE CAREN ROBINSON commented Alaska Federal Savings Bank was following and practicing the federal law, and asked if other banks were also. Number 1895 MS. BELL said she would have to ask the other bankers because she was the only servicer located in Juneau. She said she did not know what cushion they adopted, but said they were all acting within the law and probably even more conservatively than realized. Number 1912 REPRESENTATIVE BUNDE reiterated he was not anti-profit. He asserted every business needed to make a profit. He said a banker commenting on eating the cost was being disingenuous. He stated they did not eat the cost but simply made it up elsewhere. He again stated he wanted everyone to make a profit. Representative Bunde commented on the previous testimony regarding the minimal amount of interest made, and further said it was a matter of principle, and the informed choice of a consumer. He commented on previous testimony regarding the happy mortgage holders in Fairbanks, and wondered if they would be as pleased if they received an exact accounting of what it cost to service the loan and how much was being made on interest in the escrow. He asserted that was the question, and he heard no answers today. He said there was specific testimony on the cost between a borrower and a seller, but it was not available on a mortgage. He wondered why that was kept in the dark. He said he was not suggesting there was something to hide, but the information was very slow in forthcoming. Representative Bunde questioned the banks treating the consumers as children because it was more comfortable if the bank paid the taxes and insurance. He further said a similar law was passed in 14 other states of which no one was put out of work and the banks did not close. He said he did not want that to happen, but the people deserved an accurate accounting. Therefore, side boards were needed to raise the confidence of the general public. Number 2090 CHAIR JAMES said Representative Bunde made a good argument. She cited previous testimony stating the average escrow account was $1,000 yielding approximately $50 in interest. Other testimony indicated that escrow for buyers and sellers was $200 a year which was a sizeable amount more. She stated her biggest fear was passing legislation that would make the people pay more. She stated she agreed with HB 363 philosophically, but because of the manner in which a bank calculates a profit overall considering the money in the accounts to service their customers, she could not support HB 363. She further said the majority of people were happy to pay their taxes and insurance per month in their house payment and for those reason she would not support HB 363. Number 2148 REPRESENTATIVE BUNDE said there were questions that remained unanswered, and asked the House State Affairs Committee to pass HB 363 to the next committee of referral - the House Labor and Commerce Committee. Number 2163 REPRESENTATIVE BRIAN PORTER said he did not want to hear this bill again as a Labor and Commerce Committee member. He cited a bill was being discussed in the Labor and Commerce Committee now which addressed the small loans chapters of the statutes. He said he was convinced the cap on required interest was doing a disservice to the consumer, because of the same issues being dealt with in HB 363. He said the loans went outside where there was no cap and demonstrated a loss of capital and jobs in Alaska. He further said it should be enforced through the federal law. In conclusion, he said, he had a general philosophical problem with legislating the market place and for all those reasons, he would not support HB 363. Number 2233 REPRESENTATIVE SCOTT OGAN said when he first read the bill he was in favor of it, but based on the testimony, he changed his mind. He said the industry should have the latitude it needed, and therefore would not support HB 363. Number 2266 REPRESENTATIVE ROBINSON wondered if a consumer had the option to not have an escrow account. REPRESENTATIVE BUNDE replied no it was not possible. Number 2280 REPRESENTATIVE ROBINSON said he was wrong. Number 2298 MS. STIETZ replied it depended on the holder of the loan. She cited some mortgage holders allowed the banks to waive the collection of escrow if the loan to value was 80 percent or less. She further said some outside lenders waived the escrow interest on conventional loans and paid less because it was a high risk loan. She cited some investors such as, VA and FHA, did not allow the escrow account to be waived. Number 2382 REPRESENTATIVE ROBINSON questioned if a state law was needed to enforce an already existing federal law creating more regulations. She also said she believed in consumer protection, and wondered what she was missing and not understanding because a law already existed. Number 2418 REPRESENTATIVE BUNDE replied the 55 miles per hour speed limit was also a law. He asserted RESPA was not being followed. The Attorneys General of seven states in the report titled "Overcharging on Mortgage: Violations of Escrow Account Limits by the Mortgage Lending Industry," said it was followed at face value, and the single item accounting system was used to get around the law. He stated it had to be enforced further and we were not getting the information. He further wondered what they were hiding, and if they were hiding something maybe the interest would keep them from continuing to hide it further. Number 2444 CHAIR JAMES asked if there was evidence RESPA was not followed in Alaska. Number 2450 REPRESENTATIVE ROBINSON further asked if the Attorney General from Alaska had looked at this issue. Number 2463 REPRESENTATIVE BUNDE said the Attorney General from Alaska was not part of the group that investigated this issue. He reiterated it would be better if the banking industry shared the information with their consumers. Number 2479 REPRESENTATIVE JOE GREEN wondered if there were statistics available that suggested the banks following the laws were disadvantaged somehow. TAPE 96-08, SIDE B Number 0000 REPRESENTATIVE BUNDE replied there were 14 states that required banks to pay interest, and there were still mortgages, people still bought homes, and the banking institutions still survived. Number 0021 REPRESENTATIVE ROBINSON wondered if the Labor and Commerce Committee would look HB 363 in more depth as it was the committee that dealt with these issues. However, she said, she was not ready to put do pass and if no one else put do pass she wondered if it would be able to move from the committee. Number 0040 CHAIR JAMES replied a motion was only needed with individual recommendations to move HB 363 from the committee. She further stated the bill could not leave the Rules Committee without at least one do pass recommended throughout the committee process. She said the House State Affairs Committee could pass this bill from the committee without a do pass. Number 0058 REPRESENTATIVE BUNDE replied a bill could come to the floor of the House of Representatives without a single do pass with a two-thirds vote. Number 0072 MS. BELL said she did not deny that there might have been banks that were not following RESPA previously, but the escrow accounting rules were new and tighter phasing out the single item analysis and moving towards an aggregate item analysis. The single item analysis, she alleged was a servicing nightmare anyway and assumed most banks would have opted for the aggregate item analysis. She commented on the bank examination process and suggested RESPA would be a high priority for the bank examiners in 1996. Number 0134 REPRESENTATIVE ROBINSON asked who were the examiners. Number 0140 MS. BELL said it depended if the bank had a state or federal charter. She cited federal chartered banks fell under the Federal Deposit Insurance Corporation (FDIC). The Alaska Federal Savings Bank, however, fell under the Office of Thrift Supervision (OTS), and state chartered banks were examined by the state. CHAIR JAMES commented no one wanted to move the bill. She offered to hear it again if the sentiment changed. She stated HB 363 would remain in the House State Affairs Committee until new information surfaced. HB 422 - ANNUL ALL ADMIN. REGS; REPEAL APA Number 0218 The next order of business to come before the House State Affairs Committee was HB 422. CHAIR JAMES called on Joe Ryan, Legislative Assistant to Representative Al Vezey to read the sponsor statement for HB 422. Number 0218 JOE RYAN, Legislative Assistant to Representative Al Vezey, said Representative Vezey was not feeling well today and read the following sponsor statement into the record. "The people of Alaska have been demanding that the legislature, the people elected to represent them, accept the responsibility and the corresponding accountability for the laws that they the people have to live under. "It is time for the legislature to reclaim it's legislative authority and accept the constitutional responsibility they have for making laws. HB - 422 will ensure that the people of Alaska live under laws passed by the people whom they have elected to represent them and not by the employees they have hired to carry out the these same laws. "More and more Alaskans are voicing concern that the cost of regulations has gotten out of hand. In addition to the cost, the frustrations experienced by the public in trying to comply with an every increasing maze of regulations, have brought the matter to our attention. In quite a few instances, new regulations often conflict with those already in place by federal agencies making it impossible to get there from here. "The question is; does the legislature want to shirk it's responsibility and allow major policy changes to be implemented by the employees of the state of Alaska who are not elected by any position." MR. RYAN: I can give you a brief summary of how this Administrative Procedures Act came in. I remember hearing Representative Congressman Young talking about how when he was in this legislative body, Governor Hickel in his first term requested an Administrative Procedures Act and they gave it to him much to their chagrin. The...no where in the Constitution of the United States or the state of Alaska does it say that legislative authority will be given to the Administration, in fact, the separation of powers is what's suppose to keep our government working in a balance. The -- unfortunately Madison didn't die until 1840 and his minutes of the Constitutional Convention were such that he didn't release them, and so people didn't really know what the founding fathers when they put the Constitution together meant. And in the interim, people like John Marshall usurped the authority of the Supreme Court to interpret the Constitution. A number of other people jumped in to the gap and grabbed whatever power was available because there was no one to contradict them. What we have in Alaska with the Administrative Procedures Act is basically instances such as some of the things we received last year where the Department of Labor and the Department of Transportation adopt a whole cloth the code of federal regulations for state regulations. Now, these were regulations that had been made by federal bureaucrats and we in turn have them here in Alaska as Alaska law under which people have to live...have to go through the same appeal process and so forth and thought wasn't even given to these things to deal with local considerations. They just said well, we're going...proposed to adopt...here we are we're taking CFR 43 chapters blah, blah, blah to blah, blah, blah. And this will be it, and there's not a large public (indisc.) cry. That's what the people in the state have...(indisc.) to live under. So, extraordinary, if I may borrow from Thomas Paine, "these are the times that try men's souls." Extraordinary problems sometime require extraordinary solutions. My representative feels that it's time the legislature come back and take the authority that it's given by the constitution back and then if you'll notice in the...in here it asked the Administration to propose laws to fill the gaps that the regulations would leave and then this body will consider those laws and decide which ones are prudent and which ones that the citizens of the state should be required to live under, and discard those that aren't. And, that's about all I have. Number 0394 REPRESENTATIVE ROBINSON commented, if all regulations were repealed, then new regulations would need to be developed and adopted by the legislature. Number 0407 MR. RYAN: What this...what this bill calls for is the repeal of 4462 which is the Administrative Procedures Act, and when...when you repeal of course the legislation that gives you authority for the regulatory authority for the delegation of authority that goes away because there's no substantial...substantive basis for anyone writing a regulation. The statute had been repealed. So, it also requires that the Administration prepare -- back here on Section 3...no I mean B. "Each agency the executive branch of state government with the authority to adopt regulations shall submit proposed draft legislation necessary to accommodate this act of the House and Senate Rules Committee on the first day of the first regulation session of the Twentieth Alaska State Legislature." MR. RYAN: So, because a lot of times in the past of the Administrative Procedures Act a lot of people have come up with a one page bill - not very comprehensive legislation - and delegated the authority to the Administration to flush it out. Now, it will have to be -- these laws that are in effect will have to be flushed out by the legislature, and giving the Administration an opportunity to contribute their thoughts and the legislature, of course, exercising its prerogative will decide which of those suggestions should be adopted and which shouldn't. Number 0466 REPRESENTATIVE ROBINSON wondered what type of legislation this would require, and if the legislature would write the regulations. Number 0490 MR. RYAN: The people that founded the country knew how difficult it was to try to get a group of people to agree. And, the underlying principle was if you look back at King George, and the Declaration of Independence, how he would send his agents among us to rob us of our substance...these are the words that are used. They indiscriminately pass the king's regulations -- remember they chose to facilitate their jobs and make things easier -- and so the people in their wisdom, if you...the minutes of the Constitutional Convention decided that legislation under which the citizens would live would be passed by folks whom they elected to represent them. So, if they didn't like it they could go back and get it changed by getting rid of the people and putting someone new in. What we have is a...the agreement when we allow the Administration to do it, it very simply...a fellow is being paid man or woman with a state salary, a state pen, state paper, and they just write whatever is convenient for them to do their job. And, unless there is a large (indisc.) cry it becomes law. And, somewhere in the arcane thinking of the Supreme Court they said you can delegate your authority but to take it back requires the same vote that was required to overturn the Governor's veto. They...how this logic was used to arrive at this conclusion a lot of people have questioned over the years. But, of course, being what they are.... Number 0556 REPRESENTATIVE ROBINSON questioned who would write the regulations. She wondered if the legal drafters would write them and then the legislator would review them. Number 0566 MR. RYAN: Well, O.K., the process I would assume would be for instance if you were to...you initiate...or to exercise your legislative prerogative and you were to call up the legislative drafting people and say, "I want a law that does this." And, then our leg legal would draft that bill for you in its entirety, and they would send it back for your preview. And you would say, "Well, this looks fairly comprehensive legislation," and you would introduce it. Then the various committees and so forth and the testimony that would come from the agencies and they said, "Wait a minute, how can we handle this because it's not (indisc. -- coughing) we have these particular problems perhaps of which you are unaware, and we don't...won't know how to handle this." And, then the committee would say, "Hum, well we need some suggestions...the maker perhaps needs to address that and or suggestions forthcoming from the Administration...how do you think...now, put it in the...in the legislation itself." What we come down to is something I have asked to the Administration on numerous occasions, why they want regulations rather than making policy. And, they have said, "When we go to court with policy we always lose. This is our division policy...this is how the administrative policy...when we go to court with regulations, we win because they have the force of law." So, what does that do to the public? If you pass a law and the Administration decides they're going to have a policy of administering it in this respect and someone challenges it in court and they usually lose, the court... there must be reason why the court is ruling against them. Where it's a regulation, the court has to look at it as a law. And, now they come back with a...with a different interpretation because you folk have given these people the right to write these laws under the Administrative Procedures Act, and so the court assumes that this is your intention - not necessarily the policy of the Administration - so there's...there's a different perspective given there. When... and that's how the comprehensiveness of the legislation would be. And, from time-to-time there would be problems that would arise in the future and these things would have to be tweaked and amended -- nothing is ever written in stone. Things...life is dynamic...things change. But...that would probably be addressed from session to session. Number 0665 CHAIR JAMES said HB 422 represented the typical problem the legislature was facing today - being in a different place today because of mistakes made earlier. She agreed mistakes had been made, but she was not convinced going back to the start would solve the problems because of the system in place. Number 0720 REPRESENTATIVE PORTER said HB 422 would repeal all regulations, and wondered what would happen during the interim. Number 0760 CHAIR JAMES replied there was an effective date of July 1, 1997 so nothing would happen until then except for preparation. Number 0770 REPRESENTATIVE OGAN said as more statutes were passed at least one should be deleted. He suggested when statutes were passed regulatory authority should be precluded, otherwise, it turned into a regulatory nightmare for the companies trying to operate. He further said the cure was worse than the problem. Number 0840 MR. RYAN: Well...If I may just add one thing as an aside, a couple of years ago we passed house bill 65 which gave the Administration the ability to raise fees by regulation. The last year we collected the state income tax...we collected 100.5 million dollars last year we collected 196 million in fees. And you folks are trying to cut the budget, and every time you cut the budget the fees go up on the other end to makeup the whole. So, I wonder if...you know...is it two steps forwards...one step forward and two steps backward, or you may consider that. Number 0868 REPRESENTATIVE OGAN said regulations needed to be reduced as well when reducing the budget this year. He alleged the size of the government was not decreasing and the burden was being shifted to the user fees. He stated that was a problem. Number 0892 CHAIR JAMES commented the legislature should not have given all its authority away with respect to regulations. She cited the legislature gave away its oversite power in the process. CHAIR JAMES called on the next witnesses in Juneau, Deborah Behr, and John Lindback. Number 0929 JOHN LINDBACK, Chief of Staff, Office of the Lieutenant Governor, addressed policy concerns regarding HB 422. He stated Governor Knowles' signed Administrative Order No. 157. He said the order was an attempt to explain its concerns regarding the administrative regulatory process. He stated it considered minimizing cost, using "plain English," reviewing current regulations, and making the process more accessible. He further said the Administration adopted HB 130 passed last year by the legislature which made the Governor more accountable for regulations. He said the power was delegated to the Lieutenant Governor and was in the process of implementing HB 130. He stated the Lieutenant Governor was sympathetic to the legislature as a former member. He pointed out HB 130 did not give authority to reject boards and commissions. Mr. Lindback said if HB 422 was passed it would be new ground because no other state in the U.S. had passed a similar law. He also said the absence of regulations would give unbridled discretion to the bureaucrat. He further stated it would be impossible to draft a piece of legislation that foresaw every situation which meant the bureaucrat would be making the decisions. He said regulations were a check on bureaucratic power. He wondered if the legislature wanted to regulate bag limits, for example, for the Department of Fish and Game every session. He said it appeared like an overwhelming task. He wondered about regulating occupations. He said they wanted regulations of some kind, and if moved to the legislative arena, how would anything get done. In conclusion, he said, the Administration was committed to improving and streamlining the regulatory process and making it cost conscious. He further said HB 422 looked like chaos and left it to state managers to interpret laws how they saw fit. Number 1170 DEBORAH BEHR, Assistant Attorney General, Legislation and Regulations Section, Civil Division, Department of Law, said HB 422 did more than repeal all regulations. She said it also repealed the APA hearing procedures used by the occupational licensing boards to allow citizens to raise complaints in a cheap forum. She said HB 422 also repealed the Alaska Administrative Journal which provided procurement announcements, and lists of board openings. She cited the history of the APA. In 1946 the first federal administrative procedures act appeared because Congress wanted to bridle unfettered agency interpretation of statutes. In 1959 Alaska adopted the APA because it was impossible for a citizen to determine which regulations affected them. She alleged the APA was a consumer protection act because an agency could not adopt a manual, policy or an interpretation that affected the public without giving notice and an opportunity for comment. The APA also required the Attorney General to sign-off for legal approval. She cited if the APA was not there she would not have authority to disapprove a regulation on legal grounds. Ms. Behr said a major check was being taken away by repealing the APA. Therefore, the clock was being turned back to 1959 before Alaska adopted the APA. She also said there would be no published code of rules, but rather interpretation of statutes. She stated she was not sure how HB 422 would be implemented. She suggested a six month review process after which suggestions would be made of what needed to be laws. She wondered if anything else would be accomplished during the session. Ms. Behr also said a case resolved in court cost 30 percent more than when resolved at the administrative level and with the repeal of the regulations, litigation was expected. She further said HB 422 changed the role of the citizen boards and commissions because it took away authority to set policy, for example. She alleged this would create an unstable business climate due to a slower response time. She said she was concerned about the day-to-day situations which required responses when the legislature was in session. She cited some issues required focused attention and quick responses. She was also concerned about routine changes in the federal programs to meet federal requirements and the sanctions could be substantial when not in compliance. She cited federal preemption was a concern also. She further cited there were approximately 350 to 400 APA hearings each year demonstrating the impact on the courts. She wondered if the legislature wanted to take away the Department of Correction's ability to regulate prisoners, for example. She further cited Section 3 (b) which allowed separate agencies to bring laws to the legislature rather than through a central process via the Governor. In conclusion, she said, she would be happy to answer any questions. CHAIR JAMES called on the next witness via teleconference in Fairbanks, Gerald Newton. Number 1837 GERALD NEWTON said he was astonished anyone would introduce a bill such as HB 422. He alleged Representative Vezey introduced it because most of his constituencies were part of Fort Wainwright and it would not apply to them. He said Representative Vezey continued to attack state institutions with no accountability. He cited the Electrical Administrator Law which Representative Vezey was responsible for. As a result, he alleged three homes were wired by an unqualified contractor. CHAIR JAMES asked Mr. Newton to comment specifically on HB 422. MR. NEWTON said his testimony was specifically on this bill because the administrative part of the law was removed by Representative Vezey and alleged HB 422 would do the same thing. He said it was not right, not just, and asserted Representative Vezey hid in his federal enclave and did not answer to his constituents. Number 2026 REPRESENTATIVE ROBINSON asked if it was possible to ask if HB 363 move from the House State Affairs Committee with individual recommendations. She also said she would have to leave along with Representative Willis. CHAIR JAMES said she would rather not right now, but maybe at the next meeting. REPRESENTATIVE ROBINSON apologized for having to leave. CHAIR JAMES wondered if there was a quorum and asked Representatives Willis and Robinson where they were going. REPRESENTATIVE ROBINSON said to a meeting with the Governor. CHAIR JAMES asked Representative Robinson to ask the Governor to not interrupt a committee meeting again in the future. CHAIR JAMES announced to the teleconference participants that Representatives Ivan, Porter, Ogan and James were present. HJR 49 - DEDICATED HIGHWAY FUND The next order of business to come before the House State Affairs Committee was HJR 49. CHAIR JAMES called on Barbara Cotting, Legislative Assistant to Representative Jeannette James to present the sponsor statement. Number 2191 BARBARA COTTING, Legislative Assistant to Representative Jeannette James, said there was a wide amount of support for HJR 49. She said this resolution differed from similar ones in that it utilized only state taxes on motor vehicle fuel, and that the legislature may appropriate money from the fund only for the maintenance of roads and highways. She said it did not deal with aircraft and watercraft, and enforcement of motor vehicle laws as other attempts had done. Ms. Cotting said the amendment was an attempt to tighten the resolution. She further said the Department of Transportation, truckers, and the tourist industry supported HJR 49. There was information available if the committee members wanted describing the research behind the resolution and what other states had done. CHAIR JAMES announced to Robert Gigler in Anchorage that the House State Affairs Committee would not be hearing HB 363 today in the event he needed to leave. CHAIR JAMES referred the committee members to the amendment and read, "from state taxes on fuel used for the propulsion of highway or road use motor vehicle." TAPE 96-9, SIDE A Number 0000 REPRESENTATIVE IVAN IVAN asked how a road was defined in HJR 49. He cited in rural Alaska there were many dirt and gravel roads. Number 00029 CHAIR JAMES said anyplace a road tax was paid. She cited a federal definition that mentioned a maintained road. Number 0076 REPRESENTATIVE PORTER enquired about the previous attempt and the problems. CHAIR JAMES called on the next witness in Juneau, Sam Kito III, to answer Representative Porter's question. Number 0102 SAM KITO III, Legislative Liaison/Special Assistant, Office of the Commissioner, Department of Transportation and Public Facilities, said the previous dedicated fund resolution contained too many components and too many interests which created problems. He said it was too big of a bill. CHAIR JAMES asked about licensing fees. MR. KITO III responded licensing fees were included as well as funding provisions. Number 0182 REPRESENTATIVE OGAN said he did not understand the fiscal note and wondered if it would increase the appropriations for road maintenance. Number 0205 CHAIR JAMES replied, no, because the amount of motor vehicle tax received was $24 million to $25 million and the state was spending $75 million in road maintenance. She further said there was a road tax being proposed, and the public was willing to pay a higher tax if they knew it went into a fund. Therefore, HJR 49 would guarantee a certain level of funding and would not suffer with the declining budget. Number 0295 REPRESENTATIVE OGAN wondered if this was a cog in the wheel of the long range fiscal plan. Number 0305 CHAIR JAMES replied it could be. She read the following definition of a highway found in a statute. "`highway' means the entire width between the boundary lines of every way that is publicly maintained when a part of it is open to the public for purposes of vehicular travel, including but not limited to every street and the Alaska state marine highway system but not vehicular ways or areas." Number 0349 MR. KITO III added the Department of Transportation and Public Facilities was very interested in the concept of a dedicated fund because it ensured a revenue stream for maintenance. This, he alleged, was valuable to guarantee the state road system was adequately maintained. Number 0380 CHAIR JAMES said there was support for a similar resolution for boat and aircraft taxes. She said she did not want to include them to keep HJR 49 focused in-order-to pass. Number 0434 REPRESENTATIVE GREEN mentioned the 90/10 federal government rebate split for road maintenance in Alaska and wondered how HJR 49 would affect it. Number 0475 MR. KITO III said HJR 49 would demonstrate to the federal government the state was trying to maintain our existing highway system. The split he cited was between $6 to $7 for every tax dollar put into the fund. He cited California put in $1 and received 80 cents and they wanted to get their dollar back. He said Alaska needed to justify that $7 for every $1 put in the fund to other states for support. He cited seven alternatives were released in a report by the General Accounting Office for redistribution of the federal highway trust revenues to the states. He said in the alternatives the state of Alaska went from $230 million to $89 million in the best case scenario. In the worst case scenario, he stated, Alaska went from $230 million to $37 million. He further said Congress did not have to choose one of the alternatives, but they would take it under advisement. Therefore, he said in six years or so the state could see a serious decrease in federal dollars. He also said at this point the department did not collect enough tax revenue to develop a state program if the federal funding was lost. Number 0598 REPRESENTATIVE GREEN replied the federal government would probably look more favorable towards Alaska by adopting HJR 49. Number 0624 MR. KITO III responded, yes. He said any indication that the state was working towards stabilizing a maintenance fund for the highways would look favorably compared to other states. Number 0639 REPRESENTATIVE PORTER wondered if other states that contributed to a federal highway fund used motor fuel taxes or general funds. Number 0666 MR. KITO III cited two states and the District of Columbia that did not have a dedicated fund for transportation. He said the state of Texas did not have a fund dedicated for transportation, but for every penney raised the state increased the revenue by $200 million. He said he did not know how the money was allocated to transportation, but the revenue generated was enough to adequately fund the transportation system. He further stated most states had a constitutional provision or a statute that set aside a separate account for maintenance and operation of the highways. Number 0715 REPRESENTATIVE PORTER wondered if the state would contribute to the fund through a general appropriation. Number 0723 MR. KITO III said everybody in the U.S. paid a federal fuel tax, that went back into the federal highway trust fund then subsequently reallocated. Therefore, the state of Alaska was not paying money directly, but paying through the usage of the fuel. Number 0742 CHAIR JAMES announced to the audience the House State Affairs Committee would not be hearing HB 368 today. CHAIR JAMES called on the next witness via teleconference in Anchorage, Robert Eakman. Number 0779 ROBERT EAKMAN, General Manager, Alaska Independent Truckers Association, announced his support of HJR 49. He wondered about the definition of the word "maintenance" in the resolution. Mr. Eakman wondered if fixing pot holes or tearing up roads and replacing with better material, for example, were included in the definition. He cited roads were surfaced very recently in Anchorage that needed repairing again due to ruts creating a hazard. Number 0848 MR. KITO III replied the maintenance that would be covered in HJR 49 would include filling of pot holes and minor resurfacing, for example. He also said the revenue coming in from the bill would not increase the current budget so the department would not be able to do more until the tax revenue increased. CHAIR JAMES called on the next witness via teleconference in Anchorage, Jack Wiegel. Number 0895 JACK WIEGEL, President, Alaska Independent Trucking Association, said he had been a resident of Alaska for 25 years. He stated his support for HJR 49 and alleged it would create jobs. He said it would be a direct injection of dollars into the economy as well as promote safety on the highways. CHAIR JAMES called on the next witness via teleconference in Anchorage, Ted Deboer. Number 0935 TED DEBOER, Alaska Operations Manager, Totem Ocean Trailer Express, stated his full support for HJR 49. He alleged it would solve a lot of the highway problems, as well as promote safety. CHAIR JAMES called on the next witness via teleconference in Anchorage, Duane Saulnier. Number 0969 DUANE SAULNIER stated his support for HJR 49. He further said he would like to see some up-keep on the roads. CHAIR JAMES called on the next witness via teleconference in Anchorage, Blaine Ghan. Number 0990 BLAINE GHAN, Lynden Transport, said his company strongly supported HJR 49. He said the wording was critical. He said the dedication of a highway maintenance fund would be very beneficial to the highway system for the public and the industry. In conclusion, he said, provided the wording was correct, his company was in full support. CHAIR JAMES called on the next witness via teleconference in Anchorage, Kym Swift. Number 1031 KYM SWIFT, said she did not understand why HJR 49 was before the legislature this year. She said the Administration alleged the resolution would not increase maintenance. She wondered why the money was being taken off the table when the state was facing a $500 million fiscal gap. She further said the framers of the constitution prohibited this for logical reasons because it made it hard to adopt in changing economic times which Alaska was about to face. She stated 25 states in the U.S. had dedicated education funds and Alaska should look at that before a highway maintenance fund. Number 1099 CHAIR JAMES reiterated the amendment before the committee to HJR 49 was to tighten the language to specifically refer to motor vehicles. Number 1122 REPRESENTATIVE PORTER moved to adopt the amendment. Hearing no objection it was so adopted. Number 1152 REPRESENTATIVE PORTER moved that HJR 49 move from the committee with individual recommendations and attached fiscal note. Hearing no objection, it was so moved from the House State Affairs Committee. Number 1169 CHAIR JAMES explained HJR 51 by Representative Joe Green, proposed an amendment to the constitution of the state of Alaska related to limited entry for sport, fish, guides, and allied professions. She announced she wanted to waive this resolution from the House State Affairs Committee to the next committee of referral - the House Special Committee on Fisheries. Number 1197 REPRESENTATIVE IVAN wondered where his copy of HJR 51 was. REPRESENTATIVE PORTER replied we did not have a copy before us. CHAIR JAMES said it was a one page bill if Representative Ivan wanted to look at it. Number 1210 REPRESENTATIVE GREEN said Representative Austerman, Chair of the House Special Committee on Fisheries, also proposed a bill of similar nature so the special committee was probably the best place to try and resolve into a single bill. He further said the bill would go to the Judiciary Committee of which two members of the House State Affairs Committee were also members. He said to relieve Chair James of a back-log this was an expedient move. Number 1251 CHAIR JAMES asked Representative Ivan if he was comfortable with moving HJR 51 to the next committee. Number 1256 REPRESENTATIVE IVAN said he was very interested in HJR 51. CHAIR JAMES again asked if he would be comfortable moving the resolution to the next committee because he was not a member of any of the referred committees. REPRESENTATIVE IVAN replied he was not trying to hold the bill and requested to hear it to understand the resolution. Number 1273 REPRESENTATIVE GREEN replied the resolution established a limit on sport guiding to prevent a proliferation of guides. He stated the sport guide community favored the bill. Number 1314 REPRESENTATIVE IVAN said he now saw the intent of the resolution and would take a look at it, and further said he felt comfortable enough to let it go to the next committee of referral. Number 1320 CHAIR JAMES recommended Representative Ivan take his time, but to get back to her before the floor session on Friday. Number 1352 ADJOURNMENT CHAIR JAMES adjourned the House State Affairs Committee at 9:55 a.m.