HOUSE BILL NO. 319 An Act relating to the disposal of state land by lottery; and relating to the disposal, including sale or lease, of remote recreational cabin sites. REPRESENTATIVE HUGH FATE pointed out that there was an amendment to HB 319 regarding the contractual language at the last hearing. The amendment has been replaced by a new work draft. Representative Fate MOVED to ADOPT Work Draft Version V dated 3-30-04. Co-Chair Harris OBJECTED for purposes of discussion. Co-Chair Harris asked if Version V incorporates the amendment and whether there are other changes. Representative Fate explained that the language has been changed to reflect the penalty for a lawsuit outside the parameters of the statute. The penalties have been changed from 150% of the appraised value to 100% of appraised value in the proposed Committee Substitute. He noted that Legal also changed other language in the bill. JIM POUND, STAFF TO REPRESENTATIVE FATE, observed that members should have the blank CS, Work Draft Version V, and a page explaining the changes between the Resources Committee Substitute and new CS. He explained that the sponsor initially intended to drop all the contractual language in Sections 2 and 3 but had since decided to retain it. The CS brings the legal language up to current standards. It also changes the appraised value, giving latitude to the Department of Natural Resources (DNR) and the Commissioner to determine a penalty not to exceed 100% of the appraised value of the property. This language would go into a purchase agreement between DNR and the buyer, and the intent of keeping it in the bill is to avoid confusion by the buyer on the question of obligation. Co-Chair Harris withdrew his objection. Work Draft Version V was adopted. Representative Croft questioned the language at the bottom of page 2 and the top page 3. He asked if Representative Fate reads "an immediate assessment against the owner of a penalty that may equal the current appraised value" as saying that [the penalty] can't exceed. Mr. Pound answered that there is supporting statutory language in Section 3 on page 3, line 9, stating "the amount of the penalty, which may not exceed the appraised value of the land." Representative Croft felt it was awkward language in Section 2 and asked if Sections 2 and 3 refer to and supplement each other. Mr. Pound affirmed. Representative Croft asked if the language meant that if there was an effort to develop coal bed methane on cabin land that he had bought, and he objected and filed for relief, the Department could assess him the entire value of his land plus improvements. Mr. Pound replied that is correct, and the language would be put into the contract so that the buyer would be aware of it. Representative Croft asked for clarification that it would result in immediate assessment, so there is no discretion except for the amount of the fine. Mr. Pound replied that is correct. Representative Stoltze expressed that he still had some concerns about the bill. He asked for clarification of the filing a claim for relief, and if it would take away the right to due process. Mr. Pound was unable to answer. Representative Stoltze yielded to wait for response to his question. Co-Chair Harris acknowledged that the State has subsurface rights that are protected. He questioned how the language in Section 2 (on page 2, lines 27 through page 3, line 3) would make private property owners feel comfortable or have any protection to enjoy their property if a developer [wanted the subsurface minerals] and the state offered leases to the developer. Co-Chair Harris said he was concerned about it because the coal bed methane development in the Mat-Su Valley is occurring near a fairly populated area and is a private property issue. Representative Fate replied that this bill gives the Commissioner the responsibility of delineating areas for nomination that are within limits. The areas that are off limits include lands with high mineral potential, or areas that have been, or are earmarked to be, withdrawn. He thought that the prospect of mineral development happening is limited. The language on page 2, lines 29-30, provides for redress for any physical damage on the property. He asked how to address the intangibles of drilling or noise pollution. He noted that people have sued on those bases, and the plaintiffs have usually lost the cases but it has cost the defendants a lot of money. He said that the bill doesn't curtail, but it does limit, that possibility. Representative Fate continued, pointing out that if it is a site on a lake, it doesn't exclude the Commissioner from deciding to develop it in the buffer area of 660 feet over which the State has jurisdiction. The bill includes safeguards on the existing and prospective uses of the land. Representative Stoltze stated that the property rights issue has been top priority this session, and he lauded the efforts of Representative Fate to try to make more land available. Representative Croft understood that noise would be excluded, and he asked if the owner could complain about groundwater contamination or the subsurface water on his site without incurring the penalty. Representative Fate was unable to respond. Representative Croft said he would ask Legal. Representative Croft withdrew his objection to the Work Draft Version V. BOB LOEFFLER, DIRECTOR, DIVISION OF MINING LAND AND WATER, DEPARTMENT OF NATURAL RESOURCES, stated he would do an overview of the current land disposal program and the remote recreation cabin program. He explained that land disposal began with the passage of SB 283 in 2000, which passed with some new funding. The department was given specific performance measures to put all the inventory of land disposal parcels on the market until they sell; to start a new subdivision program of at least 100 lots a year; and start the remote recreation cabin program in FY 02. In the first year, there were 2400 re-offered parcels, with an additional 1900 in the second year. Representative Croft asked if "subdivision" means platted lots that are next to each other. Mr. Loeffler affirmed, and said that the parcels have been surveyed. In response to a question by Representative Croft, he explained "re- offered" means a parcel that came back to DNR. In the 1980s during the huge land sale program, most parcels never sold and there was a 50-60% default rate on the programs. Mr. Loeffler continued, explaining that the performance goal was 250 offerings each year. The Department is drawing down the inventory of parcels available, and not replenishing them with new subdivisions as fast as it is selling the parcels. Mr. Loeffler referred to a chart, "Economics of Land Disposal." The first remote subdivision under SB 283 is completed this year, and the first recreational cabin program was in FY 02; the parcels were staked but only now are being purchased. The chart shows 2000 re-offers at $13- 43 dollars an acre, and it makes a lot of money for the Department. The DNR does a limited title search. A pre- surveyed parcel in a new subdivision costs $750 an acre minimum, not including roads, which takes two years with most of the time and cost in the survey. Remotes cost a lot less, at $250-350/acre, because the applicant pays for the survey and appraisal. Mr. Loeffler said that it can be done in a year but it typically takes longer, with staking during the first year, surveying during the second year, and appraisal during the third year. It takes two additional years before DNR receives real income from it. Representative Croft asked if the Department does a regional best interest finding for remote parcels. Mr. Loeffler replied that DNR does sub-regions of an area, with a batch of 30-60 parcels in one area. The same is true for subdivisions. Mr. Loeffler discussed a chart titled "Re-Offer" that shows 2816 parcels, totaling 21,839 acres available today. He noted there are program innovations including acceptance of credit cards, personal checks, cash, and payments by mail, in person, or over the Internet. Mr. Loeffler showed charts of re-offered parcels around Fairbanks, Mat-Su and Southcentral with detail around Talkeetna. Mr. Loeffler explained that the supply is land-classified settlements. On the Mat-Su map, the demand area includes swamp. In some areas of the state with a lot of demand, DNR has a lot of potential supply. In general, DNR is the fourth best place to look for land after the Mental Health Trust, the University, and Municipal Entitlements have rejected the land and it becomes classified settlement. In Fairbanks there is a lot of supply, but not at much in other areas. Mr. Loeffler referred to the subdivision or "Pre-Survey Program." In SB 283, the DNR was required to do over 100 per year. The increment in this year's budget is an increase to 300 lots per year, which would help replenish the supply. He explained that costs average $3400 for a 3-acre parcel, but range to an unusual 40-acre parcel costing $201 thousand. The size range is from 3 to 40 acres with the average at 7 acres. The platting board requirements now include roads. The Department ensures that the value of the land with roads will more than pay back the cost of the roads. This year the DNR expects a 10-12% internal rate of return, after not selling all the parcels and with some defaults. The subdivision challenge is to find good quality, profitable land with roads that meets platting board requirements. The cost of $750 per acre is for the title search, platting board approval, and public assistance and contract administration. Mr. Loeffler discussed SB 283 and the "Remote Recreational Cabin Program." The Department offers over 250 parcels a year. He pointed out that there is a significant reduction between the authorizations that people take and the actual parcels leased. He explained that this is due to people realizing, once they're on the land, that it is more difficult than they had expected, and not following through. The average acreage is 13.6, and the average value over the first two years is estimated at $620 per acre after taking out survey costs, which the applicant pays. Mr. Loeffler described the program innovations that include putting the cost up front with a key parcel appraisal. The Department does 30-40 parcels in an area to come up with a hypothetical parcel to show the public the costs, and the additional costs for lake frontage. The DNR requires a quarterly deposit for an appraisal survey, and contracts out in batches, with the result of getting the work done, which people don't do themselves. He concluded that this works well, but the challenges are to increase the follow-through rate and getting untaken parcels to market. Mr. Loeffler illustrated the staking patterns in the Yentna Remote, which tend to be in family groups, the access points of airstrips or trails, and around water frontage. The Department must reserve easements along public waters and trails. Mr. Loeffler concluded that the Department's challenge is to "ratchet up" the program. Representative Fate asked Mr. Loeffler to describe the procedure of staking a remote cabin site. Mr. Loeffler answered that the Department opens a particular area, and the public can stake anywhere within it, subject to the guidelines. Representative Fate noted a difference in the value per parcel between his historical data and that of the Department. He said that the $627 figure, with a multiplier of 1.14, brought the level up to $750-900 in today's value. He also asked if the average price today is $1400 per acre. MS. NANCY WELCH, SPECIAL ASSISTANT, DEPARTMENT OF NATURAL RESOURCES, replied that the Department projected $900 per acre in the fiscal note. She clarified that Mr. Loeffler has been giving historical data and some of the costs do not necessarily compare to the fiscal note because it is based on individual processing. The Personal Services cost would be about $245 thousand to do 150 parcels under the proposed program in HB 319 [Ms. Welch referred to the fiscal note dated 3-15-04]. Representative Fate asked if the fee simple program has the same surface right restrictions and problems that have been brought up. Ms. Welch said that the buyer would have the same rights of ownership as in any other DNR land sale program. Ms. Welch commented that the Department is working through the coal bed methane issue in the Mat-Su area and it may be premature to comment on it. It has held public meetings and it is working on standards to make coal bed methane compatible with existing uses. Representative Foster noted that during the mid-1980s and early 1990s offerings north of Nome were cancelled, and he wondered if there would be offerings on the Seward Peninsula in the next five to ten years. Mr. Loeffler replied that if it's classified settlement, the Department is anxious to go there. Ms. Welch advised that a lot of those lands still have the municipal entitlement provision that the Department must resolve first before it can sell lands in the Seward Peninsula area. Co-Chair Williams asked what bill would do to the existing land disposal program. Ms. Welch replied that Commissioner Irwin has two areas of concern with the bill. The first is fairness to all Alaskans, and the bill implies a first right of refusal to some who nominate the parcels. It is not genuinely offering it to every Alaskan. The second concern is that all the efficiencies gained in the past three or five years, particularly with the inception of the Land Disposal Fund, would be lost because of HB 319. A significant figure in the fiscal note is the cost of individual processing because the DNR couldn't do batch processing. The fiscal note also reflects a change in the type of staff, because technicians cannot do decision-making for the State on best interest findings. There are also technical issues, including limitations in the bill on spacing requirements and size, resulting in a different staking pattern. She said that the revenue stream for a disposal like Yentna would be significantly lower, and the staking pattern would be significantly different. Ms. Welch concluded that this bill amends the Department's existing program because it is in the same statute. Ms. Welch explained that DNR hadn't done an analysis of Work Draft Version V, Section 2 but she guessed if it went through the judicial system, the court would make the decision. If it went through administratively, it could take the form of an appeal or a complaint. The Department would have to write regulations. Representative Croft referred back to Ms. Welch's interchange with Representative Fate that concluded there would be the same problems of any other surface owner. He asked if this penalty language is in the statutes. Ms. Welch replied negative, this is new generic, reservation to the State, language. Offering remote recreation land does not remove the conflict between surface and subsurface uses. Representative Croft asked if Sections 2 and 3 apply to all of the State land sales, not just remote cabin sites. Ms. Welch noted the language on page 2, lines 2-5 and said that these provisions apply to all of the DNR land sales. Representative Croft asked what is left out. Ms. Welch replied that conveyances to municipalities under Title 29 are omitted. Representative Croft asked how this program used to work and how it would work under this bill. Ms. Welch said she had not done an analysis. Co-Chair Williams asked her to do an analysis for the next hearing on the bill. TAPE HFC 04 - 72, Side B  Representative Fate commented that the rest of the disposal program by lottery or subdivision is a completely different concept than when this bill was formulated four years ago, to allow people to choose areas which are open. The lottery is not successful with more than 40% and the rest is turned over for resale. There are about 2200 parcels available for people wanting land. The fiscal note is based on the lowest per acre cost to show that the state, and the people, will be benefactors. MRYL THOMPSON, REPRESENTING SELF, MATANUSKA-SUSITNA VALLEY, stated that he is a land developer, but he hasn't been able to develop his properties during last 8 months because all of it has been leased by the coal bed methane (CBM) industry. He reviewed the remote land bill, which "floored" him when he saw the huge exemption for the gas extraction industry. He expressed that Work Draft Version V is even worse than the previous version. He said that he has not even considered buying another piece of land, especially leased land. He thought that because of the CBM issues, people who just eight months ago would have had no problem buying remote land or a cabin now wouldn't even consider it. He noted that studies out of Colorado showed land values dropped by 20% with extraction taking place. A decrease in value would make these parcels less attractive. He felt that it is not right or fair to say that the owner has no right to complain on land that he bought. Mr. Thompson expressed that Sections 2 And 3 are "totally egregious," and he asked, if the system isn't really broken, why do we need to fix it with this bill. HB 319 WAS HEARD AND HELD in Committee for further consideration.