HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE February 12, 1997 8:04 a.m. MEMBERS PRESENT Representative Ivan Ivan, Chairman Representative Fred Dyson Representative Scott Ogan Representative Joe Ryan Representative Jerry Sanders Representative Al Kookesh Representative Reggie Joule MEMBERS ABSENT All Members Present COMMITTEE CALENDAR HOUSE BILL NO. 94 "An Act relating to confidentiality of certain municipal tax records." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 94 SHORT TITLE: MUNICIPAL TAX RECORDS SPONSOR(S): REPRESENTATIVE(S) GREEN,Kelly JRN-DATE JRN-PG ACTION 01/29/97 168 (H) READ THE FIRST TIME - REFERRAL(S) 01/29/97 168 (H) CRA, FINANCE 02/12/97 (H) CRA AT 8:00 AM CAPITOL 124 02/14/97 362 (H) COSPONSOR(S): KELLY 02/17/97 (H) CRA AT 9:00 AM CAPITOL 124 WITNESS REGISTER JOSEPH GREEN, Representative Alaska State Legislature State Capitol, Room 118 Juneau, Alaska 99801 Telephone: (907) 465-4931 POSITION STATEMENT: Sponsor of HB 94 JEFF LOGAN, Staff Assistant Representative Joseph Green Alaska State Legislature State Capitol, Room 118 Juneau, Alaska 99801 Telephone: (907) 465-4931 POSITION STATEMENT: Testified on HB 94 GEORGE RAYMOND Cypress AMAX 9100 E. Mineral Circle Englewood, Colorado 80112 Telephone: (303) 643-5033 POSITION STATEMENT: Testified on HB 94 STEVE VAN SANT, State Assessor Division of Municipal & Regional Assistance Department of Community and Regional Affairs 333 W 4th Avenue, Suite 220 Anchorage, Alaska 99501 Telephone: (907) 269-4500 POSITION STATEMENT: Testified on HB 94 DAVE HEIER, Tax Audit Manager North Slope Borough 3000 C Street, Suite 200 Anchorage, Alaska 99503 Telephone: (907) 563-5800 POSITION STATEMENT: Testified on HB 94 PAT CARLSON, Tax Assessor Kodiak Island Borough 710 Mill Bay Road Kodiak, Alaska 99615 Telephone: (907) 486-9353 POSITION STATEMENT: Testified on HB 94 ACTION NARRATIVE TAPE 97-7, SIDE A Number 016 CHAIRMAN IVAN IVAN called the House Community and Regional Affairs Standing Committee meeting to order at 8:04 a.m. Members present at the call to order were Representatives Ogan, Sanders and Ryan. Representatives Joule, Dyson and Kookesh arrived at the respective times: 8:06 a.m.; 8:07 a.m. and 8:35 a.m. HB 94 - MUNICIPAL TAX RECORDS REPRESENTATIVE JOE GREEN came forward to present an overview of HB 94 as sponsor to this legislation. He noted that this legislation was a method of maintaining confidentiality on certain tax records filed with boroughs, municipalities or state entities. He stated that there was concern among various competitive industries that when members of those industries file tax returns and a tax bill has been assessed, they believe this information should be maintained confidential. This is no different from anyone's personal income tax which is also confidential. REPRESENTATIVE GREEN continued that the oil industries have been operating under this confidentiality for quite some time, but this legislation gets to non-oil related industries that are interested in this protection. He noted the potential of competitive businesses finding out what amount of taxes have been paid and on what the tax was based or how the money was made to be taxed which leaves a company vulnerable. REPRESENTATIVE GREEN offered to review the sectional analysis also provided in the bill file which encompasses an addition of three subsets to an existing tax code. The (c) after (a) and (b) that are already in the code just requires that proprietary financial information acquired by a municipal assessor be held confidential and that all employees or any transfer of those records to other municipalities would also be treated confidential. Section (b) allows that confidentiality holds with the information as it's transferred and (e) provides for civil liability of either $500 or actual damages. There is currently in law a criminal fine that this is considered a class A misdemeanor. Number 342 REPRESENTATIVE JOE RYAN noted that in light of the importance of confidentiality, $500 didn't seem to be much of a detriment to the kind of information that could give a competitive edge. He asked if they had thought of increasing this penalty. REPRESENTATIVE GREEN said they had given some thought to this even though it's $500 or actual damages and they felt perhaps this wouldn't be a "breaking point." Certainly he agreed that if there is a corporation of any size $500 is a drop in the bucket. On the other hand, the court has the prerogative to assign what value they think is the best. Number 442 REPRESENTATIVE REGGIE JOULE stated that the Board of Equalization seems to be the nut to this whole legislation in light of keeping information confidential. He asked if they did not already possess the ability to meet in executive session if they were to disclose all of the Open Meetings Act requirements and to invite the affected parties in. He asked if they had this ability. REPRESENTATIVE GREEN responded that they could do this, but it is not a requirement. What they hope to do with this legislation is to make sure that this isn't a loop hole so that they may not actually go into executive session. Number 496 REPRESENTATIVE JOULE asked if an affected party could request the Board of Equalization to go into executive session. REPRESENTATIVE GREEN responded that yes, they could, but this could be a sticking point with some organizations. Executive session is not anything sinister or bad, it just means they're excluding the public from this particular deliberation. What they deliberate has to be a matter of public record. Number 545 REPRESENTATIVE JERRY SANDERS referred to page 2, line 9, about damages in the amount of $500 or actual damages resulting. He stated that this clause seemed very ambiguous. He said he could see a prosecuting lawyer interpreting this to mean whichever is the largest. He could see a defense lawyer say that this means a maximum of $500 or damages, whichever is smaller. It could be argued either way. REPRESENTATIVE GREEN deferred to his staff person, Jeff Logan, to address this situation. Representative Green's knee jerk on this would be that this is a range that the court could address. Number 613 MR. JEFF LOGAN, Legislative Assistant, Representative Joseph Green, came forward to testify on HB 94. The language inserted in this legislation states that it's liquidated damages in the amount of $500 or actual damages. The difference between the two is, if a company, for example, knew that they were damaged and they went to the court. If the court said for them to prove their actual damages this standard might be too high to meet for the company that was damaged. They would have to review extensive records, make price comparisons, etc. Once it has been established that they have been damaged, instead of going after the actual damages, they can simply take the liquidated damages which is a lesser threshold and the liquidated damages would be $500. REPRESENTATIVE SANDERS said that this still did not address his concern. A defense lawyer could interpret this to mean the maximum fine is $500. If someone did choose to investigate to confirm the actual damages, say for example, in the amount of $4 million, the defense attorney could have the advantage of saying that the fine is only for $500 as a maximum. Number 733 MR. LOGAN pointed out that the "or" between the clause "liquidated damages in the amount of $500" or "actual damages." If the actual damages were higher and the tax payer who was aggrieved sought these actual damages they would have the option of either/or. REPRESENTATIVE SANDERS stated there was still a point to argue, but he didn't want to belabor it. Number 757 REPRESENTATIVE FRED DYSON asked if the penalty they proposed to assess was standard in other parts of the code. MR. LOGAN stated that this particular fine was taken from the Colorado statute which they based this language on. He did say that in AS 43.05.230, the statute which deals with this same type of information being delivered to the Department of Revenue, allowed for a fine of $5,000. Number 808 REPRESENTATIVE DYSON noted that in Alaska there was precedent for civil fines for disclosure and the $500 proposed in this legislation is less than in other situations for liquidated damages. He then asked Representative Green if there was a group of people who take exception to this legislation. REPRESENTATIVE GREEN said the only thing that he was aware of is there may be a municipality, either because of having to go into and out of executive session, may find this somewhat erroneous. In most cases, the various boroughs in the state are in favor of this legislation. Number 865 REPRESENTATIVE DYSON asked if all the affected entities had been noticed effectively about this legislation. REPRESENTATIVE GREEN responded that yes, they had. Number 880 REPRESENTATIVE IVAN asked who would conduct an executive session under this legislation. REPRESENTATIVE GREEN stated that this would be the Board of Equalization. He continued that when they meet and discuss issues with another entity there may be a tendency to disclose the records. This legislation says that if this has to happen, between government agencies, that this should be done in executive session, excluding the public, but not excluding those who have the right to know the various required agencies who need to review these things. Number 940 REPRESENTATIVE SCOTT OGAN asked what predicated the need for this legislation. What's the problem they're trying to fix? REPRESENTATIVE GREEN responded that under existing law there is no absolute protection of proprietary data. Tax records, various profits and losses of activities, etc. which might be confidential in a competing manner between various companies. He also used the example of a company which may have come up with some innovative process, some streamlining method, or something which gives another company a competitive edge. This is not an effort to dupe the public in any means, but to keep information confidential between competing entities. Number 1040 GEORGE RAYMOND, Cypress AMAX, testified by teleconference from Denver on HB 94. One of this company's subsidiaries is AMAX Gold which recently opened up the Fort Knox gold mine northeast of Fairbanks, Alaska. Their concern in looking at property valuations in Alaska, they have been caught in an honest difference of opinion with the assessor in the Fairbanks area and with other people involved there. No proprietary information has been disclosed, but there are various ways that property can be valued. One of these is by the economic valuation method to arrive at a fair market value and what the assessment will be. In looking at this process proprietary information is divulged, including cost basis, income, etc. Their concern is not with local officials, but with looking at the statutes and so forth, they have found nothing to prevent a competitor asking to see this proprietary information they are required to file. MR. RAYMOND stated that most of the other states they operate in have protections in place that proprietary information does not have to be disclosed to people who are not authorized to see it. This proposed statute in no way allows companies to not disclose this information, but only to the proper authorities so an assessment can be made. He noted the highly competitive nature of mining and noted that proprietary information ought to be kept confidential. Number 1194 STEVE VAN SANT, State Assessor, Department of Community and Regional Affairs, testified by teleconference from Anchorage on HB 94. He stated that he thought this legislation would be a benefit to the assessors because information which would not necessarily be given to them because of the lack of confidentiality or the ability to keep it confidential could come into play, not that it necessarily would. He understood Mr. Raymond's position that some of this information cannot be kept confidential. He saw this legislation as being a help to most of the offices. MR. VAN SANT stated that this legislation did not include the sale prices of any property because this is the basis of all valuation. This legislation is not intended to include this sale price and he stated so for the record. Number 1280 REPRESENTATIVE GREEN said this was correct and noted that what they would hold confidential would be a lot of the economic information, the sales price of a property would be a matter of public record. REPRESENTATIVE RYAN noted that if the sale price of the property is a basis for establishing valuation then what business is it of the government for any other information. He asked why they would be asking for any other information. Number 1314 MR. VAN SANT stated that all properties don't sell. What the assessor uses are those properties that do sell as a guide to what other properties may go for. An assessor basically has three approaches which he can use to come up with market value. One is the cost approach, one is a market approach and one is the income approach. Typically, with the property they are talking about here, mining property, there are very few mines that sell especially in Alaska, so they will have little information available. The assessor in those cases will use the cost and income approach. This would help derive the estimated value of this operation. What they are talking about is other properties, such as residential. If there are ten houses in a subdivision selling for $100,000 and they're all similar, it is pretty easy to predict that the next house built will also sell for $100,000. They just want to make sure that these sales prices are not kept confidential. REPRESENTATIVE RYAN asked to clarify, that if he had a piece of fallow property and it has one value, but as soon as he makes a discovery on it such as oil or a mineral, the borough is entitled to benefit from this discovery by assessing the property at a higher rate. MR. VAN SANT stated that, no, when they talk about property tax, they are talking about the value of the property. The resources in place are exempt by statute right now. Number 1480 DAVE HEIER, Tax Audit Manager, North Slope Borough, testified by teleconference from Anchorage on HB 94. His comments went specifically to the Board of Equalization portion of this legislation. He believed that the Board of Equalization should be a public hearing. Currently, the board can only go into executive session to discuss personnel matters or lawsuits which may damage or take money from the affected municipality. There is no way for this board to go into executive session to discuss an appeal matter. He agrees with the bill on the basis that all the information given to the assessor at this level should be confidential. At the time that the tax payer decides to appeal the value which the assessor has come up with, he also thinks that the Board of Equalization hearing should be a public hearing. Number 1553 PAT CARLSON, Assessor, Kodiak Island Borough testified by teleconference from Kodiak on HB 94. He stated that he was in agreement with this concept. It has always been frustrating to him, in fact, he's told people "don't give me that information, if you do, it's public." He said there was a degree of protection needed in this legislation. They've tried to address this locally a number of times. He said he'd like to see this expanded to include personal property renditions, the itemized asset listings which they receive in their office to reflect the actual costs, the value, and other information which is proprietary also. He agreed with Mr. Heier. MR. CARLSON stated that as a public official he has an obligation to keep this information confidential in determining the assessment, but he said he would be concerned if they unfairly restricted the Board of Equalization from having this authority to make this determination as to whether or not they should hold a public hearing. He said he would like to at least see them have the option of either holding a public hearing or go into executive session if they determined that the information is sufficiently propriety that it would cause harm to a company. Number 1625 REPRESENTATIVE SANDERS stated that after re-reading this legislation he felt strongly that there should be an amendment included to make this penalty "$500 or actual damages, whichever is greater." He said he'd like to suggest this and moved an amendment that on line 9, page 2, where it says, "damages in the amount of $500 dollars or actual damages" to add the clause, "whichever is greater resulting from the disclosure." REPRESENTATIVE OGAN objected to this amendment for discussion purposes. He asked if they were basically creating a situation where someone in their official capacity is liable for these fines, such as a clerk working in an assessor's office who might inadvertently release confidential information and he then referenced the section of the bill which addressed this. Number 1848 MR. LOGAN responded that public employees in this situation are generally indemnified from this type of personal liability. If a clerk makes an error, they're not going to take their bank account away. REPRESENTATIVE OGAN noted that the language in this legislation says, "may recover from the official or employee liquidated damages in the amount of $500 or actual damages." He clarified that Mr. Logan was saying that, for example, a borough would pay this fine, even though it says employee or official. MR. LOGAN stated that yes, this was the case. Number 1893 REPRESENTATIVE OGAN asked Mr. Logan to cite the reference outlined in statute which presently exists. He asked if this was a generally accepted principal, in regards to employee indemnification. MR. LOGAN stated that he couldn't cite it presently, but he could certainly get this very quickly. REPRESENTATIVE GREEN noted that it was much like being a representative, if he is personally attacked for something he has done, the representative has indemnity through the state. Number 1916 REPRESENTATIVE OGAN removed his objection to the amendment. Number 1923 REPRESENTATIVE DYSON clarified the intent of the wording placed in this bill allowing a company that might be harmed, a minimal penalty against an abuser in order to send the signal that this infraction was serious business, but to allow the injured party to not have to go through a laborious process of trying to determine their damages. He asked if this proposed amendment would do damage to these intentions. MR. LOGAN stated that, yes, this was the intent, to give the aggrieved party an option. The way he read the language of liquidated damages in the amount of $500 or actual damages, whichever is greater, if this means that the tax payer does not have an option, then this could be problematic. It could mean that the company might decide to go through this procedure of proving there were actual damages which might cost more than the damage itself. He noted that this company would have to go through corporate records, do comparisons, hire a consultant, an attorney, an accountant, etc. The company may opt to take the default which would be liquidated damages. Number 1998 REPRESENTATIVE GREEN stated that there could be cases where, "yes, we could bring in some records as a company and show that there were damages in the tens of thousands of dollars, but they're talking about a $1 million operation here and is it really the best interest of the mine to go for $2,000, $3,000 or $4,000 as opposed to the $500 which is set there to make people aware that this is serious, don't do it. There's a minimum penalty here, but to go for significantly, more there's always the concern of bias and irritation, that sort of thing. That it isn't worth it in a public interest or public P.R. to actually go for several thousand more dollars, unless there were millions of dollars because of a competitor getting some very critical information, then they're talking about really large bucks. Then this would allow that opportunity and in which case the company may want to do that." REPRESENTATIVE DYSON said he assumed that the aggrieved party would have to go through their records to establish the actual damage, the results of which could be subject to examination by the defense. Number 2080 MR. RAYMOND stated, as a practical matter, if a clerk was responsible for disclosing information erroneously, they would not require them to pay damages out of their own resources for a multi- million dollar situation. He said that he has been with AMAX since 1968, and the company has not been in the habit of suing people knowing that they couldn't collect anything from them. The bill with a $500 penalty makes people more conscious and puts the burden on them to be more careful by not disclosing information. If a situation does become litigious, the parties might have to disclose more information than was disclosed originally. This would certainly weigh in as a consideration. MR. RAYMOND addressed the question about the Board of Equalization and whether they would have to go into executive session. It seemed to him that if there was an honest disagreement over property valuation and this issue does go to the board, but this board is not required to keep proprietary information confidential, then this defeats the purpose of this bill. Again, the purpose of this bill is not that they're trying to be protected from divulging information. If someone knows that their information will be confidential, they'd probably be more inclined to divulge more information. The mining business today is highly competitive. Their concern is that this proprietary information remains as confidential as possible, that competitive companies cannot peruse cost information and any kind of information submitted in determining property tax. This legislation is not in any way meant to hinder the proper enforcement of tax laws and/or the proper officials getting all the information which they need to make a proper assessment. Number 2206 REPRESENTATIVE GREEN commented that he understood where Representative Sanders was going with his concerns. He certainly subscribes to this concept, but his only concern is that, "if it's still left as an either/or and that there's no question in a judge's mind as Representative Sander's has brought up, as long as that's an option, I think - I wouldn't have any problem with this. And I guess that whatever, there would be I think, we've already heard there would be probably something of a large gap between some small fine that says 'hey, you goofed up inadvertently, or this was malicious and it was extremely costly' and then they would probably go for the (indisc.). Even then, as you heard from AMAX, they may be would still have to disclose even more than was already disclosed in order to win the $5,000 or $10,000 which may not be to their best interest." REPRESENTATIVE SANDERS again outlined his suggested language change and noted that an option should be given to those entities who want assurances that they can sue for actual damages if an exorbitant amount of money was lost. Number 2340 REPRESENTATIVE IVAN noted that if a situation concerning this issue became litigious, a court could determine actual damages if necessary without changing the actual language. REPRESENTATIVE GREEN agreed. He was afraid that additional language might confuse the issue and suggested maybe raising the amount of $500 to add more caution. Number 2371 REPRESENTATIVE IVAN also made note to language on page 2, line 7, "in addition to other remedies," and interpreted this to mean that a person could seek other options to make a situation equitable. He felt as though this language sufficed enough for a company to seek damages. MR. LOGAN said that he spoke to the drafter about this language and it was their way of putting a "belt and suspenders" on this legislation. TAPE 97-7, SIDE B Number 005 MR. RAYMOND stated that he was a lawyer by training. He said the addition, as he understood it, the language "whichever is greater," removes any doubt. He personally thought the section initially read clearly enough, but this addition would clarify the intent without diminishing the other part of the clause. About the issue of other remedies, he stated somebody could go to court in order to obtain an injunction or court order if need be, for example. REPRESENTATIVE IVAN called an at ease and went off record at 8:55 a.m. and came back on record at 9:00 a.m. Number 106 MR. RAYMOND summarized his comments which took place during the at ease. He felt the addition of the language "whichever is greater" clarifies and removes any doubt that the $500 might be a maximum amount. He also does not think this places a burden or obligation on someone to prove actual damages. There is still an option for a person to either take liquidated damages at $500 without showing any proof other than the information was disclosed improperly or if there are large damages and they want to pursue this, this language would allow them to do so without a cap of $500 being placed upon them. Number 148 REPRESENTATIVE GREEN stated that he was concerned that adding this language would lead the court into requiring an aggrieved part to come in and open their records, which this is just the opposite of what this bill's intent is. He certainly subscribes to the fact that this committee thought the $500 was not enough and suggested an increase of $1000 instead. Representative Green stated that their attorney had said they should hold off on the amendment in order to get a better reading on it. He said he was not sure why, but the legislative counsel advised that they don't accept the amendment. Number 199 REPRESENTATIVE SANDERS stated that he would like to further amend his suggested amendment and this would be to increase the minimum damages from $500 to $1000. This would mean that at page 2, line 9, would read, "damages in the amount of $1,000 or actual damages, whichever is greater resulting from the disclosure." Hearing no objection to this revised amendment it was so ordered. REPRESENTATIVE DYSON made a motion to delay this amendment until legislative legal is able to review it. Hearing no objection it was so ordered. Number 328 REPRESENTATIVE GREEN said he would have this information by their next scheduled meeting. ADJOURNMENT Number 372 REPRESENTATIVE IVAN adjourned the meeting at 9:05 a.m.