Legislature(2009 - 2010)CAPITOL 17
03/23/2010 01:00 PM House TRANSPORTATION
| Audio | Topic |
|---|---|
| Start | |
| HJR47 | |
| HB357 | |
| SB272 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HJR 47 | TELECONFERENCED | |
| += | HB 257 | TELECONFERENCED | |
| += | HB 357 | TELECONFERENCED | |
| + | SB 272 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 357-AK RAILROAD CORP. LAND SALES
1:25:27 PM
CHAIR P. WILSON announced that the next order of business would
be HOUSE BILL NO. 357, "An Act relating to the sale of land
owned by the Alaska Railroad that is not needed for railroad
purposes."
1:25:43 PM
REPRESENTATIVE BILL STOLTZE, Alaska State Legislature,
introduced his staff.
JOHN COAN, Staff, Representative Bill Stoltze, Alaska State
Legislature, on behalf of the prime sponsor, related that two
questions arose at the last hearing: whether the ARRC land is
considered state land and if it is, whether any legal
ramifications to in stating a right of first refusal on the
land. He stated that the Alaska Railroad Corporation (ARRC)
land is state land and the legislature approves any land sales
and disposals. Thus, a right of first refusal is fine, he
stated.
1:27:12 PM
REPRESENTATIVE STOLTZE offered that this bill really represents
a policy call for the legislature. The purpose of the bill is
captured by the letter from the Alliance in members' packets.
The Alliance called the bill a "pro-business, pro-private
sector, pro-investment, pro-jobs, and pro-Alaska Railroad" bill.
He said he said he stumbled into this "unrest." He bill has
spurred lots of discussion from the business community. Without
the ability to have the opportunity to own the land, the
business owners do not have the confidence to make the business
investments. He remarked on the breadth of letters he received
on this matter.
1:29:44 PM
REPRESENTATIVE T. WILSON asked whether the bill would give the
Alaska Railroad Corporation (ARRC) the option to sell land.
REPRESENTATIVE STOLTZE answered that the bill provides the
permission to do so. He remarked on what he termed as
"arrogance" that the ARRC has shown to private businesses. He
offered that the ARRC properties are taxable properties, which
will likely only increase in value. He anticipated that lessees
would be more likely to improve the property if they owned it,
similar to how homeowners versus renters are more apt to invest
and care for property.
1:32:21 PM
REPRESENTATIVE GRUENBERG referred to the sponsor statement,
which read:
To spur economic development throughout the state, House
Bill 357 adds a fourth clause to the existing language
governing how the Alaska Railroad Corporation may dispose
of land. House Bill 357 will enable the railroad to sell
land that is not needed for essential railroad purposes.
This bill does not ask for any irresponsible disposal of
land, as the sale must be initiated by the board of
directors on two conditions. The first condition is that
the land is not essential to railroad operations, and the
second condition is that the sale is in the best interest
of the state of Alaska.
As support has shown, current leaseholders are very unhappy
with the inability to purchase their leased properties from
the railroad. In general real estate dealings, private
purchases are made in mutually beneficial sales. House Bill
357 encourages these sales after determination by the board
of directors of the railroad looks at each sale with the
overall benefit to the state of Alaska as the key driver.
Not only will the private sector benefit from this addition
to state law, the railroad will also have increased ability
to make decisions regarding their overall real estate
portfolio.
The sale and relationship of private and public lands are
vital to the economic growth of the state of Alaska. I ask
for your consideration and support of House Bill 357 to
promote Alaskan growth through the diversification of land
ownership, increasing the tax base of the state, and
encouraging responsible development of Alaskan land.
REPRESENTATIVE GRUENBERG stated that the sponsor statement
outlines the first condition for sale would be that "the land is
not essential to railroad operations..." He referred to page 1,
lines 11-12, which read, "the land is not necessary for
essential railroad purposes,..." He pointed out the language is
not the same.
1:33:09 PM
REPRESENTATIVE STOLTZE asked members to refer to the bill and
not his letter for the true meaning.
1:33:28 PM
REPRESENTATIVE GRUENBERG offered his belief that the bill would
provide the Alaska Railroad Corporation (ARRC) a little more
flexibility.
REPRESENTATIVE STOLTZE agreed that is his intent. He said he
hoped the ARRC would not abuse the business owner's trust by
being inflexible.
1:33:51 PM
REPRESENTATIVE MUNOZ asked whether the leases generate more
money at eight percent interest than the ARRC would earn through
investments, in practical terms if the ARRC would have a
compelling case to sell the land.
REPRESENTATIVE STOLTZE again noted that this is a policy call.
He suggested that the bill is not just about enhancing the
state's revenue, but is about the ARRC's impact on jobs in the
private sector. He characterized the provisions in the bill as
"a balancing act" that the legislature must weigh in on. In
terms of pure revenue, he considered that it is probably a
better deal for the ARRC "to have a hammer over lessee," but the
correspondence he received reflects that HB 357 may promote
business and "spur" more activity.
1:35:25 PM
REPRESENTATIVE MUNOZ supported fostering business growth and
opportunities for business. She wondered whether the language
is strong enough. She asked whether the sponsor believes that
HB 357 will lead to opportunities for individual businesses to
acquire the properties.
REPRESENTATIVE STOLTZE said he hoped the bill would alert the
ARRC that the legislature is interested in the ARRC developing a
better working relationship with businesses operating on
railroad property. He recalled anecdotal comments from lessees
who would like to make investments but cannot due to the
uncertainty of "dealing with the railroad." This is not just
about the financial aspect but is also about how the ARRC will
react to lessees in five years. He recalled the terms
"arbitrary and capricious" have been used in relation to the
ARRC. He related his understanding that lease terms are
erratic. He has observed this first hand when working with the
ARRC on other issues. He believed that fiscal certainty and
right of first refusal is important to lessees, he stated.
1:37:39 PM
REPRESENTATIVE GRUENBERG referred to page 1, line 12, to the
word "essential" yet the language on page 2, line 3 does not
refer to "essential." He asked whether the sponsor would
consider deleting "essential" from the provision on the first
page.
1:38:20 PM
REPRESENTATIVE STOLTZE responded that the change may read
better, although he would probably prefer adding "essential" to
the language on page 2.
REPRESENTATIVE GRUENBERG suggested that he would prefer not to
say "essential" in order to give ARRC more leeway.
REPRESENTATIVE STOLTZE offered his belief that the ARRC already
has a lot of flexibility. He stated that "essential" was to
protect the ARRC.
REPRESENTATIVE GRUENBERG asked whether the language was
discretionary.
REPRESENTATIVE STOLTZE stated that he would leave the
punctuation and grammar to Representative Gruenberg to consider.
1:39:26 PM
REPRESENTATIVE GRUENBERG referred to page 2, lines 8-11 to
subsection (c). He asked whether the funds are deposited to
general fund (GF) or to a separate account.
REPRESENTATIVE STOLTZE stated that the funds are not deposited
to the GF, but are retained by the ARRC. Thus, the land
proceeds are not used for the general ARRC operations.
1:40:33 PM
REPRESENTATIVE GRUENBERG referred to page 2, lines 10-11, which
read, "Money in the account may be appropriated in accordance
with 45 U.S.C. 1207(a) (5)(Alaska Railroad Transfer Act of
1982)." He inquired as to whether the legislature appropriates
these funds.
REPRESENTATIVE STOLTZE did not recall. He stated that the state
must comply with the Alaska Railroad Transfer Act of 1982. He
explained that the ARRC does not appear in the state budget. He
thought the language referred to activities within the ARRC.
REPRESENTATIVE GRUENBERG asked whether "appropriated" is the
correct term since that is generally reserved for legislative
bodies.
REPRESENTATIVE STOLTZE responded that the legislature is at a
disadvantage since the ARRC does not fall under the Executive
Budget Act.
1:42:48 PM
JIM KUBITZ, Vice President, Real Estate and Facilities, Alaska
Railroad Corporation (ARRC), introduced himself. He explained
that "appropriated" is not likely the best term. He suggested
that the ARRC's legal counsel is on-line.
REPRESENTATIVE GRUENBERG also asked the ARRC to comment on the
word "essential" that he previously mentioned.
CHAIR P. WILSON opened up public testimony on HB 357.
PHYLISS JOHNSON, Vice President & General Counsel, Alaska
Railroad Corporation (ARRC) introduced herself. In response to
Representative Gruenberg, said she thought that deleting
"essential" on page 1 would give the ARRC more flexibility.
REPRESENTATIVE GRUENBERG referred to page 2, line 10, and asked
whether some other language than "appropriated" should be used.
She recommended that "expended" be used.
1:45:25 PM
MS. JOHNSON, in further response to Representative Gruenberg,
stated that she did not have any other recommended changes to
the bill. In response to Chair P. Wilson, she responded that
having the reference to the Alaska Railroad Transfer Act was a
good to have in the bill, since "railroad funds be used for
railroad and related purposes." She also recalled similar
language in the state transfer act, as well. She stated that
this language helps to clarify the continued use of railroad
funds for railroad purposes.
1:46:49 PM
REPRESENTATIVE GRUENBERG referred to two fiscal notes. He
pointed out that one fiscal note was approved on 3/23/10. He
assumed that the fiscal note supersedes the one with an earlier
signature date.
MR. KUBITZ answered yes. He believed that was correct.
1:47:37 PM
MR. KUBITZ referred to page 1, line 12, and read: "...(2) the
sale of the land is in the best interest of the state." He
explained that the determination must be made by the ARRC's
Board of Directors in order to sell land. He offered his belief
that what is in the best interest of the state may not mesh with
what is in the best interest of the ARRC, since economic
development and self-sufficiency are listed in the ARRC's
mission statement. The state's historic properties group may
have a best interest statement that may be contrary to the ARRC.
He suggested that this may not be a huge problem but he related
that this language would require the ARRC's Board to consider
what is in the best interest of the state.
1:49:07 PM
REPRESENTATIVE GRUENBERG offered his belief that this is "the
heart of the bill." The ARRC's board must make a finding. He
Normally, when a court makes a finding it is not usually
reviewable by a higher court unless it is clearly erroneous.
That term means the court is left with a definite and firm
conviction that the facts the lower body found were wrong or
else the court misapplied the law. This forms the twin basis
for determining an erroneous decision. He said he does not know
whether that applies to a finding of the board, but the sponsor
says that this is discretionary. Further, the use of the term
"may" on line ll makes it discretionary. He asked Ms. Johnson
if she thought he was correct in his assessment.
1:49:51 PM
MS. JOHNSON said, "Certainly it's discretionary with the use of
the word 'may.'" She agreed with Mr. Kubitz, that the ARRC
Board's has a lack of familiarity in applying the state's best
interest standard. She said to use this standard casts us "a
little bit adrift in an area of expertise that previously the
ARRC has not been called upon to consider. She offered that the
best interest of the ARRC is more economically based than the
state's best interest. She recalled that if the Department of
Natural Resources (DNR) was considering whether to lease land,
the department must consider other things such as fish habitat
or game management since the state is comprised of multi-use
agencies. She suggested that the standard of appeal would
generally be determined by the Superior Court.
1:52:10 PM
REPRESENTATIVE GRUENBERG related that the ARRC may tactfully be
suggesting that on page 1, line 13 and on page 2, line 4, that
the committee consider changing "state" to "railroad."
MS. JOHNSON answered yes. She thought the language would be
more satisfactory.
REPRESENTATIVE MUNOZ asked to hear from the sponsor. She asked
whether the sponsor intended that this language would apply to
the best interest of the economic vitality of the area.
1:53:11 PM
JOHN COAN, Staff, Representative Bill Stoltze, Alaska State
Legislature, on behalf of the prime sponsor, offered his belief
that the intent of the specific language "in the best interest
of the state" was multi-faceted. He suggested that the language
would provide another vehicle for responsible sale of land, and
for the ARRC to take a greater role in community development
instead of being a hindrance. He further thought that the ARRC
should facilitate a better level of contact between the quasi-
public agency and the private sector. He related his
understanding that replacing "state" with "railroad" might
change the focus of the bill.
1:54:28 PM
MARK STEARNS, Owner, Alaska Wood Molding, stated that he has a
business located at the Port of Anchorage. He said that he is a
nine-year leaseholder and the ARRC has generally been
supportive. He stated that one source of frustration that many
have is the issue of uncertainty. He explained that the terms
of his lease went from $790 per month in 2001 to over $1600 over
a three-year period and then increased to $3000 per month. He
related that the terms contained in leases typically restrict
any increases to 135 percent of the lease payment over a five
year period. He pointed out that his business was not afforded
similar terms or any official notification process. Changes to
the terms of his lease have created a climate of uncertainty and
makes it difficult for him to consider any improvements. He
recapped that having lease terms dramatically increase by nearly
400 percent over nine years without an explanation clearly
created uncertainty. He described the situation as "random" and
"a scary situation."
1:58:17 PM
MR. STEARNS explained that lessees do not have any process for
relief. The ARRC "pretty much does what the railroad would like
to do." He urged members to support HB 357 to afford businesses
an opportunity to have some certainty.
1:58:57 PM
CHAIR P. WILSON asked for the length of his lease.
MR. STEARNS responded that he is in the process of extending
their lease to 35 years, but he has not yet heard back from the
ARRC. He said he hopes the lease will not allow the ARRC to
increase payments more than 35 percent over a five-year period.
In further response to Chair P. Wilson, he explained that he has
read his lease but some question remains as to which is the
valid lease. He pointed out that the potential to own the
property would afford him greater flexibility to make
investments.
CHAIR P. WILSON commented that the newer ARRC leases contain the
language.
MR. STEARNS agreed that the provision limiting the increase is
in the new lease.
2:01:35 PM
PAT GAMBLE, President and CEO, Alaska Railroad Corporation
(ARRC), offered his belief that the dialogue is healthy. He
referred to page 2, line 2, to the public notice, best interest
of the state, and to the first right of refusal. He described a
scenario in which a parcel is for sale and the current
leaseholder makes an offer to purchase the property. If a
member of the public makes a higher offer, he wondered if that
would be considered as acquiring the best interest for the state
or if some other determination would be made. He acknowledged
that if the scenario arose that he would recommend the ARRC
board take the higher offer. However, he was not certain how
that would "square with the first right of refusal" or obtains
the best return for the state. He concluded that practical
issues like this arise, but overall the discussion has been
large healthy discussion.
2:03:30 PM
CHAIR P. WILSON asked whether first right of refusal refers to
paying the "going rate" and when another offer is made that the
"going rate" would prevail.
2:03:46 PM
REPRESENTATIVE GRUENBERG clarified that this raises issues that
are addressed in the memorandum from the Division of Legal
Services. He asked whether Ms. Johnson has reviewed the March
20, 2010 memo.
MS. JOHNSON answered no.
REPRESENTATIVE GRUENBERG suggested that the ARRC's lawyers
should review the memo.
MS. JOHNSON agreed to do so.
REPRESENTATIVE GRUENBERG referred to a letter August 25, 2004,
from Steve Van Sant, State Assessor, to Marty McGee, the
Municipality of Anchorage's Assessor, and asked for its
relevance to the bill.
MR. KUBITZ replied that he made copies of the letter for the
committee. He explained the contention was that selling
railroad land would increase local tax revenue. He acknowledged
tenants are taxed following a somewhat complicated formula.
Basically as the lease approaches the termination date, the
actual value goes down. The letter of August 25, 2004 informed
the MOA that it needed to tax the tenants as though they owned
the land. Thus, this letter provided the justification for the
lessee's taxes on ARRC leased land and the reason that the taxes
will not go up.
2:07:15 PM
MR. KUBITZ, in response to Representative Gruenberg, related
that the tenants understood the reason the leased property was
being tax. He said that represents one reason that some tenants
believe they "may as well" own the land since they must pay
taxes on the land. In further response to Representative
Gruenberg, he agreed that the assessed amount is reduced as the
lease draws closer to the end of the term.
REPRESENTATIVE GRUENBERG remarked that the property tax amount
is less at the end of the lease than it would be if the lessee
was a fee simple owner.
MR. KUBITZ agreed.
2:07:59 PM
CHAIR P. WILSON related that the committee must consider the
reason the ARRC does not request state funding, which is that as
a quasi-independent agency it owns land and has the ability to
earn income.
MR. KUBITZ, in response to Representative T. Wilson, explained
that the appraisal and appeal process is up to the tenants.
Typically, tenants often appeal tax assessments and that is a
relationship with the taxing agency. Some tenants are
successful in their appeals and others are not.
2:09:40 PM
REPRESENTATIVE T. WILSON related a scenario in which the ARRC
appraisal is set at $500,000, but the borough assessment is set
at $400,000. She asked whether the tenant could appeal by
furnishing the borough assessment.
MR. KUBITZ answered that the tenant has the right to obtain a
third party appraisal and can present that to the ARRC for
consideration. Per a mechanism in the lease, if the tenant and
the ARRC cannot reach an agreement, the matter would go to
binding arbitration for a decision. A third party appraisal
must be performed by a "Member of the Appraisal (MAI)"
appraiser.
2:10:39 PM
MR. KUBITZ, in response to Representative T. Wilson, he
explained that the ARRC appraises its property every five years.
He pointed out that Mr. Stearns will be operating under a new
lease, which provides adequate protection. Previously, Mr.
Stearns was operating under a 50-year old federal lease that did
not contain any cap. Thus, any time an appraisal increased the
property value, the lease also increased accordingly, as per the
lease terms. He pointed out that the ARRC's leases limit the
term increases to 135 percent over a five-year period.
2:11:34 PM
CHAIR P. WILSON asked whether the amount of the lease increases
applied to all tenants.
MR. KUBITZ explained that not all the leases are ARRC leases and
a few leases remain that date back to the 60s, although little
time remains on those leases. The old leases did not even
contain environmental language. He assured Chair P. Wilson that
the ARRC strives to have everyone under the new leases for
everyone's benefit.
2:12:13 PM
CHAIR P. WILSON, after first determining no one else wished to
testify, closed public testimony on HB 357.
2:12:33 PM
REPRESENTATIVE GRUENBERG made a motion to adopt Conceptual
Amendment 1, on page 1, line 12 to delete "essential."
REPRESENTATIVE T. WILSON objected for purpose of discussion.
REPRESENTATIVE GRUENBERG expanded Conceptual Amendment 1, on
page 1, line 10 to delete "essential." He explained that
removing the two references to "essential would conform to the
language on page 2, line 3. This would give the corporation
more flexibility and would lower the standard in instances in
which the ARRC board determines the land is necessary for ARRC
purposes. He offered that this would avoid the discussion of
deciding the whether the land is essential for railroad
purposes. He commented that the sponsor does not oppose
Conceptual Amendment 1 and the ARRC supports Conceptual
Amendment 1.
REPRESENTATIVE T. WILSON removed her objection.
There being no objection, Conceptual Amendment 1 was adopted.
2:14:28 PM
REPRESENTATIVE GRUENBERG made a motion to adopt Conceptual
Amendment 2, on page 1, line 1, in the title, to replace
"needed" with "necessary".
REPRESENTATIVE T. WILSON objected for purpose of objection.
REPRESENTATIVE GRUENBERG offered his belief that this change
would be grammatically correct.
MR. COAN suggested that pending the legal drafter's consent that
the change should be fine.
REPRESENTATIVE T. WILSON removed her objected. There being no
further objection, Conceptual Amendment 2 was adopted.
2:15:46 PM
REPRESENTATIVE GRUENBERG made a motion to adopt Conceptual
Amendment 3, on page 2, line 10, to remove "appropriated" and
insert "expended."
REPRESENTATIVE T. WILSON objected. She asked whether funds
could be deposited so the ARRC could spend the interest instead
of spending the principal.
REPRESENTATIVE GRUENBERG explained that Conceptual Amendment 3
provides a grammatical change, which is that the ARRC can
"expend" only in accordance with federal law.
REPRESENTATIVE PETERSEN recalled that the federal definition in
45 U.S.C. 1207(a) (5) (Alaska Railroad Transfer Act of 1982)
required that the funds be used for railroad purposes. Thus,
the funds would be "expended" for railroad purposes. He agreed
the term "appropriate" referred to legislative action.
REPRESENTATIVE MUNOZ suggested that "expend" means to spend so
she thought it may be clearer to use "budgeted." She explained
that the ARRC may want to invest the funds.
MS. JOHNSON offered that her first response is that using "may
be expended" would also give the ARRC the latitude to save the
funds in an account. She pointed out reference to "45 U.S.C.
1207 (a) (5) (Alaska Railroad Transfer Act of 1982)" was to
ensure the funds are spent for railroad and related purposes.
She recalled when another committee member summarized the
federal law that the member left out "related purposes" which
could be significant.
2:19:00 PM
REPRESENTATIVE T. WILSON stated that she preferred "invested"
for the intent it implies since she would rather see the funds
invested and "to send the ARRC a better message."
MR. COAN pointed out that he not an attorney, but he believed
the drafter used the term "appropriated" since it is the term
used in Alaska Railroad Act of 1982. He said, 45 U.S.C. 1207
(a) (5) reads, "Revenues generated by the state-owned railroad,
including any amount appropriated or otherwise made available to
the state-owned railroad should be retained and managed by the
state-owned railroad for railroad and related purposes."
2:20:18 PM
MR. COAN, in response to Representative Gruenberg, re-read the
federal law.
CHAIR P. WILSON said she thought that the language referred to
an appropriation made to the legislature.
REPRESENTATIVE GRUENBERG agreed. He said this language seems to
be just the opposite of the language in the bill.
MR. COAN related his understanding that the specific section in
federal law references "appropriation" so using "appropriation"
in the bill is correct.
2:21:14 PM
REPRESENTATIVE GRUENBERG offered his belief that the federal
language the sponsor's staff read is correct, but he opined that
it is not correct to use "appropriated" in the bill. He said he
believes that a person can "budget money without spending it."
He said he prefers not to use the term "budget" and that
"expended" is the legal term.
CHAIR P. WILSON preferred the use of "expended."
REPRESENTATIVE T. WILSON disagreed, stating that the language
"expended" sends the wrong message to the ARRC.
2:22:14 PM
REPRESENTATIVE GRUENBERG related that this provision sets out a
limitation, which is that the funds could only be expended in
accordance with the federal law. He asked Ms. Johnson for
clarification.
MS. JOHNSON answered yes, that Representative Gruenberg is
correct.
REPRESENTATIVE PETERSEN asked whether "money in account may be
used" is a possible clarification.
MS. JOHNSON stated that "used" is acceptable.
REPRESENTATIVE GRUENBERG explained that a person does not "use"
money in an account, but "spends it." He offered his belief
that "spend" or "expended" is the normal legal term.
2:24:37 PM
REPRESENTATIVE PETERSEN made a motion to amend Conceptual
Amendment 3, to delete "appropriated" and insert "used." There
being no objection, the amendment to Conceptual Amendment 3 was
adopted.
2:25:01 PM
REPRESENTATIVE T. WILSON removed her objection.
There being no further objection, Conceptual Amendment 3, as
amended, was adopted. Thus, subsection (c) read:
(c) The corporation shall separately account for the
proceeds from the sale of land under this section and
shall report the earnings and balance in the account
in the annual report required by AS 42.40.260. Money
in the account may be used in accordance with 45
U.S.C. 1207(a)(5) (Alaska Railroad Transfer Act of
1982).
2:25:25 PM
REPRESENTATIVE T. WILSON moved to report HB 357, as amended, out
of committee with individual recommendations and the
accompanying fiscal notes. There being no objection, the CSHB
357(TRA) was reported from the House Transportation Standing
Committee.
2:25:40 PM
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