HOUSE BILL 543 "An Act establishing a preference when entering into state airport land leases." Co-Chair Hanley provided members with a proposed committee substitute, work draft version 9-LS1769\R, dated 4/17/96 1 (copy on file). KURT PARKAN, DEPUTY COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES stated that the work draft addressed many of the Department's concerns. He stated that the Department has two remaining concerns. He referred to page 3, line 15, subsection (c). He stated that the extended term should be limited. He also expressed concerns regarding the total amount of time a person may have exclusive use of the resources. He emphasized that it is not good public policy to allow one person exclusive rights of the State's resources. He maintained that rights of the broader public should be protected. Individuals that are not current tenants should not be shut out from an opportunity to use the public's resources. He stressed that there should be some limit to the amount of time a person can have exclusive rights. Co-Chair Hanley noted that the Committee was provided with an amendment, 9-LS1769\R.1, dated 4/17/96 that would provide that: "The term of a new lease or an extension entered into under (c) of this section may not exceed a total of 55 years when combined with the term of the prior lease if a new lease is entered into, or with the term of the existing lease, if an extension is entered into." Mr. Parkan stated that the Administration would support the above amendment. JACK BURMINGHAM, ALASKA AIR CARRIERS, ANCHORAGE testified via the teleconference network. He stated that he supports, work draft version 9-LS1769\R, dated 4/17/96. CHARLES COLE, ATTORNEY, FAIRBANKS testified via the teleconference network. He expressed support for work draft version 9-LS1769\R, dated 4/17/96. STEPHEN COOPER, ATTORNEY, FAIRBANKS testified via the teleconference network. He stated that he would support work draft version 9-LS1769\R, dated 4/17/96. Representative Kelly WITHDREW Amendment 2. Representative Mulder noted a conflict of interest due to his wife's lobbying activities. Mrs. Mulder represents the Alaska Air Carriers Association. Members objected to his request to reframe from voting. Representative Mulder MOVED to rescind the Committee's action in adopting work draft version 9-LS1769\O, dated 4/9/96 as amended by Amendment 1. There being NO OBJECTION, it was so ordered. Representative Mulder MOVED to adopt work draft version 9- 2 LS1769\R, dated 4/17/96. There being NO OBJECTION, it was so ordered. Representative Kelly provided members with Amendment 3 (copy on file). Amendment 3 would insert "and the lessee is compensated for the value of the improvements removed and, if appropriate, for the value of the business, if any, operated by the lessee on the land." He expressed concern that businesses be fairly compensated. Co-Chair Hanley observed that permanent assets can be sold or auctioned by the State. He expressed concern that the State would have to ascertain the business value. Co-Chair Foster suggested that the amendment be divided. Representative Brown stated that the lessee would be compensated for the value of the improvements. The lessee can sell under (A)(2) or allow the State to sell the assets and give them the proceeds. Representative Kelly referred to page 4, (A). He questioned what is the protection for the lease holder who has to sell their assets. Representative Navarre noted that private lease holders are treated in the same manner. Co-Chair Foster emphasized that the State has a monopoly on land surrounding state airports. Representative Kelly MOVED to adopt Amendment 3. Mr. Cowper spoke in support of Amendment 3. He stated that the airport can rewrite their operational policies and decide that it is not in the State's best interest to renew a lease. The lessee can be required to remove improvements from the property. He asserted that this provision is subject to abuse by the State. Co-Chair Hanley stressed the difficulty of assessing business value. He pointed out that if a lessee does not want to sell or auction their assets the State has no recourse. Representative Martin asked why a government lessor should act differently than private lessors regarding contracts. Representative Kelly emphasized that the State has a monopoly in regards to airport land. He observed that there are no alternative private airports. If a lessee loses his lease he has no place to go. Representative Martin asserted that the State should get the maximum value of its assets. Representative Kelly observed that there are no alternative 3 private airports. ELIZABETH HICKERSON, (TESTIFIED VIA TELECONFERENCE), ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW observed that the term of the lease is set. She discussed condemnation. She maintained that if the State has to buy back the improvements in order to operate the airport in accordance to the master plan the flexibility of the airport would be hindered. She stressed that there would be a substantial fiscal cost associated with Amendment 3. In response to a question by Representative Martin, Representative Kelly noted that there are formulas that are used to assess the business value. A roll call vote was taken on the MOTION to adopt Amendment 3. IN FAVOR: Kelly, Foster OPPOSED: Kohring, Martin, Mulder, Parnell, Therriault, Hanley Representatives Brown, Grussendorf, and Navarre were absent from the vote. The MOTION FAILED (2-6). Mr. Parkan spoke in support of Amendment 4, 9-LS1769\R.1, dated 4/17/96: "The term of a new lease or an extension entered into under (c) of this section may not exceed a total of 55 years when combined with the term of the prior lease if a new lese is entered into, or with the term of the existing lease, if an extension is entered into." Ms. Hickerson maintained that Amendment 4 is a necessary tool to overcome a constitutional challenge. She stressed that leases could be given in perpetuity. She observed that the courts do not favor laws that impair the transference of lease interests or turn a lease into a individual fee simple estate. Especially if the State owns the land for public use. She noted that the Federal Aviation Agency (FAA) also opposes leases that extend into perpetuity and grant exclusive use. She noted that the State has agreed in contracts with the federal government to make airport land available for public use for fair and reasonable terms without unjust discrimination. She asserted that maintaining a provision that operates as an exclusive rate allows the State to be targeted for noncompliance. Noncompliance could jeopardize future funding and result in requirements to repay funds already received. She stated that she has taken the position that there are protections for the public if there is a limit of term years that are 4 extended without competition. Co-Chair Hanley noted that section 3 states that the commissioner shall extend the lease without competition if the lessee is in compliance with the terms and conditions of the lease and if it "is in the State's best interest." He questioned if the requirement to be in the State's best interest would provide sufficient protection to the State. Ms. Hickerson agreed that this provision would be the basis for her argument in support of the State. She stated that clarification could prevent litigation. In response to a question by Co-Chair Hanley, Ms. Hickerson noted that 55 years is used in statute. She maintained that a lease without competition is a lease that can extend into perpetuity. She stated that the longer the lease the greater chance that the courts and the FAA would consider the lease an unreasonable length of time, amounting to perpetuity. Mr. Burmingham argued against Amendment 4. He pointed out that the State leases federal land for what amounts to perpetuity. The State leases land from the Coast Guard which is extended every five years for a 25 year term. He maintained that (c)(1) and (2) provides sufficient protection to the State's interest. He gave an example of a 55 year lease limit that would work to the State's disadvantage. Mr. Cowper spoke in opposition to Amendment 4. He maintained that Amendment 4 would be a major shift in state aviation leasing policy. He observed that regulations under 17 AAC 40.320 (c)(1) provide that leases are issued on a first come first served basis. (Tape Change, HFC 96-127, Side 2) Mr. Cowper stated that the Department has policy in place which makes leases shorter than 55 years. Leases depend on the value of improvements. He maintained that involved parties should reevaluate leases to decide the terms and conditions of a new lease at the end of a lease term. He maintained that the amendment would allow the Department to judge leases just based on the 55 year criteria. He asserted that section 3, subsection (c)(2) would support the State's case in court. He stated that Amendment 4 would be retrogressive and destructive. Mr. Cole agreed that the State has adequate protection under section 3(c)(1) & (2). Representative Brown asked how the existing 55 year 5 provision in (a) would apply to (c). Ms. Hickerson explained that the maximum term under (c) would be 55 years. The 55 year term could be extended for an additional 55 years a number of times. She emphasized that Amendment 4 is critical. She asserted that HB 543 is a major move away from past practices of offering leases to the public. She maintained that the State is not interested in kicking good tenants off state land. The State is interested in giving people an equal opportunity to do business with the State. She noted that regulations stated that leases are issued on a first come first served basis unless the Department determines it is in the public's best interest to offer public auction. Representative Brown noted that leases could be extended into perpetuity unless the State determines it is not in the State's best interest. She asked if there is a constitutional problem with indefinite extensions without competition. Co-Chair Hanley summarized that the State can reject a new lease or extension if it is determined that it is in the State's best interest to go to competition. He acknowledged that the State's best interest is subjective. He noted that it could be in the State's best interest to continue a lease that was not allowed due to a time limit. In response to a question by Representative Mulder, Mr. Parkan clarified that the 55 year lease limit is not in the Constitution. Representative Parnell referred to (c)(2). He asked if the language would give the State the ability to say that competition is in the State's best interest. Mr. Parkan replied that the State could determine that competition would be in the State's best interest. He added that the Department would prefer not to have to battle with lease holders to decide the State's best interest. He spoke in support of a definitive lease term. He noted that other leases are limited to 55 years. There are no open ended leases in statute. Co-Chair Foster emphasize that most leases have to be renewed after 20 to 30 years. Representative Brown MOVED to adopt Amendment 4. A roll call vote was taken on the MOTION. IN FAVOR: Brown OPPOSED: Kelly, Kohring, Martin, Mulder, Parnell, Therriault, Foster, Hanley 6 Representatives Grussendorf and Navarre were absent from the vote. The MOTION FAILED (1-8). Co-Chair Hanley referred to page 3, line 15. He noted that the Department would like to have "for not more than one year" added. Mr. Parkan provided members with a summary of the benefits of new lease provisions (Attachment 1). He noted that a one year lease extension limit would allow the Department to introduce new language into the lease in order to reflect current airport conditions. He spoke in support of the additional language. Discussion ensued regarding problems with birds and the use of pigs at airports. Representative Brown asked if there are leases in the 10 to 20 year range that cannot be extended to 55 years. Mr. Parkan explained that the legislation will allow the Department to extend leases. DIANE BANTH, (TESTIFIED VIA TELECONFERENCE), LEASING OFFICER, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, ANCHORAGE noted that leases run from 3 to 55 years. She stated that the majority of leases are for 25 to 35 years. Extensions are public noticed if there is a substantial change to the lease. She explained that leases are extended in order to finance improvements. There is no competition during the public notice process of a lease extension if the lease has not ended. The original lease remains. Extensions requested at the end of the lease would allow an opportunity for competition. In response to a question by Co-Chair Hanley, Ms. Banth explained that most of the leases at the Anchorage International Airport allow opportunities for the State to increase lease rent no more than every five years. The State does not have to grant lease extensions. Representative Brown questioned the requirement for public interest. Ms. Hickerson pointed out that the Constitution requires that public notice be given. Representative Brown noted that the lessee can get a lease extension in the middle of their lease. Ms. Hickerson reiterated that the extension would be publicly noticed. She stressed that if there is objection the extension would not be given. The present situation would be changed by subsection (c) which provides statutory authority for the State to limit competition. The constitutional requirement for notice would not be changed. 7 Mr. Cole observed that the State requires that improvements be constructed in order to obtain an extension. He stressed that a business may not need further improvements on the lease premises. He maintained that this requirement creates economic waste. He observed that section 3(c) allows the existing lessee to have a new or extended lease in order to carry on business for the limit of 55 years. Representative Parnell referred to page 3, line 15. He asked if new terms are placed on extensions. Ms. Banth stated that part of the approval for the term extension is to add or replace language. Mr. Parkan clarified that the Department interprets page 3, line 15 to state that no new terms would be added as part of the extension. Co-Chair Foster MOVED to report CSHB 543 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSHB 543 (FIN) was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Transportation and Public Facilities, dated 4/9/96. Representative Kelly stated that his concerns had been addressed. Co-Chair Foster asked the Department of Transportation and Public Facilities to provide the Committee with a report on the fair market value of state land leased around airports. He maintained that the State has not opened sufficient land surrounding airports. He stated that this has increased fair market value. He asked what the Department of Transportation and Public Facilities is doing to open up more land around airports. ADJOURNMENT The meeting adjourned at 9:50 a.m. 8