HB 77-LAND DISPOSALS/EXCHANGES; WATER RIGHTS  1:55:11 PM CO-CHAIR FEIGE announced that the next order of business is HOUSE BILL NO. 77, "An Act relating to the Alaska Land Act, including certain authorizations, contracts, leases, permits, or other disposals of state land, resources, property, or interests; relating to authorization for the use of state land by general permit; relating to exchange of state land; relating to procedures for certain administrative appeals and requests for reconsideration to the commissioner of natural resources; relating to the Alaska Water Use Act; and providing for an effective date." 1:55:24 PM DAN SULLIVAN, Commissioner, Department of Natural Resources (DNR), introduced HB 77 on behalf of the governor by way of a PowerPoint presentation entitled "Statewide Permitting Reform." He acknowledged that there has been a lot of focus on oil and gas and a gas line, but HB 77 illustrates that [permitting reform] is an important issue in terms of the state's future. Work has been occurring on permitting reform for the past few years, and it is an area that has received very strong bipartisan support that he hopes to continue [slide 2]. Permitting reform is also a big issue nationally that is also a bipartisan effort to modernize and gain efficiencies with permitting. He then highlighted an Economist article entitled "Over-regulated America" that concludes "America needs a smarter approach to regulation that will mitigate a real danger that regulation may crush the life out of America's economy." Furthermore, there was a Newsweek article in which former President Clinton laid out what he viewed as the top ways in which to get the economy moving, and number one was regulatory reform and [granting waivers on environmental rules] to hasten start times of construction projects. Alaska is trying to lead in the area of permitting reform, which is a multi-year process. With regard to competitiveness for the U.S., he pointed out the Behre Dolbear Group, an investment bank in Canada, performs an annual survey of mineral sector investment [slide 3]. In terms of regulatory permitting, last year the U.S. ranked last and this year tied for last with Papua New Guinea. He then pointed out that federal rules negatively impact states and result in a 7- to 10-year waiting period before mine development can begin In other industrialized countries, the time to reach mine development is a lot less, particularly in Australia where the timeframe is three to four years. The Kensington Mine as an example of lengthy waiting periods, and might not be producing had there not been the Supreme Court decision. In contrast, construction of the 1,500-mile Alcan Highway, which has been characterized as a big moment in history, took only nine months. Places with high environmental standards, such as Alaska, can have lengthy [permitting] delays that result in investment going to places that have much less stringent standards, such as Russia [slide 4]. Commissioner Sullivan maintained the commitment to high environmental standards, but opined that permitting reform helps maintain global environmental protection because it keeps projects in locations with high environmental standards, which is important. 2:02:28 PM COMMISSIONER SULLIVAN mentioned the strategies the department is undertaking with regard to Trans-Alaska Pipeline System (TAPS) throughput decline [slide 5] with regard to strategic and critical minerals. Permitting reform, he emphasized, cuts across a number of different issues, including jobs, economic growth, and responsible resource development. Therefore, permitting reform is part of a broader strategy in which the department recognizes the need to enhance coordination among the state agencies [slide 6]. To that end, DNR has sought input from various communities and groups regarding ways to make the permitting system more efficient, timely, and certain. The department has also worked on trying to improve coordination between the state and federal government. Federal permitting impacts almost every project in Alaska, whether it is on state or federal land, a prime example being Point Thomson which is located on state land. The department has also tried to get in front of issues that it believes will be important to the state in order to be prepared when they arise, an example being the Shale Oil Task Force. He then related that the next couple of slides highlight the strong bipartisan legislative progress support the department has experienced. The legislative support has been in the form of statutory changes as well as budget increments [slide 7]. For example there was a significant increment to Division of Mining, Land and Water for personnel, revamping and modernizing the permitting system, which has had a positive effect. Commissioner Sullivan then directed attention to slide 8 regarding backlogged permits. Although there is a host of reasons for the backlog, having 2,600 backlogged permits is not good for jobs, economic growth, or the private sector. Therefore, with this committee and the legislature's assistance DNR has been very focused on decreasing the backlog to zero within three years. Since the beginning of fiscal year (FY) 2012, the backlog has been reduced by 38 percent for which he complimented the efforts of Mr. Goodrum and Mr. Menefee. While the backlog reduction and modernization efforts are occurring, the department continues to receive a lot of new permits. Commissioner Sullivan said he believes the backlog reduction effort is on track. 2:08:33 PM COMMISSIONER SULLIVAN reminded the committee that last year the governor introduced House Bill 361, which the legislature passed with strong bipartisan support [slide 9]. The department realizes that there is no panacea, and therefore it has focused on statutory changes that create efficiencies. Although some of those changes are not that large, taken together there becomes a system that is more rational and brings the timeliness and certainty. Addressing the backlog is a combination of ideas, some of which have come through the ranks. The department has also reached out to entities involved in the permitting process and system and some of the changes were the result of constituent suggestions to legislators. 2:11:02 PM REPRESENTATIVE JOHNSON asked what constitutes a backlog. COMMISSIONER SULLIVAN deferred to the team, but added that the department has attempted to define that. 2:12:01 PM REPRESENTATIVE SEATON, referring to slide 6 and the Shale Oil Task Force, requested an update on the progress the agency is making [in terms of anticipating and planning for permitting the next phases of resource development]. COMMISSIONER SULLIVAN agreed to provide such an update. 2:12:47 PM CO-CHAIR FEIGE passed the gavel to Co-Chair Saddler. 2:13:03 PM REPRESENTATIVE TUCK inquired whether the same standard is used year-to-year. COMMISISONER SULLIVAN believed so, but deferred to Mr. Goodrum. REPRESENTATIVE TUCK commented that it looks like the division has gotten off to a really good start by addressing over 1,000 of the backlogged permits. He imagined that it would only continue to get better. 2:13:48 PM CO-CHAIR SADDLER inquired as to the anecdotal comments regarding Alaska's permitting regime that Commissioner Sullivan has heard during his travels advocating Alaska as a resource state. COMMISSIONER SULLIVAN responded that often there are positive comments, particularly with regard to the North Slope as having a great resource potential and a basin that has potential with various types of oil fields. There are also comments with regard to costs, which relate to tax issues, competitiveness, remoteness, and permitting and litigation delays. A lot of focus has been on Shell's drilling problems; however, from DNR's perspective there have been real problems with the federal government delaying permitting for the drilling of exploration wells in that area of Alaska. Broadly, there is a sense that there is a lot of delay in Alaska, which is why the department wants to address [permitting reform]. CO-CHAIR SADDLER noted the House just passed HR 5, which calls the federal government to coordinate with the state and state agencies as they consider Outer Continental Shelf (OCS) work. 2:16:42 PM REPRESENTATIVE TARR, referring to the slides specifying the operating budget increases, directed attention to the FY12 appropriation for approximately $2.7 million in operating funds to the Division of Mining, Land and Water to create efficiency, timeliness, and certainty in the permitting process and in FY13 an additional $950,000 to cover increased personnel costs and fill vacant positions focused on permitting. She then recalled that in the mid 1990s the legislature went through $250 million worth of budget cutting that is cuts of $50 million from the budget each year. The aforementioned was largely accomplished by eliminating staff of some of the departments. Some at the time felt those cuts were penny wise and pound foolish because it would limit DNR's and DEC's ability in terms of being efficient with the permitting process. Therefore, she questioned whether the legislature now has to make up for those budget cuts. She further questioned how the legislature can do a better job to achieve a stable level of funding. COMMISSIONER SULLIVAN said he does not have the historical context to comment on the past. However, some of the backlog and permitting efficiency issues are related to personnel issues and some are related to modernizing the systems and making them more efficient. Therefore, it was a combination of things and the current desire is to continue to address permitting reform. 2:19:21 PM REPRESENTATIVE TARR acknowledged the bill has a zero fiscal note and asked whether the legislature will entertain any operating budget increases for additional permitting staff. COMMISSIONER SULLIVAN believed the answer is no, but offered to get back to the committee on that. 2:20:01 PM REPRESENTATIVE HAWKER clarified that budget cuts in the mid- 1990s were not so much a budget reduction as the creation of off-budget accounting so that they were treated as (indisc.) receipt supported services. He further clarified that it was more of a matter of changing it from general fund appropriations to other categories of appropriations. 2:21:37 PM BRENT GOODRUM, Director, Division of Mining, Land and Water (DMLW), Department of Natural Resources (DNR), in response to Representative Johnson's earlier question, explained what constitutes the "backlog" are those [permit] applications that are deemed complete and considered an authorization that need to be adjudicated that are at the point of issuance, whether it be approved or denied. In further response to Representative Tuck's earlier question, Mr. Goodrum confirmed that the division is considering "apples to apples" in the chart [on slide 8]. As the Unified Permit Project continues, he opined that there will be far greater granularity and transparency into the system. Therefore, the division will be able to talk in different metrics and specify the amount of time that it takes an authorization at a specific time of year and determine when it will be adjudicated and communicate that with the applicant. The system the division is moving to with the Unified Permit Projects will provide greater visibility into the division's process. In response to Co-Chair Saddler, Mr. Goodrum confirmed that he is using the term "granularity" to mean precision and detail. 2:23:49 PM REPRESENTATIVE JOHNSON remarked he believes DNR is doing a good job, but said he wants to get a benchmark for the backlog to ensure that not just the easy permits are being addressed. MR. GOODRUM agreed that not all permits are equal as some have greater significance to the state and various industries, which is weighted when the application is considered. The division works to expedite those projects of great significance and is not just addressing the easy permits. 2:25:22 PM REPRESENTATIVE TUCK commented that it would be nice to know how many new permits were applied for in 2012, particularly since it does not seem that the division will ever reach zero permits. He then expressed interest in having data that specifies the number of years a permit application has been in the system before being closed. 2:26:08 PM MR. GOODRUM, responding to Co-Chair Saddler, informed the committee that he served 20 years of active duty service as a marine infantry officer/reconnaissance officer. During that time, he pursued a post graduate education and earned a Masters in operations research, which is about how to look at systems of systems and improve efficiencies, and his work in this area for the U.S. Marine Corps is what brought him to Alaska. He told the committee that Mr. Menefee has been a public servant of the state with DNR for over 20 years, and that as the chief operations officer Mr. Menefee has a broad knowledge of the statutes that impact many of the authorizations. 2:27:13 PM WYN MENEFEE, Chief of Operations, Division of Mining, Land and Water (DMLW), Department of Natural Resources (DNR), informed the committee that he began his career as a park ranger and worked his way up through the department. He said he has been in his current position about eight years. He then directed the committee's attention to the briefing document entitled "HB 77: Land Disposals/Exchanges; Water Rights Briefing Paper" dated January 30, 2013. He explained the division already has the authority to perform general permits, but there is no explicit statutory language that specifies general permitting is allowed. Because the division will be doing more general permits, HB 77 will explicitly clarify in statute that the division can perform general permits. Currently, there is an application for state land use, the division then puts it out for public notice, and then makes a decision whether it is appropriate or not. With a general permit, there is the knowledge that there will be a certain amount of applications for a certain activity and the division prescribes the parameters in which those applications should fit in order to obtain a permit. The notion is that the aforementioned will reduce costs and time for the applicant because, after a full public notice and review is completed of setting up a general permit, the subsequent authorizations from the general permit do not go through the full decision and public notice process. 2:29:57 PM REPRESENTATIVE SEATON inquired how to constrain a general permit so that it will be most applicable to particular regions or land types. MR. MENEFEE responded there has to be the ability to define the [parameters] and most often, general permits will be specific to a region/area or activity. However, there may be some general permits for which the parameters can be defined well enough to apply statewide. For example, the division has a general permit for non-timber forest product sales, which is the result of a full-blown process regarding how the harvest has to occur, including quantities and harvest methodologies, and those statewide general permits can be applied for and purchased online. An example of a regional general permit is the boat storage in Cook Inlet that went through a process that resulted in specific parameters that if met by the applicant results in the awarding of a permit. 2:32:18 PM REPRESENTATIVE SEATON, referring to the inability of the legislature to implement statutes of statewide applicability, asked whether there are any identified legal problems with passing the authority for those general permits that could be restricted and not be statewide. MR. MENEFEE said the Department of Law is available to answer any specific legal questions. He reiterated that the division already has this authority; it is just not explicitly stated for general permits. In the past, the division has issued statewide and regional general permits that were vetted by the Department of Law and accomplished without any legal ramifications. 2:33:32 PM CO-CHAIR FEIGE asked whether there are precedents for this type of general permit in other agencies besides state agencies. MR. MENEFEE replied yes, and cited the U.S. Army Corps of Engineers nationwide general permits. Other federal agencies process general permits for various authorizations under regulatory schemes, and the Department of Environmental Conservation (DEC) issues general permits. General permits are also used in Western states as a way to help get more done while doing so in an effective manner. 2:34:30 PM REPRESENTATIVE TARR remarked that the non-timber forest product sales and boats [general permits] seem noncontroversial. She asked what other types of activities, including resource development activities, would fall under a general permit. MR. MENEFEE said that general permits could be used for commercial filming on state land, personal use cabin permits, float home renewals, commercial recreation permits, and installation of heat pumps for renewable energy. In further response, Mr. Menefee confirmed that general permits could be used for resource extraction activities. Although there is no prohibition for using a general permit for resource extraction, the challenge is accurately prescribing the parameters of the activity in which the operator has to fit such that it is common to whoever applies. He noted that the public has the opportunity to participate and appeal a decision prior to issuing a general permit. 2:36:21 PM REPRESENTATIVE SEATON asked then whether is it possible to statutorily give the division authority to establish best practices for mines. He posed a scenario in which there is an open pit mine in the state for which the division establishes six criteria. In such a case, would the DNR permit already be granted under a general permit for a mine that says it will follow those criteria, he asked. MR. MENEFEE opined that it would be very difficult to cover everything that would be necessary. He pointed out that the suggestions he put forth are very limited in scope, which is how general permits can work. Regarding resource extraction, there may be a certain aspect [that would fit into a general permit]. However, it is hard to envision that a general permit could be developed to encompass everything necessary for a large mine. Mr. Menefee said he does not believe that is the intention with the general permit. Again, this authority already exists under AS 38.05.0202(a)(1) and HB 77 merely specifies [the action] as a general permit in order to clarify to the public that this authority exists. 2:38:26 PM REPRESENTATIVE TUCK questioned what a general permit is currently titled. MR. MENEFEE clarified that currently there are general permits, but they are not referred to that in statute. He offered to read the committee the statute from which the division believes it has the authority to issue general permits. Most of the challenges against the division are related to procedure, and therefore the division can eliminate a legal risk if it can provide absolute clarity that general permits are allowed. The aforementioned is what is targeted with HB 77. REPRESENTATIVE TUCK stated that it would be helpful for Mr. Menefee to point out, when he reaches that section in HB 77, where the language specifying general permits is being added in statute. 2:39:52 PM MR. MENEFEE, moving on to point 2 of the briefing paper, explained that currently DMLW has the authority to exchange lands. That authority is specified in Titles 29 and 38. When DMLW does exchanges for state land, they are disposals of interest. Currently, Title 38 land exchange language makes it difficult to fulfill all the requirements in statute to perform a land exchange. As municipal entitlements are completed, there will be more complicated land exchanges. There is a mixed ownership pattern, and therefore development projects or municipalities may need to consolidate land or exchange land. Under the proposed change in HB 77, Title 38 exchange statutes would be modified such that the exchange would go through a normal AS 38.05.035(e) decision process, which is a disposal of interest decision process. The process utilizes public and agency review and a formal decision that is in the state's best interest is being made. The aforementioned is already utilized for many disposals of state land and DMLW does not view exchanges of state land as any different. Therefore, the division wants to ensure that it can perform its duties efficiently and the same way that other decisions are made. However, currently there is a higher burden on the exchanges that make it difficult to complete; for example, the False Creek land exchange took 25 years to complete. The change proposed in HB 77 would reduce the time and cost to the applicant. 2:42:30 PM REPRESENTATIVE TUCK inquired as to why the False Creek land exchange took so long to complete and whether that would be fixed by HB 77. MR. MENEFEE explained that in general there was a situation in which appraisals were performed, but they would become stale due to the requirements of the process. Therefore, a re-appraisal and further negotiations would occur, which took more time. The idea came from his discussions with the land exchange staff, which revealed that very few exchanges have occurred since enactment of the [existing] statute. The suggestion was that performing land exchanges with a disposal of interest decision would speed the process. 2:43:59 PM MR. MENEFEE, returning to his briefing paper, related that point 3 addresses reducing the risk of litigation, which could have some adverse ramifications. Currently, part of the statute addresses the types of payments, all upfront or over time per a contract, that can be utilized with land sales. Existing law only speaks to land sold by auction, although land is sold in situations other than by auction. The desire for all land sales is to be able to enter into a contract to pay over time. If there was a challenge and the challenger prevailed, there would be the risk of losing millions of dollars in land sales each year. Therefore, the division wants to able to continue the practice of entering into contracts that allow payment over time and the individual eventually obtains their patent. 2:45:28 PM REPRESENTATIVE HAWKER, referring to Section 7 of HB 77, asked why "or property" is being added when the overarching section, Title 2, is the sale of land. MR. MENEFEE responded that a development on the land - for example, a house - is an issue that sometimes occurs. Therefore, the development has to be sold as well as the land. 2:46:31 PM REPRESENTATIVE HAWKER related his understanding that DMLW has a practice of accepting full payment at closing. In a bid situation, the division would take a 5 percent deposit and accept cash at closing or offering term payments. The idea, he surmised, is to make it very clear that term payments may be made in all instances in which the division disposes of land or property. MR. MENEFEE confirmed that to be correct. 2:47:02 PM REPRESENTATIVE HAWKER asked whether the mandate language of "shall" potentially prohibits the division from offering cash at closing payments. He suggested consideration of changing the language to read as follows: "the remainder of the purchase price to be paid at the time of closing or in monthly ...." MR. MENEFEE deferred to the Department of Law (DOL), although he said he believes the division still has the ability to put all the money down right away. 2:49:45 PM ASHLEY BROWN, Assistant Attorney General, Oil, Gas & Mining Section, Natural Resources Section, Department of Law, said she would get back to the committee with an answer. 2:50:09 PM REPRESENTATIVE TARR, referring to [Section 22, page 15, line 11], pointed out that the reference to "the mineral estate" does not appear to have been in the previous statute that is being eliminated with these changes. She requested Mr. Menefee to speak to that. MR. MENEFEE explained that in cases where someone owns both the surface and mineral estate and is willing to give it to the state, the value of it would have to be determined in order to achieve an exchange. 2:51:25 PM REPRESENTATIVE TUCK inquired as to whether the state could exchange mineral rights away. MR. MENEFEE answered that although it is unlikely, technically the state could do so. In further response, he said the state would always like to maintain the opportunity for people to stake mining claims, particularly where it will have no adverse effect. Typically, the state aggressively tries to protect that right because it is the dominant estate. Still, there may be some situation where it may be advantageous to do so. 2:52:56 PM REPRESENTATIVE TARR related her understanding that the state owns the mineral rights/subsurface rights. Therefore, she questioned who as a private landholder, save the Alaska Native corporations, would be a private landholder who holds their mineral rights. MR. MENEFEE responded that there are quite a few individuals who do own their own mineral rights, but he could not name them. He specified that private individuals do hold mineral estates to their properties, which often are from the federal government. For instance, someone could have staked a federal mining claim and that individual could apply and obtain a federal patent to that mineral claim as the individual owns the mineral estate. 2:53:52 PM MR. MENEFEE, returning to his briefing paper, directed attention to point 4, which proposes extending a lease for up to two years in two specific instances. Per statute, a long-term lessee allows a preference right to purchase the land, which merely means that there is an option to sell the land to the long-term lessee. The aforementioned can be applied for up to the end of their lease. Therefore, at the end of a lease, the state could face having to authorize structures that are already improved for the period while the state decides whether to sell it or not. The division wants a two-year window in which to perform that activity, adjudication, or decision. There are also situations in which a lessee finds the need to expand their business. If the lessee has substantially changed what they are doing, [DMLW] has to review it. The aforementioned two-year extension would keep the business legal with a lease while the division adjudicates the request. 2:55:59 PM CO-CHAIR SADDLER inquired as to what a preference right is. MR. MENEFEE explained that a preference right means that without having to go to competition, the lessee can apply for something. Normally, disposal of state land is done competitively. However, in a case in which a lessee has a long-term lease, the lessee could apply for a preference right under AS 38.05.102. Although the statue does not specify the lessee will obtain it, it allows for the lessee to request it noncompetitively and the [division] can adjudicate whether it is in the state's best interest to sell that land to the lessee. 2:57:09 PM CO-CHAIR FEIGE surmised that being able to grant that preference right could be considered an incentive for making investments and to further the settlement of the land. MR. MENEFEE replied yes, adding that for long-term leases the division does not dictate how much the lessee invests. Still, it could be considered an incentive because the lessee would not lose their investment since they would have the option to purchase it. 2:57:41 PM REPRESENTATIVE SEATON clarified his understanding that the proposed extension in point 4 is only for leases not permits. MR. MENEFEE confirmed that to be the case. 2:57:57 PM REPRESENTATIVE TUCK asked whether there is a definition for long-term lease. MR. MENEFEE offered to get that information to the committee. 2:58:12 PM REPRESENTATIVE TUCK surmised that the two-year window is not just for a preference right for the lessee to purchase the land, but also to extend the lease. MR. MENEFEE posed a scenario in which there is a 40-year lease and explained that to extend the lease [DMLW] must still go through a decision process. However, last year the legislature approved a renewal statute that allowed one-time, noncompetitive, equal-term extensions. In this case, if the lessee is in good standing, the lessee could obtain another 40- year lease. Although the aforementioned change encouraged more development, it did not take into account whether the lessee had substantially changed their operations. A substantial change in operations would result in the need for DMLW to perform a new and full adjudication of that lease. Meanwhile, there would be unauthorized development on the land. In further response, Mr. Menefee confirmed that once an individual has a lease and has made investments in the land, it makes sense to continue it. 3:00:14 PM REPRESENTATIVE P. WILSON asked whether point 3 would apply to waterfront leases as well. MR. MENEFEE said yes, specifying that they are referred to as upland leases and tideland leases. [HB 77 was held over.]