04/11/2017 08:00 AM House COMMUNITY & REGIONAL AFFAIRS

            SB 64-UNIFORM ENVIROMENTAL COVENANTS ACT                                                                        
                                                                                                                                
9:35:04 AM                                                                                                                    
                                                                                                                                
CO-CHAIR PARISH announced that the  final order of business would                                                               
be   SENATE  BILL   NO.  64,   "An  Act   adopting  the   Uniform                                                               
Environmental  Covenants  Act;  relating  to  environmental  real                                                               
property covenants and notices of  activity and use limitation at                                                               
contaminated  sites to  ensure the  protection  of human  health,                                                               
safety, and  welfare, and the  environment; and providing  for an                                                               
effective date."                                                                                                                
                                                                                                                                
9:35:27 AM                                                                                                                    
                                                                                                                                
SENATOR  PETER  MICCICHE,  Alaska  State  Legislature,  as  prime                                                               
sponsor, presented SB 64.   He said the proposed legislation fits                                                               
the description of legislation that  would "streamline and remove                                                               
obstacles  that  inhibit business  commerce  in  the transfer  of                                                               
property."   He said SB  64 would  help in that  capacity without                                                               
reducing expectations  for public  health, safety, and  a healthy                                                               
environment.   The proposed legislation would  create The Uniform                                                               
Environmental Covenant  Act, which  would "protect the  buyer and                                                               
seller of  contaminated property, while allowing  the fullest and                                                               
best use  of the  property until  the contamination  reaches safe                                                               
levels."    He  said  that   under  SB  64,  [entering  into  the                                                               
environmental  covenant]  would be  voluntary.    He said  it  is                                                               
specifically  recordable interest  in  real estate  that will  be                                                               
tracked  in   the  Department  of   Environmental  Conservation's                                                               
(DEC's) database,  which results in  a zero fiscal  note, because                                                               
that  database  already  exists.    He  said  [the  covenant]  is                                                               
"specific  to  the  risks  at a  particular  site  and  restricts                                                               
activities  that could  result in  exposure while  allowing other                                                               
uses to occur."                                                                                                                 
                                                                                                                                
SENATOR  MICCICHE  relayed  that  in  his  district  there  is  a                                                               
beautiful piece of  property that has been  contaminated, and the                                                               
"Mom  and Pop"  who own  it cannot  afford the  cleanup; however,                                                               
there are  interested parties  who could  [buy the  property and]                                                               
easily afford the cleanup.   Under SB 64, the contamination would                                                               
be recorded  on the property  deed; the new owner  could purchase                                                               
the  property  and  have  it  cleaned up  to  the  Department  of                                                               
Environmental  Conservation's  (DEC's)   current  standards;  DEC                                                               
would then release  the covenant from the piece of  property.  He                                                               
said  the  process would  protect  both  seller  and buyer.    He                                                               
reiterated that it would be a  voluntary process.  He said, "This                                                               
eases the sale through a formal recording on the deed itself."                                                                  
                                                                                                                                
SENATOR  MICCICHE related  a second  story wherein  buyers bought                                                               
property in Anchorage and were  unaware that it was contaminated;                                                               
they  "did   some  dirt  work"   and  inadvertently   spread  the                                                               
contamination  across  their  property   and  into  the  abutting                                                               
properties and  are now  responsible for paying  for the  cost of                                                               
the cleanup.  If  the provisions of SB 64 had  been in place, the                                                               
buyers could have been made  aware of the contamination, may have                                                               
still chosen to buy the property  and pay $20,000 for the cleanup                                                               
instead of potentially millions of dollars.                                                                                     
                                                                                                                                
SENATOR  MICCICHE said  there are  many pieces  of property  that                                                               
could  benefit under  SB 64.   Currently  there are  thousands of                                                               
contaminated  sites  in  Alaska.     He  related  that  the  only                                                               
opposition to  SB 64 is  from the federal government,  which owns                                                               
51 percent of the contaminated sites  in the state.  He mentioned                                                               
the   "Legacy  Well"   -  nicknamed   "Travesty  Wells"   by  the                                                               
legislature -  and said, "We believe  they should live up  to the                                                               
same environmental expectations of the residents of this state."                                                                
                                                                                                                                
9:39:40 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  RAUSCHER   asked  if  there  is   any  regulation                                                               
currently in  place that requires  contamination to  be declared,                                                               
if that  regulation is statewide  or within  local jurisdictions,                                                               
and  whether   contamination  currently  must  be   disclosed  to                                                               
potential buyers.                                                                                                               
                                                                                                                                
SENATOR MICICCHE answered that if  a property owner is unaware of                                                               
contamination, he/she is  not required to disclose it.   He said,                                                               
"This  is   once  contamination  has  been   identified  on  your                                                               
property."   He deferred  further response  to Kristin  Ryan from                                                               
DEC.                                                                                                                            
                                                                                                                                
9:40:52 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   WESTLAKE  expressed   appreciation  to   Senator                                                               
Micciche for SB 64.                                                                                                             
                                                                                                                                
9:41:10 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  said he  has a  constituent who  "has the                                                               
same kind of situation."  He  asked whether there would be a cost                                                               
to create a covenant and  whether there would be any [exceptions]                                                               
related to types of contamination.                                                                                              
                                                                                                                                
9:41:44 AM                                                                                                                    
                                                                                                                                
SENATOR MICCICHE  responded that any contamination  for which DEC                                                               
requires  cleanup would  be covered  under SB  64.   He said  his                                                               
personal interest  is in  regard to  transferring of  property to                                                               
the  next owner;  the proposed  legislation would  allow the  new                                                               
owner "to  take on  the liability of  that contamination  if they                                                               
choose to do  so."  He said sometimes  contamination reaches safe                                                               
levels over time.  For example,  a person who owns an old filling                                                               
station where  the contamination was contained  underground could                                                               
operate a new business there  with certain restrictions - perhaps                                                               
not a  daycare, but  certainly an  auto parts  store.   The owner                                                               
could choose to have the  contamination cleaned up later in order                                                               
to  lift the  restrictions and  operate whatever  business he/she                                                               
may choose.   He added, "It allows a lot  of flexibility for both                                                               
the buyer and seller."                                                                                                          
                                                                                                                                
REPRESENTATIVE SADDLER  offered a hypothetical  situation wherein                                                               
the  owner  of the  property  gets  a  covenant that  states  the                                                               
contamination would  cost $50,000 at  most to clean up,  but then                                                               
the new  owner finds out  the cleanup will  cost $5 million.   He                                                               
asked, "Does this  extinguish any obligation or  liability on the                                                               
original seller or are there any limitations or sideboards?"                                                                    
                                                                                                                                
SENATOR  MICCICHE deferred  to DEC  but surmised  a determination                                                               
would  be  made  on  a   case-by-case  basis.    He  offered  his                                                               
understanding that with an environmental  covenant, the buyer can                                                               
"take on a  proportion of liability depending  on the transaction                                                               
and until it's satisfied ...."                                                                                                  
                                                                                                                                
REPRESENTATIVE  SADDLER  asked  if   the  cost  for  recording  a                                                               
covenant  would  be  no  more  than  the  cost  of  recording  "a                                                               
carpenter's lien or anything else."                                                                                             
                                                                                                                                
SENATOR MICCICHE answered, "I'm not sure if there's any cost."                                                                  
                                                                                                                                
9:44:57 AM                                                                                                                    
                                                                                                                                
KRISTIN  RYAN,   Director,  Division  of  Spill   Prevention  and                                                               
Response, Department of  Environmental Conservation (DEC), stated                                                               
that  SB 64  is needed  by the  department in  order to  transfer                                                               
property that  has been contaminated  "back into commerce."   She                                                               
said property that has been  contaminated is considered "blighted                                                               
and  untouchable," and  it  is  difficult to  get  loans on  such                                                               
property.      The   proposed  legislation   would   reduce   the                                                               
restrictions on  the property  "to the  specific uses  that we're                                                               
concerned about,  allowing all  other uses to  occur."   She said                                                               
DEC  has found  that in  other states  [that have  passed similar                                                               
legislation], buyers,  sellers, and lenders are  more comfortable                                                               
undertaking sale  transactions of  [contaminated property].   She                                                               
advised a  version of the  uniform law  has been adopted  in most                                                               
states, with about  7 states, including Alaska,  still working on                                                               
getting the law  passed.  She said, "There's  some testimony from                                                               
the  uniform law  organization that  explains  why they  proposed                                                               
this and why it's been working so well in other states."                                                                        
                                                                                                                                
MS. RYAN  related that the  U.S. Department of Defense  (DoD) has                                                               
asked to  be exempted, but DEC  thinks DoD should be  held to the                                                               
same standards  as everyone else.   Ms. Ryan  told Representative                                                               
Saddler that  DEC would  take on the  responsibility of  filing a                                                               
covenant and  is allowed to  do so  at no cost;  therefore, there                                                               
would be  no cost to  the owner of  the property for  putting the                                                               
restriction in the title.  She  said DEC currently does this work                                                               
and puts  the information  in its database,  but the  database is                                                               
not  always accessed  [by the  public]; the  proposed legislation                                                               
would  ensure  that  the  people   involved  are  aware  [of  the                                                               
contamination] when they do title searches.                                                                                     
                                                                                                                                
9:47:20 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  FANSLER referred  to  the story  [shared  by the  prime                                                               
sponsor]  regarding   [the  purchase  of  contaminated   land  in                                                               
Anchorage  where the  contamination was  inadvertently spread  to                                                               
other properties].   He offered his understanding  that the owner                                                               
was under no obligation to  clean up the contamination but later,                                                               
when  the  owner  spread  the  contamination,  he/she  was  under                                                               
obligation  to clean  up  the  contamination.   He  asked for  an                                                               
explanation.   He further  questioned why  the original  owner of                                                               
the land was not obligated to clean up the contamination.                                                                       
                                                                                                                                
9:48:13 AM                                                                                                                    
                                                                                                                                
MS.  RYAN responded  that  under statute,  the  current owner  is                                                               
responsible for the contamination of  his/her land.  If the owner                                                               
is not the cause of the  contamination but "inherited it for some                                                               
reason," his/her recourse is to  pursue the original contaminator                                                               
through a court of law.  She continued:                                                                                         
                                                                                                                                
     A  good  example  is  the Flint  Hills  Refinery.    We                                                                    
     recently  settled  with  Koch Brothers,  which  is  the                                                                    
     current  owner  of the  refinery,  but  a lot  of  that                                                                    
     contamination probably occurred  when William owned the                                                                    
     property.   We  are continuing  a legal  fight ...  now                                                                    
     joined with  the Koch Brothers against  William to have                                                                    
     them contribute to the remedy.                                                                                             
                                                                                                                                
MS. RYAN offered details related  to the aforementioned situation                                                               
given by the prime sponsor, as follows:                                                                                         
                                                                                                                                
     We  were aware  of contamination;  they closed  the gas                                                                    
     station down - this was  on Tudor [Road]; they took out                                                                    
     the tanks  and the  petroleum contaminated  dirt around                                                                    
     the  tanks; but  there  was enough  petroleum that  had                                                                    
     leached over to  the foundation of a  building, and ...                                                                    
     there would be no way  to get that without removing the                                                                    
     foundation of a building.   So, we said, "You can leave                                                                    
     that, but if you ever  take that building out, you need                                                                    
     to  deal  with  that  dirt appropriately."    And  what                                                                    
     happened  is  the   property  was  transferred  several                                                                    
     times; that was not  communicated to the new purchaser;                                                                    
     they pulled  the foundation out;  they spread  the dirt                                                                    
     in  the  process  of  that.    So,  they  are  now  the                                                                    
     responsible  party in  our minds,  because they're  the                                                                    
     ones that  moved the  dirt.  ...  Had they  known, they                                                                    
     would have not  moved it everywhere.  ...  And they can                                                                    
     go to  court after  the original responsible  party, if                                                                    
      they choose to do so.  But ... the way our statutes                                                                       
     work:  they're the ones that we regulate.                                                                                  
                                                                                                                                
CO-CHAIR  FANSLER  surmised  that there  are  situations  wherein                                                               
contaminations happen and  don't get cleaned up,  and he inquired                                                               
whether there are "alternatives given in that situation."                                                                       
                                                                                                                                
MR.   RYAN  responded   that   there   are  approximately   2,000                                                               
contaminated sites currently in Alaska  - about half of which are                                                               
on federal  property.  For  about 1,000  of those sites,  DEC has                                                               
decided -  for a variety  of reasons -  that "they don't  have to                                                               
clean  it all  up."    The department  puts  restrictions on  the                                                               
property  "to  protect the  future."    For example,  as  Senator                                                               
Micciche  described,  perhaps a  daycare  cannot  be built  on  a                                                               
particular  site  or, Ms.  Ryan  suggested,  a  well built  on  a                                                               
contaminated  refinery site.   She  said  those restrictions  are                                                               
called institutional control  and vary depending on  the type and                                                               
location  of the  contamination.   The decision  to not  clean up                                                               
contamination  is   a  joint  decision   made  by  DEC   and  the                                                               
responsible  party.     She  emphasized  that   the  department's                                                               
ultimate goal is  for contaminated sites to  be cleaned; however,                                                               
there are situations in which that may not be reasonable.                                                                       
                                                                                                                                
MS. RYAN, in response to  a follow-up question, said the proposed                                                               
legislation,  if enacted,  would not  apply retroactively  to the                                                               
2,000 already recorded  sites.  She said there may  be some sites                                                               
for which  the division  would want to  establish covenants  on a                                                               
case-by-case basis.  She indicated  that there are some owners of                                                               
sites  on the  North Slope  who are  interested in  [the proposed                                                               
legislation] for  protection of their liability  when property is                                                               
transferred  in the  future.   She said  the department  wants to                                                               
prevent future  situations in which  people are unaware  that the                                                               
land they have inherited is contaminated.                                                                                       
                                                                                                                                
CO-CHAIR FANSLER asked for confirmation  that Ms. Ryan means that                                                               
the  department  could deal  with  all  2,000 contaminated  sites                                                               
retroactively  but  would  not,  because it  would  be  too  time                                                               
consuming.                                                                                                                      
                                                                                                                                
MS. RYAN  answered yes,  and she added  that the  department does                                                               
not  have  the  resources  to  do that.    She  stated,  "If  the                                                               
responsible party  wants it,  of course we'll  honor that;  but I                                                               
don't see us ... taking them all on."                                                                                           
                                                                                                                                
9:53:38 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER asked if  the environmental covenant would                                                               
be "an unrestricted allowance of  liability" or include terms [of                                                               
limitation].                                                                                                                    
                                                                                                                                
MS. RYAN answered, "That would  ... have to be negotiated between                                                               
... the sales transaction; it would  not be part of the covenant;                                                               
the covenant has no monetary interest whatsoever."                                                                              
                                                                                                                                
9:54:30 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAUSCHER asked Ms. Ryan  to explain the process of                                                               
"getting off of this registry."                                                                                                 
                                                                                                                                
MS. RYAN  said DEC  would be  "treating it like  a permit."   She                                                               
explained that  there would be  an appeal  process.  If  a future                                                               
buyer   decides  the   covenant  is   "no  longer   necessary  in                                                               
restricting  some use  that they're  interested in,"  then he/she                                                               
would propose  to DEC that  the covenant be modified  or removed.                                                               
She  explained that  she used  the term  "permit" because  if DEC                                                               
does not  agree with  the proposal, then  the buyer  could appeal                                                               
that decision to  the commissioner, as is done  with other permit                                                               
decisions.   She said as  a last-case scenario, the  person could                                                               
take DEC  to court.   In  response to  a follow-up  question, she                                                               
confirmed that of the 2,000  already existing contamination sites                                                               
that are not  on federal land, some are on  privately owned land.                                                               
She said  home heating oil tanks  are problematic.  She  said she                                                               
does  not know  the percentage,  but estimated  it would  be only                                                               
about 5 percent.                                                                                                                
                                                                                                                                
9:56:12 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DRUMMOND  asked if the initialism  "IC" stands for                                                               
institutional controls.                                                                                                         
                                                                                                                                
MS. RYAN answered, "Correct."                                                                                                   
                                                                                                                                
9:56:25 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked  if  the programs  in other  states                                                               
have been  working well or if  there have been any  legal battles                                                               
resulting.                                                                                                                      
                                                                                                                                
MR. RYAN responded  that the one benefit of  Alaska having waited                                                               
to put  forth such legislation  is that  it can first  learn from                                                               
the mistakes  made by other states.   She advised that  the model                                                               
code  was put  out in  2003,  so "it's  been over  10 years  that                                                               
people  have been  working on  this," and  the organization  that                                                               
proposed the model code is  saying [Alaska's] version is probably                                                               
the  best  one.   She  concluded,  "Yes,  it's working  in  other                                                               
states; the version  that we're proposing has  ... been effective                                                               
in accomplishing the goals that we're talking about."                                                                           
                                                                                                                                
9:57:30 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  PARISH opened  public  testimony.   After  ascertaining                                                               
that there  was no one  who wished  to testify, he  closed public                                                               
testimony on SB 64.                                                                                                             
                                                                                                                                
CO-CHAIR PARISH announced that SB 64 was held over.