Legislature(1997 - 1998)

04/15/1997 01:48 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
  SENATE BILL NO. 109                                                          
                                                                               
       "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-Chair Therriault provided members with  a new work draft,                 
                                                                               
  SENATOR LYDA GREEN reviewed the work  draft.  She noted that                 
  page 6, lines 6 - 14 allow a perpetual  covenant.  Perpetual                 
  covenant is  extended to  cover homestead entry  properties.                 
  The right  to construct  housing in  a subdivided parcel  is                 
  granted upon a $4 thousand dollars fee, paid to the State.                   
                                                                               
  Senator Green  noted that  there is  a six  year statute  of                 
  limitation on actions brought against a parcel owner.                        
                                                                               
  Senator Green stated that the $4.0  thousand dollar fee, for                 
  the  right  to  construct  housing,  shall  be  adjusted  to                 
  correspond  with  the  change in  the  consumer  price index                 
  (CPI).                                                                       
                                                                               
  Senator Green observed that the construction of condominiums                 
  is  not  permitted.    Representative  Davis  questioned  if                 
  consideration was  given  to  the  language  "non-commercial                 
  entities."   Senator Green observed  that the owner  has the                 
  right  to   construct  needed   housing  for   farm  related                 
                                                                               
                               10                                              
                                                                               
                                                                               
  activities.                                                                  
                                                                               
  Co-Chair Hanley  noted  that the  fee  was reduced  from  $6                 
  thousand dollars to  $4 thousand dollars, adjusted  for CPI.                 
  Senator Green  clarified that Point McKenzie is set aside as                 
  different from the other agricultural areas.  She emphasized                 
  that some of the parcels are so remote  that the addition of                 
  a home does not increase the value.  The right  to construct                 
  housing on  Point  McKenzie parcels  on  future  subdivision                 
  would  be  based on  an  appraisal.   Future  Point McKenzie                 
  parcels owners would  not have the  choice of paying the  $4                 
  thousand dollars fee.                                                        
                                                                               
  Co-Chair  Hanley pointed  out that  he purchased a  condo at                 
  half of what  it sold for in  1981.  He maintained  that CPI                 
  does not always reflect market price.   Senator Green stated                 
  that the purchaser has the option to do an appraisal.                        
                                                                               
  Senator Green  referred to  an omission  in the work  draft.                 
  She stated  that the intention  is that anyone  currently on                 
  Point McKenzie land will fall under the same requirements as                 
  other  agricultural  land  holders.   Therefore,  they could                 
  choose  to  pay  the $4  thousand  dollars  fee  or have  an                 
  appraisal.  In the future, land conveyed by the  State to an                 
  individual will be subdivided by appraisal only.                             
                                                                               
  TUCKERMAN  BABCOCK,  STAFF,  SENATOR GREEN  discovered  that                 
  language governing appraisals  was inadvertently deleted  by                 
  the drafter.                                                                 
                                                                               
  In response to a question  by Representative Davis, Co-Chair                 
  Therriault explained that agricultural land holders  receive                 
  two rights to  the land.   The legislation  would add  other                 
  rights.  Land holders would pay  an incremental cost for the                 
  additional right.  Representative Davis asserted that the $4                 
  thousand dollar  fee does  not relate  to the  value of  the                 
  land.                                                                        
                                                                               
  Mr.  Babcock  explained   that  the  appraisal  is   on  the                 
  additional  value   on  the  right  to   construct  housing.                 
  Appraisal values are estimated  at between 0 to $8  thousand                 
  dollars.                                                                     
                                                                               
  Co-Chair Hanley expressed concern that the fee could rise to                 
  $10 thousand dollars with inflation, over-time.  He observed                 
  that an appraisal would protect the landowner.                               
                                                                               
  Representative  Davis  questioned  if  future  transfers  to                 
  children of the landowners would  be consistent with Article                 
  VIII,  Section 1  of  the Constitution.    He observed  that                 
  preferential  conveyance  is  not  in  the public  interest.                 
  Senator Green did not think there  would be a constitutional                 
                                                                               
                               11                                              
                                                                               
                                                                               
  problem.  She  stressed that  the intention is  to take  the                 
  State off the title of the land.                                             
                                                                               
  SB 109 was HELD in Committee for further consideration.                      
  SENATE BILL NO. 109                                                          
                                                                               
       "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-Chair Therriault MOVED to  adopt work draft, #O-LS0690/L,                 
  Chenoweth,  4/15/97.  There  being NO  OBJECTION, it  was so                 
  ordered.                                                                     
                                                                               
  Senator Green  provided members  with Amendment  1 (copy  on                 
  file).  The amendment would add back the appraisal language.                 
                                                                               
                               12                                              
                                                                               
                                                                               
  Senator Green reviewed Amendment 1:                                          
                                                                               
  *    Page 8, line 6, after "parcel" delete  the remainder of                 
       the sentence and insert:                                                
                                                                               
            (1)    is  $4,000  for   the  parcel,  subject  to                 
            adjustment under (h) of this section; or                           
                                                                               
            (2)   shall be  determined by an  appraisal by  an                 
            appraiser under  contract to the landowner  in the                 
            parcel; the appraisal must:                                        
                                                                               
                 (A)  be based upon the value of the parcel at                 
            the time of  the original state conveyance  of the                 
            agricultural rights, subject  to adjustment  under                 
            (h) of this section; and                                           
                                                                               
                 (B)  include the value,  determined as of the                 
            date  of subdivision,  of the  right to  construct                 
            housing  by  the landowner  under  (d)(3) of  this                 
            section.                                                           
                                                                               
  *    Page 9, Line 29,    Delete "all                                         
                           Insert "the"                                        
                                                                               
  *    Page 9, Line 29     After "land" insert "estate"                        
                                                                               
  *    Page 11, Line 1     After  "Act"   insert:  for   those                 
                           landowners  who   purchase  parcels                 
                           conveyed  by  the  state after  the                 
                           effective date of this act."                        
                                                                               
  Co-Chair Hanley noted that the  appraisal must be based upon                 
  the value of  the parcel at the  time of the original  state                 
  conveyance of the agricultural rights, subject to adjustment                 
  under (h) of this section; and include the value, determined                 
  as of the  date of  subdivision, of the  right to  construct                 
  housing by the landowner under (d)(3) of this section.                       
                                                                               
  Mr. Babcock explained that there are two options.  The first                 
  option would be to pay the $4 thousand dollars.   The second                 
  option would  be to  have an  appraisal.   The appraiser  is                 
  instructed to base the value of  the parcel on the value  at                 
  the  time  of the  original  state conveyance,  adjusted for                 
  inflation.    The  value  of  the agricultural  rights  land                 
  adjusted for inflation is compared  to the incremental value                 
  for the right to  construct housing.  There is  no inflation                 
  adjustment for the right to construct housing.                               
                                                                               
  Co-Chair Hanley argued that  the value would still be  based                 
  on  the CPI.   He questioned  why it  would be  necessary to                 
  establish a  value and  then  adjust it  by the  CPI on  the                 
                                                                               
                               13                                              
                                                                               
                                                                               
  parcel.                                                                      
                                                                               
  Mr.  Babcock  observed  that the  drafter  thought  that the                 
  procedure was  the only vehicle for someone  to appraise the                 
  difference in the value of the land with agricultural rights                 
  only  and the  additional right  to construct  housing.   He                 
  stated that subsection (A) or (B) could be deleted.                          
                                                                               
  Co-Chair Hanley noted  that the appraisal would be  based on                 
  the value of the property adjusted for the CPI.  Mr. Babcock                 
  suggested that subsection (A) be deleted.                                    
                                                                               
  Senator  Green  noted  that  the  intent  was  to  base  the                 
  comparison on  what it would  have cost to  buy agricultural                 
  rights or patent land at the  time of purchase, adjusted for                 
  today's price.                                                               
                                                                               
  Representative Moses maintained  that there is no  reason to                 
  get  an   appraisal.     In  response   to  a  question   by                 
  Representative  Moses, Senator Green clarified that the land                 
  holder determines which method will be used.                                 
                                                                               
  Co-Chair Hanley  spoke in support  of allowing the  owner to                 
  have an appraisal.  He noted that if the CPI applied  to the                 
  dollar  amount  is over  the  market value  the  owner would                 
  benefit from an appraisal.                                                   
  Senator Green reiterated that the owner has the choice.  Mr.                 
  Babcock  noted  that the  Department  supports  allowing the                 
  owner discretion.                                                            
                                                                               
  Co-Chair Hanley MOVED to delete subsection (A).  The revised                 
  amendment would read:                                                        
                                                                               
  *    Page 8, line 6, after "parcel"  delete the remainder of                 
       the sentence and insert:                                                
                                                                               
            (1)    is  $4,000  for   the  parcel,  subject  to                 
            adjustment under (h) of this section; or                           
                                                                               
            (2)   shall  be determined by  an appraisal  by an                 
            appraiser under contract  to the landowner  in the                 
            parcel;  the  appraisal  must include  the  value,                 
            determined as of  the date of subdivision,  of the                 
            right to construct housing by the  landowner under                 
            (d)(3) of this section.                                            
                                                                               
  *    Page 9, Line 29,    Delete "all                                         
                           Insert "the"                                        
                                                                               
  *    Page 9, Line 29     After "land" insert "estate"                        
                                                                               
  *    Page 11, Line 1     After  "Act"   insert:  for   those                 
                                                                               
                               14                                              
                                                                               
                                                                               
                           landowners  who  purchase   parcels                 
                           conveyed  by  the  state after  the                 
                           effective date of this act."                        
                                                                               
  There being NO OBJECTION, the amendment was adopted.                         
                                                                               
  Co-Chair Therriault MOVED  to adopt Amendment 1  as amended.                 
  There being NO OBJECTION, it was so ordered.                                 
                                                                               
  Representative Kelly  MOVED to  adopt Amendment  2 (copy  on                 
  file).  Amendment  2 would delete "or  spousal equivalent of                 
  the person."  He maintained that it should not be the policy                 
  of the  State to encourage benefits without  the contract of                 
  marriage.                                                                    
                                                                               
  Senator Green did not object to the amendment.                               
                                                                               
  Representative Moses thought that the amendment would result                 
  in problems due  to common law.  Co-Chair Therriault pointed                 
  out common law marriages do not exist in Alaska.                             
                                                                               
  Representative Kohring added  his name to  Amendment 2 as  a                 
  sponsor.                                                                     
                                                                               
  There being NO OBJECTION, Amendment 2 was adopted.                           
                                                                               
  Representative  Martin referred  to the Department  of Law's                 
  fiscal  note.   He  noted that  the  Department of  Law will                 
  defend challenges to the land instead of the grantee.                        
                                                                               
  (Tape Change, HFC 97-98, Side 2)                                             
                                                                               
  JOHN BAKER,  ASSISTANT ATTORNEY  GENERAL, DEPARTMENT  OF LAW                 
  clarified  that currently  the State retains  the underlying                 
  fee interest.   Under  current law,  the State  can move  to                 
  foreclose  by  bringing  an administrative  hearing  against                 
  owners  that  abuse the  agricultural  covenant.   Under the                 
  legislation,  the  State  would  be  required  to  bring  an                 
  original   action  into   court   to  enforce   any  alleged                 
  violations.                                                                  
                                                                               
  Representative Martin noted that this change would result in                 
  additional cost to the state.                                                
                                                                               
  Senator Green stressed  that the Department of  Law's fiscal                 
  note was based on the anticipation that some people would be                 
  disgruntled by the  fact that  there was no  charge for  the                 
  right  to construct housing.   She concluded  that since the                 
  legislation now charges  for this right  there will be  less                 
  litigation.                                                                  
                                                                               
  MARTY RUTHERFORD, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL                 
                                                                               
                               15                                              
                                                                               
                                                                               
  RESOURCES added that  since the fiscal note was compiled the                 
  legislation has been amended to  allow neighbors or citizens                 
  to bring  civil action  if someone  abused the  agricultural                 
  covenant.  Soil  and Water Conservation Districts  have also                 
  been added as arbitrators to ensure that people are aware of                 
  the agricultural requirements.  She  maintained that much of                 
  the onerous for management  of the covenant has  been shared                 
  by people in the district.                                                   
                                                                               
  Representative Martin  asserted that  the person  who brings                 
  suit should be responsible for the cost.                                     
                                                                               
  Ms. Rutherford clarified that if the State pursues the civil                 
  action the cost  would be born by  the State.  If  a citizen                 
  pursues  a  civil action  they  would  bear the  cost.   She                 
  maintained that abuses occur because people are not aware of                 
  the limitations.  She stressed that there have not been many                 
  abuses under current law.  She  did not anticipate that many                 
  actions would be pursued.                                                    
                                                                               
  Mr.  Baker agreed that  the burden  of enforcement  would be                 
  spread by the private action.  He pointed out that the State                 
  would still have to monitor any actions that are filed.  The                 
  State  will  also  have  to  monitor  the  parcels  and  any                 
  subdivision or conveyance of the parcels for violations.  He                 
  noted that there  is only  one full-time assistant  attorney                 
  general  representing  the Division  of  Agriculture.   That                 
  position is funded  through the Agricultural Revolving  Loan                 
  and would not be available for this type of enforcement.  He                 
  emphasized that during 1988 -  1992 there were approximately                 
  70  - 80 litigations at any given time with two and one-half                 
  full time  attorneys working on the litigation.  He observed                 
  that  under  any  new legal  regime  there  is  a period  of                 
  adjustment where parties test the parameter of the law.                      
                                                                               
  Co-Chair Hanley observed  that the intent is to  give owners                 
  title with a restrictive  covenant.  The covenant has  to be                 
  followed.    Any  actions  restricted  by the  covenant  can                 
  continue until the owner is sued.  If the activity continues                 
  over a period of time the court can  rule that the covenants                 
  are  waived for  non-enforcement.   He pointed out  that the                 
  Department  of Natural  Resources anticipates  visiting each                 
  parcel once every  three years to  see if the covenants  are                 
  being followed.   He stressed  that most violations  will be                 
  unintentional.  He expressed concern  that the Department of                 
  Law's fiscal note  allocates a full-time attorney.  He noted                 
  that  there are 475  parcels.  He  did not think  that there                 
  would be  40 cases a year.  He suggested that the Department                 
  of  Law's fiscal note is too high.   He acknowledged that it                 
  is difficult to anticipate caseloads.                                        
                                                                               
  Mr. Baker reiterated that there were two and one-half, full-                 
                                                                               
                               16                                              
                                                                               
                                                                               
  time  attorneys  and one  full-time  paralegal working  on a                 
  total of  80 active litigation  cases at any  one time.   He                 
  noted that the  cases tend to  be fairly complicated with  a                 
  project life of 4  - 5 years.  He emphasized  that the cases                 
  entail  a lot of factual issues that  can be litigated.  The                 
  recurring  theme has  been the  failure to  comply with  the                 
  legal restrictions.  He noted that defenses have been raised                 
  on lender  liability.   The agricultural  land holders  have                 
  argued that the State's restrictions made repayment of their                 
  loans impossible, resulting in third party litigation.                       
                                                                               
  Ms.  Rutherford  pointed out  that  the current  attorney is                 
  funded through the  Agricultural Revolving  Loan Fund.   The                 
  funding for  this position will  be reduced to  $20 thousand                 
  dollars in  FY 98.  There  will be no  full-time attorney or                 
  any general funds for  the this position in the  Division of                 
  Agriculture in FY 98.                                                        
                                                                               
  Co-Chair Hanley did  not think the legislation  would result                 
  in the  level of  litigation that  occurred between  1988 to                 
  1992.   He questioned  how many current  cases are currently                 
  being litigated.   He  did  not think  that the  legislation                 
  would result in 35 cases.                                                    
                                                                               
  Representative Mulder referred to the Department of  Natural                 
  Resources, Division of Land's fiscal note.                                   
                                                                               
  JANE  ANGVIK,  DIRECTOR,  DIVISION  OF LAND,  DEPARTMENT  OF                 
  NATURAL RESOURCES discussed the Division's fiscal note.  She                 
  observed that the change in revenues  is the amount of money                 
  anticipated  to  come  into  the  Division  as  a  result of                 
  payments for the purchase of building rights.  The change in                 
  revenues  should be  reduced by  20 percent  to reflect  the                 
  reduction from $6  to $4  thousand dollars.   The change  in                 
  revenues are anticipated at $60 thousand dollars.                            
                                                                               
  Ms. Angvik  noted that the purpose of the bill is to address                 
  concerns by farmers that they cannot borrow money with their                 
  current conveyance  documents.  The  farmers have  requested                 
  title to the land with an agricultural restriction to  allow                 
  them  to  borrow on  the land.    The Department  of Natural                 
  Resources supports the concept of the  bill.  She noted that                 
  the  ability to  put a  house  on each  of  the three  newly                 
  subdivided  parcels  is  the principle  value  that  will be                 
  increased.   She observed  that Point McKenzie  can only  be                 
  subdivided by appraisal because it is closest to Anchorage.                  
                                                                               
  Ms. Angvik  discussed enforcement.   She  observed that  the                 
  State, a neighbor or the municipality  can sue a land holder                 
  for their  failure to live up to the agricultural covenants.                 
  In addition,  Soil  and Water  Conservation Districts  could                 
  sue.  She  observed that the  covenants are recorded at  the                 
                                                                               
                               17                                              
                                                                               
                                                                               
  time of sale.                                                                
                                                                               
  Ms. Angvik observed  that similar legislation was  vetoed by                 
  the  Governor in  the past legislative  session.   She noted                 
  that the previous bill did not  require the purchaser to pay                 
  for the additional rights.   The Governor was also concerned                 
  that state agricultural  rights would  not be protected  and                 
  the State could convene in the title to terminate the rights                 
  of individuals.  She  observed that the State has  not taken                 
  action against a farmer.  There  were also concerns that, in                 
  the previous  version, the remedy  for non-compliance  could                 
  only be enforced through a civil suit by the State.                          
                                                                               
  Ms. Angvik noted  that the  Department of Natural  Resources                 
  would prefer  a conservation easement  to keep the  State in                 
  the  line  of title.   The  Department of  Natural Resources                 
  supports the bill.                                                           
                                                                               
  Ms.  Angvik further  discussed the  Division's fiscal  note.                 
  She noted that  the process  of converting existing  patents                 
  would  remain the same.   The monitoring  and enforcement of                 
  covenants could  be reduced.  She indicated  that she needed                 
  to discuss this component  with the Department of Law.   She                 
  reiterated that the  change in revenues would  be reduced to                 
  reflect the reduction from $6 to $4 thousand dollars.                        
                                                                               
  Co-Chair Therriault pointed  out that fiscal notes  could be                 
  addressed in the Conference Committee.                                       
                                                                               
  In  response  to  a question  by  Representative  Davis, Ms.                 
  Angvik agreed that  if the covenants  are not enforced  they                 
  could be lost.  Mr. Baker observed that if covenants are not                 
  enforced there is  a risk that the court will  deem that the                 
  covenant has been  waived.  The  covenants must be  enforced                 
  uniformly to prevent an argument that they have been waived.                 
                                                                               
                                                                               
  Ms. Angvik noted that  page 8, line 24 indicates  that there                 
  is a six  year statute of limitation.  She  clarified that a                 
  conservation easement  would run with the  agricultural uses                 
  of the land.  Everything except  the homesite would have the                 
  conservation easement.                                                       
                                                                               
  Co-Chair Therriault  noted  that the  Department of  Natural                 
  Resources  would  adjust  their  fiscal  note based  on  the                 
  changes to  the bill.   He added that  all the  fiscal notes                 
  would be reviewed by the Conference Committee.                               
                                                                               
  Representative Mulder MOVED to report HCS CSSB 109 (FIN) out                 
  of Committee  with individual  recommendations and with  the                 
  accompanying fiscal notes.                                                   

Document Name Date/Time Subjects