Legislature(2013 - 2014)CAPITOL 106

03/25/2014 08:00 AM STATE AFFAIRS

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         SB 106-STATE LAND DISP./LEASEHOLDER PREFERENCE                                                                     
8:11:27 AM                                                                                                                    
CHAIR LYNN announced that the final  order of business was CS FOR                                                               
SENATE  BILL   NO.  106(STA),  "An  Act   providing  for  certain                                                               
individuals who have  erected a building on land  leased from the                                                               
state to  receive a  preference right  to purchase  certain state                                                               
land without competitive bid."                                                                                                  
8:11:54 AM                                                                                                                    
SENATOR KEVIN MEYER, Alaska State  Legislature, as prime sponsor,                                                               
introduced  SB   106.     He  acknowledged   that  Representative                                                               
Gabrielle LeDoux had the House companion  to SB 106.  He said the                                                               
proposed  legislation is  necessary for  the protection  of state                                                               
land lease  holders who have  invested in businesses  that depend                                                               
on the  land for  their livelihood.   He said  SB 106  came about                                                               
when  one  of his  constituents  brought  to his  attention  that                                                               
current  state statutes  do not  provide  a way  for state  lease                                                               
holders to  purchase the property  in which they have  invested -                                                               
up to  millions of  dollars of  retirement money  - prior  to the                                                               
land  then being  conveyed to  a  municipality or  borough in  an                                                               
entitlement land  selection.  Senator  Meyer remarked that  it is                                                               
not uncommon  for people  to take early  retirement and  take the                                                               
money to  build a fishing lodge  in remote Alaska.   He explained                                                               
that when  municipalities or boroughs  form, they are  allowed to                                                               
choose land,  and occasionally they  pick the same land  on which                                                               
leaseholders have  invested money to  build a hunting  or fishing                                                               
lodge.  The person  who has built the lodge has  no way to recoup                                                               
his/her investment or  purchase the land from the  state prior to                                                               
it  being conveyed.   He  stated his  belief that  these Alaskans                                                               
deserve protection.                                                                                                             
8:13:54 AM                                                                                                                    
SENATOR MEYER  stated that under  SB 106, an individual  would be                                                               
allowed to receive  a no-bid, first right  of refusal preference,                                                               
upon  meeting the  following conditions:   The  person must  have                                                               
erected a  building on the  land, used the  land for a  bona fide                                                               
purpose  for at  least  the  past 10  years,  and  relied on  the                                                               
business for  at least  25 percent of  his/her total  income over                                                               
the  previous 10  years.   He said  representatives were  present                                                               
from  the   Department  of  Natural  Resources   (DNR),  and  the                                                               
department  anticipated  that  there  may  be  10-15  individuals                                                               
impacted by the proposed legislation.   He noted that SB 106 just                                                               
passed on the Senate floor,  with no opposition from the majority                                                               
or minority.   He  said the money  from the sale  of land  to the                                                               
individual  would go  to  the municipality  or  borough, not  the                                                               
8:15:29 AM                                                                                                                    
REPRESENTATIVE  GATTIS questioned  why the  bill proposed  giving                                                               
the individuals the right to  purchase certain state land without                                                               
competitive bid.                                                                                                                
SENATOR MEYER deferred to his staff.                                                                                            
8:16:01 AM                                                                                                                    
EDRA  MORLEDGE,   Staff,  Senator   Kevin  Meyer,   Alaska  State                                                               
Legislature, on  behalf of Senator  Meyer, prime  sponsor, stated                                                               
that  the  proposed legislation  would  apply  to those  who  had                                                               
originally  obtained  their  leases  through  a  competitive  bid                                                               
process, and  then the chance  to purchase the  land - if  it was                                                               
put up for  sale - would be through a  noncompetitive first right                                                               
of refusal.                                                                                                                     
REPRESENTATIVE GATTIS indicated  that if she was  the lodge owner                                                               
who  had leased  the  land, she  would want  the  first right  of                                                               
refusal, giving  her the ability to  buy the land at  fair market                                                               
value.  She said she understood  the reasons that it would not be                                                               
fair to  have a  competitive bid, where  a competing  lodge owner                                                               
might "whipsaw  this bid up  there."   She relayed, "I  have been                                                               
... part of bids that have  done that, and it doesn't seem fair."                                                               
She  said  she  was  wondering  what  the  reason  was  for  "the                                                               
competitive versus the noncompetitive."                                                                                         
8:18:10 AM                                                                                                                    
SENATOR MEYER suggested Representative  Gattis' question might be                                                               
better answered by someone from DNR.                                                                                            
8:18:40 AM                                                                                                                    
WYN  MENEFEE, Chief  of Operations,  Central Office,  Division of                                                               
Mining, Land  and Water (DMLW),  Department of  Natural Resources                                                               
(DNR), stated  that "the  lease that would  be eligible  for this                                                               
has to be offered competitively."  He continued as follows:                                                                     
     The  point at  which a  municipality comes  and selects                                                                    
     the  land, and  then you're  going  to have  to make  a                                                                    
     disposal  to that  lessee under  the preference  right,                                                                    
     there's  no competition;  there's  no  bidding at  that                                                                    
     point; it's just appraised for  market value sale.  The                                                                    
     only  competitiveness  is  initially  when  the  person                                                                    
     applied  to get  a lease;  that's when  the competition                                                                    
     occurred.   ... As  long as  that person  prevailed and                                                                    
     got the  lease, and  then invested  all that  income to                                                                    
     that,  then  there's  no more  competition  after  that                                                                    
8:19:43 AM                                                                                                                    
REPRESENTATIVE GATTIS  clarified that  she understood  that there                                                               
is  no  competition  after  the   initial  competitive  bid,  but                                                               
explained that she would like to know why.                                                                                      
MR.  MENEFEE  replied that  a  preference  right recognizes  that                                                               
there  is no  competition.    He stated,  "The  bill,  as it  was                                                               
brought forward by  the sponsor, said that it  was to essentially                                                               
recognize the investment  that the person had put  into the land,                                                               
and because of that, award them a preference."                                                                                  
8:20:31 AM                                                                                                                    
REPRESENTATIVE ISAACSON asked if there  has ever been a situation                                                               
in  which someone  leased  land,  but did  not  develop  it as  a                                                               
business venture.                                                                                                               
MR. MENEFEE answered that public  and charitable leases are under                                                               
AS  38.05.810; however,  the preference  right proposed  under SB
106 addresses  only those leases obtained  competitively under AS                                                               
38.05.070.  In  response to a follow-up  question, he recollected                                                               
that under AS 38.05.810, there is  a capability to lease or sell,                                                               
as appropriate for the area,  the classification of the area, and                                                               
under DNR's management plan.                                                                                                    
REPRESENTATIVE   ISAACSON   questioned    whether   [public   and                                                               
charitable  leases]  should  be  added  to SB  106  so  that  any                                                               
investment on leasehold land would be protected.                                                                                
8:23:34 AM                                                                                                                    
MR.  MENEFEE  said he  thinks  that  is  a  separate issue.    He                                                               
suggested  Representative  Isaacson  consider that  somebody  who                                                               
invests  in land  does not  necessarily lose  his/her investment.                                                               
He clarified  that the term  of length  of a lease  is contingent                                                               
upon what the  person will be doing with the  land and the amount                                                               
of investment the  person makes.  He said  the division amortizes                                                               
the investment to figure out how  long it will take the person to                                                               
recoup  the investment.    He  said all  the  leases require  the                                                               
person  to "remove  everything ...  after you're  done with  that                                                               
term";  therefore, the  person has  made a  business decision  in                                                               
investing  on state  land  to recoup  the  investment during  the                                                               
lease period.   He  said if  things go  well, the  division could                                                               
renew the lease,  at which point the person would  be making pure                                                               
profit.  He continued as follows:                                                                                               
     However,  we  lay  over  top   of  that  the  municipal                                                                    
     entitlement.   If a municipal entitlement  comes along,                                                                    
     the issue ... is that the  lease doesn't go away at the                                                                    
     point  of municipal  entitlement.   If  we convey  land                                                                    
     over to  a municipality, the municipality  has to honor                                                                    
     all  the terms  of  the lease.   If  it  was a  35-year                                                                    
     lease, and in year 10 of  the lease it conveyed over to                                                                    
     the municipality,  they still have those  25 years that                                                                    
     they're going to  have all their terms  honored so they                                                                    
     can  recoup  all their  investment.    So, they're  not                                                                    
     "losing out  on anything,"  but do they  have longevity                                                                    
     as in purchasing  the land?  And the answer  would be -                                                                    
     for a  public and charitable  - no, but ...  the reason                                                                    
     why  public and  charitables typically  don't end  in a                                                                    
     sale is  because they're supposed  to be used  for that                                                                    
     public  and charitable  purpose.   If you  put it  over                                                                    
     into a  sale, and  they own the  land, you  haven't met                                                                    
     that purpose,  because they  get [a]  discounted price;                                                                    
     they oftentimes -  ... public and charitibles  - get it                                                                    
     less than fair market value,  ... or free, to use state                                                                    
     land.     And,  because   of  that,  even   if  they're                                                                    
     investing, they've  already gotten  a discount  to have                                                                    
     that  investment   on  the  land   for  a   public  and                                                                    
     charitable sale.                                                                                                           
8:26:43 AM                                                                                                                    
REPRESENTATIVE  ISAACSON  referred  to the  proposed  requirement                                                               
that the  lessee must have  made at  least 25 percent  of his/her                                                               
total income from  the leased land to qualify  for the preference                                                               
right.   He suggested that a  successful dentist who also  owns a                                                               
hunting lodge that  runs for 8 weeks a year,  would not be making                                                               
at least 25  percent of his/her income from the  lodge, but would                                                               
have made  a significant investment  in the lodge.   He indicated                                                               
that that person  would not get the same preference  as "the next                                                               
person."   He asked for an  explanation as to why  the 25 percent                                                               
barrier was chosen.                                                                                                             
MR. MENEFEE answered  that the barrier was  modeled after another                                                               
preference   right  already   in   statute.     He  offered   his                                                               
understanding that  the reason is  to preserve the  capability of                                                               
people  who "make  their livelihood  off of  this."   He said  he                                                               
thinks there  was not as much  concern for people who  "dabble in                                                               
it."  He said, "They can  still realize their investment over the                                                               
period of their lease; they just  wouldn't be able to purchase it                                                               
REPRESENTATIVE ISAACSON asked  Mr. Menefee if he  thinks it makes                                                               
sense  not  to  protect  those  who  invest,  regardless  of  the                                                               
percentage of income they derive.                                                                                               
MR. MENEFEE  said DNR believes that  anyone who gets a  lease has                                                               
already  protected his/her  investment,  because  the lease  term                                                               
itself is the protection.  He continued as follows:                                                                             
     If somebody's going to make  a business investment on a                                                                    
     lease, they already  know that they have to  end at the                                                                    
     end  of the  term of  the lease;  they have  to realize                                                                    
     that  that is  their  investment;  so, they're  already                                                                    
     protected.    Anything  on  top of  that,  ...  if  the                                                                    
     legislature says we want to be  able to sell it to that                                                                    
     individual  to even  further that  investment, that  is                                                                    
     what we  would consider  over the  top of  the original                                                                    
     business risk analysis.                                                                                                    
REPRESENTATIVE  ISAACSON said  he is  thinking of  survivability,                                                               
but remarked that  Mr. Menefee had offered  a satisfactory answer                                                               
that the lease itself sets the term.                                                                                            
8:30:18 AM                                                                                                                    
REPRESENTATIVE HUGHES directed attention  to existing language in                                                               
statute, [beginning  on page 1, end  of line 14, through  page 2,                                                               
line 4], which read as follows:                                                                                                 
     If the  director determines in  a written  finding that                                                                    
     the purchase or lease of  the land would interfere with                                                                    
     public use by  residents of the area,  the director may                                                                    
     condition  the  purchase  or   lease  to  mitigate  the                                                                    
     adverse effects  on the  public use  or may  reject the                                                                    
     application for the preference right.                                                                                      
REPRESENTATIVE HUGHES said she is  trying to "synch that up" with                                                               
proposed new language [in Section  2], which she said addresses a                                                               
municipality or  local government selecting land.   She continued                                                               
as follows:                                                                                                                     
     And now we have a  private person who's leasing who has                                                                    
     the  right  for  a  noncompetitive   bid,  and  it's  a                                                                    
     municipality or  local government seeking the  land, so                                                                    
     I would  think that would be  for public use.   And so,                                                                    
     I'm  concerned   about  that  ...   private  individual                                                                    
     application being considered, because  it seems like it                                                                    
     would be  easy for  the director  to make  the argument                                                                    
     that this is  for public use, so we're  going to reject                                                                    
REPRESENTATIVE HUGHES asked how that would work.                                                                                
8:31:32 AM                                                                                                                    
MR. MENEFEE  said he thinks  that mitigating the  adverse effects                                                               
on the  public and rejecting  the application for  the preference                                                               
right does  not necessarily mean  the public use of  that parcel.                                                               
He continued as follows:                                                                                                        
     Let's say  you have a  very narrow valley, and  a lease                                                                    
     sits  right  at  the  ... only  place  you  can  access                                                                    
     through there,  and the use  is constricted so  that it                                                                    
     has to  cross through that  parcel:  That would  be [a]                                                                    
     public use idea  where you would say if  there's not an                                                                    
     easement   or  something   that   goes  through   that,                                                                    
     conceivably you  could block other  use of  other state                                                                    
MR.  MENEFEE asked  Representative Hughes  to keep  in mind  that                                                               
while the  original lease may be  for 20 acres, "either  of these                                                               
preference rights  are only granting ...  five acres"; therefore,                                                               
there is no guarantee that  a person would get everything through                                                               
the  preference right  that he/she  originally had  as a  lessee.                                                               
The lessee with  more than five acres would have  to choose which                                                               
part  of the  land  was  the most  important.    He continued  as                                                               
     Like  in the  new statute,  if the  director determines                                                                    
     the purchase  of the land  would interfere  with public                                                                    
     use of residents  of the area, we would  not, under the                                                                    
     lease itself,  assume that  if you're  going to  sell a                                                                    
     five-acre  parcel,  or  typically  when  you  have  the                                                                    
     lease, you've  given, more or less,  an exclusive right                                                                    
     to  that  acreage  already.    So,  the  use  has  been                                                                    
     restricted in some  way, but I think  you start talking                                                                    
     about   physical   constraints   to  the   other   land                                                                    
     surrounding - is it going to impact that?                                                                                  
MR. MENEFEE stated that when  a municipality selects land, it can                                                               
do it  in order to gain  revenues or for multiple  other reasons.                                                               
He said  the language in the  bill does not ask  DNR to determine                                                               
why the municipality  selected the land, "and that's  not part of                                                               
... the decision on this."                                                                                                      
8:34:08 AM                                                                                                                    
REPRESENTATIVE HUGHES asked  if there was a  narrow definition of                                                               
public use  that would apply  so that the individual  would know,                                                               
or whether it was "just to the discretion of the director."                                                                     
MR. MENEFEE  answered that it  currently is to the  discretion of                                                               
the  director.    He  added  that  "we  don't  have  a  specified                                                               
definition for that, so it's an interpretation."                                                                                
REPRESENTATIVE HUGHES  expressed concern that ["public  use"] was                                                               
not defined.                                                                                                                    
8:35:25 AM                                                                                                                    
MELVIN GILLIS  indicated that he  is one  of the people  whom the                                                               
proposed legislation is  intended to help.  He said  SB 106 would                                                               
protect  himself  and  others  like   him  from  investing  money                                                               
building  on land  only to  have a  borough decide  it wants  the                                                               
land.   He imparted that he  spent a couple million  dollars.  He                                                               
said he has  been trying to buy the property  since 1984, and the                                                               
borough decided  it wanted the land  he was using because  it had                                                               
access and value.   He explained that the access  was the landing                                                               
strip he  and his son  took three years  to build, and  the value                                                               
was his lodge.   He said he thinks there are  even more people in                                                               
the  state  than  estimated  by   Mr.  Menefee  that  have  "this                                                               
problem."  He indicated that  the proposed legislation would be a                                                               
good first step  in protecting those Alaskans that  make a living                                                               
in the  Bush.  In  response to Chair Lynn,  he said his  lodge is                                                               
located approximately  480 miles west of  Anchorage, between Cold                                                               
Bay and  Port Heiden.   Mr.  Gillis, regarding  entitlement, said                                                               
under  law,  "they" can  only  have  vacant, unappropriated,  and                                                               
unreserved  land.   He emphasized  the need  for a  definition of                                                               
"vacant."  He stated, "Five acres  with a million and a half [to]                                                               
two million  dollars-worth of investment  is vacant  according to                                                               
8:38:04 AM                                                                                                                    
REPRESENTATIVE GATTIS  said she  has spoken  with Mr.  Gillis and                                                               
thinks "he's on to something."   She indicated that he had helped                                                               
her "fully understand what the issue is."                                                                                       
8:38:47 AM                                                                                                                    
CHAIR LYNN,  after ascertaining  that there was  no one  else who                                                               
wished to testify, closed public testimony.                                                                                     
8:39:16 AM                                                                                                                    
REPRESENTATIVE ISAACSON  asked if  the expressed need  to clarify                                                               
the word "vacant" is necessary for the passage of SB 106.                                                                       
8:39:41 AM                                                                                                                    
SENATOR MEYER said he does not think so.                                                                                        
8:40:00 AM                                                                                                                    
MS. MARLIS echoed  Senator Meyer's response.   She suggested that                                                               
the  issue could  be addressed  in the  future when  addressing a                                                               
separate statute about how a municipal entitlement is conveyed.                                                                 
8:40:26 AM                                                                                                                    
REPRESENTATIVE KELLER  expressed his appreciation to  the sponsor                                                               
for bringing  forward the proposed  legislation, because  he said                                                               
he approves of getting "land into the hands of Alaskans."                                                                       
8:40:43 AM                                                                                                                    
SENATOR MEYER  related that  Mr. Gillis  is his  constituent and,                                                               
while the proposed  legislation would not help  his situation, it                                                               
would help future Alaskans in similar situations.                                                                               
8:41:04 AM                                                                                                                    
REPRESENTATIVE  KELLER  moved  to  report CSSB  106(STA)  out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal  notes.   There  being  no  objection, CSSB  106(STA)  was                                                               
reported out of the House State Affairs Standing Committee.                                                                     

Document Name Date/Time Subjects
01 SB 132 Version A.pdf HSTA 3/25/2014 8:00:00 AM
SB 132
01a CS SB132 (STA).pdf HSTA 3/25/2014 8:00:00 AM
SB 132
02 CS SB132(STA) Sponsor Statement.pdf HSTA 3/25/2014 8:00:00 AM
SB 132
03 SB 132 Summary of Changes-CS(STA).pdf HSTA 3/25/2014 8:00:00 AM
SB 132
04 SB 132 Leg Research Report.pdf HSTA 3/25/2014 8:00:00 AM
SB 132
05 SB 132 Fiscal Note VerA DOA.pdf HSTA 3/25/2014 8:00:00 AM
SB 132
01 HB296-verU.pdf HSTA 3/25/2014 8:00:00 AM
HB 296
01a HB296-verA.pdf HSTA 3/25/2014 8:00:00 AM
HB 296
02 HB296-Sponsor Statement.pdf HSTA 3/25/2014 8:00:00 AM
HB 296
03 HB296-Changes from Version A to Version U.pdf HSTA 3/25/2014 8:00:00 AM
HB 296
04 HB 296 Fiscal Note-DNR.pdf HSTA 3/25/2014 8:00:00 AM
HB 296
01 SB 106 STA CS Version C.pdf HSTA 3/25/2014 8:00:00 AM
SB 106
02 SB 106 Sponsor Statement.pdf HSTA 3/25/2014 8:00:00 AM
SB 106
03 SB 106 Changes to Version C.pdf HSTA 3/25/2014 8:00:00 AM
SB 106
04 SB 106 Legal Memo 10.31.13.pdf HSTA 3/25/2014 8:00:00 AM
SB 106
05 SB 106 STA CS Fiscal Note.pdf HSTA 3/25/2014 8:00:00 AM
SB 106