Legislature(1995 - 1996)

02/26/1996 01:08 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 HB 391 - DISSOLVED MUNICIPALITIES/SUCCESSION                                
 Number 380                                                                    
 TOM WRIGHT, Staff to Ivan Ivan, presented information regarding HB
 391 and read the sponsor statement into the record.                           
 "This bill was introduced by request of the Department of Community           
 and Regional Affairs and the Local Boundary Commission (LBC).                 
 Currently, the state automatically becomes the successor to a                 
 dissolved municipality unless another municipal government assumes            
 such responsibility.  In most cases, the state becomes the                    
 successor by default.  This means the state takes over the                    
 responsibility and liability of owning properties such as solid               
 waste facilities, bulk fuel storage facilities, power utilities,              
 sewer systems and other facilities previously owned by the                    
 "CS for House Bill 391 (CRA) allows the Local Boundary Commission             
 to designate an Indian Reorganization Act council, a council that             
 provides services under federal law, another municipality, non                
 profit corporation or the state to be a direct successor to a                 
 dissolved municipality.  The terms of the transfer of assets and              
 liabilities of the dissolved municipality must be approved by the             
 Department of Law.  The bill also specifies that any transfer of              
 assets or liabilities does not constitute recognition by the state            
 of that organization."                                                        
 Number 540                                                                    
 DAVE HUTCHENS, Alaska Rural Electric Co-Op Association (ARECA),               
 testified in regards to HB 391 and referred to a letter dated                 
 February 16, 1996 from the Co-Op's law firm, Kemppel, Huffman and             
 Ginder which outlined the changes they felt should be made to this            
 bill.  Mr. Huthchens stressed for the record that they have no                
 interest or concern regarding who the surviving entity is that                
 manages the local affairs of these communities.  Their concern is             
 simply that the transfer of authority and responsibilities be                 
 complete, that existing obligations not be left in limbo during the           
 transition.  He noted the language which provides that if no other            
 entity commits to manage the affairs of the community, the state              
 may assume the responsibility.  ARECA thinks the language should be           
 rather, "shall" assume responsibility if the municipality goes out            
 of existence.  He added that there are valid obligations which need           
 to be honored by someone.                                                     
 Number 705                                                                    
 REPRESENTATIVE TOOHEY asked for clarification about how often does            
 this happen, why, and who is responsible?  Suppose there is                   
 something which has gone wrong, for example, if the water becomes             
 contaminated with lead.  What steps are taken to assure that the              
 municipality is not transferring a whole bunch of headaches to the            
 state.  It was decided that this issue be addressed later on in               
 Number 790                                                                    
 PAT POLAND, Director of Municipal and Regional Assistance Division,           
 Department of Community and Regional Affairs testified in regards             
 to HB 391 and stated that the department submitted written                    
 testimony to the previous committee of referral.  He stated the               
 department's support for this legislation and made himself                    
 available for questions.                                                      
 CHAIRMAN PORTER asked if Mr. Poland had heard the previous                    
 testimony by Mr. Hutchins.  Mr. Poland stated that he had, but did            
 not have the benefit of seeing the letter as referenced.                      
 MR. POLAND responded to Mr. Hutchins concerns that the department's           
 intention was that the local boundary commission in accepting a               
 dissolution petition would condition acceptance upon transfer to a            
 succeeding entity.  By using the language "may," they wanted to               
 eliminate a situation where a community literally can compel the              
 state to receive assets which might have significant liability                
 attached to them.                                                             
 Number 909                                                                    
 MARJORIE VANDOR, Assistant Attorney General, Department of Law,               
 testified on HB 391 and stated that she had not seen the letter               
 from Rebecca Pauli of Kemppel, Huffman and Ginder either.  She                
 stated that section (b) might need to be more extensively worded              
 beyond adding the word "may."  Ms. Vandor stated that she would               
 want to make certain that new language offered would result in what           
 Mr. Poland had outlined that the state isn't left in a liable                 
 situation and the Local Boundary Commission is forced to transfer             
 this liability to the state.                                                  
 MS. VANDOR stated that she had been involved with six second class            
 city dissolutions in unorganized boroughs, five of which were                 
 successful.  Five of these entities simply stopped acting in their            
 municipal capacity.  Due to this, because there was no city council           
 and they weren't holding elections or conducting any municipal                
 work, the village entities were running the facilities themselves.            
 She noted that there was a process in law for the Local Boundary              
 Commission after hearings, reports and briefings of such situations           
 are considered, they can allow a municipality to dissolve                     
 contingent upon certain conditions.  The entity has to be free of             
 debt and the creditors of the former municipality have to be taken            
 care of.                                                                      
 MS. VANDOR continued to explain the situation surrounding these               
 five dissolutions.  The state dealt with the court in Bethel to               
 have a trust account set up for these second class cities they had            
 not applied for from the state for several years so the state could           
 assist them in paying their creditors, since they had no means to             
 tax to pay off creditors.  This was the only source of money the              
 state could use to pay off the creditors.  Studies were also                  
 conducted by the Department of Environmental Conservation and all             
 of the agencies which had touched there communities were very                 
 involved in the dissolution.  The only community which succeeded so           
 far is Atmautluak.  They have signed the agreement which the                  
 Department of Law prepared.  The remaining assets and liabilities             
 will be transferred and they've waived their sovereign immunity,              
 which are the types of things required.  The agreement will be                
 recorded.  The department is working with the other remaining four            
 cities in regards to their lands.                                             
 MS. VANDOR said this legislation will change this present procedure           
 to provide for a successor entity who would be available to run               
 these communities.  The way the law is currently established it               
 provides for the state to succeed to the assets and liabilities of            
 a community in order to transfer them.  There is a split second of            
 time when the transferring document is recorded by operation of law           
 where the state is in this transfer of title.  This shouldn't need            
 to be if there is an entity available to assume responsibilities              
 for these communities.  In all of the dissolution cases so far                
 there was an entity available to assume responsibility.                       
 Number 1172                                                                   
 REPRESENTATIVE TOOHEY noted that the general requirement at any               
 time a land transaction takes place is the title has to be clean.             
 How does the state know there aren't any environmental problems               
 with property being transferred with these dissolution situations.            
 Number 1217                                                                   
 MR. POLAND stated that the department does a basic investigation of           
 the community which is relatively superficial.  The department does           
 not have the resources to do any in-depth studies.  The example               
 which Representative Toohey outlined is precisely why the                     
 department is seeking this legislation, which is to keep the state            
 out of these types of transfers.  The department doesn't see the              
 need to include the state legally into this chain of title issue.             
 Basically, the legal responsibility should remain with the                    
 Number 1277                                                                   
 REPRESENTATIVE JOE GREEN asked that in this by-passing concept                
 would the state be opening itself up to assume responsibly for what           
 went on in a municipality beforehand.  If they dissolve assets to             
 cover costs of environmental concerns before forfeiture there might           
 not be any more assets left to defray additional costs.                       
 MR. POLAND, as well as, Ms. Vandor stated that they were unable to            
 answer this question at the present moment.                                   
 Number 1335                                                                   
 CHAIRMAN PORTER asked in this general area, if it would be a fair             
 statement to make that the assets and the liabilities of these                
 municipalities would be transferred or just those assets and                  
 liabilities which have been left in limbo.                                    
 MS. VANDOR noted that it has to be all the assets and liabilities.            
 Each one of the creditors have to be taken care of before an entity           
 can be dissolved, much like a bankruptcy.                                     
 Number 1358                                                                   
 REPRESENTATIVE BUNDE asked if he was correct in assuming that these           
 transfers take place in villages where the people who run things              
 are tired of the job and they want to turn their responsibilities             
 over to a traditional council.  He asked if this was a fair                   
 MS. VANDOR responded that these entities as she understood it,                
 didn't want another layer of government on top of the systems                 
 already in place.                                                             
 REPRESENTATIVE BUNDE asked if these problems with unorganized                 
 boroughs would not contribute to the additional unorganized areas             
 which become the sole responsibility of the state.                            
 MS. VANDOR stated that anything which ends up in the unorganized              
 borough comes under the jurisdiction of the legislature.  She said            
 this process would add to the existing load.  She noted that these            
 second class cities don't have their own school districts, but they           
 have planning powers and taxing powers.  Some of them might have a            
 sales tax, but planning and platting was something they had power             
 to do.  Also, education has always been through a Rural Education             
 Attendance Area (REAA).                                                       
 REPRESENTATIVE BUNDE used the example of taxation.  If an entity              
 got tired of taxing themselves and decided to dissolve, he noted              
 that there are people in Anchorage who would just as soon dissolve            
 than pay taxes.                                                               
 MS. VANDOR pointed out that this is why these issues go to the                
 Local Boundary Commission because this is where everything starts             
 and this is where the studies occur.  They look at these things               
 from a statewide perspective.                                                 
 Number 1483                                                                   
 CHAIRMAN PORTER mentioned a point in fact that there isn't any                
 individual responsibility which can be laid by the state if a                 
 second class city decides on it's own to dissolve with liabilities.           
 He asked if there was any possible recovery in these situations.              
 MS. VANDOR said they could declare them not dissolved and then sue            
 them in their own right, but she said she wasn't sure where this              
 would get anyone.  Until these entities dissolve under law, they              
 retain an incorporated status which can be sued.  The state could             
 certainly cut off all funding and such to them.                               
 CHAIRMAN PORTER said that they might not know until the check came            
 MS. VANDOR pointed out that it is a process allowed by law to allow           
 a city to dissolve and this new legislation just assists the LBC in           
 directing how to deal with the assets and liabilities if such a               
 dissolution is allowed by them and what they can condition this               
 dissolution on, as well.                                                      
 Number 1568                                                                   
 REPRESENTATIVE BUNDE referred to recent discussions about tribes in           
 Alaska and indian country.  He asked if dissolving local                      
 governments and turning these functions over to a traditional                 
 council, whether or not this would have any impact on determining             
 what is indian country.                                                       
 MS. VANDOR stated that in the draft agreements as they are written            
 now these tribes would have to waive their sovereign immunity in              
 order to get the assets and liabilities, land included.  There is             
 an actual assertion in this agreement that they will not claim this           
 property to be indian country now or in the future.  A lot of this            
 land is municipal trust land, as well, and there are conditions on            
 it already in that if a municipality forms out there and this                 
 municipality wants this land, the entity that it was transferred to           
 must give it back after a certain amount of time.  This clause is             
 in the quit claim deed.  As the law stands now, a successor could             
 not quit claim deed a clear title if it's municipal trust land.               
 REPRESENTATIVE BUNDE asked if this was for people who want to                 
 dissolve the entire entity.  He asked if it had any impact on those           
 who would like to remove themselves from an entity.                           
 MS. VANDOR said that a detachment proceeding is totally separate.             
 Number 1687                                                                   
 REPRESENTATIVE JOE GREEN asked about a situation where this                   
 procedure were to take place on native corporation land where the             
 natives were able to retain subsurface rights and municipalities              
 would only have surface rights.  He asked if there was any                    
 possibility of clouding issues if the municipality disengages                 
 itself, or becomes unincorporated and it reverts back to the state,           
 what happens to the surface rights of the municipality.                       
 MS. VANDOR apologized that she was not a lands attorney and said              
 that she's not familiar with these very specific questions.  She              
 offered to propose this question to a colleague.                              
 CHAIRMAN PORTER asked that the departments work on Mr. Hutchins               
 concerns and get an answer regarding surface and subsurface rights            
 in preparation for the next scheduled meeting.                                

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