CS FOR SENATE BILL NO. 278(JUD) "An Act requiring a good faith effort to purchase property before that property is taken through eminent domain; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. KIM OGNISTY, staff to Senator John Torgerson, informed the Committee that this legislation "introduces a reasonable and diligent effort clause that attempts to place a comdemnor of land and a private landowner in an equal negotiating position." She asserted that the bill would not reduce the ability of the State to acquire land by eminent domain or complicate existing proceedings; but would rather require the State to apply reasonable and diligent efforts to negotiations with private landowners and encourage "reasonable offers," and that "striving to initiate communications from a more equitable bargaining position would promote more productive negotiations" and "facilitate dialogue over reasonable concerns and encourage suggestions from all parties involved." Ms. Ognisty stated that approximately twenty-three states have adopted similar measures and the intent of this language is "to reduce the amount of litigation by encouraging more cases to be settled up front." She noted that a zero fiscal note accompanies the current version of the bill; however, she informed the Committee that an indeterminate fiscal note accompanied previous versions. RICK KAUZLARICH, Right of Way Chief, Department of Transportation and Public Facilities, testified that the Department is not in favor of the bill, and he voiced "exception to the inclusion within the bill about the reasonable and diligent effort." He opined that given his 22-years of employment as a right-of-way agent with the Department, he could attest to the fact that the Department "does act in good faith to purchase property before it" is condemned. He stated that this bill would further complicate "an already complex process." Mr. Kauzlarich reminded the Committee that the Alaska Constitution specifies that no property shall be taken without just compensation, and he elaborated that the Department has established procedures to support that objective. He stated that the process involves "the uniform act" which mandates that each acquisition file include documentation of ownership, initial contact information, appraisals, and community and individual meetings. He stated that appraisers hired by the Department are required to provide documentation to demonstrate that effort is taken to contact and provide information to the property owner regarding the appraisal process. Mr. Kauzlarich stressed that throughout the negotiations, the Department's right-of-way agents maintain contact with property owners to address and resolve issues that the property owner might have about such things as the "configuration of the project," the affect the project might have on the property, questions about valuation of the property, and relocation of the property owner if need be. He reiterated that every effort is made to reach a consensus in order to avoid condemnation of property. Mr. Kauzlarich reiterated that the entire process is a matter of record and is included in Departmental files to create "a decisional document" that identifies negotiation steps taken with the property owner. He asserted that this process provides the documentation to prove that the Department "does make a diligent and reasonable effort to ensure that people that are affected by a project get all the benefits that are due to them." WILLIAM CUMMINGS, Assistant Attorney General, Transportation Section, Civil Division, Department of Law, commented that "extensive statutory authority" exists that identifies the State's negotiation practices to assure that individuals whom the State acquires land from are treated fairly. He continued that the State is "pretty successful" in its acquisition endeavors, and he specified that condemnation of property only occurs in two to five percent of the right-of-way acquisitions. He attested that this supports the position that the State works well with landowners. Mr. Cummings continued that this bill would amend AS 09.55.430 to require a statement be included in each file specifying that the State has conducted the acquisition process diligently and in good faith. He stressed that this statement "could become a point of litigation in the case where opposing council could stand up and pound on the table and say the State hasn't been fair, the State hasn't been reasonable, look how pitifully low the offer is." He voiced that this could result in elevating the valuation of the property, and as the State has experienced with similar situations, could cause the delay of a project for as long as a year while further analysis of the valuation is conducted. He summarized that the State "already is" diligent and operates in good faith in these matters, and that these statute amendments would result in delaying a project "while this relatively complex litigation proceeds forward." Senator Austerman summarized that the Department's position is that it already conducts the negotiation process in a reasonable and diligent manner before the eminent domain step is reached. Mr. Kauzlarich responded that is correct as "quite extensive negotiations" are conducted. Senator Austerman asked why the Department opposes the legislation since it already conducts business in this manner. Mr. Kauzlarich stressed that the Department's concern is that the legislation would result in "additional delays to an already complex process, and allow in statute, allow a reason for further delay in a project." He explained that delays in right-of-way projects generate substantial cost increases, and "that the more litigation, the more time that the attorneys get involved in this type of situation, the more delay that we can have." He invited Committee members to examine any regional file and see the effort that has been exerted "to reach negotiations amicably with property owners." Senator Wilken announced that this bill is one of the bills that he would like to get passed this session. He voiced amazement that the Department is testifying that this process is conducted in a fair and diligent manner, yet it does not support legislation to that effect. He opined that there is a reason for this bill, and he shared that two small business owners in Fairbanks have been "jerked around" by the Department of Transportation and Public Facilities (DOT) and "the heavy hand of the wealth of DOT" concerning the valuation and settlement of their separate pieces of property. Senator Wilken continued that one of these acquisitions is going to trial, and, he stated that, after looking at the documentation, "this is embarrassing that our State has not settled this and, instead, has gone forward with a very expensive, for both parties, litigation," involving less than half a million dollars. He stated that the other situation involved an individual who settled out of Court because he did not have the money to fight the State. Senator Wilken stated that Senator Torgerson, the sponsor of the bill, could relate similar stories regarding experiences of people in the Kenai Peninsula area. Senator Wilken stated that these cases are examples that the Department does not operate in a diligent manner, and these are the reasons why the bill has been presented, and why he considers it a "priority bill." Co-Chair Kelly voiced that while he supports language concerning the appraised value of the property, he questions the need to include the diligent effort report as specified in Section 2 (8) of the bill. Senator Ward quoted the sponsor statement as saying that "by requiring a reasonable and diligent effort that this would create a full disclosure of information." He asked whether there is any information being withheld from a property owner under the current procedure. Mr. Kauzlarich asserted that all the information available to the right-of-way staff is available to the property owner. He continued that the goal of the process is to facilitate "an exchange of ideas, and an exchange of information between the property owner and the Department of Transportation and Public Facilities." He explained that the Division "only litigates over necessity" to acquire a piece of property. He reiterated his concern that this bill "would require litigation over the reasonableness of the Department's efforts," as he understands that people "may not feel that they are getting what they deserve from the Department of Transportation, and that is why the process carries on to the eminent domain situation." He summarized that the Department's job "is to make sure that people are justly compensated for the acquisition of the property and also to make sure that projects are built." Senator Ward asked for confirmation that all the material upon which the final and best valuation of the property is based is available to the property owner. Mr. Kauzlarich confirmed that it is. Senator Ward asked what would happen if this material omits an issue that is important to the property owner. Mr. Kauzlarich responded that in a situation where the property owner and the right-of-way agent discussed an issue but reached an impasse in the negotiations, the case would go into litigation. He continued that if the property owner prevails, the State would pay the cost of the litigation. JON TILLINGHAST, Attorney, Sealaska Corporation, voiced support for the bill. He shared that similar legislation has been adopted by at least 23 states and is recommended by recognized authorities on the process of eminent domain. He stressed that the intent of the legislation is to minimize litigation and to reduce acquisition costs. He stated the argument that as a result of this legislation; the State would "treat the private sector as partners in a negotiation rather than as victims." RON WOLFE, Representative, Sealaska Corporation, conveyed that the Corporation supports the bill and the Committee's approach to it. WILLIAM SATTERBERG testified from an offnet site to advise that rather than this legislation being directed at the Department, this legislation proposes revisions to the State's eminent domain code that affects the State, other municipalities and governmental organizations as well as the private sector. He cited ten court cases regarding eminent domain that resulted in "massive judgments against" the State. He asserted that many people prefer to settle rather than enter into litigation with the State because it is time consuming and expensive. Mr. Satterberg suggested that the Committee request an audit be conducted on the last four years of eminent domain cases that would reflect "the initial deposited amount" offered by the State and the judgment or settlement that was reached. He stated that the disparities in the amounts would "amaze you." He stated that one of the problems is that the State condemns a piece of property, deposits money into the Court registry and specifies that it be for the benefit of the landowner. Mr. Satterberg argued that the money does not benefit a landowner because many people cannot continue to finance their litigation proceedings because the money has to be withdrawn to pay for the deed of trust and obligations such as appraisals that could cost between $10,000 to $40,000 plus attorney fees. He stated that the Committee should support this bill and should additionally recommend language be included to specify that if the State chooses to appeal a "Masters Award," the State should be required to make another deposit in the Court equal to the amount awarded, as well as pay for the private party's expenses up to that time. He stated that 95 percent of the State's cases are funded by federal money, and measures should be undertaken to give a landowner an opportunity to continue litigation proceedings. He suggested that language be included to the effect that the State could not appeal a Masters Award. He urged support of the bill and the addition of financial support for the landowners. PHIL EVANS testified from an offnet site to detail his recent experience with the State over condemnation of a portion of his property for a road construction project. He stated that during the initial negotiation process, the right-of-way agent was courteous, but misleading in the attempt to convince him "to accept a settlement that was completely unfair." He stated that the appraiser did not provide him with thorough information and was insistent in her authority to be on his property and utilize office space in a business on the property. He asserted that the "appraiser was deceptively courteous and misleading in her attempt to promote an unfair evaluation of the property," and he stated that he was not provided with either a complete copy of the appraisal or a market data book. He stated that he could not settle with the State because he considered the appraisal valuation as "totally inadequate and unfair," and that rather than based "on the highest and best use of the property," it was based on the property's current use. He continued that the negative effect of such things as loss of parking, changes in highest and best use, declined market appeal, changes in the business use of the property, and decline in market value were also not considered in the valuation of the remainder of the property. Mr. Evans stated that when it became apparent that the State was misleading and unfair in the attempt to reach a settlement, he hired an attorney and an appraiser. He stated that while the State determined that just compensation for the property was $80,229, the appraiser he hired valued it at $676,000, and the Master's Hearing appraiser valued the property at $324,000 for property taken and damages. Mr. Evans stated that rather than continue the litigation, he decided to settle; however, the State opted to appeal. He noted that this situation has incurred expenses amounting to approximately $60,000, and that the next hearing is not scheduled until 2003; however, he is still incurring expenses because of the State's demands that he provide such things as eight years of profit and loss records, income statements, and correspondence with businesses, attorneys and appraisers. He stated that the co-owner of the property has not been asked for these records. Mr. Evans stated that while the Department's testimony regarding the process is accurate, he questioned what the bill would accomplish other than suggest that the property owner hire their own appraiser. He elaborated that the State controls the process, condemns the land, hires an appraiser to establish values and upon being challenged, the case goes to a Masters Hearing to decide fair settlement, which the State then appeals. He opined that the State, through a costly intimidation process, causes the property owner "to fold." He summarized that this legislation "needs more teeth," and while he appreciates that the State has a job to do, the landowner needs to be a participant in the process. Senator Olson asked the testifier whether this bill adequately addresses some of the difficulties associated with the process. Co-Chair Kelly interjected that the testifier voiced that this bill does not adequately address the process. Co-Chair Kelly pointed out that the original version of the bill includes language that might more adequately address some of the concerns raised. SFC 02 # 57, Side A 11:08 AM Senator Ward asked whether a binding valuation determined by a jointly approved appraiser would be a feasible option in resolving a situation where the parties disagreed on the valuation of the property. Mr. Evans stated that would "be a reasonable approach." Senator Ward stated that this is the process used in most commercial transactions. Co-Chair Kelly commented that while language included in the original bill might be more appropriate than subsequent committee substitutes, further revisions appear to be necessary. He referred the Committee to a new committee substitute in the bill packet in which language from the original bill has been reintroduced. Senator Wilken moved "to adopt the SB Number 278, original version, for consideration." Co-Chair Kelly clarified that this version is SB 278, 22-LS1399\A. Without objection, the committee substitute was ADOPTED as a working draft. Co-Chair Kelly stated that this version "contains more extensive language regarding the appraised value of the property and the property owner" being supplied that information. The bill was HELD in Committee.