SB 64-UNIFORM ENVIROMENTAL COVENANTS ACT  9:35:04 AM CO-CHAIR PARISH announced that the final order of business would be SENATE BILL NO. 64, "An Act adopting the Uniform Environmental Covenants Act; relating to environmental real property covenants and notices of activity and use limitation at contaminated sites to ensure the protection of human health, safety, and welfare, and the environment; and providing for an effective date." 9:35:27 AM SENATOR PETER MICCICHE, Alaska State Legislature, as prime sponsor, presented SB 64. He said the proposed legislation fits the description of legislation that would "streamline and remove obstacles that inhibit business commerce in the transfer of property." He said SB 64 would help in that capacity without reducing expectations for public health, safety, and a healthy environment. The proposed legislation would create The Uniform Environmental Covenant Act, which would "protect the buyer and seller of contaminated property, while allowing the fullest and best use of the property until the contamination reaches safe levels." He said that under SB 64, [entering into the environmental covenant] would be voluntary. He said it is specifically recordable interest in real estate that will be tracked in the Department of Environmental Conservation's (DEC's) database, which results in a zero fiscal note, because that database already exists. He said [the covenant] is "specific to the risks at a particular site and restricts activities that could result in exposure while allowing other uses to occur." SENATOR MICCICHE relayed that in his district there is a beautiful piece of property that has been contaminated, and the "Mom and Pop" who own it cannot afford the cleanup; however, there are interested parties who could [buy the property and] easily afford the cleanup. Under SB 64, the contamination would be recorded on the property deed; the new owner could purchase the property and have it cleaned up to the Department of Environmental Conservation's (DEC's) current standards; DEC would then release the covenant from the piece of property. He said the process would protect both seller and buyer. He reiterated that it would be a voluntary process. He said, "This eases the sale through a formal recording on the deed itself." SENATOR MICCICHE related a second story wherein buyers bought property in Anchorage and were unaware that it was contaminated; they "did some dirt work" and inadvertently spread the contamination across their property and into the abutting properties and are now responsible for paying for the cost of the cleanup. If the provisions of SB 64 had been in place, the buyers could have been made aware of the contamination, may have still chosen to buy the property and pay $20,000 for the cleanup instead of potentially millions of dollars. SENATOR MICCICHE said there are many pieces of property that could benefit under SB 64. Currently there are thousands of contaminated sites in Alaska. He related that the only opposition to SB 64 is from the federal government, which owns 51 percent of the contaminated sites in the state. He mentioned the "Legacy Well" - nicknamed "Travesty Wells" by the legislature - and said, "We believe they should live up to the same environmental expectations of the residents of this state." 9:39:40 AM REPRESENTATIVE RAUSCHER asked if there is any regulation currently in place that requires contamination to be declared, if that regulation is statewide or within local jurisdictions, and whether contamination currently must be disclosed to potential buyers. SENATOR MICICCHE answered that if a property owner is unaware of contamination, he/she is not required to disclose it. He said, "This is once contamination has been identified on your property." He deferred further response to Kristin Ryan from DEC. 9:40:52 AM REPRESENTATIVE WESTLAKE expressed appreciation to Senator Micciche for SB 64. 9:41:10 AM REPRESENTATIVE SADDLER said he has a constituent who "has the same kind of situation." He asked whether there would be a cost to create a covenant and whether there would be any [exceptions] related to types of contamination. 9:41:44 AM SENATOR MICCICHE responded that any contamination for which DEC requires cleanup would be covered under SB 64. He said his personal interest is in regard to transferring of property to the next owner; the proposed legislation would allow the new owner "to take on the liability of that contamination if they choose to do so." He said sometimes contamination reaches safe levels over time. For example, a person who owns an old filling station where the contamination was contained underground could operate a new business there with certain restrictions - perhaps not a daycare, but certainly an auto parts store. The owner could choose to have the contamination cleaned up later in order to lift the restrictions and operate whatever business he/she may choose. He added, "It allows a lot of flexibility for both the buyer and seller." REPRESENTATIVE SADDLER offered a hypothetical situation wherein the owner of the property gets a covenant that states the contamination would cost $50,000 at most to clean up, but then the new owner finds out the cleanup will cost $5 million. He asked, "Does this extinguish any obligation or liability on the original seller or are there any limitations or sideboards?" SENATOR MICCICHE deferred to DEC but surmised a determination would be made on a case-by-case basis. He offered his understanding that with an environmental covenant, the buyer can "take on a proportion of liability depending on the transaction and until it's satisfied ...." REPRESENTATIVE SADDLER asked if the cost for recording a covenant would be no more than the cost of recording "a carpenter's lien or anything else." SENATOR MICCICHE answered, "I'm not sure if there's any cost." 9:44:57 AM KRISTIN RYAN, Director, Division of Spill Prevention and Response, Department of Environmental Conservation (DEC), stated that SB 64 is needed by the department in order to transfer property that has been contaminated "back into commerce." She said property that has been contaminated is considered "blighted and untouchable," and it is difficult to get loans on such property. The proposed legislation would reduce the restrictions on the property "to the specific uses that we're concerned about, allowing all other uses to occur." She said DEC has found that in other states [that have passed similar legislation], buyers, sellers, and lenders are more comfortable undertaking sale transactions of [contaminated property]. She advised a version of the uniform law has been adopted in most states, with about 7 states, including Alaska, still working on getting the law passed. She said, "There's some testimony from the uniform law organization that explains why they proposed this and why it's been working so well in other states." MS. RYAN related that the U.S. Department of Defense (DoD) has asked to be exempted, but DEC thinks DoD should be held to the same standards as everyone else. Ms. Ryan told Representative Saddler that DEC would take on the responsibility of filing a covenant and is allowed to do so at no cost; therefore, there would be no cost to the owner of the property for putting the restriction in the title. She said DEC currently does this work and puts the information in its database, but the database is not always accessed [by the public]; the proposed legislation would ensure that the people involved are aware [of the contamination] when they do title searches. 9:47:20 AM CO-CHAIR FANSLER referred to the story [shared by the prime sponsor] regarding [the purchase of contaminated land in Anchorage where the contamination was inadvertently spread to other properties]. He offered his understanding that the owner was under no obligation to clean up the contamination but later, when the owner spread the contamination, he/she was under obligation to clean up the contamination. He asked for an explanation. He further questioned why the original owner of the land was not obligated to clean up the contamination. 9:48:13 AM MS. RYAN responded that under statute, the current owner is responsible for the contamination of his/her land. If the owner is not the cause of the contamination but "inherited it for some reason," his/her recourse is to pursue the original contaminator through a court of law. She continued: A good example is the Flint Hills Refinery. We recently settled with Koch Brothers, which is the current owner of the refinery, but a lot of that contamination probably occurred when William owned the property. We are continuing a legal fight ... now joined with the Koch Brothers against William to have them contribute to the remedy. MS. RYAN offered details related to the aforementioned situation given by the prime sponsor, as follows: We were aware of contamination; they closed the gas station down - this was on Tudor [Road]; they took out the tanks and the petroleum contaminated dirt around the tanks; but there was enough petroleum that had leached over to the foundation of a building, and ... there would be no way to get that without removing the foundation of a building. So, we said, "You can leave that, but if you ever take that building out, you need to deal with that dirt appropriately." And what happened is the property was transferred several times; that was not communicated to the new purchaser; they pulled the foundation out; they spread the dirt in the process of that. So, they are now the responsible party in our minds, because they're the ones that moved the dirt. ... Had they known, they would have not moved it everywhere. ... And they can go to court after the original responsible party, if they choose to do so. But ... the way our statutes work: they're the ones that we regulate. CO-CHAIR FANSLER surmised that there are situations wherein contaminations happen and don't get cleaned up, and he inquired whether there are "alternatives given in that situation." MR. RYAN responded that there are approximately 2,000 contaminated sites currently in Alaska - about half of which are on federal property. For about 1,000 of those sites, DEC has decided - for a variety of reasons - that "they don't have to clean it all up." The department puts restrictions on the property "to protect the future." For example, as Senator Micciche described, perhaps a daycare cannot be built on a particular site or, Ms. Ryan suggested, a well built on a contaminated refinery site. She said those restrictions are called institutional control and vary depending on the type and location of the contamination. The decision to not clean up contamination is a joint decision made by DEC and the responsible party. She emphasized that the department's ultimate goal is for contaminated sites to be cleaned; however, there are situations in which that may not be reasonable. MS. RYAN, in response to a follow-up question, said the proposed legislation, if enacted, would not apply retroactively to the 2,000 already recorded sites. She said there may be some sites for which the division would want to establish covenants on a case-by-case basis. She indicated that there are some owners of sites on the North Slope who are interested in [the proposed legislation] for protection of their liability when property is transferred in the future. She said the department wants to prevent future situations in which people are unaware that the land they have inherited is contaminated. CO-CHAIR FANSLER asked for confirmation that Ms. Ryan means that the department could deal with all 2,000 contaminated sites retroactively but would not, because it would be too time consuming. MS. RYAN answered yes, and she added that the department does not have the resources to do that. She stated, "If the responsible party wants it, of course we'll honor that; but I don't see us ... taking them all on." 9:53:38 AM REPRESENTATIVE SADDLER asked if the environmental covenant would be "an unrestricted allowance of liability" or include terms [of limitation]. MS. RYAN answered, "That would ... have to be negotiated between ... the sales transaction; it would not be part of the covenant; the covenant has no monetary interest whatsoever." 9:54:30 AM REPRESENTATIVE RAUSCHER asked Ms. Ryan to explain the process of "getting off of this registry." MS. RYAN said DEC would be "treating it like a permit." She explained that there would be an appeal process. If a future buyer decides the covenant is "no longer necessary in restricting some use that they're interested in," then he/she would propose to DEC that the covenant be modified or removed. She explained that she used the term "permit" because if DEC does not agree with the proposal, then the buyer could appeal that decision to the commissioner, as is done with other permit decisions. She said as a last-case scenario, the person could take DEC to court. In response to a follow-up question, she confirmed that of the 2,000 already existing contamination sites that are not on federal land, some are on privately owned land. She said home heating oil tanks are problematic. She said she does not know the percentage, but estimated it would be only about 5 percent. 9:56:12 AM REPRESENTATIVE DRUMMOND asked if the initialism "IC" stands for institutional controls. MS. RYAN answered, "Correct." 9:56:25 AM REPRESENTATIVE SADDLER asked if the programs in other states have been working well or if there have been any legal battles resulting. MR. RYAN responded that the one benefit of Alaska having waited to put forth such legislation is that it can first learn from the mistakes made by other states. She advised that the model code was put out in 2003, so "it's been over 10 years that people have been working on this," and the organization that proposed the model code is saying [Alaska's] version is probably the best one. She concluded, "Yes, it's working in other states; the version that we're proposing has ... been effective in accomplishing the goals that we're talking about." 9:57:30 AM CO-CHAIR PARISH opened public testimony. After ascertaining that there was no one who wished to testify, he closed public testimony on SB 64. CO-CHAIR PARISH announced that SB 64 was held over.