Legislature(1995 - 1996)
04/13/1996 01:25 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
APRIL 13, 1996
1:25 P.M.
TAPE HFC 96 - 118, Side 1, #000 - end.
TAPE HFC 96 - 118, Side 2, #000 - end.
TAPE HFC 96 - 119, Side 1, #000 - #536.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 1:25 P.M.
PRESENT
Co-Chair Hanley Representative Martin
Co-Chair Foster Representative Mulder
Representative Brown Representative Navarre
Representative Grussendorf Representative Parnell
Representative Kelly Representative Therriault
Representative Kohring was not present for the meeting.
ALSO PRESENT
Representative Norman Rokeberg; Representative Gary Davis;
Kurt Parkan, Deputy Commissioner, Department of
Transportation and Public Facilities; Elisabeth Hickerson,
(Testified via teleconference), Assistant Attorney General,
Department of Law, Anchorage; Stephen Cooper, (Testified via
teleconference), Attorney, Fairbanks; Charles Cole,
(Testified via teleconference), Attorney, Fairbanks; Diane
Banth, (Testified via teleconference), Leasing Officer,
Department of Transportation and Public Facilities.
SUMMARY
HB 543 An Act establishing a preference when entering
into state airport land leases.
HB 543 was HELD in Committee for further
consideration.
HOUSE BILL 543
"An Act establishing a preference when entering into
state airport land leases."
Representative Mulder noted a conflict of interest in the
proposed legislation.
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Representative Kelly MOVED to adopt 9-LS1769\0, Bannister,
4/9/96, as the version before the Committee. There being NO
OBJECTION, it was so ordered.
Representative Kelly MOVED to adopt Amendment #1, 9-
LS1769\0.4, Bannister, 4/12/96. Representative Brown
OBJECTED requesting an explanation of the effects of the
amendment.
REPRESENTATIVE NORMAN ROKEBERG stated that Amendment #1
would make adjustments to the bill. He noted that the terms
and conditions of the existing leases may be different than
new leases offered by the Department of Transportation and
Public Facilities (DOTPF). He thought that a lease
extension would be better and suggested that it be included
as a portion of the bargaining process.
Representative Brown suggested that the question be divided.
She added that the State's concern should include "broad
public interest".
Representative Brown MOVED to divide Amendment #1. Lines 1
& 2 of the Amendment would become Amendment #1(a) and Lines
3 through Line 9 would become Amendment #1(b). There being
NO OBJECTION, it was divided.
Representative Kelly MOVED to adopt Amendment #1(b). There
being NO OBJECTION, it was adopted. Representative Rokeberg
pointed out a technical change to Line #6, "an" should be
replaced with "and".
Representative Kelly MOVED to adopt Amendment #1(a).
Representative Brown OBJECTED.
Co-Chair Foster referenced Amendment #1(b) stating that a
master plan has existed for nearly fifteen years. He noted
that a "master term" should work with a "master terminal",
and at this point does not exist.
Representative Brown requested word from the Department
regarding new leases and/or an extension of the existing
leases. She suggested that lessees receiving the
opportunity for extension without competition are being
provided a significant benefit and suggested new language
address that concern.
KURT PARKAN, DEPUTY COMMISSIONER, DEPARTMENT OF
TRANSPORTATION AND PUBLIC FACILITIES, agreed that some of
the current language should not be carried forward. He
requested the Department of Law comment on that concern.
ELISABETH HICKERSON, (TESTIFIED VIA TELECONFERENCE),
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ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, noted that
two issues of concern exist for the Department of Law when
providing an extension without competition.
* Would that action decrease the Department's
ability to be successful on a public purpose
argument.
* Would the action provide for a material
change in the contract.
Ms. Hickerson elaborated that if an extension was added to a
lease, would that action then provide a material change to
an old lease. She suggested that it would be sound legal
practice to begin with a new lease.
Co-Chair Hanley remarked that the inclusion of "or" in
Amendment #1(a) would allow the Department to offer the
extension of the lease "or" a new lease. Ms. Hickerson
advised that it was the intent of the amendment to allow for
an existing lease to be extended up to 55 years. She
reiterated that if the concept was an extension of the "old"
terms, that would then warrant a material amendment to an
extension contract.
Co-Chair Hanley questioned Ms. Hickerson's interpretation of
the language. He thought that addition of the language
would create important flexibility. Representative Brown
thought that incorporating that language into the law would
not be a sound approach. She advised the legislation should
address the problem of making the extensions without
competition.
REPRESENTATIVE GARY DAVIS questioned the basic intent of the
amendment. He asked if it would provide measures to
renegotiate an existing lease or would it address a shorter
period of time in which an existing lease retires. He
remarked that the intent of the amendment was to renegotiate
an existing lease.
Representative Rokeberg stated that the intention of the
language would be to provide DOTPF the needed flexibility.
He noted that it was a matter of interest that the
Department be allowed to have the choice. He added, if the
tenant intended to extent their lease term as opposed to
creating a new lease, this would be a bargaining point
between the State and the tenant.
STEPHEN COOPER, (TESTIFIED VIA TELECONFERENCE), ATTORNEY,
FAIRBANKS, commented that the proposed language could be
useful in order to readjust a minor matter as to the length
of the term. He remarked that if the Department assumed
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that the extension of the lease was a material alteration to
the existing lease, they would need to issue a public notice
in order to make the alteration. He pointed out that DOTPF
has misinterpreted the regulations in the past. There is no
language stating that to issue a public notice, an
invitation for public bid must be included. If the
Department thought that there was a material alteration in
the terms of the lease, they could issue a public notice to
recover that. He advised that option would allow the needed
flexibility.
Ms. Hickerson responded that if the Committee intend that an
extension be allowed without competition for only minor
adjustments for short periods of time, that language should
be clearly defined in the legislation. Co-Chair Hanley
inquired if it was up to the Department to decide if a new
lease would be offered or if there would be an extension to
the old lease.
Mr. Parkan maintained that DOTPF would appreciate
incorporating the suggested flexibility. He added, the
Department of Law would not have a legally defensible
position if there was only an extension of the existing
terms. Co-Chair Hanley elaborated that "some" future
Department or "some" future attorney general may not
understand the leasing law and grant an illegal extension.
In response to Representative Rokeberg, Representative Brown
commented that this legislation should not address the
commercial real estate world. This is the "world of public
land management" and the obligation that public land
managers have as specified under the constitution. She
emphasized the main contention being that a material term of
a contract can not be changed.
Representative Kelly asked if there was a term which could
quantify the extension for a short time. Ms. Hickerson
suggested placing a time limit and extension on an existing
lease for six months would then add definition. She
suggested that there were two issues at hand; the legal
concern and the directive issue for the Department's
extension. Co-Chair Hanley recommended adding the notation
"Under any circumstances which are legal".
A roll call was taken on the MOTION to adopt Amendment
IN FAVOR: Martin, Mulder, Parnell, Therriault,
Kelly, Hanley, Foster.
OPPOSED: Brown, Grussendorf.
Representatives Navarre and Kohring were not present for the
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vote.
The MOTION PASSED (7-2).
Representative Kelly MOVED to adopt Amendment #2.
Representative Brown OBJECTED. Representative Rokeberg
explained that the amendment was based on suggestions from
the Airmen's and Air Carriers Association. These
suggestions would include issues put forward by DOTPF to
cover the circumstances when the reversionary interest of
the lease improvements are addressed. The amendment was
drafted with the intention of granting the right to an
existing lessee to have and retain the title of property of
purchase and then allowing them to sell that improvement.
The amendment would also provide the Department reversionary
interest in cases of abandonment of the lease by a tenant.
Amendment #2 was intended to clarify the rights of the
lessee and to provide for the rights of the Department.
Representative Rokeberg added, the reason for drafting the
legislation resulted from DOT&PF issuing a standard lease
form and then not bargaining in "good faith" with the
tenants. It is the intention of the amendment to guarantee
that "good faith" bargaining and negotiations are carried
out.
(Tape Change, HFC 96-118, Side 2).
Co-Chair Hanley asked if the language of the amendment was
better than the language in the version of the legislation
before the Committee. Mr. Parkan acknowledged that it was
better, but not ideal. Mr. Parkan questioned the situation
in which an improvement belonged to one party and the land
to a different party. He asked if there would then be two
land-lords. He recommended that the language specify that
the improvements to the land went with the lease.
Representative Rokeberg stated that the title would remain
with the tenant who would then be the one responsible to
bargain with the new lessee. He stressed that the State
should not be in the position of bargaining for the
improvements made to the land.
Representative Brown understood the intent of the
amendment, although, suggested that the language did not
accomplish the intent. She maintained that the language was
ambiguous. Representative Brown asked if the existing
leases provide for entitlement to maintain improvements
which are constructed. If leases exist which do not provide
that, would it then be considered a material change. Mr.
Parkan responded that the language would not change existing
leases.
Representative Brown understood that the language would
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apply to existing leases. Mr. Parkan stated that the
Department could not change the language of each existing
lease. When the old lease is terminated, the legislation
would apply only to the new lease as would the "options of
competition". It would not change existing leases.
Ms. Hickerson commented that the lease would be protective
in application. She agreed with Mr. Parkan's
interpretation. Ms. Hickerson voiced legal concern
regarding the intent. She asked if it was the intent to
offer ownership of the improvements to exist separately from
the lease. Representative Rokeberg advised it was.
Ms. Hickerson stated the effect would be to have a non-
resident tenant having title to the improvement and being
the landlord of the improvements, while at the same time
having the State being landlords of the land lease.
Ms. Hickerson recommended adding "hazard to property" to
Page 2, Line 17. Representative Kelly asked what a "hazard"
to a property would be other than health and safety. Ms.
Hickerson suggested a situation could exist with asbestos in
a building. Committee members agreed that would be a hazard
to the "public" and that language already exists in the
bill.
Mr. Cooper commented on Representative Brown's suggestion on
Line 5 of Amendment #2, "by any successor who purchases
them, or by any lawful successor or assignee of the lessee".
He stated that language would be applicable to the title of
improvement. The language would not relate to whoever
becomes the tenant of the lease holder. It would only be
applicable to the ownership of the improvements.
Mr. Parkan pointed out that Representative Rokeberg had
stated that it would be possible to have an "improvement
landlord" and a "property landlord". Mr. Parkan maintained
that would be confusing and cumbersome. Co-Chair Hanley
asked if at this time, all the lease hold improvements are
owned by the same people that lease the land.
DIANE BANTH, (TESTIFIED VIA TELECONFERENCE), LEASING
OFFICER, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES,
ANCHORAGE, responded that at the Anchorage International
Airport, all the property improvements are owned by the same
entities who are leasing the land. Co-Chair Hanley asked if
that was a requirement of the leases. Ms. Banth stated that
it was. There have been no contrary situations which have
come forward to date, although, a situation now exists in
which the new successful bidder for a lease will be
negotiating with the existing tenant. The negotiation must
take place within a specified period of time and the
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successful bidder will continue to move forward even without
the successful resolution of the tenant. She acknowledged
that it was very difficult to have the owner of the property
different from the tenant. Co-Chair Hanley pointed out that
the amendment would leave the same process in place.
Representative Rokeberg stated that the language of the
amendment was intended to protect the rights of the owner of
the improvements. If the new tenant cannot make a "deal"
with the old tenant, the old tenant has the right to take
the building to another location.
Representative Parnell questioned how the amendment would
address the concern of protecting the "old tenant". He
asked how it would impact prospective lessees.
Representative Brown reiterated that the language was
ambiguous when addressing existing leases. The terms of the
existing contract will be changed through the legislation.
She suggested that the language should be clarified,
specifying that it will only apply to prospective leases.
Representative Parnell asked if there was a provision in
existing leases which make them subject to changes in State
statute. Co-Chair Hanley said that language would not apply
to current leases. Representative Rokeberg agreed that
Amendment #2 should specify more clearly that language.
Representative Kelly recommended making changes to Amendment
Co-Chair Hanley questioned if the Legislature could legally
change in statute the language of the leases.
Representative Brown pointed out that the Legislature is
always making changes to the terms and provisions within
contracts. Ms. Hickerson advised that would be considered a
material amendment to the contracts. The issue being if the
change was for the benefit of a private or a public purpose.
Whenever a provision becomes retroactive, it can then be
argued unjust on the basis of material change.
In response to Co-Chair Hanley, Mr. Cooper stated that he
agreed that under the federal constitution, the State can
not impair the obligation of the contract. He recommended
that it should be left flexible and to delete language
"entered into under this section". He thought that change
would provide the terms of the existing lease to either be
governed by this or not. Mr Cooper added that there exists
many leases carried in a hold-over status.
Representative Brown suggested language be adopted which
would include: "Unless an existing lease provided otherwise
the title to lease hold improvements". She considered that
removing "entered into" would not adequately address the
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concern.
(Tape Change, HFC 96-119, Side 1).
Representative Brown recommended additional language:
"These two subsections apply to leases that expire after the
effective day of this act". Representative Rokeberg agreed
that language would work and that it was the intent of the
amendment.
Representative Brown asked Mr. Parkan if this language would
provide a material concession of valuable property which the
State otherwise would receive title to and sell to someone
else. Mr. Parkan thought the recommended language attempted
to achieve what is currently existing. Each lease does
address the improvements, although not as clearly as
recommended.
Representative Rokeberg understood that the current language
would provide the commissioner complete discretion. The
intent of the legislation would be to overcome the
discretion as a matter of law. Co-Chair Hanley noted that
when the original leases were signed, it was understood that
when improvements or buildings were made to the leases, the
property then belonged to that person. Representative Kelly
noted that the constitution states that person deserves just
compensation. He thought that the constitution would take
precedence over the lease.
In response to Co-Chair Hanley, Ms. Hickerson stated that
language would not be a constitutional "taking".
Constitutional "taking" refers to situations where the
person has a right, beyond the time in which the State comes
to take. Mr. Cooper commented that the parties could
bargain for whatever they want. The problem is whether the
Legislature should pass a statute saying that no one should
get a lease unless they agree to that condition. What would
then occur, would be relinquishing the constitutional right
to that compensation. The issue is whether the Legislature
should impose upon the public, the precondition that they
have to give up their constitutional rights for compensation
for improvements if the State so decides.
Representative Brown asked where in the bill, that language
was mentioned. Mr. Cooper replied that language was not
included in the current version before the Committee.
CHARLES COLE, (TESTIFIED VIA TELECONFERENCE), ATTORNEY,
FAIRBANKS, advised that in the legislation supported by the
State, Subsection (f) contains a provision which clarifies
that the "land lessee owns title permit to the improvements
that the lessee constructed or purchased during the term of
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the lease", unless the lease expressively states that the
State is the owner of the improvements. [Copy on file]. He
noted that the State has indicated their support of that
language and thought it was applicable to existing leases.
Representative Brown agreed that language was a more
straightforward approach. Mr. Parkan referenced the
attachment, pointing out that the underlined language was
the language agreed upon by the Department of Transportation
and Public Facilities and the Department of Law.
Representative Brown asked if the underlined language was in
existing law. Co-Chair Hanley advised that was "new"
language.
Mr. Cooper commented that he had referred to Subsection (g)
in the State's proposal. There is in existence at this
time, a written airport operations policy, stating that the
airport retains the option of whether to decide if a person
must remove the improvements off the land or to allow the
person to sell them. The "so-called" right is illusory.
The lessee has the right if the "State wishes to let him
have the right". Presently, this is the mode of operation.
Mr. Cole interjected that he disagreed with Mr. Cooper. He
noted it would need to be in condition with: "Written
airport operational policy". That language was included by
the State.
Co-Chair Hanley stated that if that was a written
operational policy, it would then be totally in favor of the
State, and there would not need to be negotiations. Mr.
Parkan responded that it was not the intent of the
Department to assume total control. What the operational
policy refers to mostly is not the lease terms but rather
operating of the premises and the airport.
Ms. Hickerson added if the provision was passed, it would
have the effect of repealing the operation of law and any
inconsistent regulations. Airport operational policy only
intends what the airport has to do in order to respond to
directives given by the Federal Aviation Association (FAA).
Statute currently prohibits duplicating or adopting
inconsistent regulations of federal directives. The written
operational policy is intended to address federal
directives.
Co-Chair Hanley asked why the exception was needed. Ms.
Hickerson replied that the proposed legislation does not
effect the law of condemnation and the need to condemn a
building because of airport expansion and airport needs.
Co-Chair Hanley asked why the State needed the option
indicating that they could sell the improvements to a
succeeding lessee on the same land. He asked what would
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occur without that language. Ms. Hickerson stated that it
would not affect the State's ability to offer the new lease.
She referenced Section (c) of the State's proposed language,
addressing that concern. She emphasized that it is
important that the continued presence should comply with the
federally approved plan, standards, and requirements.
Representative Brown maintained that the Department's
proposal addresses problems which the Committee struggled
with in Amendment #2. Discussion followed regarding the
language of the bill. Co-Chair Hanley recommended that the
bill be further discussed in subcommittee.
HB 543 was HELD in Committee for further discussion.
ADJOURNMENT
The meeting adjourned at 3:25 P.M.
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