Legislature(1995 - 1996)
02/09/1996 09:10 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 162
An Act relating to land used for agricultural
purposes and to state land classified for
agricultural purposes or subject to the
restriction of use for agricultural purposes only;
and annulling certain program regulations of the
Department of Natural Resources that are
inconsistent with the amendments made by this Act.
Co-chairman Halford directed that SB 162 be brought on for
discussion. Co-chairman Frank referenced Amendments 1 and
2, suggested by the sponsor. He then explained that
Amendment No. 1 would change "shall" to "may" at page 4,
line 22. Co-chairman Halford voiced his understanding that
the amendment allows rather than requires aliquot parts.
The Co-chairman then called for objections to adoption of
Amendment No. 1. Senator Donley requested testimony from
the department.
RON SWANSON, Director, Division of Land, Dept. of Natural
Resources, testified via teleconference from Anchorage,
advising that the department recommended the change. No
objection having been raised, Amendment No. 1 was ADOPTED.
Co-chairman Frank explained that Amendment No. 2 would
insert new language at page 7, line 31. Co-chairman Halford
voiced his understanding that new language would make the
process applicant driven. BRETT HUBER, aide to Senator Lyda
Green, concurred that holders of agricultural only lands
would have to apply for conveyance of fee simple title with
a restricted agricultural covenant. The landholder would
provide title insurance and cover survey costs. Original
bill language mandated that the department issue new title
conveyances for all agricultural parcel holders. Amendment
No. 2 was recommended by the department and is supported by
the sponsor.
Senator Zharoff voiced his understanding that all costs
would be borne by the applicant, and there would be limited,
if any, cost to the state. Mr. Huber concurred. He then
advised that the present $242.4 fiscal note from the Dept.
of Natural Resources reflects mandated conveyance by the
department and department-borne costs. Making the
legislation applicant-driven should eliminate or greatly
reduce costs.
Senator Rieger referenced language at page 3, line 14 of
Amendment No. 2 and questioned whether "shall" should be
changed to "may" in the subparagraph relating to enforcement
of the state's interest. Mr. Swanson suggested that
language should use "may" rather than "shall." It allows
the department to enforce the agricultural covenant by
administrative means for those holding the "old style
patent." For the new process, the department would have to
go through the courts. Mr. Swanson advised that the
department recommended and supports Amendment No. 2.
Senator Rieger next referenced the following language at
page 1, line 16 of Amendment No. 2:
or a title report affirming ownership of the
rights
and asked what the department would accept. Mr. Swanson
cited a litigation report issued by a title company and
signed by an attorney. The report verifies that the title
is proper and no liens are attached.
Senator Phillips MOVED for adoption of Amendment No. 2 with
the change from "shall" to "may" at page 2, line 14. No
objection having been raised, Amendment No. 2 was ADOPTED as
amended.
In response to an inquiry from Co-chairman Halford regarding
the department position on the legislation, Mr. Swanson
referenced the following areas of concern:
1. The interest rate (Sec. 8).
2. Need for compensation to the state from increased
value generated by ability to subdivide (Sec. 9).
He stressed that the department will use whatever interest
rate the legislature sets "only for new financing." The
department does not plan to "go back and allow anybody to
refinance their existing contract." Mr. Swanson further
stressed that the proposed bill establishes a different
interest rate for agricultural loans than other types of
loans handled by the department.
Under current law, agricultural landholders may subdivide
land but no new construction can occur on subdivided
parcels. The proposed bill allows for agricultural-related
construction. That would allow for construction of a home
or other structure on each 40 acres. Department concern
relates to the impact of ability to subdivide on the value
of the property. Mr. Swanson cited a recent appraisal of
the James' farm at Point MacKenzie. The value of
agricultural interest on a 40-acre parcel with no
construction is $160 per acre. Allowance of both
subdivision and construction increases the value to $250 to
$300 per acre. The department feels that under Article
VIII, Sec. 2 of the Alaska State Constitution, the state
should be compensated for that increase. The Attorney
General advises that there could be a legitimate legal
challenge unless the state is compensated in some form. A
possible solution is a limitation on the number of times a
parcel may be subdivided and what may be constructed
thereon. Co-chairman Halford noted that the legislation
limits the number of parcels to four. The restriction on
the number of times a parcel could be subdivided was
intended to deal with the question of value accrual. He
suggested that the appraisal, the difference in the
appraisal, and payment of the amount of the difference would
become more cumbersome than it would accomplish. Mr.
Swanson suggested that subdivision be limited to once or
twice and the time period be longer than four years. That
would help to equalize values. Co-chairman Halford asked if
limitations allowing the parcel to be divided into no more
than four subparcels with no provisions for subdivision in
the future would satisfy concerns. Further subdivision
could then be addressed at a later date if there was
considerable pressure for smaller parcels in agricultural
use. Mr. Swanson concurred in that approach, suggesting
that the amount of increased value would be "so minimal it
would not be worth trying to figure out."
In response to a question from Co-chairman Halford asking if
the commissioner would support the bill under the foregoing
proposal, Mr. Swanson noted that he would have to speak with
the commissioner. He also expressed his belief that the
foregoing would be acceptable since it was discussed as an
option that "would work."
Senator Randy Phillips inquired concerning the viable
acreage for a farm. Mr. Swanson said that existing
regulations allow for parcels as small as forty acres. The
division of agriculture considers 160 acres, plus, to be the
viable commercial size. Below that number, parcels are
hobbies, truck farms, etc.
In response to a question from Co-chairman Halford, Brett
Huber observed that the original intent of subdivision was
to benefit the state in that a landholder with a large
parcel who is "squeaking by" and making contract payments
could subdivide a piece of ground and bring "somebody else
into the business and use that to cash flow the operation
and keep the contract current . . . ." The initial
subdivision is thus more important than subsequent
subdivision.
Lengthy discussion followed regarding subsequent subdivision
of the property and proposed language changes within the
bill. Co-chairman Halford sought suggestions for
alternative language clarifying that "the subdivision would
be one time and for no more than four parcels . . . ." The
Co-chairman asked department staff if deletion of
subparagraph (3) at page 6, lines 7 through 12, and addition
of the word "once" following "subdivide" at page 6, line 5,
would make clear that each parcel could be divided into four
parcels, but a subdivided parcel could not be subsequently
divided. Mr. Swanson suggested that "and sell the land"
also be deleted at page 6, line 5. That would clarify that
subdivision would occur only once while sale could "happen
at any time." Brett Huber asked that language prohibit
subsequent subdivision of subdivided land rather than allow
subdivision only once.
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Begin: SFC-96, #23, Side 2
In response to a question from Senator Phillips, Mr. Huber
explained that the "main thrust and intent of the bill is to
take what was ag-interest only land and turn it into fee
simple land with an agricultural covenant."
Discussion followed regarding the size of parcels required
for different agricultural purposes. Mr. Huber told members
that many parcels of 320 acres and over do not contain 320
acres of plantable soil. Further, many parcels have
substantially less than 100% of plantable soil in
production.
Senator Sharp MOVED to add "none of the four allowable
parcels may be further resubdivided" at page 6, line 6,
following the word "and." There would thus be no time limit
on subdivision into fourths of no less than 40 acres.
Further discussion followed and examples of how subdivision
would work were presented. Senator Sharp restated his
motion and acknowledged that it would likely be "cleaned up
dramatically by the drafter." He then MOVED to include
deletion of subsection (3) at page 6, lines 7 through 12,
within his original amendment which was designated Amendment
No. 3.
Further discussion followed in response to a question from
Senator Zharoff regarding determination of the base parcel
upon which subdivision is predicated. Co-chairman Halford
said that:
The individual doing the subdivision makes that
determination within the bounds of no more than
four parcels (in any combination) [and] no less
than 40-acres (in any combination).
Members acknowledged that the covenant goes with the land.
Mr. Swanson said that the department would "make sure the
covenant went with the original parcel in the patent." Co-
chairman Frank cited as an example a landholder with 1,600
acres who subdivides, keeps 40 acres, and sells off the
remaining 1,560. Both Co-chairman Halford and Senator Sharp
concurred that the 1,560 acres could be subdivided three
more times. Co-chairman Halford voiced his understanding
that the covenant and sale agreement would control the right
to subdivide.
Mr. Huber voiced his belief that Senator Green, sponsor of
the legislation, would be comfortable with committee intent
but raised concern and questions as to whether new language
conveys that intent. Co-chairman Halford acknowledged that
CSSB 162 (Fin) would contain the drafter's version of the
foregoing amendment. If the rewrite of the amendment is
significant, the draft will be brought back before
committee. The Co-chairman then called for objections to
adoption of Amendment No. 3. No objection having been
raised, Amendment No. 3 was ADOPTED.
In response to an additional question from Senator Zharoff,
Mr. Swanson reiterated earlier comments that the interest
rate of not more than 9.5 percent would be different than
other loans on land. He also stressed that the department
would not be refinancing existing contracts "when they come
in wanting a new patent." The interest rate at initial
purchase will remain in place.
Senator Sharp MOVED for passage of CSSB 162 (Fin) with
individual recommendations and accompanying fiscal notes.
No objection having been raised, CSSB 162 (Fin) was REPORTED
OUT of committee with a $15.0 fiscal note from the land
development component and a $28.5 note from the agricultural
development component within the Department of Natural
Resources. Co-chairmen Halford and Frank and Senator Sharp
signed the committee report with a "do pass" recommendation.
Senators Rieger, Phillips, and Zharoff signed "no
recommendation."
ADJOURNMENT
The meeting was adjourned at approximately 10:15 a.m.
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