Legislature(2015 - 2016)HOUSE FINANCE 519
04/11/2016 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB118 | |
| HB290 | |
| HB375 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 118 | TELECONFERENCED | |
| + | HB 243 | TELECONFERENCED | |
| + | HB 315 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 290 | TELECONFERENCED | |
| += | HB 375 | TELECONFERENCED | |
HOUSE BILL NO. 290
"An Act extending the termination date of the Real
Estate Commission; and providing for an effective
date."
1:59:24 PM
LAURA STIDOLPH, STAFF, and REPRESENTATIVE KURT OLSON, read
from a prepared statement:
Before you today is HB290, this legislation extends
the termination date of the Real Estate Commission to
June 30, 2018.
Each year the Division of Legislative Audit reviews
state boards and commissions to determine if they
should be reestablished per AS 24.44. The Division of
Legislative Audit reviewed the activities of the Real
Estate Commission. The purpose of this audit was to
determine whether there is a demonstrated public need
for the board's continued existence and whether it has
been operating in an effective manner.
As the members noted in their review of the audit in
their packets, it is the opinion of our auditors, the
board is serving the public's interest by effectively
licensing real estate brokers, associate brokers, and
salespeople.
As the members also may have noted from the audit,
there were two recommendations. First, the
commission's chair and the DCCED Division of
Administrative Services director should work together
to procure a masters, errors & omissions policy.
Second, the Division of Corporation, Business, and
Professional Licensing should take action to ensure
cases are actively investigated.
To speak to the recommendations, Kris Kurtis of
Legislative Audit is here, Sara Chambers Director of
the Division of Corporations, Business and
Professional Licensing with the Department of
Commerce, Community & Economic Development, and Nancy
Davis, the Chair of the Commission is online from
Sitka.
In closing, the Real Estate Commission serves an
important role by improving operations and industry
practices by modifying and adopting regulations.
Thank you for your support of this legislation.
Representative Kawasaki asked about the original audit
recommendation. He wondered why the board extension was
only two years. Ms. Stidolph replied that the audit
recommended that the commission procure a master errors and
omissions insurance policy and if accomplished recommended
a 6 year extension. If the policy was not acquired, a four
year extension was suggested. She related that the sponsor
decided to reduce the extension to two years because the
policy was an important part of the commission's statutory
requirement that should be obtained in a reasonable amount
of time.
Representative Guttenberg asked why the commission did not
obtain the policy. Ms. Stidolph responded that in 2008, HB
357 (Real Estate Licensees/Recovery Fund) [CHAPTER 113 SLA
08 06/26/2008] the House Labor and Commerce Committee
sponsored a bill that changed the real estate surety fund.
She delineated that the fund was changed to the Real Estate
Recovery fund that allowed consumers via an administrative
hearing to receive up to $15 thousand in damages. The
legislation mandated that each realtor would have to obtain
the insurance policy in order to protect the public.
However, a clause in the bill stated that if the commission
did not obtain the umbrella policy coverage, individual
salespersons did not have to procure the policy either.
Since 2010, when the bill regulations were written,
disagreement ensued about whether the regulations were "too
prescriptive." The regulations stated that the maximum
premium for the insurance policy was $300, which was too
low. She commented that after six years of bureaucratic
wrangling the solution to require the commission to obtain
the masters policy was warranted.
2:04:55 PM
Vice-Chair Saddler wondered whether there were any other
measures that addressed the situation. Ms. Stidolph
indicated that there was currently SB 158 in the House
Labor and Commerce Committee, which dealt with real estate
broker licenses. The committee was offering an amendment to
repeal the provision in HB 357 that mandated the commission
to obtain the umbrella policy. Vice-Chair Saddler asked for
clarification. Ms. Stidolph further explained that each
individual would be required to obtain the policy until the
commission obtained the policy. Vice-Chair Saddler asked
what the timeline was and how it comported with the two
year extension of the commission. Ms. Stidolph indicated
that the repeal would occur in 2018. The date granted the
industry time to obtain the insurance and gave the real
estate commission more time to procure the policy. Vice-
Chair Saddler asked what would happen in the 2 year
timeline with adoption of the amendment. Ms. Stidolph
answered that all real estate salesperson and brokers would
operate under the policy within two years and in 2.5 years
a master policy would be obtained by the commission.
2:07:25 PM
KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF
LEGISLATIVE AUDIT, reported that the audit recommended a 6
year extension because at the time Legislative Audit
understood that the commission could procure the policy by
January 2016. She spoke to the recommendations. The first
recommendation regarded obtaining the master policy and the
second recommendation requested that the Division of
Corporations, Business, and Professional Licensing (DCBPL)
chief investigator take action to ensure cases were
investigated and completed in a timely manner. She noted 29
cases of "significant periods of inactivity" in a sample of
36.
Representative Kawasaki asked when the next audit was
required with only a two year extension. Ms. Curtis relayed
that the division would conduct the audit in the spring or
summer of 2017. Representative Kawasaki asked about the
cost of the audit. Ms. Curtis responded that the audit
would be succinct and short having just completed an audit.
However, she was unable to guarantee the possibility of a
short audit. Representative Kawasaki cited the audit report
that identified 36 of the 235 open investigative cases and
that 29 of the cases had periods of inactivity ranging from
124 to 1,669 total days. He noted that some cases were
closed due to the length of investigation. He thought the
situation appeared "problematic." He wondered why the
investigations took so long. Ms. Curtis replied that the
finding was consistently discovered within DCBPL. She
communicated that in the current case "excessive time lags
were due to inadequate monitoring and insufficient
oversight to ensure investigations were completed timely."
Representative Kawasaki thought the DCBPL was not serving
the "major public purpose" of the board. He expressed
concern with the excessive timelines. Regardless of the
issues, he announced that he would offer a conceptual
amendment that would increase the extension "by a couple of
years."
2:12:30 PM
Representative Guttenberg offered that he was "troubled" by
both recommendations. He wondered what the "mechanical
problem" was that kept the commission from obtaining the
master policy. Ms. Curtis explained that she had heard
various different reasons why the policy was not obtained
but that "no one could really answer the why." She recently
discovered that the original legislation was "flawed" and
not in line with a policy that actually was possible to
procure. She added that "no one could really pinpoint" why
it took since 2008 and still no real progress was made to
procure the policy. She shared that recently the commission
and the division, in response to the audit made great
effort towards obtaining the policy.
Representative Guttenberg asked about the second
recommendation regarding the timing and inactivity of the
investigations. He wondered whether a correlation existed
between the functioning of the board and the two
recommendations. Ms. Curtis clarified that he was asking
whether the "efforts of the board impacted the
recommendations." Representative Guttenberg deduced that
regarding the first recommendation the commission was
"unfocused" and decide what to do in the face of a muddled
statute and recently sprang into action because of the
sunset. The second recommendations had to do with the
inactivity regarding complaints. He wondered whether the
board was "functional." Ms. Curtis responded that the board
was functioning and able to serve the public interest. She
commented that Legislative Audit would not recommend the
extension if the audit determined the board was not
functional. She noted that the investigative lags were
"reflective" of a "lack of good case management" and
constantly experienced the problem. She reminded the
committee that the audit was "looking backward" and
currently the issue could have been resolved.
2:17:38 PM
Vice-Chair Saddler asked whether the licensing fees covered
the commission's costs and investigations. Ms. Curtis
responded in the affirmative and confirmed that the board
had a surplus of $274 thousand as of March 2015. Vice-Chair
Saddler wondered how much of the surplus would remain after
the master policy was obtained and whether the cost would
affect the licensing fees. Ms. Curtis expected that some
indirect costs would be incurred in obtaining the policy
but the expense would not impact the surplus. Vice-Chair
Saddler asked whether the indirect costs were due to the
policy premium. Ms. Curtis answered that the licensee would
pay the premiums to the board under the umbrella policy.
Vice-Chair Saddler reiterated whether the surplus would pay
the premiums. Ms. Curtis replied that the licensees would
participate and collectively pay for the policy. She
suggested that Vice-Chair Saddler clarify the question for
the department. Vice-Chair Saddler mentioned the audit's
unfavorable findings of the investigator. He asked whether
the investigator was a staffer or contractor. Ms. Curtis
responded that the investigators were employees of the
DCBPL and sometimes an investigator was assigned to a
specific board and others were shared among boards. Vice-
Chair Saddler had heard in the past that some investigators
were independent contractors. Ms. Curtis answered in the
negative.
2:20:52 PM
SARA CHAMBERS, ADMINISTRATIVE OPERATIONS MANAGER, DIVISION
OF CORPORATIONS, BUSINESS AND PROFESSIONAL LICENSING,
DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT,
Co-Chair Thompson understood that the division was "in
charge" of investigators and investigations. Ms. Chambers
answered in the affirmative. Co-Chair Thompson asked why
the problem with investigators repeatedly happened over the
years. Ms. Chambers confirmed that the problem had been
identified over the "last few years." She detailed that the
scope of the audit was 2010 through 2015. In the summer of
2014, the division hired a new chief investigator that
created a management shift. The new manager had put into
place some new policies and procedures and supervisory
restructuring in an attempt to resolve the issues that were
due to a lack of management in a particular unit prior to
2014. She suspected that the samples in the audit were
prior to late 2014. She blamed the issue on a "management
oversight responsibility." She pointed out that the new
measures resulted in a reduction in caseload and turnaround
time.
2:23:08 PM
Representative Guttenberg hoped that the situation was
remedied. He asked about conflicting statues that
interfered with the commission obtaining a master policy.
He wondered what mechanism was preventing the board from
purchasing the policy. Ms. Chambers explained that the
statute required individual licensees to carry the policy
but the commission was not required by use of the word
"may." However, the other clause stated that individuals
were not required to carry the policy until the commission
obtained an umbrella policy. She summarized that individual
brokers and salesperson were not required to obtain the
policy until the commission procured an umbrella policy yet
everyone was required to obtain it and the commission was
not required to procure the umbrella policy all at the same
time. She could not speak to the situation prior to her
involvement in mid-2014 but "sensed that someone was
dragging their feet." She reported that she "dug in" to
remedy the situation and was hopeful that the policy could
be attained by January 2016. The "intent to bid" process
was initiated and the department received "zero response"
from the market. She indicated that the premium level set
in statue was far too low and the potential bidders were
concerned that they did not have enough information
regarding the brokers and agents they would be covering to
assess the risk. In response, the division reexamined the
regulation setting process to evaluate resetting the
premium. She stated that the insurance process was complex
and the procurement process was unusual. The policy covered
individuals and was not just "a simple contract with the
state."
2:27:42 PM
Representative Guttenberg restated his concern that action
only took place when the commission was bumping up against
the sunset date. He agreed that the insurance policy
sounded complex. He wondered whether the two year extension
was an adequate amount of time to clear up the issue. He
asked her to comment on the 2-year sunset. Ms. Chambers
shared her concern that the length of time was not adequate
due the short time period before the new sunset audit would
commence.
Vice-Chair Saddler asked about the reasons for the
shortcomings with the investigation process and whether she
was confident the issue was remedied. Ms. Chambers was very
confident in the actions and progress of the investigators
under the new management. She referred to a detailed
department response on page 26 of the audit that provided
great feedback. She delineated that prior to the
restructuring, the investigations unit had one manager to
19 investigators. The department added a level of senior
investigators working under the chief to allow "more hands-
on" supervision and accountability to meet guidelines. She
reported that a new guideline was that every 30 days an
investigator reviewed her caseload and worked with
management to discern why any inactivity occurred and how
to address it. She relayed that other audit's results and
end of fiscal year statistics proved that the remedy was
working.
2:33:02 PM
Co-Chair Thompson OPENED public testimony.
TRACY BARICKMAN, ALASKA REAL ESTATE COMMISSION, MAT-SU (via
teleconference), supported HB 290. She reported having 20
years of experience in the industry and was a commissioner
on the board. She relayed that she was also a subject
matter expert on a national level for Pearson Vue [Testing
Services of Philadelphia, Pennsylvania contracted by the
Real Estate Commission of Alaska]. She noted that she was
sitting in for the chair of the commission, Nancy Davis who
had medical issues. She supported the extension. She
recounted that the commission operated well within its
budget due to adequate licensing fees and was not a burden
the state's budget. She worked with the state's
investigator to review complaints as a result of a
transaction or licensees interaction with the public. She
reported that most complaints were legitimate and in many
cases licensees were disciplined through education, fines,
and at times suspension or revocation of their license. She
stated that without the board the only recourse for
consumer complaints was through litigation and the consumer
might not have the resources to take a case to court. She
believed the scenario would allow improper actions to
continue. She noted that the audit failed to recognize the
remedies that were already established in response to the
investigative inactivity. The 65 case backlog took place
from 2011 through 2014 and the new investigator had cleared
all of the cases. Currently the investigator had 23 cases
with the oldest dating back from 2015. She indicated that
the commission constantly improved industry standards via
the modification and adoption of regulations. She
communicated that the low premium set in statute and a lack
of historical data prohibited the board from procuring the
master policy. She suggested that the simple solution was
to remove AS 8.88,172 sub paragraph (e). The statute
eliminated the requirement of the umbrella policy. Once
that was established the insurance companies could gather
the historical data. She stressed that the low premium
estimate of $300 was not practical. The premium should be
$1,200 to $20,000 per year depending on the size of the
brokerage and what services were offered. She added that
property management coverage even was more expensive.
2:39:12 PM
Co-Chair Thompson CLOSED public testimony.
Ms. Stidolph noted that the Labor and Commerce Committee
was offering additional provisions to another bill that
removed the requirement to carry the Errors and Omissions
insurance in two years. The provision was expected to
rectify the situation.
2:40:37 PM
Representative Kawasaki commented that the committee should
not discuss other legislation. He did not have a problem
with extending the date of the sunset. He believed that the
short period of time for the sunset burdened the audit
division. He offered the following conceptual amendment.
Representative Kawasaki MOVED Conceptual Amendment 1
extending the sunset year from 2018 to 2022.
Representative Kawasaki WITHDREW Conceptual Amendment 1.
Representative Kawasaki MOVED Conceptual Amendment 2
extending the sunset year to 2020.
Representative Wilson OBJECTED for discussion.
Representative Wilson read from the audit Findings and
Recommendations:
… However, the legislation also required errors and
omissions insurance as a condition of real estate
licensure. The new insurance requirement has not
successfully protected the public because the
commission has not obtained a master policy and
licensees have continued to practice without this
important consumer protection in place.
Representative Wilson believed that the finding pointed out
that an important aspect of consumer protection was
lacking. She felt that the pressure of a sunset would bring
about a resolution to the problem. She maintained her
objection to the amendment.
Vice-Chair Saddler shared Representative Wilson's concerns.
He also expressed some concerns regarding the problems with
the commission's investigations. He acknowledged that some
improvements were put into effect but felt the two year
sunset was warranted.
Representative Wilson MAINTAINED her objection.
A roll call vote was taken on the motion.
IN FAVOR: Kawasaki
OPPOSED: Munoz, Pruitt, Saddler, Wilson, Edgmon, Gattis,
Guttenberg, Thompson.
The MOTION FAILED (1/8).
Representative Gara and Representative Neuman were absent
from voting.
Vice-Chair Saddler reviewed the fiscal impact note. He
noted that new zero Department of Commerce, Community and
Economic Development fiscal note that appropriated the
amount of $8.7 thousand dollars and was included in the
governor's budget request.
2:45:45 PM
Vice-Chair Saddler MOVED to REPORT HB 290 out of committee
with individual recommendations and the accompanying fiscal
note(s).
There being NO OBJECTION, it was so ordered.
HB 290 was REPORTED out of committee with a "no
recommendation" recommendation and with a new accompanying
zero fiscal note by the Department of Commerce, Community
and Economic Development.
2:46:06 PM
AT EASE
2:48:05 PM
RECONVENED
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 118 AEA Graphic.pdf |
HFIN 4/11/2016 1:30:00 PM |
HB 118 |