Legislature(1999 - 2000)
05/11/1999 08:08 AM CRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 concern. 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 government. 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 received. 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 reviewed. 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 communities. 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 chose. 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 adopted. 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.