HB 143 - REAL ESTATE:SURETY FUND & DISCLOSURES Number 0279 CHAIRMAN ROKEBERG announced the committee's next order of business is HB 143, "An Act relating to the executive officer employed for the Real Estate Commission, to educational materials published by the Real Estate Commission, to the Real Estate Surety Fund, to contracts by the Real Estate Commission, and to disclosures in real property transactions." The chairman noted the presence of a possible committee substitute (CS), Version G, and a possible amendment G.1. Number 0379 REPRESENTATIVE HALCRO moved that the committee adopt the proposed Version G CS for HB 143 as a working document. Version G is labeled 1-LS0150\G, Bannister, 4/6/99. There being no objection, it was so ordered. CHAIRMAN ROKEBERG stated Version G is before the committee and proceeded to explain the changes in the proposed CS. The chairman noted he had spent several hours in two meetings with the Real Estate Commission during the break and recognized that Larry Spencer of the commission was present. The chairman indicated the original bill had been reviewed and modified based on recommendations from the commission, the chairman, and industry members. The bill packet contains a number of letters in support, including an endorsement of Version G from the Alaska Association of REALTORS. Number 0463 CHAIRMAN ROKEBERG pointed out that Section 1 had been changed slightly in Version G: "executive secretary" remains the formal title of the executive secretary of the commission, but use of the title "executive director" is allowed during performance of duties. The use of this title would be allowed to provide title parity when the executive secretary has dealings with directors of other states' real estate commissions, but it is clearly not intended to result in a pay increase. Section 2 of Version G allows the commission to adopt regulations regarding disclosure of information on real estate transactions; this section replaces the original bill's entire section regarding psychological impairment, HIV [Human Immunodeficiency Virus], ghosts, and so forth. The chairman indicated he thought it would be best to allow the commission to address this issue through regulation rather than including specific information in the legislation. The chairman further indicated he has a legal opinion that the commission might not even need this section. Number 0598 CHAIRMAN ROKEBERG explained the core of the legislation begins in Section 3 of Version G. The surety fund maximum is $500,000. Beginning on page 2, line 6, the legislation provides that the interest income earned by the surety fund returns to the fund - to the licensees. The chairman reminded the committee the surety fund was established in lieu of a bonding situation. It was done for the convenience of the real estate industry, but, more importantly, for protection of Alaskan consumers. Page 2, line 7, specifies that the money appropriated to the fund does not lapse. The chairman stated, "Currently it's been necessary to make the (indisc.) appropriation in the front section of the budget to move the lapse of the fund, so this would prohibit that, any potential excess monies in the fund, for example, right now because ... the publications specialist position is not funded, the ... monies are not being used up so it could be potentially under future surpluses in the fund and that that should not lapse into the general fund, ... this prohibits that." The chairman indicated the added language on lines 9 through 11, "for claims against the fund, for hearing and legal expenses directly related to fund operations and claims, and", ensures that any other expenses concerning a claim can be addressed. However, this would be relatively unusual because there is no legal counsel involved with hearings before the fund: the claimant and claimee bring their own cases. Number 0741 CHAIRMAN ROKEBERG continued. Section 4 provides for an accounting of fund balances to the Real Estate Commission by the Department of Commerce and Economic Development (DCED). This allows the commission to be aware if the fund is near the ceiling or floor amounts; this was part of the original legislation. Section 5 provides for the averaging of the surety fund balance, which can vary, over the two-year licensing cycle. The fund has a $250,000 floor and a $500,000 cap. Averaging the fund balance allows the commission to make adjustments accordingly when setting the two-year surety fund fee along with the licensing fee. One significant difference in the proposed CS is that the legislation would no longer affect the educational purposes of the surety fund. The chairman indicated his original idea of transferring these purposes to the licensing fee would have subjected the Real Estate Commission and the administration of this area to the whim of the House Finance Standing Committee regarding funding because of the budgetary statute regarding program receipts. The chairman commented on the entire Real Estate Commission staff turnover occurring in Anchorage - executive secretary, the publication position under the surety fund, and the licensing examiner - and indicated this lack of continuity was the reason to avoid jeopardizing the commission's operating ability. Chairman Rokeberg noted they have taken a different approach, referring to page 3, subsection (d) of Version G. Subsection (d) read: (d) If the salary of an employee is entirely or partially paid for from money in the real estate surety fund, the employee may perform administrative duties for the commission in addition to any duties the employee performs that are related to the real estate surety fund. AS 08.88.910 does not apply to this subsection. CHAIRMAN ROKEBERG indicated the industry complaint has been the alleged misuse of surety fund monies for educational purposes. However, one existing problem is that the publication specialist funded out of the surety fund has not been allowed to perform administrative duties and assist the executive secretary because of the statutory construction. The chairman noted the executive secretary also receives some allocation from the surety fund. Subsection (d) would allow the publication specialist to perform administrative duties for the commission in addition to duties relating to the surety fund, which is the education. This approach has been discussed with the legislative committee of the Alaska Association of REALTORS and they are in agreement at the current juncture. Number 0956 CHAIRMAN ROKEBERG referred to the possible G.1 amendment before the committee. This amendment would provide for the insertion of a new subsection (b) on page 2 [later discussion amends the lettering of this subsection to (c)]. The chairman declared a conflict of interest, noting he is a licensed real estate broker and does not wish to be excused. Chairman Rokeberg indicated the original bill had sought to remove the responsibility for publication of the landlord-tenant booklet from the Real Estate Commission. From the chairman's discussions with the commission and the legislative committee of the Alaska Board of REALTORS, the licensees are willing to pay the approximately $6,000 publication cost of this booklet for both the public benefit and the education of the industry members [testimony is unclear as to whether the cost is annual or for the two-year licensing period]. However, there is no statutory authority allowing the $6,000 removed for publication from the surety fund to be replaced into the fund. The commission charges $1 per booklet, but that $1 has to go into the general fund. In addition, there are sometimes surplus funds from entry fees for educational seminars the commission might hold. This amendment provides that program receipts from any type of activity funded by the surety fund go back into the surety fund, not into the general fund. The chairman designated this G.1 amendment as Amendment 1. Number 1118 REPRESENTATIVE HALCRO moved Amendment 1. Amendment 1, labeled 1-LS0150\G.1, Bannister, 4/9/99 read: Page 2, line 6: Delete "and" Page 2, line 7, following "in the fund": Insert ", and money deposited in the fund under (b) of this section" Page 2, line 12: Delete "a new subsection" Insert "new subsections" Page 2, following line 12: Insert a new subsection to read: "(b) If money from the real estate surety fund is expended to prepare, print, manufacture, sponsor, produce, or otherwise provide an item or a service to a member of the public, to a real estate licensee, to a potential real estate licensee, or to another person, any money paid by the person to the commission, either directly or through an agent or contractor of the commission, to receive the item or service shall be deposited in the fund. In this subsection, "an item or a service" includes an information pamphlet, an examination preparation packet, an educational course, the certification of a real estate education course, and the approval of a real estate education instructor." Reletter the following subsection accordingly. CHAIRMAN ROKEBERG asked if there was any discussion of Amendment 1. REPRESENTATIVE MURKOWSKI questioned if the existing subsection (b) in Version G, beginning on line 13, page 2, was being deleted to insert Amendment 1's language, or if the existing (b) remained and was just relettered. The existing subsection (b) in Version G read: (b) The Department of Commerce and Economic Development shall provide the commission every three months with a statement of the activities of, balances in, interest earned on, and interest returned to the real estate surety fund." CHAIRMAN ROKEBERG initially responded that Amendment 1 was simply deleting the words "a new subsection" and inserting "new subsections". However, he also questioned why the new subsection was designated (b). He discussed this briefly with Janet Seitz, aide to the House Labor and Commerce Committee and legislative assistant to the chairman. Number 1196 CHAIRMAN ROKEBERG called an at-ease at 3:42 p.m. The committee came back to order in less than a minute. CHAIRMAN ROKEBERG announced the committee would make a technical amendment to line 10 of Amendment 1, the G.1 amendment, relettering the subsection lowercase "(b)" to lowercase "(c)". The chairman clarified that Amendment 1 is only intended to add that new subsection. There being no objection to Amendment 1 as technically amended, Amendment 1 was adopted as amended. Number 1244 LARRY SPENCER, Real Estate Commission, came forward at the chairman's invitation. He stated the commission appreciated the opportunity to have input through the chairman's office and is in support of the legislation. Number 1279 TOM MARTIN testified next via teleconference from Kodiak in support of HB 143. He testified as a private citizen, stating he is a licensed real estate agent. Mr. Martin noted Linda Freed had also been present, but had to leave. He conveyed that Ms. Freed is in support of HB 143 and had said she would be sending a POM [public opinion message]. Mr. Martin thanked the chairman for the bill's introduction; he indicated he thinks it corrects some long-standing problems with money going out of the surety fund inappropriately. Number 1332 MICHAEL HUGHES, Board of Directors, Alaskan AIDS Assistance Association, testified next via teleconference from Anchorage. Mr. Hughes confirmed from the chairman that the committee was dropping the miscellaneous provision specifying people exposed to HIV [Section 8, original bill, 1-LS0150\D]. He indicated that provision had been his reason for participating. CHAIRMAN ROKEBERG questioned whether Mr. Hughes was aware that provision is currently a matter of federal law under HUD [U.S. Department of Housing and Urban Development]. MR. HUGHES replied he had not been aware. CHAIRMAN ROKEBERG indicated the legislation's former provision had basically been redundant, and was more or less included for the information of Alaska licensees. The chairman noted Mr. Hughes should be aware that currently any licensee is forbidden from making that disclosure. The chairman added that Dr. Middaugh, the chief state epidemiologist, had indicated his support for broadening that provision to all infectious diseases, if the provision had been retained, because there is no need to do so [disclose]. MR. HUGHES said they had just been concerned with specifying one disease versus any others. Number 1413 CHARLES SANDBERG, President, Alaska Association of REALTORS, testified next via teleconference from Anchorage in support of HB 143. He thanked the chairman for allowing the association's input on this issue and expressed the support for this legislation by the Alaska Association of REALTORS, representing over 1,100 members statewide. CHAIRMAN ROKEBERG questioned Mr. Sandberg regarding the importance of passing the legislation this year because of the two-year [licensing] cycle. MR. SANDBERG replied they are ending their current licensing cycle. The legislation affects how the Division of Occupational Licensing and the Real Estate Commission calculate the license fees. If this legislation is passed, it puts some finality on how that calculation is made. Number 1485 ART CLARK, Chairman, Industry Issues Working Group, Alaska Association of REALTORS; Member, Legislative Committee, Anchorage Board of REALTORS, testified next via teleconference from Anchorage in support of HB 143 on behalf of the Alaska Association of REALTORS. Mr. Clark indicated the issue of how the surety fund monies were allocated has caused quite a bit of controversy industry-wide in the past. He thinks the legislation goes a long way toward clearing up some of those issues in an equitable manner. REPRESENTATIVE HALCRO mentioned that airport noise is a huge concern "out in our area," as Mr. Clark knows. Section 2 of the legislation [misstated as "8"] gives the commission the power to adopt disclosure information. Representative Halcro questioned if Mr. Clark's committee has examined or addressed anything about disclosures, or plans to do so, when someone buys or sells homes within a certain noise corridor of the Anchorage International Airport. MR. CLARK indicated the issue has just recently come to the legislative committee's attention and no formal position has been adopted. Mr. Clark urged caution in this area. The Real Estate Commission has the ability to pass regulations concerning this matter; he would recommend that be the avenue addressed in seeking any kind of noise level disclosure, rather than addressing it in statute. Mr. Clark indicates there are difficulties with regards to this information for both real estate agents and homeowners. He thinks the noise level data are generated through the airport; he is not aware how those calculations are made and where any problems are. REPRESENTATIVE HALCRO agreed that the commission would be best suited to handle this. He stated, "My concern is - I'm not quite sure if you remember - a year ago when the local assembly tried to free zoning out in a certain corridor out by the airport, which would have affected a number of subdivisions in our area and a number of vacant lots." Representative Halcro indicated the concern is for the commission to address the issue preemptively so there would be something in place "versus ... kind of tying folks' hands when it comes to zoning changes." MR. CLARK replied he thinks that is probably a good way to handle things. He expressed concern regarding anything "stuck in stone" regarding zoning regulations or statute. He thinks it is better to make the information available to people and let them decide whether they wish to live there or not. CHAIRMAN ROKEBERG thanked Representative Halcro for bringing the issue up. Proceeding to further teleconference testimony, the chairman invited Ron Johnson in Kenai to speak. He noted there is a communication in the committee packet from Mr. Johnson. Number 1671 RON JOHNSON testified next via teleconference from Kenai. He is a licensed real estate broker and former member of the Real Estate Commission. Mr. Johnson indicated his faxed comments to the committee provide his views but he would like to reiterate somewhat. He indicated he might be able to offer the committee some insight as a commission member during the change from executive director to executive secretary. His concern is that the statute specifically precludes a licensee from misrepresenting designations [from Mr. Johnson's fax, AS 08.88.401(a)]. He has not seen that the "executive secretary" position is of less importance than "executive director" in his attendance at industry meetings. Mr. Johnson sees this as a potential step in the wrong direction: the reason for allowing this title use might be forgotten in the future and the position might be funded as an executive director position. Per statute, the duties of the executive secretary of the Real Estate Commission are specifically duties that would be assigned to a secretary. In some states where there is actually a director and/or a real estate commissioner, it is a different position totally. Mr. Johnson indicated he does not see the logic or reasoning behind allowing the executive secretary to use the title of executive director. CHAIRMAN ROKEBERG noted, though, the current executive secretary [Grayce Oakley] is retiring. The commission is attempting to fill the position and the chairman commented it is not an especially high-paying job. The chairman questioned whether Mr. Johnson didn't think that could be helpful in recruiting, or if Mr. Johnson thought that was not important. Number 1762 MR. JOHNSON indicated he didn't think it was at all important. He thinks the position pays well enough to the duties. He indicated the only place where he sees the duties being somewhat different from the duties of a secretary is when the executive secretary, at times, during surety fund or license hearings, acts as a representative of the commission. Mr. Johnson noted that is part of the surety fund travel budget he had planned to address a little later - that is one of the reasons the executive secretary will have to be allowed some money for travel. Mr. Johnson reiterated his disagreement with allowing the executive secretary to use the title of executive director; he sees it as a "pitfall down the pike." He commented Governor Cowper perceived the only way to regain control of the Real Estate Commission, forcing the board itself to control the real estate business, was to eliminate the director position and put it into a secretarial position. CHAIRMAN ROKEBERG noted he appreciated Mr. Johnson's testimony. The chairman indicated Mr. Johnson's suggested additional wording in his fax, "into the general fund but is returned to the surety fund.", to be placed after "does not lapse." on page 2, line 7 of Version G, was not necessary from a statutory or drafting stand point. Number 1845 MR. JOHNSON explained he suggested the additional language for clarity. Mr. Johnson also indicated he thinks the portion of the legislation allowing the Real Estate Commission to adopt regulations concerning disclosure should cite the enabling statute [from Mr. Johnson's fax, AS 08.88.071(H)(7)]. Mr. Johnson expressed his view of the importance of the newsletter, which gives the commission the ability to communicate with the membership. He further expressed his opinion that the budget, travel fund, et cetera, should be controlled by the commission, and that the director position should be vacant so the real estate commission is able to direct the secretary. CHAIRMAN ROKEBERG confirmed there were no questions for Mr. Johnson and noted he thought Mr. Johnson had made some excellent comments. Number 1917 DAVE FEEKEN, Kenai Peninsula Association of REALTORS, testified next via teleconference from Kenai in support of HB 143. The Kenai Peninsula board's legislative committee has met and is in total agreement with the other witnesses who have testified, including Mr. Johnson, in support of this issue. Number 1959 CATHERINE REARDON, Director, Division of Occupational Licensing, Department of Commerce and Economic Development, came forward to testify in support of HB 143. The division employs the Real Estate Commission's staff. Ms. Reardon appreciates the work done on the draft CS and anticipates the fiscal note will be zero. CHAIRMAN ROKEBERG asked if Ms. Reardon had a comment on the issue Mr. Johnson raised concerning the executive director/executive secretary title change. MS. REARDON appreciated the change from the original bill because of her expressed concern about it triggering a salary change. Currently, the executive secretary is authorized by Ms. Reardon to use the working title "executive administrator" when useful. Ms. Reardon indicated she had not heard a lot of concern about negative effects resulting from use of the "executive secretary" title, but it is not a big issue to her either way. REPRESENTATIVE HALCRO sought clarification on the committee's positive fiscal note of $104,000. Number 2020 MS. REARDON explained that fiscal note from the original bill had been created with the intention of showing $104,000 less being spent from the surety fund, with the money being moved straight over as a "wash" to the general fund, but had not looked that way as was pointed out at the previous hearing. In the proposed CS, that shift from the surety fund no longer occurs and the issue becomes moot. Ms. Reardon indicated the original bill's fiscal note could have been presented differently to show the intended zero wash, but a new zero note would be required to go with the CS once it is adopted. In response to the chairman's comment, she explained the department is not allowed to present fiscal notes until committee substitutes are formally adopted. REPRESENTATIVE CISSNA questioned if Ms. Reardon thought there might possibly be a good reason to change the title since Ms. Reardon had informed the executive secretary there was another title which could be used if needed. MS. REARDON indicated she has informed the three people in the executive secretary job class that they may use the title "executive administrator." Besides the executive secretary to the Real Estate Commission, there is the executive secretary to the State Medical Board and the executive secretary to the Board of Nursing. Ms. Reardon further indicated at times one or the other had mentioned it might be helpful to use a different title when signing correspondence to avoid confusion that the executive secretary was a clerical position rather than the top staff person for the profession. They had arrived at "executive administrator" or "administrator" as a working title. Ms. Reardon noted that since "executive director" is another job class in the state system, she did not switch to "executive director" at that time. "Executive director" goes with autonomous commissions such as the Alaska Public Utilities Commission. Ms. Reardon agreed she had heard it might be useful to not always require the "executive secretary" title be used, but indicated she has not heard of any ongoing problem since that time. Number 2142 CHAIRMAN ROKEBERG requested Mr. Spencer of the Real Estate Commission rejoin the committee at the table. The chairman indicated he wished to hear what Mr. Spencer thinks the commission's position would be. MR. SPENCER replied the idea did not originate with the commission but it was brought to their attention in the drafting of this legislation. He thinks the commission felt that it would useful to provide the incoming secretary with possibly somewhat more of a position of authority in dealing with the public, with licensees, and people outside the state. If more respect for the position could be engendered without necessarily increasing the pay, that might be desirable. CHAIRMAN ROKEBERG questioned the use of "executive administrator" to be consistent with the directive of the division director. MR. SPENCER thought either of those languages would assist. CHAIRMAN ROKEBERG asked if Ms. Reardon had an opinion. MS. REARDON answered she is very happy with the bill so it is a minor detail to her. She supposes she prefers "executive administrator," but does not want hinder the legislation in any way. Number 2219 CHAIRMAN ROKEBERG questioned if anyone else wished to testify on HB 143. He noted the committee's dilemma regarding what this position would be called and requested input. REPRESENTATIVE HALCRO indicated he would recommend the committee adopt the language currently in the bill. MR. JOHNSON commented the National Association of REALTORS has been endorsing the "executive administrator" title for some time now, moving away from the executive officers and that sort of thing. He thinks it would really have a significant impact if they put the "executive director" back. CHAIRMAN ROKEBERG closed the public testimony on HB 143. REPRESENTATIVE MURKOWSKI referred to the language in Section 2 of the proposed CS which would be added to AS 08.88.081, "The commission may adopt regulations concerning the disclosure of information in real estate transactions.". She sought clarification on the change from the specific language in the original bill to this language which would allow the commission to do the disclosure simply through regulation. Representative Murkowski apologized if the chairman had made the explanation already. She noted Mr. Johnson had touched on it briefly when he said it might be wise to include the enabling statute. Number 2322 CHAIRMAN ROKEBERG moved an amendment to remove Section 2 from Version G. He indicated his reason for the amendment is that the Real Estate Commission already has the authority to make regulations and that he has a legal opinion supporting this. The chairman noted, "The records of the Real Estate Commission will show the discussion at which I requested them (indisc.) request the Attorney General ask whether or not they have authority to make regulations on any of the issues that were covered in the first portion (indisc.) first draft of the bill. They have agreed to do that. They also request[ed] to me that I request legal counsel, our legal affairs, to do the same and I have done so. I have in hand an opinion that says that the Real Estate Commission does have the authority to draft regulations on those issues currently. This is consistent with what the committee staff has found to be the case in the state of New York where, relying on a real estate opinion from the attorney general of the state of New York, the New York Real Estate Commission has promulgated regulations as to psychological impairment." He commented the form of disclosure statement is AS 34.70.050 and there is an additional specific portion of the chapter that allows the commission to draft regulations to implement the chapter. He asked Ms. Reardon for confirmation. MS. REARDON indicated it looked like the existing language in AS 08.88.081 allows this. Sec. 08.88.081. Commission regulations. The commission shall adopt regulations necessary to carry out the purposes of this chapter. REPRESENTATIVE MURKOWSKI confirmed the chairman only intended to remove the language which was to be added, not to remove the existing statutory language. Number 2425 CHAIRMAN ROKEBERG noted with that he would move Amendment 2: that conceptually Section 2 be removed from the bill. There being no objection, Conceptual Amendment 2 was adopted. Number 2442 REPRESENTATIVE HALCRO moved Amendment 3 on page 1, line 10, after "executive" to delete "director" and insert "administrator". CHAIRMAN ROKEBERG asked if there were any questions or objections to Conceptual Amendment 3. There being none, Conceptual Amendment 3 was adopted. REPRESENTATIVE MURKOWSKI indicated the bill title would need to be changed because of the wording "executive officer". CHAIRMAN ROKEBERG indicated the amendment should include the appropriate title change, noting that was the reason it was conceptual. TAPE 99-35, SIDE B Number 0001 There was brief discussion regarding "executive officer" in the bill title and whether another amendment was necessary. No additional amendment was deemed necessary. Number 0053 REPRESENTATIVE HALCRO made a motion to move CSHB 143, Version G as amended, out of committee with individual recommendations and the attached "zero" fiscal note. There being no objection, CSHB(L&C) moved out of the House Labor and Commerce Standing Committee.