HB 290-EXTENDING THE REAL ESTATE COMMISSION  1:35:49 PM CHAIR COSTELLO announced the consideration of HB 290. 1:36:42 PM LAURA STIDOLPH, Staff, Representative Kurt Olson, House Labor and Commerce Committee, sponsor of HB 290, introduced the legislation on behalf of the sponsor speaking to the following sponsor statement: HB 290 extends the sunset date for the Real Estate Commission to June 30, 2018. I encourage all the members to review the Legislative Audit summary and the full audit report. You will see that in the opinion of our auditors, the Real Estate Commission is serving the public's interest by effectively licensing real estate brokers, associate brokers, and salespersons. Additionally, it was found that the board worked to improve operations and industry practices by modifying and adopting regulations. MS. STIDOLPH said the audit made two recommendations: 1) the chair of the Real Estate Commission and the director of Administrative Services for the Department of Commerce, Community and Economic Development (DCCED) should work together to procure a master errors and omissions insurance policy and 2) the Division of Corporations, Business and Professional Licensing should take action to ensure that cases are actively investigated. She concluded that the Real Estate Commission serves an important role by improving operations and industry practices by modifying and adopting regulations. 1:38:25 PM CHAIR COSTELLO asked how many members serve on the commission. MS. STIDOLPH replied there are five members: two sales persons, two brokers and one public member. 1:39:12 PM KRIS CURTIS, Legislative Auditor, Division of Legislative Audit, reviewed the audit findings for the Real Estate Commission. She emphasized that the audit recommended a six-year extension on the condition that the board demonstrate by January 2016 that it was able to secure a master errors and omissions insurance policy. Otherwise, the recommendation was for a four-year extension. She noted the bill calls for a two-year extension. The audit made two recommendations. First was that the commission work with DCCED to secure a master errors and omissions policy for real estate licensees. The law requiring this insurance became effective in 2010. The department established the terms and conditions of the insurance in December 2011 but the board delayed establishing regulations for the insurance until October 2014. The Division of Corporations, Business and Professional Licensing and the Division of Administrative Services cited the reason for the delay was the overall complexity of the project, the lack of insurance expertise, and the length of time the commission involved the Department of Law in drafting the regulations. She advised that not securing the policy essentially removes the requirement from all licensees thereby exposing the public to error and omission risks in real estate transactions. The second recommendation was for the chief investigator to take action to ensure that all cases are actively investigated and completed timely. Of the 235 investigations that were open during the time period that was audited, significant inactivity was found in 29 of the 36 cases that were tested. During the audit, 11 of those inactive cases were closed because of the age of the matter. The reasons for the excessive time lags were inadequate monitoring and insufficient oversight to ensure that investigations were completed timely. The consequence is that consumers may not have been adequately protected from incompetent or unlawful licensees. MS. CURTIS said the department and the commission generally concurred with the audit recommendations. 1:42:21 PM CHAIR COSTELLO asked how the audit findings were communicated to the commission, and the commission's response. MS. CURTIS explained that there is communication with management and the board chair during the audit and a formal exit meeting that describes the findings. A draft of the report is subsequently sent to both the board chair and the department, which provides an opportunity for each to provide additional information. The preliminary report then is provided to the Legislative Budget and Audit (LB&A) Committee and the board and department are allowed to formally comment on the report. Those comments are found at the back of the report. 1:43:13 PM SENATOR MEYER joined the committee. SENATOR STEVENS asked what the current recommendation is for an extension. MS. CURTIS said she favors four years. The two years proposed in the bill is acceptable but it means they would begin that audit work next year. SENATOR STEVENS asked what it would mean to the audit division if the bill was amended to four years. MS. CURTIS said it depends on the year, but next year they will be very busy with 10 sunset audits. CHAIR COSTELLO asked if the bill passed several years ago requiring audits for the departments weighs into the workload. MS. CURTIS replied it affects her workload but not the audit staff, and that has been deleted for FY2017 going forward. 1:45:45 PM SARAH CHAMBERS, Operations Manager, Division of Corporations, Business and Professional Licensing, Department of Commerce, Community and Economic Development (DCCED), Juneau, Alaska, introduced herself. CHAIR COSTELLO asked her to discuss the financial status of the Real Estate Commission and comment on the findings in the audit. MS. CHAMBERS said the Real Estate Commission is in a strong fiscal condition and has a healthy surplus. With regard to the recommendations, timely investigations has been a recurring theme for all boards and commissions, not just the Real Estate Commission. To address this problem, a new chief investigator has made structural changes to improve caseload management. There is also improved engagement and professionalism between the investigative unit and the Real Estate Commission in an effort to reduce the number of investigations and the time lag identified in the audit. In 2015 there were 116 total cases and only 36 were investigations. She described the errors and omissions insurance as a sticky wicket. The initial delay was a result of spending about a year to get guidance from the Department of Law, followed by a delay to try to understand how the pieces work together. Once the commission and the division adopted regulations, a public invitation for insurers to bid went out in November 2015 and there was no response. Two comments were that the structure of providing E&O insurance was not attractive because the insurers couldn't assess their risk. Insurers had no information on the risk pool being presented and the $300 cap the division set in regulation for an annual premium (the cap that sales people and brokers would pay) was not attractive in the current market. The division is actively working with the commission to discern the next step, including an analysis of whether or not new regulations need to be adopted to raise the premium. 1:51:47 PM SENATOR STEVENS asked how long it will be before the commission has E&) insurance. MS. CHAMBERS replied the hope is to have a plan within the next year. She pointed out that the E&O policy isn't required in statute, but a clause within the statute says that if the commission doesn't have an E&O policy, none of the brokers and licensees would be required to carry E&O insurance. SENATOR STEVENS asked what length extension she supports. MS. CHAMBERS replied the division would work with the timeframe stated in the bill but having longer might be more efficient and effective. 1:54:49 PM SENATOR STEVENS expressed hesitation to extend the sunset to four years. MS. CHAMBERS clarified that the commission has seven members, the majority of which are licensees. 1:55:37 PM ED MARTIN, representing himself, Cooper Landing, Alaska, stated the commission ought to be extended a minimum. He expressed appreciation that the legislature is trying to keep costs down. 1:57:24 PM TRACI BARICKMAN, Member, Alaska Real Estate Commission, testified in support of HB 290. She related her personal experience as a professional realtor. She said the board operates within its budget and does not burden the state. She related that most complaints that are filed have a legitimate foundation and often licensees are disciplined through education, fines and sometimes suspension or revocation of their license. She said the commission works to keep regulations up to date with the constantly changing real estate industry. The sunset audit last year concluded the commission is serving the public interest and recommended an extension with the condition of obtaining a master insurance policy. They are working through that process and a shorter extension will make it more difficult. She stressed that to terminate or not extend the commission would take away an important guardian for consumer protection. CHAIR COSTELLO asked if she is saying it would be challenging to meet the condition of obtaining an E&O policy if the commission is extended just two years. MS. BARICKMAN replied she believes it will take at least two years. She noted that most realtors already carry E&O insurance and during a recent commission meeting she recommended removing subsection (e) of the E&O insurance statute. That voids the requirement for brokers and licensees to carry E&O insurance if the commission is unable to obtain a master policy. It's not possible to get a master policy until there is some historical data and apparently that is lacking. 2:02:34 PM SENATOR STEVENS asked if she is saying that most licensees carry E&O insurance regardless of whether the commission does. MS. BARICKMAN answered yes. SENATOR STEVENS asked what the exposure is to the public if a licensee doesn't have this insurance. MS. BARICKMAN replied the brokers are most at risk. 2:04:23 PM CHAIR COSTELLO closed public testimony on HB 290. She asked if there were any questions. SENATOR STEVENS asked to hear from the department about whether the public and brokers would be protected if there wasn't a requirement for the commission to carry a master E&O policy. 2:05:23 PM MS. CHAMBERS related that the statute says brokers and salespersons must carry errors and omissions insurance, but they are exempt from that requirement as long as the Real Estate Commission doesn't have a master E&O policy. Once the commission has a policy, everyone under their governance must also carry a policy either privately or through the master policy. She noted that a bill that removes the exemption is moving through the process, but it hasn't passed. 2:06:59 PM CHAIR COSTELLO found no further questions and solicited a motion. 2:07:05 PM SENATOR GIESSEL moved to report HB 290, labeled 29-LS1345\W, from committee with individual recommendations and attached fiscal note(s). 2:07:17 PM At ease 2:07:26 PM CHAIR COSTELLO announced that without objection, HB 290 passed from the Senate Labor and Commerce Standing Committee.