Legislature(1995 - 1996)

02/09/1996 09:10 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
  SENATE BILL NO. 162                                                          
                                                                               
       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-chairman Halford directed that  SB 162 be brought on  for                 
  discussion.  Co-chairman Frank  referenced Amendments 1  and                 
  2,  suggested  by  the  sponsor.   He  then  explained  that                 
  Amendment No. 1  would change  "shall" to "may"  at page  4,                 
  line 22.  Co-chairman Halford  voiced his understanding that                 
  the  amendment allows  rather than  requires aliquot  parts.                 
  The Co-chairman then  called for  objections to adoption  of                 
  Amendment No. 1.   Senator  Donley requested testimony  from                 
  the department.                                                              
                                                                               
  RON SWANSON, Director,  Division of  Land, Dept. of  Natural                 
  Resources,  testified  via  teleconference  from  Anchorage,                 
  advising that  the department  recommended the  change.   No                 
  objection having been raised, Amendment No. 1 was ADOPTED.                   
                                                                               
  Co-chairman  Frank explained  that  Amendment  No.  2  would                 
  insert new language at page 7, line 31.  Co-chairman Halford                 
  voiced his understanding  that new  language would make  the                 
  process applicant driven.  BRETT HUBER, aide to Senator Lyda                 
  Green,  concurred that  holders of  agricultural only  lands                 
  would have to apply for conveyance  of fee simple title with                 
  a restricted agricultural  covenant.   The landholder  would                 
  provide title insurance  and cover  survey costs.   Original                 
  bill language mandated  that the department issue  new title                 
  conveyances for all agricultural  parcel holders.  Amendment                 
  No. 2 was recommended by the  department and is supported by                 
  the sponsor.                                                                 
                                                                               
  Senator  Zharoff  voiced his  understanding  that  all costs                 
  would be borne by the applicant, and there would be limited,                 
  if any, cost  to the state.   Mr. Huber concurred.   He then                 
  advised that the  present $242.4 fiscal note from  the Dept.                 
  of  Natural Resources  reflects  mandated conveyance  by the                 
  department   and  department-borne   costs.     Making   the                 
  legislation  applicant-driven  should  eliminate or  greatly                 
  reduce costs.                                                                
                                                                               
  Senator Rieger  referenced language  at page  3, line  14 of                 
  Amendment No.  2 and  questioned whether  "shall" should  be                 
  changed to "may" in the subparagraph relating to enforcement                 
  of  the  state's  interest.    Mr.  Swanson  suggested  that                 
                                                                               
                                                                               
  language should use  "may" rather than  "shall."  It  allows                 
  the  department  to  enforce  the  agricultural covenant  by                 
  administrative  means  for  those  holding  the  "old  style                 
  patent."  For the new process,  the department would have to                 
  go  through the  courts.    Mr.  Swanson  advised  that  the                 
  department recommended and supports Amendment No. 2.                         
                                                                               
  Senator  Rieger next  referenced the  following  language at                 
  page 1, line 16 of Amendment No. 2:                                          
                                                                               
       or  a  title  report  affirming  ownership  of the                      
       rights                                                                  
                                                                               
  and  asked what  the department  would accept.   Mr. Swanson                 
  cited  a litigation  report issued  by a  title company  and                 
  signed by an attorney.   The report verifies that  the title                 
  is proper and no liens are attached.                                         
                                                                               
  Senator Phillips MOVED  for adoption of Amendment No. 2 with                 
  the change  from "shall" to  "may" at page  2, line 14.   No                 
  objection having been raised, Amendment No. 2 was ADOPTED as                 
  amended.                                                                     
                                                                               
  In response to an inquiry from Co-chairman Halford regarding                 
  the  department position  on  the legislation,  Mr.  Swanson                 
  referenced the following areas of concern:                                   
                                                                               
       1.   The interest rate (Sec. 8).                                        
                                                                               
       2.   Need for compensation to the state  from increased                 
  value          generated by ability to subdivide (Sec. 9).                   
                                                                               
  He stressed that  the department will use  whatever interest                 
  rate the legislature  sets "only  for new  financing."   The                 
  department does not  plan to "go  back and allow anybody  to                 
  refinance  their existing  contract."   Mr.  Swanson further                 
  stressed that  the  proposed bill  establishes  a  different                 
  interest rate  for agricultural  loans than  other types  of                 
  loans handled by the department.                                             
                                                                               
  Under current  law, agricultural  landholders may  subdivide                 
  land  but  no  new  construction  can  occur  on  subdivided                 
  parcels.   The proposed bill allows for agricultural-related                 
  construction.   That would allow for  construction of a home                 
  or other  structure on  each 40 acres.   Department  concern                 
  relates to the impact  of ability to subdivide on  the value                 
  of the property.   Mr. Swanson  cited a recent appraisal  of                 
  the  James'  farm  at  Point   MacKenzie.    The  value   of                 
  agricultural   interest   on  a   40-acre  parcel   with  no                 
  construction  is  $160   per  acre.     Allowance  of   both                 
  subdivision and construction increases the  value to $250 to                 
  $300  per  acre.   The department  feels that  under Article                 
  VIII, Sec.  2 of the  Alaska State  Constitution, the  state                 
  should  be  compensated  for that  increase.    The Attorney                 
                                                                               
                                                                               
  General  advises  that  there could  be  a  legitimate legal                 
  challenge unless the state  is compensated in some form.   A                 
  possible solution is a  limitation on the number of  times a                 
  parcel  may  be  subdivided  and  what  may  be  constructed                 
  thereon.   Co-chairman  Halford noted  that the  legislation                 
  limits the number  of parcels to  four.  The restriction  on                 
  the  number  of  times  a  parcel could  be  subdivided  was                 
  intended to deal  with the  question of value  accrual.   He                 
  suggested   that  the  appraisal,   the  difference  in  the                 
  appraisal, and payment of the amount of the difference would                 
  become  more  cumbersome  than  it  would accomplish.    Mr.                 
  Swanson suggested  that subdivision  be limited  to once  or                 
  twice  and the time period be  longer than four years.  That                 
  would help to equalize values.  Co-chairman Halford asked if                 
  limitations allowing the  parcel to be divided  into no more                 
  than four subparcels  with no provisions for  subdivision in                 
  the  future would  satisfy  concerns.   Further  subdivision                 
  could  then  be  addressed at  a  later  date  if there  was                 
  considerable pressure  for smaller  parcels in  agricultural                 
  use.   Mr. Swanson  concurred in  that approach,  suggesting                 
  that the amount of  increased value would be "so  minimal it                 
  would not be worth trying to figure out."                                    
                                                                               
  In response to a question from Co-chairman Halford asking if                 
  the commissioner would support the  bill under the foregoing                 
  proposal, Mr. Swanson noted that he would have to speak with                 
  the commissioner.   He  also expressed his  belief that  the                 
  foregoing  would be acceptable since  it was discussed as an                 
  option that "would work."                                                    
                                                                               
  Senator  Randy  Phillips  inquired   concerning  the  viable                 
  acreage  for  a  farm.    Mr.  Swanson  said  that  existing                 
  regulations allow for parcels as small  as forty acres.  The                 
  division of agriculture considers 160 acres, plus, to be the                 
  viable  commercial  size.   Below  that number,  parcels are                 
  hobbies, truck farms, etc.                                                   
                                                                               
  In response to  a question  from Co-chairman Halford,  Brett                 
  Huber observed that  the original intent of  subdivision was                 
  to  benefit  the state  in that  a  landholder with  a large                 
  parcel who is  "squeaking by"  and making contract  payments                 
  could subdivide a  piece of ground and  bring "somebody else                 
  into the business  and use that  to cash flow the  operation                 
  and  keep  the contract  current  .  .  .  ."   The  initial                 
  subdivision   is  thus   more   important  than   subsequent                 
  subdivision.                                                                 
                                                                               
  Lengthy discussion followed regarding subsequent subdivision                 
  of the  property and  proposed language  changes within  the                 
  bill.     Co-chairman   Halford   sought   suggestions   for                 
  alternative language clarifying  that "the subdivision would                 
  be one time and for no more than four  parcels . . . ."  The                 
  Co-chairman  asked   department   staff   if   deletion   of                 
  subparagraph (3) at page 6, lines 7 through 12, and addition                 
                                                                               
                                                                               
  of the word "once" following "subdivide"  at page 6, line 5,                 
  would make clear that each parcel could be divided into four                 
  parcels, but a  subdivided parcel could not  be subsequently                 
  divided.   Mr.  Swanson suggested that  "and sell  the land"                 
  also be deleted  at page 6, line 5.  That would clarify that                 
  subdivision would occur  only once while sale  could "happen                 
  at  any  time."   Brett Huber  asked that  language prohibit                 
  subsequent subdivision  of subdivided land rather than allow                 
  subdivision only once.                                                       
                                                                               
  End:      SFC-96, #23, Side 1                                                
  Begin:    SFC-96, #23, Side 2                                                
                                                                               
  In response to a  question from Senator Phillips, Mr.  Huber                 
  explained that the "main thrust and intent of the bill is to                 
  take what was  ag-interest only  land and turn  it into  fee                 
  simple land with an agricultural covenant."                                  
                                                                               
  Discussion followed  regarding the size of  parcels required                 
  for different agricultural purposes.  Mr. Huber told members                 
  that many parcels of 320 acres  and over do not contain  320                 
  acres  of  plantable  soil.    Further,  many  parcels  have                 
  substantially  less   than   100%  of   plantable  soil   in                 
  production.                                                                  
                                                                               
  Senator  Sharp MOVED  to  add "none  of  the four  allowable                 
  parcels  may be  further resubdivided"  at  page 6,  line 6,                 
  following the word "and."  There would thus be no time limit                 
  on  subdivision  into fourths  of  no  less than  40  acres.                 
  Further discussion followed and examples of  how subdivision                 
  would  work  were  presented.   Senator  Sharp  restated his                 
  motion and  acknowledged that it would likely be "cleaned up                 
  dramatically  by the  drafter."   He then  MOVED to  include                 
  deletion of subsection  (3) at page  6, lines 7 through  12,                 
  within his original amendment which was designated Amendment                 
  No. 3.                                                                       
                                                                               
  Further discussion followed  in response to a  question from                 
  Senator Zharoff  regarding determination of  the base parcel                 
  upon which  subdivision is predicated.   Co-chairman Halford                 
  said that:                                                                   
                                                                               
       The individual  doing the  subdivision makes  that                      
       determination  within the bounds  of no  more than                      
       four parcels  (in any  combination) [and]  no less                      
       than 40-acres (in any combination).                                     
                                                                               
  Members acknowledged that  the covenant goes with  the land.                 
  Mr. Swanson said  that the department  would "make sure  the                 
  covenant went with the original parcel  in the patent."  Co-                 
  chairman Frank cited  as an example a  landholder with 1,600                 
  acres  who  subdivides, keeps  40 acres,  and sells  off the                 
  remaining 1,560.  Both Co-chairman Halford and Senator Sharp                 
  concurred that  the 1,560  acres could  be subdivided  three                 
                                                                               
                                                                               
  more times.   Co-chairman  Halford voiced his  understanding                 
  that the covenant and sale agreement would control the right                 
  to subdivide.                                                                
                                                                               
  Mr. Huber voiced his  belief that Senator Green, sponsor  of                 
  the  legislation, would be comfortable with committee intent                 
  but raised concern and questions as  to whether new language                 
  conveys that  intent.  Co-chairman Halford acknowledged that                 
  CSSB  162 (Fin) would  contain the drafter's  version of the                 
  foregoing amendment.   If  the rewrite  of the amendment  is                 
  significant,  the   draft  will  be   brought  back   before                 
  committee.  The  Co-chairman then  called for objections  to                 
  adoption  of  Amendment No.  3.   No  objection  having been                 
  raised, Amendment No. 3 was ADOPTED.                                         
                                                                               
  In response to an additional  question from Senator Zharoff,                 
  Mr. Swanson  reiterated earlier  comments that  the interest                 
  rate of not  more than 9.5  percent would be different  than                 
  other loans on land.   He also stressed that  the department                 
  would not be refinancing existing  contracts "when they come                 
  in wanting  a new  patent."   The interest  rate at  initial                 
  purchase will remain in place.                                               
                                                                               
  Senator  Sharp MOVED  for  passage of  CSSB  162 (Fin)  with                 
  individual  recommendations  and accompanying  fiscal notes.                 
  No objection having been raised, CSSB 162 (Fin) was REPORTED                 
  OUT of  committee with  a $15.0  fiscal note  from the  land                 
  development component and a $28.5 note from the agricultural                 
  development  component  within  the  Department  of  Natural                 
  Resources.  Co-chairmen Halford and  Frank and Senator Sharp                 
  signed the committee report with a "do pass" recommendation.                 
  Senators  Rieger,   Phillips,   and   Zharoff   signed   "no                 
  recommendation."                                                             
                                                                               
  ADJOURNMENT                                                                  
                                                                               
  The meeting was adjourned at approximately 10:15 a.m.                        
                                                                               

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