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." BRETT HUBER, STAFF, SENATOR GREEN testified in support of SB 162. He noted that SB 162 was introduced to facilitate the growth of agriculture in Alaska. He asserted that Agriculture in Alaska is currently a $30.0 million dollar annual industry. It is a renewable industry that creates new wealth and provides jobs. He explained that the primary intent of the bill is to provide for the conveyance of fee simple title for agricultural land subject to restrictive covenant running with the land limiting the use to agricultural purpose. The legislation protects the agricultural utilization of the land while allowing the individual farmer clear property rights, protection of due process and greater flexibility in securing conventional financing. Mr. Huber maintained that agricultural land owners will have the ability to make business decisions responsive to the market place and based on individual circumstances. He added that the legislation will allow more Alaskan farmers an opportunity to succeed and further contribute to the State's economy. He noted that the legislation is supported by the agricultural community. Mr. Huber reviewed the legislation by section. Section 1 outlines the primary intent of the bill to provide for the conveyance of fee simple title for agricultural land. Representative Brown asked if fee simple title would include subsurface land. Mr. Huber noted that subsurface land would not be included. Mr. Huber noted that section 2 is enabling language giving the Department the option to eliminate the requirement for cadastral survey of agricultural lands prior to disposal. Representative Brown asked how people would establish land 2 boundaries. Mr. Huber explained that this provision would eliminate the requirement to survey areas that had been previously surveyed. The provision is only enabling language. The land would still be subject to municipal planning regulations. Representative Brown questioned if the State would be liable if the land was not properly surveyed. Mr. Huber responded that the Division would make that determination before disposal. Sections 3 is enabling language allowing the Department the option to dispose of agricultural land under a site specific plan if no regional use land plan is in place. Section 4 removes the Department's authority to require pre- qualification to participate in an agricultural development project under former AS 44.33.475, repealed in 1979. This section also allows the Department to modify existing farm development schedules to respond to changing economic circumstances. Section 5 is a technical change to reflect the repeal of the former Agricultural Action Council statutes. Mr. Huber added that section 6 allows the Department to dispose of land by aliquot parts. This corresponds to the language in section 2. Section 7 clarifies contract terms with regard to the Department's options in declaring a payment moratorium for agricultural land contracts. Section 8 provides that the interest rate for agricultural land shall not exceed 9.5 percent. This section also allows the inclusion of interest in the payment moratoriums authorized by AS 38.05.065(h). Section 9 establishes the covenant that runs with the land and limits or restricts its utilization for agricultural purpose. This section also outlines the subdivision parameters for agricultural land. Section 10 provides for a corresponding change in agricultural land title status for agricultural land that has been transferred to municipalities. In response to a question by Representative Therriault, Mr. Huber explained that this section provides for the same change in title transfer to the land that was transferred from municipalities under the municipal entitlement, as it would for a holder of private agricultural rights land. He explained that a portion of municipal entitlement lands were designated for agricultural utilization only. This allows 3 the municipalities to go back and change their title status. Representative Brown questioned if the legislation would effect existing agricultural disposal. Mr. Huber replied that the legislation would effect agricultural land currently in utilization that has already been competitively disposed. Representative Brown asked if the competitive lease terms would be modified. Mr. Huber observed that before or after the transfer of title or the changes allowed by the legislation, the individual that purchased the land had the opportunity to use it for agricultural purposes. Section 11 states that the Department may require the land owner to cooperate with soil conservation districts. Section 11 also restricts the Department's use of farm development plans unless they are modifiable due to economic hardship or other extenuating circumstances. This section also allows the landowner the right to construct agricultural related improvements, the right to use the land for purposes that are incidental and not inconsistent with the primary agricultural use, the right to utilize gravel and remove and dispose of timber, the right to sell and subdivide agricultural land as set out by covenant and provides a definition of "agricultural purposes". This section also ensures remedy for breach of covenant will be by civil proceeding. Sections 12 and 13 are transitional sections providing for the transfer of agricultural rights only title to fee simple title with agricultural covenants. This process is applicant driven. The land owner may apply to the Department for new title and must provide, at their cost, proof of ownership through title insurance or title report. Section 14 repeals Departmental regulations inconsistent with the statutory changes made through the legislation. BILL WARD, WARD FARMS, SOLDOTNA testified via the teleconference network. He spoke in support of SB 162. He stressed that the legislation has created a sense of optimism in the agricultural community. He maintained that the legislation will take the State out of the agricultural industry. He stressed that there is no risk to the State. Mr. Ward discussed the fiscal note. He stressed that owners are willing to pay the cost of the legislation. He emphasized that there would be a reduction in state administration costs. He observed that the agricultural industry is growing 10 percent a year. MIKE SCHULTZ, DELTA JUNCTION testified via the 4 teleconference network. He spoke in support of SB 162. He observed that the legislation will resolve title problems relating to agricultural lands. LARRY PETTY, NORTH POLE testified via the teleconference network. He maintained that the Agricultural Revolving Loan Fund does not have sufficient funds to loan to all the farmers in the State. He observed that without titles it is impossible to obtain traditional loans or borrow money to build homes on the land. ART GRISWOLD, NORTH POLE testified via the teleconference network. He spoke in support of SB 162. He maintained that agricultural farming should be a private industry. JOHN GLOTFELTY, NORTH POLE testified via the teleconference network. He spoke in support of SB 162. He stressed the difficulty in obtaining loans. He observed that he could obtain federal funding if he had title to the land. ED BOSTROM, NORTH POLE testified via the teleconference network. He spoke in support of SB 162. He observed the importance of SB 162 in promoting economic development in agriculture. He maintained that the current regulations regarding agriculture are detrimental to the industry. He noted other groups in support of SB 162. PETE ROBERTS, HOMER testified via the teleconference network. He spoke in support of SB 162. He emphasized that SB 162 clears up ambiguities in regard to title rights of agricultural land. He asserted that the State should not micro manage small businesses. DENNIS WADE, HOMER testified via the teleconference network. He spoke in support of SB 162. He noted problems associated with agricultural land titles. He maintained that the lottery system should be abolished. He asserted that land disposed of by the lottery is being used for residential purposes only. HARVEY BASKINS, WASILLA testified via the teleconference network. He spoke in support of SB 162. He maintained that SB 162 is the most aggressive piece of legislation he has seen. He noted problems with the lack of title. He maintained that he is still a tenant farmer for the State. He observed that farmers can only borrow money from the Agricultural Revolving Loan Fund. JOHN CRAMER, WASILLA testified via the teleconference network. He spoke in support of SB 162. He noted that interest rates in the private sector are lower. He 5 maintained that the legislation will encourage agriculture. Representative Brown expressed concern regarding how existing contract provisions would be affected. RON SWANSON, DIRECTOR, DIVISION OF LANDS, DEPARTMENT OF NATURAL RESOURCES explained that the legislation will convey the land in fee simple with an agricultural covenant. If the land is not used for agricultural purposes the State would have to go to civil court to enforce the covenant. This would give banks sufficient security for loans. He maintained that there will be no difference "on the ground". Representative Brown referred to section 4. She questioned what development requirements will remain. Mr. Swanson noted that previous sales required that bidders were pre- qualified. The Court ruled that the legislature did not have legislative authority to require pre-qualification of bidders. The Department subsequently obtained legislative authorization. However, the Department has not pre- qualified individuals since legislative authorization was obtained. He added that if economic consideration change certain conditions could be waived. He stated that it is not the Department's intent to direct farmers regarding which crops to grow. He stressed that the Department of Natural Resources's concern is that the land be used for agricultural purposes. (Tape Change, HFC 96-120, Side 2) Mr. Huber referred to page 7, section 11. He noted that the Department has the ability to require a farm development plan if they feel it is reasonable. The plan would need to be modifiable due to economic hardships. Representative Brown maintained that the language is confusing. She suggested that section 7 be modified to eliminate the provision regarding development plans. Mr. Huber observed that the Department does not want to differentiate between agricultural purposes. He stressed that section 7 allows the Department to require that there is agricultural utilization without the ability to determine how the land has to be used. Mr. Swanson explained that failure to comply with the development plan would be a breach in contract. This could be resolved through administrative action. Representative Brown summarized that the lease could be cancelled if an individual is not in compliance with the development plan. Mr. Swanson clarified that the legislation does not require that the land be used for agricultural purposes, but if the 6 land is used it must be for agricultural purposes. In response to a question by Representative Brown, Mr. Swanson stressed that contracts will not be renegotiated. The only thing the Department will modify is the deeds that have been issued. If an individual wants to have their deed modified they must provided the title report and other required documents. Any new patents that are issued after the contract has been met and paid for will contain the new language. New sales will come under the new provisions. In response to a question by Representative Grussendorf, Mr. Swanson stated that agricultural land in probate would be treated the same as any agricultural land. Current regulations allow agricultural land to be subdivided into unlimited 40 acres parcels. Under the current law the 40 acre parcels cannot be built upon. The legislation would allow land to be subdivided into 40 acres or greater parcels, but places a limit of four subdivided portions per contract. Under the legislation improvements can be put on the four subdivided parcels. Residences can be put on the land, but the land must be used for agricultural purposes. Representative Therriault noted that farmers have difficulty selling portions of their property if improvements are denied. He referred to section 11 on page 6. Mr. Huber explained that it is possible that a land purchaser would receive help from the Division in putting together a business or farm plan. The intent is to leave the Division with discretion. He added that if a farm development plan is required it must be modifiable. Co-Chair Hanley asked why a 9.5 percent interest rate was elected. Mr. Huber observed that the Senate Finance Committee recommended a 9.5 percent interest rate. He observed that 9.5 percent is the interest rate used for small business loans. Mr. Swanson emphasized that the interest rate cannot exceed 9.5 percent. The rate could be below 9.5 percent. Representative Brown noted that section 8 does not apply to existing moratoriums. Mr. Swanson observed that the use of timber and gravel is allowed if it is used on site and is needed for agricultural development. Representative Brown thought that the legislation would allow removal and sale of gravel and timber as long as it is used for agricultural purposes. Mr. Huber clarified that subsection (3) requires that the gravel or timber be used on the parcel conveyed. Representative Brown maintained that the ability to put a residence on subdivided land would increase land value. Mr. 7 Swanson explained that the Department's calculations show that prices would remain approximately the same based on appraisals by private industry. He noted that Delta Junction farms are expanding. He asserted that farmers will be able to live on their farms. Representative Brown referred to subsection (e) on page 7. She asked what the State can use to enforce the provisions. Mr. Swanson stressed that it would be the same as any reality provision. The only enforcement that would carry over is the agricultural covenant. Mr. Swanson noted that approximately 230 contracts are paid off and could be conveyed fee simple. Mr. Huber noted that the transfer is at the request of the land holder. He reiterated that the land owner must provide the Department with required documentation. Representative Therriault added that those that need loans will initiate the transfer. In response to a question by Representative Brown, Mr. Swanson noted that the legislation was reviewed by the Office of the Attorney General. Representative Martin MOVED to report CSSB 162 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. Co-Chair Hanley noted that the fiscal note contained an error in the second year's calculation of general funds. Mr. Swanson noted that the fiscal note would be revised to reflect the correct amount of 11.4 thousand dollars in the general funds funding source. There being NO OBJECTION, it was so ordered. CSSB 162 (FIN) was reported out of Committee with a "do pass" recommendation and with two fiscal impact notes by the Department of Natural Resources, one dated 2/14/96.