HB 278-EXTEND:CERT. REAL ESTATE APPRAISERS BOARD    3:24:20 PM CHAIR KITO announced the first order of business would be HOUSE BILL NO. 278, "An Act extending the termination date of the Board of Certified Real Estate Appraisers; and providing for an effective date." 3:24:41 PM MEGAN HOLLAND, Staff, Representative Andy Josephson, Alaska State Legislature, presented HB 278 on behalf of Rep. Josephson, prime sponsor. She stated that the proposed bill would extend the termination date for the Certified Real Estate Appraisers Board by eight years. She stated the extension was recommended by the Legislative Budget and Audit Division (LB&A). After the housing market crash in the 2000s, there was a federal mandate to regulate real estate appraisers. The state board serves to fulfill that federal requirement. She stated the board is responsible for licensing, license enforcement, training, and regulating real estate appraisers. The board currently manages 261 licensees. 3:26:30 PM KRIS CURTIS, Legislative Auditor, Legislative Audit Division, Legislative Agencies and Offices, reported on HB 278. She reminded that the purpose of the sunset audit was to determine whether the board was serving the public interest and should be extended. MS. CURTIS gave background information, explaining that a regulatory oversight structure for the appraisal industry had been established by the federal government. The framework includes private entities that set appraisal standards and qualification criteria for licensing; the state licensing boards that certify; and federal entities that regulate the industry. The federal appraisal subcommittee is responsible for monitoring the state licensing boards and ensuring they keep in line with standards. She highlighted that the board is subject to external oversight outside of the sunset process, which factored into the division's recommended term of extension. The federal oversight includes on site compliance reviews of the board as well as the Division of Corporations, Business and Professional Licensing (DCBPL). She stated the conclusion that the board was serving the public interest by efficiently licensing and regulating certificate holders and licensees. MS. CURTIS read from a document entitled, "A Sunset Review of the Department of Commerce, Community, and Economic Development, Board of Certified Real Estate Appraisers (board)" [included in the committee packet], as follows: Overall, the audit concludes the board is serving the public's interest by certifying and licensing real estate appraisers. The board monitored certificate holders and licensees and worked to ensure only qualified individuals were issued certificates and licenses in Alaska. Furthermore, the board developed and adopted regulations to comply with federal requirements, improve the real estate appraisal industry, and better protect the public. 3:28:09 PM MS. CURTIS gave the audit's two recommendations. The first recommendation was that the DCBPL director continue to improve administrative support to the board. She pointed to page 16 of the audit document as follows: The audit found inadequate board support by DCBPL staff in the following areas: 1. Due to general oversight, three certificate holders were incorrectly reported in the Appraisal Subcommittee (ASC) national registry, which is required by federal and state laws. Upon identification by auditors, the errors were promptly corrected by DCBPL staff. Incorrect status in the registry may result in financial institutions rejecting qualified appraisers or selecting unqualified appraisers. Additionally, noncompliance with federal requirements puts the board at risk of more frequent ASC reviews that may increase board administrative costs. 2. Auditors reviewed five investigative cases over 180 days old, and identified three cases with periods of inactivity without justification ranging from 130 to 203 days. Management reported that investigators have varying caseloads, priorities, and case management and investigative skills that affected timeline goals. Alaska Statute 08.01.050(a)(19) requires the department to provide inspection, enforcement, and investigative services to the boards. Cases that are not actively investigated increase the risk of incompetent or unlawful licensees providing services to consumers. 3. Due to staff turnover, DCBPL management could not provide evidence that three of 11 board meetings held between July 1, 2014, and March 31, 2017, were public noticed. Alaska Statute 44.62.310(e) requires board meetings be publicly noticed and AS 08.01.050(a)(6) requires the department to provide administrative and budgetary services to the board, which includes noticing board meetings. Failure to publish meeting dates may limit public participation in board proceedings. MS. CURTIS stated the second recommendation was that the director work with the board to reduce fees to address the surplus of over $165,000 at the end of March [2017]. The board had requested a fee analysis, but it was not carried out. The licensees paid a higher than justified fee as a result. MS. CURTIS listed the audit findings in the analysis. The report noted that the board planned to move forward with the regulation of appraisal management companies (AMC), expanding the board's duties for the future. The division was recommending an eight-year extension in recognition that the board is subject to external oversight by the federal appraisal subcommittee. These reviews are done on site at least every other year. 3:30:25 PM MS. CURTIS turned to the responses to the audit. She stated that the department did concur with the findings and recommendations. The board chair noted in his response that they had received an attorney general's opinion that concluded that a statutory change would be needed in order to regulate AMCs. She underlined that the division did not agree with that interpretation and offered additional comments outlining specific federal and state laws that allow the regulation of AMCs. 3:31:10 PM REPRESENTATIVE JOSEPHSON cited a letter from LB&A that describes the state's authority to regulate AMCs. He asked whether, if there were clearer express authority, there would be any harm in it. MS. CURTIS stated that there is no harm in clarifying the statutes. 3:31:32 PM REPRESENTATIVE SULLIVAN-LEONARD asked whether, since the Certified Real Estate Appraisers Board had excess funding, it would consider refunding some of the appraisers' money that they [paid in fees] the past years. MS. CURTIS deferred to the department. REPRESENTATIVE SULLIVAN-LEONARD queried whether the Certified Real Estate Appraisers Board "is charging so much and all of a sudden there was such a surplus, maybe there could be consideration, especially if there's a particular complaint from appraisers that they are paying a significant amount of money." MS. CURTIS answered that most of the 11 boards they had audited in the current year have maintained a surplus. The DCCED response to LB&A is that maintaining a surplus of a year's expenses will help prevent the spiking of fees. She added that technically the statutes do not provide for that and instead say that fees should be set to cover the cost of the occupation. 3:32:52 PM CHAIR KITO stated that "if the department is doing that, it doesn't seem like they have the statutory authority to be able to do that. Whether or not it's a good idea, it seems like it would require some legislative action." 3:33:08 PM REPRESENTATIVE KNOPP asked Ms. Curtis to confirm the fund balance of $165,000. MS. CURTIS confirmed that at the end of March 2017 the board had a balance of $165,609. REPRESENTATIVE KNOPP referred to a letter he received in the prior year from board member David Derry indicating that the board had a balance of around $415,000. He asked about the discrepancy between the board numbers and the audit numbers. MS. CURTIS answered that the numbers were as of March. She said she guessed the renewal period was at the end of summer, as FY 15 revenues were $279,000 through March 31, and in [FY] 17 it was $35,000. She stated at the end of fiscal year 2017 (FY 17) it could be a much higher amount. She suggested the department may have current surplus amounts. 3:34:37 PM REPRESENTATIVE KNOPP asked if the board had reduced its fees. MS. CURTIS stated she did not have an answer. She reiterated the report was dated Summer 2017. REPRESENTATIVE WOOL pointed out that the FY 14 revenues were $57,050, then went up to $279,000 and back down to $49,000. He asked whether that was because the board had raised its rates and lowered them back down again. MS. CURTIS answered that every board had biennial licensing meaning that every other year the members pay a renewal fee. She added that in the off years there would also be revenue from new applicants, so the boards did have revenue in the off year but most revenue would be seen every other year. REPRESENTATIVE WOOL surmised that in 2017 the revenue would jump up again. He cited the audit and suggested the board had extra cash and an adjustment of rate "could be tapered out over a while." 3:36:22 PM DAVID DERRY, Chair, Board of Certified Real Estate Appraisers, testified in support of HB 278. He pointed to his letter on page 29 of the audit that addressed the recommendations by the legislative audit committee. He spoke to recommendation number 2 about reducing fees. He explained the board was on a 2-year cycle for registering appraisers and recertification fees and was not able to get the fees reduced in 2017. He added that based on the accounting dated on November 3, 2017, the fund balance for the board in the first quarter of FY 18 was $378,297. The surplus was due to not adjusting fees. 3:38:10 PM MR. DERRY clarified that the fees, as high as they were, carried over from a court action that had occurred several years previously due to legal action brought against one of the certified appraisers, which ended up going to the Alaska Supreme Court. That had resulted in increased fees for all certified appraisers for the state to pay for that cost. The costs were paid but unfortunately the fees were not analyzed and adjusted. The board had a meeting in September 2017 at which the board, with the director of the division, was able to adjust fees. The fees effective for the 2019 recertifications would be reduced to $350. That had been conveyed to the board. MR. DERRY added that regarding the refunds, the board had been told by the division that under state statutes it could not extend the refund to anyone, so the balance surplus would carry forward until it was used up. MR. DERRY addressed the issue of AMC regulations. Although the audit staff and some members of the board thought it did have the authority "to do AMC legislation," the board had been told by the Attorney General's office that it did not. The board was currently working with Representative Josephson and Senator Meyer on AMC legislation and hoped to get it through during the current legislative session. 3:40:18 PM REPRESENTATIVE STUTES asked if [the board] had a full complement. MR. DERRY answered in the affirmative. 3:40:34 PM REPRESENTATIVE WOOL drew attention to the form before the committee and stated it did not list total revenue in 2017 because the date of the audit was March 31. He added in 2015 that figure was $279,000. He asked if Mr. Derry had a number for the 2017 revenue. MR. DERRY answered that the accounting dated November 3, 2017, showed total revenue for FY 17 as $278,417. 3:41:34 PM WILLIAM "BILL" BARNES, President, Appraisal Institute, Alaska Chapter, testified in support of HB 278. He gave a brief history of the Appraisal Institute (AI), founded in 1932 during the depths of the Depression to enact appraisal standards and ethics. He noted it was the largest and oldest appraisal institute in the United States and was also located in 60 countries, with 90 chapters. Alaska had 111 members of the 261 certified appraisers, for 43 percent capture rate of membership. He continued that the AI writes almost all the [appraiser] textbooks. He stated the AI believes that the board of appraisal in the state of Alaska is serving the public interest as intended and had been since 1991. The institute recommends that HB 278 pass as intended and extend the board of appraisers for another eight years. 3:43:33 PM CHAIR KITO opened public testimony HB 278. After ascertaining that no one wished to testify, advised that public testimony would remain open. CHAIR KITO held HB 278 over.