SENATE BILL NO. 6 "An Act relating to the disposal of state land." Mel Krogseng, staff to Senator Robin Taylor was invited to join the committee. She explained the bill on behalf of Senator Taylor, sponsor. The land in question has been purchased and returned to the State because of default. The Department of Natural Resources proposed the amendments that were already incorporated into bill. It is supported by them and carries a zero fiscal note. Senator Adams asked about the two amendments proposed by the chairman. Ms. Krogseng said there was no objection to the amendments. Carol Carroll, Director, Division of Support Services, Department of Natural Resources was invited to join the committee. She did not wish to testify but said Dick Mylius from the department was available via teleconference in Anchorage. Dick Mylius, Resource Assessment and Development, Division of Land, Department of Natural Resources testified before the committee via teleconference in Anchorage. He said the department supported the bill as currently drafted. It would allow them to get land up for sale more quickly. Under State statute the land must be appraised before sale. Senator Adams referred to Amendment #1, section 5 having to do with appraisals. His concern was that the director might not reject an appraisal. What happens if there is a low appraisal rating? Mr. Mylius said they opposed Amendment #1. The department may want to reject an appraisal for many reasons. Such as error in computation, the wrong parcel of land, etc. Senator Adams referred to Amendment #2. Mr. Mylius said his concern for Amendment #2 was the statute was changed previously to two years. Further, it does not read quite clear what the addition modifies. Senator Adams suggested that in Amendment #2, line 6, after "lease" insert "or". Mr. Mylius briefly described an inaccurate appraisal and the problems caused by this for the committee. Co-chair Torgerson commented about the situation of the hiring of an appraiser to appraise a specific piece of land, it was rejected and the case was now under administrative appeal. He then explained purpose of the amendment. Mr. Mylius said this kind of situation rarely arises and this one was an exception. There was significant error. The private appraiser ignored all comments and suggestions made by State appraiser. Senator Torgerson said appraisers were hired because they were supposed to be unbiased towards either party. Did they try to negotiate a higher price? Mr. Mylius said there was a lot of differences. The piece of property was a difficult one to appraise. Senator Torgerson asked if appraisers were licensed by the State? Mr. Mylius said they were. Senator Torgerson asked if they were covered by insurance? Mr. Mylius said he did not know. Senator Phillips asked if the process done for everyone was normally the same? Mr. Mylius said parcels of land were appraised beforehand. They appraise the land up front and the buyer pays this fee up front. They do sell exclusively to an individual in certain situations. Senator Phillips asked what happened if an individual did not like the appraisal? Was another appraisal secured? Mr. Mylius said that was correct. Senator Adams asked what the third appraisal in this particular situation came out to be? Mr. Mylius said the issue was currently out to deal and he could not release the amount of the appraisal. Co-chair Torgerson asked what was the expectation of the person paying for the appraisal? In this particular situation, they got two more appraisals and still filed an appeal. Senator Donley MOVED Amendment #1. Senator Adams OBJECTED. He MOVED to delete all of section 5 as an amendment to Amendment #1. Co-chair Torgerson OBJECTED. He said there was an expectation on behalf of the buyer when the appraisal service was paid for. Therefore the department did not have any veto right. Mr. Mylius said this instance was a rare occasion. The State certified appraiser had voiced her concerns. The outside appraiser did not respond to her concerns. Senator Torgerson said he felt Mr. Mylius wanted to leave everything to the discretion of the department. Mr. Mylius said they either do appraisal with their own staff or hire another appraiser. Then it could be appealed to the commissioner, the individual could purchase the property or not, or they could take the matter to Court. Senator Torgerson said this was not great policy and it did not make sense. Senator Phillips asked about the appraisals. Did the same process apply to all properties? Mr. Mylius said they did use the same appraisal process for all properties. Senator Phillips questioned then why was this case so different? Mr. Mylius said this was because of the difference of the value of the property between the purchaser and the department. Senator Kelly asked if there was any contract that the Department of Natural Resources would sell land to a person based on an appraisal carried out by one of their approved people? Mr. Mylius said there was no contract, but it would still have to be approved by their appraiser. He explained that the only ground for disapproval was fraud. Senator Kelly explained his understanding of a contract with an appraiser. Is one stuck with the obligation of buying even if they do not like the appraiser? The larger question to be determined is that is this something that always goes on? Or is this just an isolated incident? He said he would have to support Senator Torgerson's amendment individuals. Senator Donley asked for an explanation of the standard used. Was there clear and convincing evidence that the appraisal was inaccurate? Mr. Mylius said there was no clear and convincing standard. There was however a standard checklist to make sure the appraisal was good. Senator Donley said he had received comments that State policy was not being executed. There were people in positions that have decision-making authority ignoring the intent of the statute. This was causing great concern for many individuals. A systemic pattern was seen and needs to be attended to. He has been hearing of this process in the business community. Mr. Mylius said he would provide statistics to the committee showing that this was a rare incident. Co-chair Torgerson said if he wanted to purchase land he had the option not to purchase it, not the appraiser. Senator Green voiced her concerns. The Commissioner was approving each appraiser. Perhaps it was time to get back into the reversionary relationship of buyer and appraiser. The present system does not work very well. Was this appraiser still on the payroll? Mr. Mylius said this person was no longer a certified appraiser. The particular appraiser did not fill out and submit the required re- certification papers and therefore was not on the certified list. Senator Green asked if a minimum bid was ever set? Mr. Mylius said the appraiser did set a minimum bid. Senator Green asked if they were operating according to policy? Mr. Mylius asked for clarification? Senator Green asked if the department was operating under statute so an individual could anticipate what they might have to go through? Senator Kelly asked if this was under regulation or policy? Mr. Mylius said most operations were under regulation. Senator Phillips asked about list of approved appraisers? And how often was this reviewed? Mr. Mylius said he was not sure how many were on the list. It was reviewed less often than once a year. The appraiser in question was not on the list any longer. Co-chair Torgerson said the Department of Natural Resources also had a list of appraisers that were not approved to use. This has created a problem. He asked if the bank changes the appraisal on a loan? Mr. Mylius said he was unaware of what the bank did. Co=chair Torgerson spoke briefly to the committee regarding appraisals in favor of the State. Senator Wilken asked Co-chair Torgerson to set aside the amendment to Amendment #1 pending receipt of requested information. Senator Donley referred to amendment to Amendment #1 and perhaps it could be incorporated into Amendment #2. Tape: SFC - 99 #18, Side A Co-chair Torgerson explained Amendment #2 and the change of two years to five years for an appraisal. They were trying to assist Alaskans in their purchase of land. Senator Donley spoke to the "clear and convincing" standard. Senator Adams concurred. He suggested they work on this bill overnight to find a negotiated point and also take care of the involved constituent to make sure this does not happen in the future. He felt this truly was an isolated case. Co-chair Torgerson said he did not feel this was an isolated issue. As he said, they might as well not license appraisers. Senator Kelly asked if appraisers were licensed in the State? Co-chair Torgerson said he thought they were certified. Senator Donley asked if the amendment to amendment #1 was presently before the committee. Senator Adams said this could be held overnight and perhaps they could come up with a compromise and get bill out tomorrow. Co-chair Torgerson briefly commented. Senator Donley said there was really two questions. The first one was the approval of appraisers. The department should not have the authority to approve appraisers. Second, was the "clear and convincing" standard if there was "discretion" to be approved by the department. These were possible suggestions offered by Senator Donley. Senator Green said his suggestions would not correct the situation. Senator Donley disagreed saying this suggested standard would have given the constituent something to go by. Co-chair Torgerson felt there should have been an unbiased appraisal. Senator Donley pointed out that the same thing could happen if the Commissioner discriminated in approving appraisers who were sympathetic to them. Co-chair Torgerson's concern was that the State, in this matter, was asking Alaskans to come, give money and then they would do the appraisal. Senator Green asked if the burden of appraisal were back on the State, either there could be a flat fee or the applicant could pay and State would handle the appraisal? Co-chair Torgerson said this could be an option. Mel Krogseng rejoined the committee and also said this could be an option. The price of an appraisal is pretty standard unless it is a remote parcel. She suggested Mr. Mylius check into this matter. Ms. Krogseng continued. It was her understanding that a bank had an appraisal list and no matter who ordered the appraisal the official appraiser is taken from that list. If there is a problem then perhaps we should check into the standard of their certification. Co-chair Torgerson HELD the bill in committee along with the amendments. This should be worked out with Department of Natural Resources. Ms. Krogseng said she would be glad to work with the committee and the department. Co-chair Torgerson reviewed the agenda for tomorrow. An Overview of the Department of Administration was scheduled. Senator Adams asked if the University of Alaska would also be taken up? Senator Parnell said he had asked for a review of all bargaining units. He did not know if the University would be present. ADJOURNED Co-chair Torgerson adjourned the meeting at approximately 10:50 A.M. (Tape number#18, Side A.) SFC-99 (1) 02/02/99