Legislature(1999 - 2000)

05/11/1999 08:08 AM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SB 156-MUNICIPAL CLASSIFICATIONS AND BOUNDARIES                                                                                 
CO-CHAIRMAN HALCRO announced that the first order of business                                                                   
before the committee would be SENATE BILL NO. 156, "An Act relating                                                             
to municipal incorporation, to reclassification of cities, to                                                                   
municipal boundary changes, and to dissolution of municipalities."                                                              
Number 0081                                                                                                                     
DOUG SALIK, Researcher for Senator Tim Kelly, Alaska State                                                                      
Legislature, informed the committee that SB 156 was requested by                                                                
the Local Boundary Commission.  This legislation has been reviewed                                                              
by Legislative Legal and Research Services.  The Local Boundary                                                                 
Commission and the Alaska Municipal League (AML) support SB 156.                                                                
He explained that SB 156 makes some changes to Title 29.  One                                                                   
change is to the language pertaining to how the Local Boundary                                                                  
Commission may amend, accept, or reject petitions.  There is an                                                                 
attempt to make the language consistent in order to reduce                                                                      
confusion for petitioners.  Secondly, SB 156 will statutorial                                                                   
endorse the Local Boundary Commission's practice of amending                                                                    
certain petitions.  For example, if a second class city wanted to                                                               
dissolve, the Local Boundary Commission may want to amend its                                                                   
petition which would require the city to deal with its debt before                                                              
being allowed to dissolve.                                                                                                      
REPRESENTATIVE KOOKESH pointed out that most communities in rural                                                               
Alaska would dissolve because they cannot make it.  Those                                                                       
communities would not have wanted to dissolve if they had the money                                                             
to pay the bills.                                                                                                               
MR. SALIK deferred to those on-line.                                                                                            
REPRESENTATIVE KOOKESH stressed that it does not make sense.  He                                                                
predicted that most local municipalities in rural Alaska faced with                                                             
this would simply walk away from it.                                                                                            
Number 0365                                                                                                                     
CO-CHAIRMAN HALCRO referred to the Local Boundary Commission's                                                                  
report to the legislature dated January 29, 1999.  That report                                                                  
requested some statutory changes allowing greater flexibility to                                                                
the commission as well as language to address legal challenges.                                                                 
Under the requested language from the commission's report, there is                                                             
no reference to the retainment of debt nor is that language in the                                                              
proposed statute changes.  "Is that the intent?"                                                                                
MR. SALIK deferred to a member of the Local Boundary Commission.                                                                
Number 0532                                                                                                                     
KEVIN WARING, Chairman, Local Boundary Commission, testified via                                                                
teleconference from Anchorage.  The Local Boundary Commission                                                                   
supports SB 156 as drafted by the local affairs agency.  This                                                                   
legislation has no fiscal impact.  Furthermore, the proposed                                                                    
changes encompassed in SB 156 would close the door to potential                                                                 
litigation and the related costs to the state.  Mr. Waring stated                                                               
that SB 156 achieves the following two worthwhile purposes.  First,                                                             
SB 156 would make the language of five separate statutory sections                                                              
uniform.  This is language that allows the commission to amend and                                                              
approve petitions for reclassifications, incorporations,                                                                        
annexations, detachments, mergers, and consolidations after                                                                     
dissolution.  Existing statute utilizes varying language in the                                                                 
five separate sections which are subject to interpretation.  Upon                                                               
research of this language, the variance in the language was by                                                                  
chance and not purposeful.  He noted that the proposed changes in                                                               
SB 156 do not change the original legislative intent of the                                                                     
language, but merely make the language uniform and remove a                                                                     
potential source of confusion and litigation.                                                                                   
MR. WARING continued with the second purpose of SB 156.  The                                                                    
legislation would adopt language that acknowledges the Local                                                                    
Boundary Commission's authority to impose conditions on petitions                                                               
that it does not approve.  The Local Boundary Commission already                                                                
has this power and in some sections of these statutes, specifically                                                             
the dissolution statute, the commission is already implicitly                                                                   
authorized to impose conditions on dissolution petitions.  He noted                                                             
that to date the Attorney General's office has supported the  Local                                                             
Boundary Commission in its exercise of this power.  In the last                                                                 
five years, the commission has imposed, about 12 times, various                                                                 
types of conditions on petitions.  This power has been utilized to                                                              
protect the state's interest.  He informed the committee that since                                                             
1994, there have been seven dissolutions of city governments.  As                                                               
required by law, the commission has used conditions to ensure that                                                              
municipal assets were properly disposed of and debts paid.                                                                      
"Dissolving municipalities are creatures of the state.  Therefore,                                                              
the state has an interest in ensuring that public assets are                                                                    
properly disposed of.  Similarly in several incorporations, where                                                               
the petitioners propose to finance new local governments through                                                                
the imposition of sales taxes or bed taxes.  We have conditioned                                                                
approval of incorporation on simultaneous approval after the local                                                              
incorporation election of an appropriate tax."  The main purpose is                                                             
to close the door to possible litigation.  Mr. Waring pointed out                                                               
that Title 29 currently requires as a part of dissolution, that the                                                             
municipality be free of debt or make appropriate arrangements to                                                                
satisfy creditors.                                                                                                              
Number 0945                                                                                                                     
REPRESENTATIVE MURKOWSKI pointed out that Mr. Waring's letter and                                                               
testimony have stated that ambiguities will be clarified and                                                                    
hopefully, eliminate legal challenges.  Is this currently a problem                                                             
or is this in an attempt to prevent such suits?                                                                                 
MR. WARING noted that there was a past case which dealt with the                                                                
ambiguity that is trying to be clarified here.  In controversial                                                                
cases, the commission's statute and regulations are closely                                                                     
inspected for any ambiguities.  Mr. Waring said that he did                                                                     
anticipate that the commission would be challenged on both of these                                                             
matters sooner or later.                                                                                                        
CO-CHAIRMAN HALCRO referred to the January 28, 1999 report from the                                                             
commission which discusses litigants, Yakutat, asserting that the                                                               
commission does or does not have certain authority.  The ambiguity                                                              
of the language allows arguments to be tailored to the litigant's                                                               
needs.  He asked if that was a safe assessment as to the need for                                                               
these clarifications.                                                                                                           
MR. WARING replied yes.  The commission would like to keep such                                                                 
issues from going to court.                                                                                                     
REPRESENTATIVE KOOKESH referred to the language on page 3,                                                                      
subsection (a) of SB 156 which indicates that the commission grants                                                             
dissolutions, if in the best interest of the state.  Most                                                                       
communities contemplating dissolution would not be thinking of the                                                              
state, but rather what is in the best interest of the community.                                                                
Furthermore, the last sentence of SB 156 which states, "Otherwise                                                               
it [Local Boundary Commission] shall reject the petition." is not                                                               
realistic.  If a community wants to dissolve, the community will do                                                             
so whether the commission rejects the petition or not.  This is of                                                              
Number 1184                                                                                                                     
MR. WARING said that Representative Kookesh has a good point.  This                                                             
legislation does not seek to change the intent of any existing                                                                  
legislation.  In fact, existing legislation already includes                                                                    
language referring to the "best interest of the state".                                                                         
REPRESENTATIVE DYSON inquired as to what SB 156 would accomplish                                                                
besides impacting those communities desiring to resolve their state                                                             
sponsored relationship.                                                                                                         
MR. WARING reiterated that SB 156 would make uniform the Local                                                                  
Boundary Commission's procedures governing how the commission                                                                   
amends and accrues petitions for incorporation, boundary changes,                                                               
dissolutions, consolidations, et cetera.  Currently, there is                                                                   
different language describing how the commission shall make                                                                     
amendments in five separate sections.  The proposed revisions                                                                   
encompassed in SB 156 make this uniform as well as clearly                                                                      
authorizing the commission to place conditions on various                                                                       
petitions.  Mr. Waring reiterated that the commission desires this                                                              
to be validated in statute in order to preclude legal challenges.                                                               
Number 1365                                                                                                                     
KEVIN RITCHIE, Alaska Municipal League, noted that the committee                                                                
should have a letter in the packet from AML which supports SB 156.                                                              
CO-CHAIRMAN HALCRO inquired as to whether Mr. Ritchie had discussed                                                             
the situation surrounding dissolutions with rural communities.                                                                  
MR. RITCHIE replied no.                                                                                                         
REPRESENTATIVE KOOKESH commented that he has not had anyone contact                                                             
him regarding this legislation.  He asked if there was any                                                                      
discussion at all on this issue by the AML.  He assumed if there                                                                
was not, that there is no problem with the legislation.                                                                         
MR. RITCHIE stated that SB 156 is viewed as a technical change.  He                                                             
recognized the validity of the issues brought forth by                                                                          
Representative Kookesh, but indicated that there may be another                                                                 
arena to discuss that issue.                                                                                                    
REPRESENTATIVE DYSON pointed out that SB 156 will be heard next in                                                              
House Finance.  He inquired as to what AML has done to notify                                                                   
rural, local governments of this legislation.                                                                                   
MR. RITCHIE explained that the AML has a bulletin which lists all                                                               
the municipal bills and information regarding those bills is                                                                    
published every two weeks.  There has not been a particular effort                                                              
in the newsletter to respond to SB 156 because it is viewed as a                                                                
technical change.  Such legislation is also referred to the Local                                                               
Government Subcommittee of the Legislative Committee.  The                                                                      
subcommittee did not have any flags regarding SB 156, however this                                                              
particular issue was not raised either.                                                                                         
Number 1558                                                                                                                     
REPRESENTATIVE JOULE inquired as to how many municipalities would                                                               
be faced with dissolution in the face of cuts to municipal                                                                      
assistance and revenue sharing.  If the legislature eliminates                                                                  
revenue sharing over a three year period, how would SB 156 affect                                                               
a community's ability to dissolve.  He asked if any discussion had                                                              
occurred regarding the future.                                                                                                  
MR. RITCHIE informed the committee that many municipalities came                                                                
forward in the face of the full elimination of the municipal                                                                    
assistance and revenue sharing.  The full elimination would have                                                                
resulted in a 40 to 60 percent reduction of the total operating                                                                 
budget for many municipalities.  Even with a third of that                                                                      
remaining, there would still be a 10 to 20 percent reduction of the                                                             
operating budget for many municipalities.  Many of the small                                                                    
municipalities are on the edge.  Mr. Ritchie described most                                                                     
municipalities as like a Rotary club with a small staff.  Any                                                                   
reduction makes a significant difference to small communities.                                                                  
Approximately 10-15 municipalities testified that they would have                                                               
to dissolve if a full elimination occurred.  He predicted that even                                                             
with a one-third cut, it would be likely that the dissolution rate                                                              
would increase significantly.  Mr. Ritchie said that he was not                                                                 
prepared to answer the question regarding how any change to the                                                                 
language would affect that eventual dissolution.                                                                                
CO-CHAIRMAN HALCRO noted that current statute reads, "If the local                                                              
boundary commission determines that a municipality fails to meet                                                                
the standards for dissolution, it shall reject the petition."  He                                                               
inquired as to examples of the standards for dissolution.                                                                       
MR. WARING deferred to Mr. Bockhorst.                                                                                           
Number 1818                                                                                                                     
DAN BOCKHORST, Local Boundary Commission, Division of Municipal &                                                               
Regional Assistance, Department of Community & Regional Affairs,                                                                
emphasized that the provisions of SB 156 do not raise the standard                                                              
with respect to dissolutions.  Currently, state statute provides                                                                
that dissolution may occur only if in the best interest of the                                                                  
state, AS 29.06.500, and if the municipality is free of debt or has                                                             
satisfied its creditors with a method of repayment, AS 29.06.470.                                                               
The commission has adopted regulations in 19AAC.10.280 which                                                                    
provide for factors and criteria the commission considers when                                                                  
acting on a petition for dissolution.                                                                                           
MR. WARING echoed Mr. Bockhorst's comments that the provisions in                                                               
SB 156 do not seek to change the ground rules, but only make the                                                                
language uniform and clarify that the commission impose conditions                                                              
on petitioners, as is already in law.                                                                                           
REPRESENTATIVE DYSON inquired as to what would happen to the                                                                    
creditors of a local government that is insolvent when that                                                                     
government dissolves.                                                                                                           
MR. WARING said that he believed that such a local government                                                                   
cannot dissolve unless satisfactory arrangements are made with the                                                              
creditors.  Otherwise, the state does not legally dissolve that                                                                 
local government.                                                                                                               
REPRESENTATIVE DYSON assumed then that the creditor's remedy is to                                                              
go to civil court.                                                                                                              
MR. WARING said, "I think whatever, you know, arrangements they                                                                 
would need to go to be satisfied...."                                                                                           
REPRESENTATIVE DYSON asked if there would be a situation in which                                                               
those liabilities would accumulate to the state.                                                                                
MR. WARING cited AS 29.06.520 which deals with succession to assets                                                             
and liabilities.  That statute indicates that the assets and                                                                    
liabilities would revert to the state.  In further response to                                                                  
Representative Dyson, Mr. Waring stated that such has not happened                                                              
to this point.  He felt that such a situation had not occurred                                                                  
because of the requirement for the proper disposal of the assets                                                                
and the liabilities met before the dissolution occurs.  Mr. Waring                                                              
noted that the cases in Alaska are fairly modest financial cases.                                                               
Number 2075                                                                                                                     
REPRESENTATIVE MORGAN inquired as to what would happen if a city                                                                
council just walked away and closed the doors.  He noted that he                                                                
was involved in the Municipality of Aniak for six years on a                                                                    
volunteer basis.                                                                                                                
MR. WARING pointed out that AS 29.06.450 addresses such a                                                                       
situation.   He said that the current law reads, "The department                                                                
shall investigate a municipality that it considers to be inactive,                                                              
it shall report to the local boundary commission on the status of                                                               
the municipality.  The commission may submit its recommendation to                                                              
the legislature, that the municipality be dissolved in the manner                                                               
provided for submission of boundary changes in Article X, Section                                                               
12 of the state constitution."                                                                                                  
REPRESENTATIVE MORGAN reiterated his question regarding what will                                                               
the state do if a local government does not want to run the                                                                     
MR. WARING said that the aforementioned statute addresses a                                                                     
situation in which there is no local government.  He indicated that                                                             
the thrust of this legislation is that the commission and the                                                                   
legislature would take action to dissolve the municipality by an                                                                
action rather than default.                                                                                                     
REPRESENTATIVE MORGAN commented that many of those running the                                                                  
second-class cities do not do so for the glory which is not                                                                     
Number 2288                                                                                                                     
REPRESENTATIVE KOOKESH reiterated his discomfort with the language,                                                             
"in the best interest of the state".  He was also uncomfortable                                                                 
with the language, "it shall reject the petition".  Those are two                                                               
open-ended areas that should be reviewed by the Local Boundary                                                                  
Commission and the AML.                                                                                                         
CO-CHAIRMAN HARRIS commented that this legislation merely clarifies                                                             
what is presently in statute.                                                                                                   
REPRESENTATIVE KOOKESH recognized that, but noted that the change                                                               
in circumstances with regard to municipal aid places cities in a                                                                
different position than last year.  He indicated that should be                                                                 
CO-CHAIRMAN HARRIS said that he did not disagree with                                                                           
Representative Kookesh.  He believed that these issues would arise                                                              
more often through the process.                                                                                                 
REPRESENTATIVE DYSON asked if there is a reason that SB 156 needs                                                               
to move forward quickly.                                                                                                        
MR. SALIK clarified that if SB 156 does not go forward this                                                                     
session, the Local Boundary Commission will continue to operate                                                                 
along these lines.                                                                                                              
REPRESENTATIVE DYSON inquired as to the reaction from Mr. Salik and                                                             
those from the commission to on page 2, line 21, after "," insert,                                                              
"local community in question,"                                                                                                  
MR. SALIK said that he believed that would be acceptable.                                                                       
Number 2440                                                                                                                     
MR. WARING pointed out that the commission's regulations list a                                                                 
number of specific criteria regarding what constitutes "in the best                                                             
interest of the state".  Much of the list deals with the local                                                                  
interests such as if there are alternative means by which the                                                                   
service needs by the local community could be served.  Local                                                                    
concerns are a central factor in the interpretation of "the best                                                                
interest of the state".                                                                                                         
MR. WARING informed the committee that five of the seven                                                                        
dissolutions were involuntary meaning that the local government                                                                 
stopped functioning.  In those cases, the commission had to review                                                              
the situation and make recommendations for dissolution.  In each                                                                
case, matters were resolved satisfactorily with the local                                                                       
MR. WARING said, in response to Representative Dyson's earlier                                                                  
question, that the commission would prefer the existing                                                                         
legislation, but would accept the amendment if the committee so                                                                 
REPRESENTATIVE DYSON surmised then that the commission already does                                                             
this per regulation.  Therefore, placing it in this law would not                                                               
be a disservice to the current practice.  However, it would be a                                                                
slight constraint in the commission's ability to move away from                                                                 
that perspective in regulation.                                                                                                 
MR. WARING commented that the amendment might inhibit the                                                                       
commission's ability to approve dissolutions due to the entrance of                                                             
another separate standard in law to be satisfied.                                                                               
Number 2577                                                                                                                     
REPRESENTATIVE DYSON moved a conceptual amendment which would                                                                   
include language referring "to the best interest of the affected                                                                
community" wherever there is reference to "in the best interest of                                                              
the state".  There being no objection, the conceptual amendment was                                                             
CO-CHAIRMAN HARRIS referred to Section 5 which relates to AS                                                                    
29.06.500.  Under that statute, subsection (b) allows for an appeal                                                             
which is not maintained in SB 156.                                                                                              
MR. WARING clarified that Section 5 of SB 156, only affects                                                                     
subsection (a) of the statute.                                                                                                  
CO-CHAIRMAN HARRIS referred to the last sentence of AS 29.06.500                                                                
(a) which reads, "The commission may amend the proposal and accept                                                              
the petition."  He asked if that would address Representative                                                                   
Dyson's aforementioned concerns.                                                                                                
MR. WARING replied yes, and noted that is how the commission works.                                                             
CO-CHAIRMAN HARRIS asked if that sentence was eliminated in the                                                                 
bill due to legal reasons.                                                                                                      
MR. WARING explained that the language was made uniform in these                                                                
sections and relocated at the beginning of those sections.                                                                      
Number 2830                                                                                                                     
REPRESENTATIVE MURKOWSKI pointed out that the commission's report                                                               
to the legislature discusses the best interest of the state                                                                     
utilizing the language "the balanced best interest" in regard to                                                                
annexations.  That report defines "the balanced best interest" as                                                               
a proposal must serve the best interest of the whole when all                                                                   
interests are considered.  As previously mentioned, the "best                                                                   
interest" is set forth in the commission's regulations.  The report                                                             
refers only to annexation and may not relate to dissolutions.                                                                   
Therefore, Representative Murkowski felt that the conceptual                                                                    
amendment was bringing the intent closer.                                                                                       
MR. WARING informed the committee that in the 1980s there was                                                                   
statutory language referring to "the balanced best interest of the                                                              
state and affected local governments".  Therefore, the commission                                                               
was required to ensure that the best interest of the government                                                                 
desiring detachment, the government from whom the territory would                                                               
be detached, and the state be considered separately.  In 1985, the                                                              
legislature brought all those under the common umbrella, "the                                                                   
balanced best interest of the state as a whole."  The commission                                                                
would be required, per its regulations, to balance the best                                                                     
interest of all parties concerned.                                                                                              
TAPE 99-32, SIDE B                                                                                                              
CO-CHAIRMAN HALCRO noted that the committee should have just                                                                    
received legislation that his office has been working on.  He                                                                   
indicated that this legislation was drafted after discovering that                                                              
municipalities do not have rights, if in a situation in which the                                                               
municipality could not pay its debts.                                                                                           
CO-CHAIRMAN HALCRO closed the public testimony and inquired as to                                                               
the wishes of the committee.                                                                                                    
Number 2877                                                                                                                     
CO-CHAIRMAN HARRIS moved that the committee report HCS SB 156 out                                                               
of committee with individual recommendations and attached fiscal                                                                
notes.  There being no objections, HCS SB 156(CRA) was reported out                                                             
of committee.                                                                                                                   
The committee stood at-ease from 8:48 a.m. to 9:00 a.m.                                                                         

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