HB 274-STATE LAND; EXCHANGES; LEASE EXTENSIONS  4:17:13 PM CHAIR GIESSEL announced consideration of HB 274 [CSHB 274(RES), version 29-LS0234\N, was before the committee.] REPRESENTATIVE CATHY MUÑOZ, Alaska State Legislature, Juneau, Alaska, sponsor of HB 274 said about four or five years ago she was contacted by a local non-profit who had been working for many years on a potential land exchange with the State of Alaska. The state wanted to acquire the trail land that leads out to a state park that is on private property, and the owner of the trail wanted a piece of nearby land to get better access to their camp. Discussions to try to initiate and finalize this land exchange began in early 2000. REPRESENTATIVE MUNOZ said when she became involved she found a number of inefficiencies in land exchange statute. Two sections of code govern land exchanges; one is land exchanges with municipalities, and that section of code works pretty well, and the other is private land exchanges, which is very cumbersome and almost impossible to finalize a successful land exchange under. The section of code that governs private land exchanges includes private entities, the Mental Health Trust Authority, tribal entities as well as the federal government. The last successful land exchange under this section of code happened in 2006 near Skagway where a piece of state land was exchanged for a piece of federal land near Gustavus for the Falls Creek Hydroproject. That took close to 20 years to finalize. REPRESENTATIVE MUNOZ explained that the reason it takes so long is because one needs to have exact value between the two parcels, which is very difficult to achieve, and the fact that the appraisal is only good for one year. So, after going through an extensive public process, the best interest finding, three public hearings, the surveying and the appraisal, at the end of the one year the whole process has to start over because the appraisal is only good for one year. Under this legislation the best interest finding will continue, but instead of exact value, it calls for approximate equal value. It has the same notice provisions under AS 38.05.945 and best interest finding provisions that are used for all oil and gas leases, timber sales, and leasing of mineral land. 4:21:26 PM HB 274 has language that affirms that a mineral estate can only be executed consistent with the State Constitution or with federal law. In particular the Statehood Act, Section (6)(i), affirms that the state can only convey a mineral estate to the federal government. Other language requires the exchange to go before the legislature for review and approval if the exchange has a value of $5 million or more. REPRESENTATIVE MUNOZ summarized that the main changes in HB 274 are that the exchange procedures will follow AS 38.05.035(e) and the notice provisions under AS 35.05.945. The one-year limitation has been removed on the validity of an appraisal and approximate equal value is used instead of exact value for the potential exchanges. 4:22:59 PM CHAIR GIESSEL asked for a sectional analysis. 4:23:07 PM CRYSTAL KOENEMAN, staff to Representative Muñoz, Alaska State Legislature, provided a sectional analysis of HB 274 as follows: Section 1. Removes a reference in AS 38.05.030(c) to AS 38.05.090 which is repealed in sec. 13 of the bill. Section 2. Adds two new subsections to AS 38.05.070. The first subsection permits the Department of Natural Resources (department) to extend certain existing land leases if it is in the best interest of the state and necessary while the department considers applications. The second subsection provides that the extensions are not subject to AS 38.05.035(e) and it requires public notice of a lease extension under the section.  Section 3. Applies existing notice standards to state land exchanges. 4:24:13 PM Section 4. Clarifies that in AS 38.05 the terms "state land '' and "land" include shoreland and tideland. It was suggested by Legislative Legal Division as cleanup language. Section 5. Amends AS 38.50.010 to add two new requirements: when the director disposes of state land or an interest in state land the disposal must be in the best interest of the state and the director must provide notice under AS 38.05.945. Section 6. Adds three new subsections to AS 38.50.010 that establish procedures for the exchange of state land or an interest in state land and requires legislative review of exchanges valued at $5 million or more. 4:25:11 PM Section 7. Removes a requirement that the director, when negotiating a land exchange involving more than one party, "consider only the land and other consideration which the state would convey and receive if the exchange were executed." Section 8. Removes an existing limitation in AS 38.50.050 that was deemed by the Legislative Legal Division to not add anything and references "significant public purpose" which is not defined in statute nor is it used anywhere else and there is no case law referencing it. It is clean up language clarifies that any conveyances must be authorized by the Constitution of the State of Alaska and by applicable federal law. Section 9. Amends AS 38.50.070 to provide that, unless waived, the appropriate state agency will continue to administer valid existing rights in land, or interests in land, conveyed under AS 38.50 and that revenue derived from existing rights in the land, or an interest in land, will continue to accrue to the state until the land is conveyed under AS 38.50 .150 4:26:42 PM Section 10. Changes the requirement that the director hold three public hearings concerning the exchange of land valued at more than $5,000,000 to a requirement that the director hold at least two public meeting, one of which must be held in person in a municipality close to the proposed land exchange. Section 11. Conforms AS 38.50.140 to changes made in secs. 6 and 13 (repeal of AS 38.50.020). Makes de minimus editorial changes. Section 12. Clarifies that in AS 38.50 the terms "state land '' and "land" include shoreland and tideland and was recommended by Legislative Legal. 4:27:39 PM Section 13. Repeals AS 38.50.020, 38.50.040, 38.50.080(b), 38.50.090, 38.50.100, 38.50.110, 38.50.120(b), and 38.50.130. She said an explanation was in their packets, but she would go over those if that was the committee's will. 4:28:06 PM SENATOR STEDMAN asked for clarification of references to "submerged lands below mean low tide and tidelands up to mean high tide" and "in-shoreland." MS. KOENEMAN said that Alpheus Bullard from Legislative Legal was on line to clarify. SENATOR STEDMAN asked Mr. Bullard to define "shoreland, tideland, and submerged land." 4:28:57 PM ALPHEUS BULLARD, Legislative Legal, Alaska State Legislature, Juneau, Alaska, answered that shoreland and tideland don't have a specific definition in statute. These changes are included in this bill to make all the provisions consistent. So, instead of calling "shore or tide," now they say "shoreland and tideland." The normal understanding of those words is that shoreland is along the shore and tideland is land that is touched by the tide. SENATOR STEDMAN said he wanted some help from DNR, because he thought there was a clear delineation of separate property rights whether one is in the uplands or shoreland versus a tideland versus submerged lands. CHAIR GIESSEL said that could be done. REPRESENTATIVE MUNOZ interrupted that that Ms. Koenaman would read the definition into the record. MS. KOENEMAN read from AS 38.05.965, subsection (23): Shoreland means land belonging to the state, which is covered by non-tidal water that is navigable under the laws of the United States up to ordinary high water mark as modified by accretion, erosion or election. 4:30:58 PM SENATOR WIELECHOWSKI asked if "when it is in the best interest of the state" on line 5 in section 5 is an appealable decision, and if it is subject to a lawsuit and if there are any recommendations on how the department is supposed to define what is in the best interest of the state. REPRESENTATIVE MUNOZ replied that the best interest finding is necessary and is outlined in statute. That same finding is used on all existing land lease deals with DNR. It is an appealable decision. That was affirmed by Wyn Menefee, Deputy Director, Alaska Mental Health Lands Trust, Department of Natural Resources (DNR), who was also in the audience. SENATOR WIELECHOWSKI said line 8 looks like a very significant change, but he was told it is not. It says the director has the right to dispose of state land or interest in land and then language is added: including the land estate, the mineral estate or both. And when they start talking about mineral estate that means oil and gas, which triggers a lot of strong emotions in this committee. He asked her to explain the rationale for including mineral estate and to reassure him they are not giving the director the ability to give away oil and gas rights to a private individual. REPRESENTATIVE MUNOZ replied that an exchange of a mineral estate can only be conveyed by the state to the federal government and the section 8 language is consistent with existing statute. It says "exchanges must be pursuant to the State Constitution and applicable federal law, which is the Statehood Act, Section (6)(i), which requires the state not to dispose of those interests to any entity other than the federal government." However, the state can receive a mineral estate and having that language is helpful in clarifying that. SENATOR WIELECHOWSKI said it looks like language on page 3, lines 10-14, deletes: "exchanges shall be for the purpose of consolidating state land holdings, creating land ownership, and use patterns, which will permit more effective administration of the state public domain, facilitating the objectives of state programs or other public purposes." He asked the rationale for taking that out. REPRESENTATIVE MUNOZ replied that language is considered superfluous. The department is focusing on just five or six categories, when in fact there might be a broader opportunity which is covered through the best interest finding. The state would not enter into an exchange unless it clearly was in the state's best interest. 4:34:35 PM SENATOR WIELECHOWSKI asked the rationale for the repealer in section 13.38.50.080(b) that says: The director in implementing the provisions of this chapter may not alienate or agree not to exercise selection rights granted to the state in the Alaska Statehood Act or other applicable law authorizing the state to select land or interest in land. MS. KOENEMAN replied that the state has already selected all of its land under the Alaska Statehood Act, and since it has no further ability to select land, that subsection is no longer necessary. She added that the state hasn't necessarily received the selections. CHAIR GIESSEL pointed out that it is actually explained on a page in the document, which is on BASIS. SENATOR WIELECHOWSKI asked for the rationale for removing AS 38.50.090 language on coordinating with other state agencies. MS. KOENEMAN replied that language was removed, because there is now reference to AS 38.05.035(e), which includes a requirement for state agencies to provide a summary through public comments. The department would collect those public comments from the other agencies and work with the other departments on their concerns. Basically, it ties back to another version of statute. 4:37:08 PM WYN MENEFEE, Deputy Director, Alaska Mental Health Trust Land Office, Department of Natural Resources (DNR), Juneau, Alaska, said he was chief of operations for the Division of Mining, Land and Water for 12.5 years and this issue is very important to DNR as they have had "much trouble" getting exchanges done, because of existing language. Many needs are coming before them, he said, everything from consolidation of land ownership and access to business opportunities where a lease or an easement doesn't handle the problem, and numerous people have been turned away. He said the department disposes of a huge amount of state interests through AS 38.05.035(e) decisions, which are appealable and can be taken to court. If they do something that is not in the best interest of the state, the public surely can challenge them. The department needs a very supportable decision if they are going to go through with an exchange, but they believe that can be done with this modification. SENATOR WIELECHOWSKI asked him to provide some exchanges he would consider doing under this language that have not been considered before. MR. MENEFEE answered that there have been proposed exchanges from native corporations and private individuals for purposes that were wholly for their purposes and weren't in the interest of the state, at all. Those were easy to turn away. But others offer up something that would be very beneficial to the state, for instance creating a landownership pattern or maybe a mineral estate offering that would be good for miners to develop, or maybe the state has been wanting to do work on some sort of project and hasn't been able to without the land. He has seen exchanges proposed for conservation purposes and development purposes, but only a few have been successful. He explained that because of the decision process in AS 38.05.133(e) the department has to describe why it is in the best interest of the state to do an exchange. They have to articulate the analysis of things they have considered and what it will do for the state that is good. SENATOR WIELECHOWSKI asked what deference the court would give to the best interest finding. MR. MENEFEE answered that there is a lot of case law on state best interest, and the court does not replace its judgment for the department's as long as it is not acting capriciously and arbitrarily. They look at whether the statutes and regulations have been followed and if a logical train of thought was used in explaining why it is in the best interest of the state. The courts have said they don't want to define "best interest," because it changes over time. 4:43:05 PM SENATOR WIELECHOWSKI said this measure really is investing a huge amount of power in the DNR director and commissioner, and maybe it would be good and maybe not. The courts have very little say about the arbitrary and capricious standard and it is "extremely difficult" to overcome. He asked if opening up a whole lot of land for exchanges is a big policy call. MR. MENEFEE responded that he thinks there will be plenty of opportunities for land exchanges. He didn't think it opens up anything more grandiose than before other than the process is cleaner. The department still must make sound defensible decisions and the public can challenge their decisions. The courts have told them numerous times when they have gone astray; so he feels the system has a check and balance. SENATOR WIELECHOWSKI said it doesn't appear that they are changing any legal standards that a court would look at as diminishing the public process. 4:45:18 PM MR. MENEFEE agreed with that and added the only exception is that "hearings" was changed to "meetings" in one section and it went from three to two, the main reason being they would have to go through the whole legislative process again on anything that fits into that one area of the statute. 4:45:48 PM DOUG ISAACSON, General Manager, Minto Development Corporation, Fairbanks, Alaska, said he supported HB 274. He noted at least three letters of support in their packets: one from his president, Roxanne Frank, one from their parent corporation, Seth-De-Ya-Ha Corporation, and one from Edna Riley, president of the Board of Directors. There was also a letter of support from Mike Kelly who is the COO of the Dinyea Corporation. They support it, because it cleans up the process. He appreciated Senator Wielechowski's question about it causing a stampede, and his corporation in applying will have to prove that it's a good idea for the state. When he contemplates doing some development on the Steese Highway, he has his shareholders' interest at heart, but he also has workforce development and benefits to the local community in mind. But they aren't able to use that as a consideration without the language in this bill. They still have to meet high hurdles, but this will make the process worth looking at. 4:48:16 PM SENATOR WIELECHOWSKI said a new section is being added saying that land or an interest in land exchange must be approximately of equal value, and then it says the director may enter into an exchange with a finding that the value of the property received together with the value of other public benefit equals or exceeds the value of the property relinquished by the state. He surmised that some people will want to trade swamp land for valuable state land and he wanted "some findings" on the record about what "approximately equal value" means in terms of protecting the citizens from that happening. MR. MENEFEE replied the rationale behind going with "approximate equal value" rather than "appraised fair market value only" is that when you start taking "other considerations" into account, the Universal Standards of Professional Appraisal Practice (USPAP), which is used nationwide for coming up with fair market value doesn't allow using "other considerations" in the valuation. For example, he said currently an exchange is happening at Point Bridget and because of the survey an appraisal couldn't quite get to an exact equal value. Two things could be done to resolve the issue. It could be equalized with cash or one could say the value is pretty close, because the state now has road access to a state park, which it did not have before and the private land owner could have shut down access to that park. People were trespassing across it at all times to get to the state park, and the question becomes is that public access valuable enough to warrant covering the difference in value. The decision would have to articulate that and then it would have to go before the legislature. SENATOR WIELECHOWSKI asked him to clarify when they have to get legislative approval. MR. MENEFEE replied for unequal values. SENATOR WIELECHOWSKI asked if the value is unequal by $1, do they still have come to the legislature for approval. MR. MENEFEE replied because there was terminology about unequal value in previous statute, regulations had clarified that it had to be a small percentage. 4:52:45 PM SENATOR WIELECHOWSKI asked how he would define "approximate equal value." MR. MENEFEE replied that regulations go through a public process and they think that would be a good way to further define "approximate equal value" if this measure passes. In his view the intent is to always try to reach equal value, but in thinking of "other considerations" it's hard to get to that exact equal value. In the case of Point Bridget, because of the way the subdivision went, it threw off the appraisal, making the values a little off. So, in that case they would have to go through another cycle of trying to do another subdivision plat to make it equal. Maybe one could get close enough with $1000 to $5000; it's hard to say, because if you are dealing with a small parcel an unequal value is going to be a big deal, but for a larger parcel that unequal value is a little bit more. SENATOR WIELECHOWSKI said hypothetically someone has a piece of swamp land that is worth $50,000 and it happens to be access to a river where people want to go and fish - the Kenai River - and they want to swap that for a half-million dollar parcel. The director says that piece is only worth $100,000, but it has a $400,000 approximately value to the public, because of the access. So, they deem it to be of approximately equal value. The court gives them broad deference in their decision. As he reads it that wouldn't have to come before the legislature. Is that correct? 4:55:15 PM MR. MENEFEE replied that his hypothetical would come before the legislature, because he would consider that an unequal value land exchange. Approximate equal value gives them that flexibility for when the exchange can't be made exact and that is the flexibility they are looking for. SENATOR WIELECHOWSKI countered that the statute they are passing gives the director the ability to say approximate equal value, but also the ability to include the value of other public benefits in that consideration. So, could he not say we think the value of access to this river is worth $450,000? MR. MENEFEE replied for the department to feel secure with that, they would have to be ready to go to court and uphold it. They would have to say why they think the other benefit of that access is worth that much in monetary terms. That could be in lost opportunities where the department can say it knows it will have to later buy that access for this much or they will lose this opportunity that will make the state this many millions of dollars. He would work to state the value in terms of money. 4:57:20 PM SENATOR WIELECHOWSKI said he appreciated the dialogue and sees where he is trying to get, but he is naturally suspicious about a bad deal escaping legislative oversight. MS. KOENEMAN closed by thanking the committee for considering the bill. SENATOR COGHILL moved to report CSHB 274(RES), version N, from committee with individual recommendations and attached zero fiscal note. There were no objections and it was so ordered.