SENATE BILL 340 "An Act relating to the University of Alaska and university land, and authorizing the University of Alaska to select additional state land." RALPH BENNETT, STAFF, SENATOR ROBIN TAYLOR, stated that the provisions of SB 340 would allow the University of Alaska to select 250,000 acres of state land, subject to approval by the legislature. Land approved for transfer would include interest in minerals and oil and gas (subject to certain limitations). He noted that land subject to a coal lease or with a pending lease application would not available for selection. The university would bear the cost of selection, platting, surveying, and conveyance. All land selections had to be made by December 31, 2012, and 20 percent of income derived from selected land had to be used at the campus closest to the income-generating parcel or parcels. All lands conveyed under the program would be exempt from municipal taxation. Mr. Bennett reported that SB 340 was compatible with Senator Murkowski's SB 660, legislation pending in Congress that would convey additional public lands to the University of Alaska. The Alaska system was created under federal authority as a land-grant institution to provide for the higher-education requirements of Alaska's people in perpetuity. Most colleges established under the land-grant program were endowed with sizeable land bases from which to generate income to be used for operating purposes. Unlike most institutions in the Lower 48, the University of Alaska did not have a large population base and proximity to other beneficial support services. The University of Alaska also suffered from a smaller pool of alumni and other normal sources of endowment income, which many institutions relied on to help support operations, especially subsidies for teaching positions. In the past decade, several legislators had introduced legislation allowing the university to select additional lands from the state. The purpose of all such legislation had been to provide more lands for the university's state-wide system and to provide more income- producing assets where monetary resources were more scarce and unpredictable. Mr. Bennett maintained that SB 340 would continue the effort to give the university a larger and more productive land-base. The bill would also provide clear expectations that land conveyed be used for the development of value- added industries where appropriate. Mr. Bennett provided a sectional analysis of SB 340: · Section 1: Findings and purposes section, including that the University of Alaska should own income- producing land to provide income for the support of higher education. · Section 2: Legislative intent language for the university to encourage the development of in-state, value-added industries in developing the land conveyed to it. · Section 3: Technical amendment, adding that the provisions grant the Board of Regents the care, control, and management of other university lands. · Section 4: Technical amendment to account for the land conveyed under the bill. · Section 5: A major section adding new subsections dealing with new land selections: · Subsection 14.43.65: Would allow the university to select 250,000 acres of state land. The list of land proposed to be conveyed by the state would be periodically submitted to the legislature; the legislature could approve or disapprove the list. The section would also set requirements for the land that could be selected. Transfer of ownership of the land to the university would include the interest of the state in minerals and to oil and gas, but only related to land selected at least five years after the effective date of the bill. The subsection describes the power of the state to manage the land selected but not yet conveyed, and lists types of land that could not be conveyed, including land the conveyance of which was determined by the Commissioner of the Department of Natural Resources not to be in the best interests of the state. The university would bear the cost of selecting, platting, surveying, and conveying the land; the state would pay costs of recording patents and documents of interim conveyance. The university must make all selections by December 31, 2012. Land would revert to the state if the commissioner found the university was not actively managing the land to provide income on the tenth anniversary of the conveyance. · Subsection 14.43.66: Provides that the Board of Regents must establish procedures substantially similar to state procedures for mineral leasing on the conveyed lands. The board must prepare an annual plan for the management of the land and seek public comment on the plan. At least 20 percent of the income derived from the management of selected land must be used at the campus closest to the land from which the income was derived. · Subsection 14.43.67: A new section in Section 5 that would deal with confidential records; Mr. Bennett noted that the section did not appear in the committee's copy of the sectional. · Subsection 14.43.67: Provides for land conveyed that would be subject to certain types of agreements (leases, claims, permits, and so on); the state would be entitled to receive the income and the management would be turned over to the university only after the terms of the agreement expired. · Subsection 14.43.69: Provides that before conveying or disposing of interest in selected lands, the university would be required to manage the land in a manner that would permit customary and traditional uses of resources to the maximum extent practical. · Sections 6 and 7: A new section related to torte immunity on unimproved land. He noted that the section did not appear in the committee's sectional. Section 6 was a renumbered Section 7 and would provide an income derived from the management of selected land in the endowment trust fund. · Section 8: Previously Section 7; exempts the university lands from municipal taxation. Senator Parnell referred to Section 6 related to torte immunity for personal injury. He noted that the state already had some immunity from certain actions on state property. He asked whether the doctrine applied to the university and university actions; if so, he questioned making torte immunity for the university higher than the immunity of state property in general. WENDY REDMOND, EXECUTIVE VICE-PRESIDENT, UNIVERSITY RELATIONS, UNIVERSITY OF ALASKA, answered that the language in the bill was exactly the language used for state immunity. She emphasized that the language was not the university's preference, and was not the torte immunity language that had been in the bill previously. She wanted the previous language, which took the immunity to a slightly higher level. The higher level was the result of a previous section (14.43.69) requiring the continued provision of customary and traditional use on all university land until transferred to a third party; the university felt it was important to have the higher level of torte immunity. Senator Parnell asked whether the level requested was the same level as granted the state of Alaska on other unimproved land. Ms. Redmond replied yes; she noted that the Resources Committee had lifted the language directly out of statute. Co-chair Sharp asked whether there was a section dealing with returning the land if it was not used appropriately. Ms. Redmond replied that there were still a few sections of the bill that were troubling to the university. One of the sections had been referred to as the "use it or lose it" clause, and was found on page 9, beginning on line 17 and extending to page 10, line 9. The clause stipulated that the university would have ten years to actively manage the property for income or the land would revert to the state of Alaska. Co-chair Sharp stated concerns about another item (page 10, lines 30 to 31 to page 11, lines 1 and 2). Ms. Redmond agreed that the clause was even more troubling. The section was new and stipulated that 20 percent of the income from the management of the land had to go to the closest campus. She detailed that currently, all of the income from the land-grant trust went into the Natural Resources fund, established in statute to generate income to support resource development in Alaska. The fund was inflation- proofed and the university spent the earnings through grants; approximately $3.7 million had been given out in the current year. Ms. Redmond continued that the language would target money to the campus closest to where the money was generated regardless of need, in addition to diverting the money before it got to the endowment. She did not think the clause was in the best interest of the university and did not accomplish what the trust fund was set up to do, which was to support resource development in the state. Senator Torgerson queried language that had previously been suggested to address the issue. Ms. Redmond replied that she had suggested broadening the language to use the money within the region and linking it to the purpose of the fund. Senator Torgerson asked how she would define "region." Ms. Redmond did not have the answer. She conjectured that it would be broader than an election district. Senator Torgerson believed Senator Taylor had intended to work on the language. Mr. Bennett replied that a work draft had been prepared dealing only with the 20-percent issue; it did not address the problem of broadening the regions. He had not been instructed to bring the changes before the committee and did not have suggested changes. CAROL CARROLL, DIRECTOR, DIVISION OF SUPPORT SERVICES, DEPARTMENT OF NATURAL RESOURCES, wanted the committee to have the department's opinion of the bill. JANE ANGVIK, DIRECTOR, DIVISION OF LAND, DEPARTMENT OF NATURAL RESOURCES (via teleconference), testified that the department opposed the bill for seven reasons: 1. While the state owned a great deal of acreage, only a very small amount of the land produced revenue. The university would most likely select the most productive land, which would remove it from state management and decrease revenue to the general fund; currently, 85 percent of all general-fund revenues came from state-owned land. 2. It would be difficult to find 250,000 acres of suitable state lands for the university to select. In addition, there would be a large public outcry resulting from the transfer of specific parcels. She noted that the department had witnessed such a response when it had tried to reconstruct the Mental Health Trust. 3. It would be costly to transfer titles for the amount of land; it could cost over $800,000 per year for ten years to convey the amount of land to the university. 4. The municipalities would be in competition with the university for the same land. The state currently owed the municipalities over 600,000 acres under the municipal-entitlement program. There were a limited amount of revenue-generating lands that both the municipalities and the university wanted. While the legislation would protect existing selections, most municipalities found it necessary to modify their collections over time as their priorities changed and land-ownership patterns evolved due to federal conveyances to the state and to Alaska Native Claims Settlement Act (ANCSA) corporations. Furthermore, about one-half of Alaska was in unorganized boroughs. When those areas organized, the state would have an obligation to convey 10 percent of certain state lands within the municipal boundaries, but much of the best land might have already gone to the university. 5. Timber harvesting could be negatively impacted by the bill. The university would most likely select the most productive timber lands, reducing the state's timber base used to calculate the sustained yield and limiting the state's current efforts to establish timber sales that supported local value-added processing. As a trust, the university would manage its lands for maximizing revenue, and therefore would sell timber for export. She argued that the Department of Natural Resource's ability to offer sales for local value-added processing would be decreased if the university selected timber lands. 6. The university would be exempt from most state land laws adopted by the legislature to protect the public interest. For example, Title 38 requirements for public notice and the state's best-interest findings process would not apply to the university lands. The university forest operations were not subject to public review for the forest land-use plan and five- year schedule. Also, university land was not subject multiple-use management requirements and the lands would be exempt from conformance in CNR area plans. 7. The bill lacked a method by which to resolve disagreements between DNR and the university regarding what lands should be submitted to the legislature. Without supervision, disagreements could result in no land list being submitted or the state and university could end up in costly litigation. She thought the bill needed a provision to allow the governor to make the final decision and submit the land list to the legislature if there was disagreement between DNR and the university. Senate Bill 340 would require DNR to re-enter and re-convey title back to CNR if the university was not managing lands to generate revenue. She argued that the provision was unreasonable, since most state land did not generate revenue. Furthermore, enforcement would be costly and was likely to result in litigation. The department recommended that the provision be deleted. Ms. Angvik referred to amendments that had been recommended and conveyed to the committee through a May 1 letter. She noted that the director of the Division of Mining, Land and Water was available to answer questions about the effect of the bill on mining in Alaska. Senator Phillips reported that the members did not have the letter with the proposed amendments. Ms. Angvik offered to get a copy to the committee. JULES CHARLESTON, DIRECTOR, DIVISION OF MINING, LAND AND WATER, DEPARTMENT OF NATURAL RESOURCES (testified via teleconference), stated that SB 340 (Version F) had significant potential to damage the enthusiasm of mining companies to invest in the mineral wealth of Alaska. He reported that for the past two years, the mining industry had created value totaling over $1 billion. He referred to the "we are open for business" message from both the governor and the legislature. He noted that DNR anticipated about $1.7 million in direct revenue to the state treasury during FY 99 from mineral rents, royalties, and application and administrative fees from state-owned, locatable minerals. The department projected a total of about 50,000 mineral properties and about 1,000 ownerships (mining claims, mining leases, mill-site leases, prospecting sites, and prospecting permits); about 1 million acres of state- owned or state-collected land would be encumbered. Mr. Charleston emphasized that the version as drafted would create financial and legal uncertainties for the mining industry similar to those experienced during the Mental Health Trust lands litigation, which would not be resolved until after 2012. He pointed out that the language in Section 5 of the bill (dealing with minerals on state properties) was difficult to understand; Sections 14.40.365(a)(3) and (4) appeared to exempt only certain state lands associated with state oil, gas, and coal leases. The language of Section (a)(4), line 5 on page 5 and lines 3 through 7 stipulated that the university could select any of approximately 40,000 mining claims, as well as any of about 5,000 prospecting sites (covering about 650,000 acres). He referred to another kind of prospecting site that the state did not have at the present time, but could in the future. The university could also select any of approximately 100 mineral leases covering abut 100,000 acres, or any of five existing or pending mill-site leases. In addition, the university could select any land that was slated for both intensive and extensive mineral inventory for the Division of Geological and Geophysical Surveys, thereby excluding the public and the industry from a fair chance to locate mining claims and prospecting sites under existing Alaska laws covering mines and mining. Mr. Charleston continued that Section 14.40.365(b)(1) on page 5, lines 19 to 20 reaffirmed that state-owned coal, ores, minerals, geothermal resources, and fossils would be under the exclusive ownership and management of the university for the sole benefit of the university. He believed there would be substantive questions about who must deal with whom for continued operation of new development of mineral property (not in the Mental Health Trust) to the extent that SB 340 authorized university selection of mineral properties other than certain oil, gas, and coal leases. He listed properties the version would permit the university to select, including parts of Fort Knox Mine, Golden Zone Mine, Red Dog Mine, True North Mine at Fairbanks, and any of more than 200 small- or medium-sized placer mines and claims. Mr. Charleston argued that if SB 340 authorized the selection of mineral properties including oil, gas, and coal (which were not expressly excluded), the requirements of Section 6(i) of the Alaska Statehood Act in its reversionary provisions as well as revenues to the permanent fund would raise substantial legal issues that could further delay any mineral development on state land that the university selected. He claimed the stigma that influenced adverse investment by the mineral industry during the Mental Health Trust litigation would be reinstituted. In addition, there could be a handle for litigation that was otherwise prudently and environmentally responsible when there was opposition to some oil, gas, and coal projects. Mr. Charleston maintained that questions could be raised about severing the surface from the sub-surface mineral estate. In addition, there would be adverse impacts from added costs resulting from fees the university would have to charge in order to avoid relinquishment of the property, even if minerals were not selectable by the university. The fees could stop marginally economical projects and cause delay for others waiting for better world-market conditions; the end result could be the loss of local jobs and otherwise prudent and timely economic development. Mr. Charleston questioned whether meeting the proposed requirements for timely economic development of university lands could cause other economic uses such as the subdivision for homes, commercial lodges, business sites, or recreational cabins, which could then become non- conforming land use that the mineral property development had to buy. He feared there could be other additional costs to an otherwise prudent development. The mineral lease could last as long as 55 years; the average lease was currently about 20 years. Mineral leases had a right for renewal when other conditions were met. He asked what the university would gain from selecting mineral properties if the existing lease income continued to go to the general treasury and permanent fund for the life of the mine. Mr. Charleston noted that under Alaska mining law, mineral property owners had the exclusive right for regular renewal of property rights as long as they otherwise complied with the law; under SB 340, he questioned the period the annual rental fees would come to the general treasury. He questioned whether the university could select the Red Dog mine loading facilities on a DNR lease or select a small tract across the new road to Fort Knox mine and then charge a trespass fee and reduce income. He worried that there could be charges against Fort Knox mine vehicles and reduce income to the Mental Health Trust or to the Fairbanks North Star Borough. He did not think the bill answered any of his questions. He pointed out that unanswered questions in the mineral industry automatically meant a delay. Mr. Charleston concluded that SB 340 would send a strong message to the mineral industry that until sometime after the year 2012, state mineral property should be considered as having significant investment risk because of uncertainty about who the landlord would be, prospective litigation over deposits to the general treasury and permanent fund, and adverse impact similar to the Mental Health Trust litigation. He strongly recommended that SB 340 be amended by the Senate Finance Committee to expressly exclude selection of any state minerals: coals, ore, minerals, and other materials, as well as oil and gas that were presently in mining claims, mineral leases, mill-site leases, or other mineral property rights under Alaska law, the Alaska Statehood Act, and the Alaska Constitution. He also recommended that land selected by the state for its mineral value be excluded, whether encumbered or not, as well as land that the legislature had authorized to the Division of Geological and Geophysical Survey to conduct mineral-related studies as a result of suspected mineral potential. SB 340 was SET ASIDE until later in the meeting. SENATE BILL 340 "An Act relating to the University of Alaska and university land, and authorizing the University of Alaska to select additional state land." Senator Torgerson MOVED Amendment 1: Page 10, line 30, subsection (c): Delete line 30 through 31, and lines 1 and 2 on the top of page 11. Insert new language: Subject to appropriation of the income, the Board of Regents shall have an amount up to 20 percent of the income derived from the management of university land selected under AS 14.43.65 for the campus of the university that is located closest to the land from which the income is derived, if the borough or unified municipality within which the campus is located agrees to provide a match for the same amount to the campus. Senator Torgerson MOVED amendment 1 to Amendment 1: Page 11, line 2 Delete the word "unified" Senator Parnell OBJECTED. He asked for clarification regarding the amendment to the amendment. He queried whether the intent was to broaden the word municipalities to include cities as well. Senator Torgerson responded that the existing language would not include home-rule, first-class, or second-class cities. Deleting the word "unified" would open the provision up to municipalities, including unified municipalities. Senator Parnell REMOVED his OBJECTION. Senator Adams clarified that there was an Alaskan campus in Barrow (Ilisagvik College) not related to the University of Alaska. He queried the revenues that would be available to the Barrow institution. Senator Torgerson did not think SB 340 would apply to a campus that was not attached to the University of Alaska. There being no further objection, the Amendment 1 as amended was ADOPTED. Senator Torgerson MOVED Amendment 2: Page 9, line 17 through page 10, line 9 Subsection (m): Delete in its entirety Senator Adams OBJECTED. He asked whether the work would be done (by the Department of Natural Resources) to issue the documents necessary to convey the land. Senator Torgerson believed the issue was covered. He wanted to take out the parts related to land not developed in ten years that would then revert back to the state. He thought the land-selection process and the duties and responsibilities of both the Board of Regents of the University of Alaska and the Division of Land would remain intact. Senator Adams MAINTAINED his OBJECTION. A roll call was taken on the amendment. In favor: Parnell, Phillips, Torgerson, Sharp, Pearce Against: Adams Senator Donley was absent from the vote. The motion FAILED (5/1). Amendment 2 was adopted. Co-chair Sharp informed the committee that the Department of Natural Resources (DNR) had just faxed several pages of amendments. He believed the DNR amendments would be addressed on the floor of the Senate. Co-chair Sharp stated that he did not like the fiscal notes attached to the bill. He referred to a $1.5 million request; he did not know how it would be used. Senator Pearce opined that the bill could not be reported out with the fiscal notes. She believed the item could be addressed in Conference Committee. She did not want to give the university $1.5 million each year. In addition, DNR was asked for another $800,000 in inter-agency receipts. WENDY REDMOND, EXECUTIVE VICE-PRESIDENT, UNIVERSITY RELATIONS, UNIVERSITY OF ALASKA, thought there might be an error. She stated that the university fiscal note should be university receipts and not general funds. Co-chair Sharp noted that the fiscal note said general funds, so there could be an error. Ms. Redmond agreed that the item should be university receipts. She added that the land development would be paid from the proceeds from the fund. Senator Pearce commented that the item was showing as interagency receipts; it was expected that the university would pay those. Ms. Redmond responded that there had been agreements in past land bills about how interagency receipts would be handled; the department would pay the costs for surveying and platting, and would share the conveyance cost. She offered to get a corrected fiscal note for at least the university's portion to make sure it was university receipts. Senator Torgerson asked whether the department would be in favor of university receipts to DNR. Ms. Redmond responded that it would not be university receipts but would appropriately show as interagency receipts if they received some university receipts to handle the costs of the platting. Senator Torgerson asked whether the impact to the general fund would be zero. Ms. Redmond answered in the affirmative. JANE ANGVIK, DIRECTOR, DIVISION OF LAND, DEPARTMENT OF NATURAL RESOURCES (via teleconference), added that the department's understanding of the DNR fiscal note was that it was to be paid by the university for all costs associated with the conveyance. Senator Torgerson agreed. Senator Pearce opined that there was still a problem, as the budget would increase. The interagency receipt account was general funds. She thought the issue could be worked on in Conference Committee. Co-chair Sharp asked for the fiscal note from the university to be changed from a fund source of general funds to university receipts. He wanted it to be clear on the DNR fiscal note that the interagency receipts would be from university receipts upon agreement and request from the university for services desired. He noted that it would not be dictated by DNR. Ms. Angvik clarified that the University of Alaska would pay all costs associated if the bill was adopted. Co-chair Sharp agreed. Senator Torgerson MOVED to REPORT CSSB 340(FIN) from committee with individual recommendations and the attached fiscal notes. Senator Adams OBJECTED. He believed the bill was being set up to be vetoed because it would appropriate resources of the state that would hurt the economic development of the state. He also believed the bill would hamper the process of organizing for unorganized municipalities. He thought the economic development and selection of non-oil-and-gas properties would be hampered as well as mining and timber harvesting. He asserted that the bill would create an exemption from most state law. He noted past allowance of Mental Health Trust selection of lands. He did not think the selection would be known with the University of Alaska. He argued that the bill would set bad public policy. A roll call was taken on the motion. In favor: Torgerson, Parnell, Phillips, Sharp, Pearce Against: Adams Senator Donley was absent from the vote. The motion PASSED (5/1). CSSB 340(FIN) was REPORTED out of committee with "no recommendation" and attached fiscal notes by the Department of Natural Resources and the University of Alaska.