There were five proposed amendments in committee files. Testimony was heard from LARRY DEVILBISS, SENATOR GREEN, JANE ANGVIK, JALMAR KERTTULA and JOHN BAKER. SB 109 was HELD for further consideration. SENATE BILL NO. 109 "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." LARRY DEVILBISS, Assemblyman, Matanuska-Susitna Borough, spoke via teleconference. He was a second generation farmer in the Mat-Su Valley, the largest carrot producer, and also farmed beets, hay and garlic. He farmed both fee-simple land and "ag-right" (ph) land. He referenced written testimony that he would fax to the committee. MR. DEVILBISS brought up Section 10 on page 6 regarding municipality selection and transfer of land. He read from the bill and cautioned that the agricultural use and intent be protected either by covenant or code on the part of the municipality receiving the land so it wasn't sold out for subdivisions, a trend nearly impossible to buck in the borough. He next referred to line 4, page 6, related to the subdivision details. He wanted it to be clear that the legislation was talking about the entire farm and not tax parcels or aliquot parts. He gave an example of taking each parcel of a 1,600 acre farm and subdividing it down to 40 acres, stating that it virtually destroys the farm character. He wanted to insure the subdivision process is allowed only once per farm and not per aliquot part. He supported the concept of fee- simple. It would be easier for the farmer to work with if the covenant process was attached to it. MR. DEVILBISS continued by saying that to pretend that value is not being passed along is something that is not real in the Mat-Su Borough. He recently applied for borough land adjacent to his farm and the assessed value for fee-simple came back at $1,300 per acre, while the ag-rights assessment was $600 an acre. Value was an issue he felt was pertinent to the committee. He had a concern that retroactively giving value to people who bought the land under a different set of rules was not fiscally prudent. He recalled the Department of Natural Resources citing there was not enough difference in value to bother with. But he assured the committee that there wouldn't be so many people clamoring for it who had ag-right property now if there wasn't a value attached to it. He suggested changing Sections 12 and 13 relating to municipal and private disposals by adding a clause that says the person receiving the new title will give the state a check reflecting the difference in the value of the new title versus the old title. He felt changes were necessary for the bill to be defensible. MR. DEVILBISS summarized by stating he knew of no one who supported SB 109 as it currently appears. SENATOR LYDA GREEN, Sponsor of SB 109, addressed the committee next. She referred to recent correspondence from the Department of Natural Resources (copy of 3-19-97 letter on file) that outlines their areas of concern, many of which were just addressed by Mr. Devilbiss. One was the choice between conservation easement, perpetual covenant, enforceable covenant or no covenant at all. There was a liability issue concerning the window of time between when a parcel owner brings the deed of conveyance to be changed from ag-rights to the new status. The state requested a limited liability report and she felt that was acceptable. It would be something the owner would provide when they make the conveyance. SENATOR GREEN acknowledged concerns about survey language and stated that language referring to aliquot parts would be deleted. Another issue concerned method of payment and how to evaluate the increased value of a dwelling site. She said she was looking at how to reassess the value that accrues to the property for the addition of a dwelling site. Another issue being worked on has to do with deferring payment until the land is sold. Many people have no intention of subdividing or selling, but choose to change to a new type of deed so they may obtain financing from an entity other than the state. SENATOR GREEN had five proposed amendments for the committee to consider which addressed the major portion of concerns, including increased valuation, limited liability, the survey, and perpetual covenant versus conservation easement. She had some concern with the easement language because it still keeps the state in the title and most farmers want the state off the title. The state's concern was once they provide a perpetual covenant, the landowner could dispose of the land and no money would ever accrue to the state. She contended there was language that could be placed on a title that could prevent that occurrence. She recommended Amendments #1, #2, #3 and #5. VICE-CHAIR PHILLIPS called on JOHN BAKER, Assistant Attorney General, available via teleconference. MR. BAKER indicated he was available for testimony if necessary. SENATOR PARNELL was interested in hearing testimony regarding the Department of Law fiscal note. VICE-CHAIR PHILLIPS wanted to complete testimony before taking up fiscal notes. JANE ANGVIK, Director, Division of Land, Department of Natural Resources (DNR), stated she had been working with the sponsor on SB 109 and was pleased with the progress being made. She outlined the department's baseline issues regarding the protection of agriculture lands. Their first premise was that agriculture land should be retained as agricultural land. They had a concern that in the conversion of a form of ownership, individuals may accrue a significant windfall profit by increased value as a result of being able to subdivide land and by placing a house on each piece. They agreed with efforts to capture the increased value on the ability to put more houses on the land. They wanted to make sure the state retained the capacity to secure fair market value because when people purchased agricultural lands they bought them at a low price relative to the increased value if they could add more houses, so there needed to be a method to do that. They favored a conservation easement, a tool used in agricultural communities in other states, and one which is familiar to the federal agriculture loan programs. There was some concern as to whether the state should retain a position in the land title, but they believed it was the most secure way of making sure that, should land be subdivided and more houses developed, the state would be able to capture the increased value. They have the most concern with the ability to enforce the retention of agricultural lands either under a covenant or conservation easement. They have worked to ensure that not only the state would be able to bring people to court but that other individuals could also, so that neighbors could become an enforcement arm to make sure the agricultural character of the land was retained. They were in agreement on the aspect of requiring a survey as part of any land disposal for agricultural purposes. MS. ANGVIK summarized that the gist of her remarks was that with some of the proposed changes they were working towards a bill that could be agreed on. The most important issue was that if value increased, the state be able to participate in the value. The second was that the state do everything in its power to retain the agricultural character of land and not promote subdivision of the land for other purposes. SENATOR GREEN discussed the land value issue and invited the committee to help address it, whether by formula, incentive, et cetera. She suggested "the state doesn't have any business being in the land business anyway and it should be in the hands of individuals to do with and improve." She did not want to encourage smaller subdivisions. The presence of COCHAIR SHARP was noted. MS. ANGVIK reiterated that the biggest issue for the committee was to make sure it didn't create tremendous accidental windfall profits to individuals, and that the fair market value of the land and its improvements accrues back to the state. Since the state sold it at a low price and there is the capacity to increase the value, the state should remain in the loop. There was additional discussion regarding valuation. SENATOR TORGERSON questioned for clarification whether the valuation was being done because "we're actually wanting the ag-right owner to buy the property" and for taxation from local government. SENATOR GREEN explained that it had to do with someone selling the land. They recommended for convenience that there be a $6,000-per-transaction fee or the agricultural land owner would have the right to have a comparison appraisal done and if it's less than $6,000 they would take the appraisal, or if the appraisal is more than $6,000, they would pay the $6,000. She felt it would be a generous payment to the state for increased value. The state requested an appraisal and she wanted to "work in the either/or." JALMAR KERTTULA, Director, Division of Agriculture, DNR, testified next. He distributed additional back-up related to SB 109 (copy on file) to point out efforts to provide housing loan opportunities. He gave historical background regarding development of the agriculture rights program, subdivisions and farming activity. The program allowed the farmers in borough areas to keep reasonable farm values rather than subdivision values for tax programs. He noted the federal government was in a position of buying back development rights in urban areas so agriculture can continue in those areas and referenced a New York Times article in his packet. MR. KERTTULA brought up a constitutional question related to Section 8 and the issue of providing a way for the state to recapture some of the funds if there was subdivision and a change from ag-rights. In rewriting debt structure, there was an IRS interest in differentials being tax liability. He believed there would be a windfall profits tax interest by IRS if a mechanism was not provided for some of the recapture of the differential by the state. He saw it as a serious question for anyone who converted. He stated there were many people from his area that were opposed to the change, other farmers want the change, and he acknowledged that the sponsor and the administration were trying to accommodate both points of view to the best extent possible. He had been requested to speak to the committee by the governor to "work out some accommodation, if not, [the governor] would feel inclined to have to veto it again." MR. KERTTULA stated his belief that DNR and the sponsor had gone a long way toward accommodating the governor's and attorney general's concerns. SENATOR PARNELL renewed his request for an explanation of a fiscal note from the Department of Law. JOHN BAKER, Assistant Attorney General, Natural Resources Section, Department of Law, referred to the fiscal note analysis. He mentioned that, by oversight, there was no fiscal note prepared last year for SB 162 (an identical bill). He testified that in its current form, the bill would likely lead to an increase in the number of parcels in circulation and a corresponding increase in the need to monitor those parcels for violations of covenants. There was also concern that the remedy available to the state was less of a threat, and could result in increased litigation. The fiscal note was based on the cost of one attorney position. There is currently one full-time attorney in the attorney general's office that represents the Division of Agriculture and it is funded through a reimbursable services agreement by the division using Agricultural Revolving Loan Fund money. It was his understanding that it would be inappropriate to use those funds for additional agency advise or litigation. It was determined that funding should come from general funds through the Department of Law. SENATOR PARNELL questioned why it would not be better to give DNR the $138,000 in their agriculture general fund budget and allow them to pay it across as needed instead of hiring another person in the Department of Law to do something that would be speculative in terms of what might happen. MR. BAKER responded that DNR did not have independent authority to retain counsel outside of the attorney general's office, so the only way they could receive representation would be through an RSA or directly through a general fund position through the Department of Law. SENATOR PARNELL stated he was trying to get more general fund dollars to save the Agricultural Revolving Loan Fund. If the money was not needed in the Department of Law because of the speculative nature of the fiscal note, he'd rather the Division of Agriculture have the funds so the loan fund would not be depleted. VICE-CHAIR PHILLIPS asked if there were additional testimony or questions regarding SB 109. There being none, he HELD SB 109 for further consideration and turned the gavel over to COCHAIR SHARP. End SFC-97 #65, Side 2 Begin SFC-97 #66, Side 1