HOUSE TRANSPORTATION STANDING COMMITTEE April 10, 1996 1:08 a.m. MEMBERS PRESENT Representative Gary Davis, Chairman Representative Beverly Masek, Vice Chair Representative Jeanette James Representative Tom Brice Representative Jerry Sanders Representative Bill Williams Representative Don Long MEMBERS ABSENT All members were present COMMITTEE CALENDAR HOUSE BILL NO. 136 "An Act mandating the sale of the Alaska Railroad; and providing for an effective date." - MOVED CSHB 136 (TRA) OUT OF COMMITTEE HOUSE BILL NO. 403 "An Act relating to consumer protection involving contracts for the sale, transfer, or assignment of used motor vehicles and involving telephonic solicitations." - MOVED OUT OF COMMITTEE (* First public hearing) PREVIOUS ACTION BILL: HB 136 SHORT TITLE: MANDATE SALE OF ALASKA RAILROAD SPONSOR(S): REPRESENTATIVE(S) MARTIN JRN-DATE JRN-PG ACTION 01/30/95 174 (H) READ THE FIRST TIME - REFERRAL(S) 01/30/95 174 (H) TRA, STA, FIN 04/03/96 (H) TRA AT 1:00 PM CAPITOL 17 04/03/96 (H) MINUTE(TRA) 04/10/96 (H) TRA AT 1:00 PM CAPITOL 17 BILL: HB 403 SHORT TITLE: CONSUMER PROTECTION:USED CAR & MAIL ORDER SPONSOR(S): REPRESENTATIVE(S) BROWN,B.Davis JRN-DATE JRN-PG ACTION 01/08/96 2382 (H) READ THE FIRST TIME - REFERRAL(S) 01/08/96 2382 (H) TRANSPORTATION, L&C, JUDICIARY, FINANCE 04/10/96 (H) TRA AT 1:00 PM CAPITOL 17 WITNESS REGISTER TOM ANDERSON, Legislative Aide for Representative Martin Alaska State Legislature State Capitol, Room 502 Juneau, AK 99801 Telephone: (907) 465-3783 POSITION STATEMENT: Testified on CSHB 136 (TRA) MARK HICKEY, Lobbyist Alaska Railroad Corporation P.O. Box 107500 Anchorage, Alaska 99501-7500 Telephone: (907) 265-2403 POSITION STATEMENT: Testified on CSHB 136 (TRA) KENNETH HUBBARD P.O. Box 1703 Palmer, Alaska 99645 Telephone: (907) 745-3136 POSITION STATEMENT: Testified against CSHB 136 (TRA) REPRESENTATIVE KAY BROWN Alaska State Legislature State Capitol, Room 517 Juneau, Alaska 99801 Telephone: (907) 465-4998 POSITION STATEMENT: Sponsor of HB 403 DAVEED SCHWARTZ, Assistant Attorney General Commercial Section Civil Division Department of Law 1031 West 4th Avenue, Suite 200 Anchorage, Alaska 99501-1994 POSITION STATEMENT: Testified on HB 403 STEPHEN CONN, Member Alaska Public Interest Research Group, (AKPIRG) P.O. Box 101093 Anchorage, Alaska 99503 Telephone: (907) 278-3661 POSITION STATEMENT: Testified on HB 403 RICK MORRISON, Past President Alaska Auto Dealers Association 935 Gambell Avenue Anchorage, Alaska 99501 Telephone: (907) 272-5522 POSITION STATEMENT: Testified on HB 403 DON JANSSEN, Member I/M Task Force P.O. Box 231031 Anchorage, Alaska 99523 Telephone: (907) 344-3370 POSITION STATEMENT: Testified on HB 403 RICK GILMORE, President Better Business Bureau 2805 Bering Street Anchorage, Alaska 99503 Telephone: (907) 562-6135 POSITION STATEMENT: Testified on HB 403 ACTION NARRATIVE TAPE 96-16, SIDE A Number 000 The House Transportation Standing Committee was called to order by Chairman Gary Davis at 1:08 p.m. Members present at the call to order were Representatives G. Davis, Masek, James, Brice, Sanders, Long, and Williams. A quorum was present. This meeting was teleconferenced to Anchorage, Fairbanks and Mat-Su. CHAIRMAN GARY DAVIS announced that the agenda consisted of HB 136 and HB 403. HB 136 - MANDATE SALE OF ALASKA RAILROAD Number 0048 CHAIRMAN GARY DAVIS announced the first item on the agenda was HB 136, an act mandating the sale of the Alaska Railroad; and providing for an effective date. He said a committee substitute was developed as a result of the testimony that was presented at the last meeting. Number 0078 REPRESENTATIVE JERRY SANDERS made a motion to adopt CSHB 136 (TRA), version F, dated April 9, 1996. Hearing no objection CSHB 136 (TRA) was now before the House Standing Committee on Transportation. Number 0125 TOM ANDERSON, Legislative Aide for Representative Martin, testified on CSHB 136 (TRA). He provided a sectional analysis and said in response to Representative James' concerns, although he could not say that all of her concerns were addressed in CSHB 136 (TRA), and the concerns of other committee members, CSHB 136 (TRA) changes the emphasis and inserts a more definitive plan for the sale of the Alaska Railroad. He said CSHB 136 (TRA) is identical to the Senate companion bill SB 64, by Senator Rieger. Number 0252 CHAIRMAN GARY DAVIS said there is a short time frame in CSHB 136 (TRA) and asked if the bill only referred to this year. He said an request for proposal might go out in October of 1996 and in February 15, 1997, it indicates that the Governor shall enter an agreement, if an agreement is reached. He asked if any information could be given on the timing. Number 0301 MR. ANDERSON said it was done to expedite the process and concurred that CSHB 136 (TRA) offers one window of opportunity without any carry over. He said legislation would need to be resubmitted regarding this issue in following years if there was not a response or the offers were not sufficient for the selling of the Alaska Railroad. Number 0337 CHAIRMAN GARY DAVIS said existing statute allows for the sale of the Alaska Railroad at any time. MR. ANDERSON said, yes, a sale could occur and that CSHB 136 (TRA) merely stipulates the provisions during this time frame. Number 0363 CHAIRMAN GARY DAVIS said CSHB 136 (TRA) relates to the appraisal of the lands, as well as ownership and appraisal of all the railroad properties. He said a question regarding the value was asked, and added the concern that this being an election year it would be unclear to know who would return to work on this issue in the upcoming years. Number 0444 REPRESENTATIVE TOM BRICE referred to Section F, page two, "contract for the appraisal under this section is exempt from 36.30" and clarified that this referred to the procurement procedure. MR. ANDERSON said the second page of the sectional analysis states that this language relates to the procurement procedure in (j). Number 0490 CHAIRMAN GARY DAVIS asked about the fiscal notes regarding the appraisal. Number 0498 MR. ANDERSON said a fiscal note was not available, but requested that a fiscal note be adopted. He said the Senate Finance Committee, through the guidance of Mr. Hickey, recommended a fiscal note for a fair market report, as compared to an appraisal, to be set at $900,000. He said an appraisal could lead to a fiscal note of $2 million as projected by the Alaska Railroad Corporation, who said a fair market report would "entail primarily the same." Number 0563 REPRESENTATIVE BRICE referred to Section C, "Upon entering into an agreement to sell the Alaska Railroad, the Governor shall immediately submit the agreement to the legislature for review during a regular session of the legislature." and asked if this precluded a special session called by the Governor to review this bill. MR. ANDERSON said yes it would preclude a special session and referred to the four month window of opportunity to buy the Alaska Railroad which would make it difficult to incorporate action during a special session. Number 0629 REPRESENTATIVE SANDERS referred to Section 1(a) and asked for a definition of what the "other assets" entailed. Number 0652 MR. ANDERSON deferred to Mr. Hickey to address those questions. A discussion ensued regarding the hotel property that the railroad owns 40 percent of and what would happen to that upon the sale of the railroad. Number 0679 REPRESENTATIVE DON LONG asked if there was a provision in CSHB 136 (TRA) for expansion of the railroad. Number 0691 MR. ANDERSON said CSHB 136 (TRA) does not address this issue. The bill addresses that operations must continue for 20 years and referred to the sectional analysis (b) that the purchaser accept all the contracts including the collective bargaining agreements and retirement obligations as well as provide for or above a fair market price. He said CSHB 136 (TRA) does not address the expansion issue, but said it could do so. Number 0725 REPRESENTATIVE BILL WILLIAMS referred to page two, Section 1(d), "The Alaska Railroad Corporation may not enter into a contract or other agreement.." and asked that this be explained further. Number 0725 MR. ANDERSON said this was included to prevent any pre-changes which could occur through the corporation prior to CSHB 136 (TRA) becoming effective. He said once CSHB 136 (TRA) went into effect, this provision would go into the act, but the sponsor felt that there might be a shift or an attempt to sell a portion or transfer a portion and he wanted to maintain everything as is up to the sale. Number 0803 MARK HICKEY, Representative, Alaska Railroad Corporation, said he would be available to answer any questions. Number 0805 REPRESENTATIVE BRICE asked how much land the Alaska Railroad had outside the easements and rolling stock yards. Number 0861 MR. HICKEY said the total acreage is around 38,000 acres. He said 12,000 of this is tied up in the right-of-way and directly adjacent to switching yards and sidings. He said quite a bit of the other 26,000 acres is under active lease to (indiscernible), many of whom are customers of the railroad. He said there are three or four large, vacant areas along the railroad line where the majority of the acreage is. He clarified that this remaining 26,000 is tied up in leases or is in three or four specific spots along the line such as the 5,000 acres in Healy. Number 0925 REPRESENTATIVE BRICE asked if the corporation sells the land or just participates in leases. Number 0940 MR. HICKEY said the Alaska Railroad Corporation primarily participates in leases and said state law prohibits the disposal of the full interest and real property without legislative approval. He said the legislature has given their approval once or twice on very special matters. Number 0975 REPRESENTATIVE BRICE said if the railroad was sold, there did not appear to be anything in CSHB 136 (TRA) which would continue this legislative oversight and added that this would be an issue he would want to address. He asked if it was reasonable to provide an appraisal by next January. Number 1031 MR. HICKEY said when the Alaska Railroad was purchased, the United States Railway Association (USRA) did a fair market value assessment, what was called an evaluation. He said, as part of this evaluation, a full appraisal of real property was done as well as an analysis of "going concern assessment" of the operation in a ten year length of operation, as required under federal law, and then discounting that back to present value. He said the process took eight months. He said the weather, winter time conditions, and when various people involved will be on the property need to be factored into this time process. He said the question of whether or not there is enough time depends on how detailed you want the evaluation to be. He said four months is a tight timeline and it could be a problem. Number 1108 REPRESENTATIVE BRICE asked how much a contract would cost for this type of appraisal. Number 1115 MR. HICKEY referred to the USRA figure which is what the Senate Finance Committee was given yesterday and was used by them to determine the $900,000 fiscal note. He said the price, that the Alaska Railroad Association could recall, was $863,000 in 1983 to perform the evaluation. He said the group that did the evaluation was at that time a branch of the federal government and the appraiser was a firm out of Philadelphia. He said there were travel costs as a result. He concluded that these types of costs would be involved as there is not that type of expertise available in the state. He said the cost also depends on the scope of the fair market value assessment. Number 1175 REPRESENTATIVE BRICE expressed concern about exempting the contract from the procurement procedure as it is a substantial amount of money not to have any legislative oversight. Number 1225 CHAIRMAN GARY DAVIS asked what the railroad would recommend for the Comfort Inn property. Number 1234 MR. HICKEY said the Alaska Railroad Corporation owns 40 percent interest in the partnership, which owns the Comfort Inn. He said the railroad obtained that equity position by foregoing a land lease and forming a joint venture. He said the Comfort Inn is an asset of the corporation and said there is no current position on what would occur in a disposition or sale. He said the Comfort Inn is a performing property, part of the asset base and contributes to the bottom line of the operation. He said a purchaser would probably be interested in obtaining the position that the railroad has. Number 1300 REPRESENTATIVE JAMES said she understood that the arrangement regarding the Comfort Inn was going to be done on a lease basis, not ownership by the railroad. Number 1315 MR. HICKEY concurred with what she said, it is a straight ground lease. He said if he finds out any different information he will let her and the committee know. Number 1346 REPRESENTATIVE JAMES said, when she was involved in this situation, there was a negotiated agreement between the city of Fairbanks and the railroad for the railroad to put some money into water and sewer for that section in order to create a subdivision and allow other people to use their land. She said CSHB 136 troubles her because it does not seem workable. She referred to Section 1(e), "Notwithstanding other provisions of this act, the state of Alaska shall retain an easement for transportation, communication, and transmission purposes on all land within the right-of-way of the Alaska Railroad received by the state under the Alaska Railroad Transfer Act of 1982.." and asked, if the railroad is the only access available for gas or an oil pipeline why would a purchaser let them have this easement. Number 1440 MR. HICKEY said this is an issue of concern. He said this provision was included as part of the federal transfer law which has some specific language about what happens to the right-of-way if there is a failure to continue rail service. He said if there is a 18 year period of non-use, there is a reversion of the remaining "easement" and said he believed this was included in the federal law to address this issue. He said this inclusion creates the problem of who then has the authority over the right-of-way for these kinds of purposes as well as a second problem that there is not this level of interest throughout the right-of-way for the state to retain. Number 1513 REPRESENTATIVE JAMES said she is in favor of privatizing the railroad, but if this right-of-way is important to the state, then the state might not want to sell. She referred to Section 1(2) which would require a purchaser to, "accept assignment of all contracts, including collective bargaining agreements and retirement obligations and agreements with connecting carriers, shippers, or other persons concerning services, operation, property, and facilities...provided that the contracts are assignable under terms of the contract..." and said this seemed to also be restrictive for a purchaser. She said this provision means that the purchaser would run the railroad as it is currently being run. Number 1575 MR. HICKEY said this provision is similar to the provisions that the state had when they took over the Alaska Railroad Corporation. He said there were concerns regarding this provision at the time of the takeover and a thorough job was conducted to determine what liabilities would be involved. He said, in the state transfer, there were some timelines regarding how long this provision would be in effect to allow the state, as the new owner, to have flexibility to run the railroad differently. He said shippers, employees and various entities which have contractual relationships will need some level of comfort that it will "be business as usual" to every extent possible. He said this provision would be a concern to the buyer about how much their hands are going to be tied as well as concerns by Alaskan businesses and employees who depend on the railroad. Number 1663 CHAIRMAN GARY DAVIS said the sale of the railroad would have some detrimental impacts on business in the state if contractual agreements were voided. He mentioned such contracts as Suneel, who haul coal from Healy to Seward, and MAPCO. Number 1694 REPRESENTATIVE JAMES asked if there had been any evaluation or any kind of report on any suspected environmental clean-up that needs to be done along the railroad, the properties including the Fairbanks rail yard. Number 1714 MR. HICKEY said he would get back to the committee regarding this issue. He said there is some environmental clean-up and that there has been an ongoing effort to deal with those types of questions in various places around the railroad, the Anchorage yard in particular. He said he did not know the details around the Fairbanks situation. He said this issue has involved the Environmental Protection Agency (EPA) as well as the Federal Railroad Administration because, under the transfer law any problems, pre-dating the acquisition by the state of the railroad, belong to the federal government. He said there has been work on these issues, but could not say to what extent. Number 1758 REPRESENTATIVE SANDERS said it had been his understanding that the Alaskan Railroad owns the docks down in Seward. He asked if this is correct, what would happen to those docks under a sale. Number 1770 MR. HICKEY said the railroad owns the railroad dock in Seward, it does not own the coal loading facility despite the fact that this facility is on land leased from the railroad. He said the state helped to build some of that facility. He said the railroad also owns a facility in Whittier. He said these properties would probably be viewed as an integral part of the rail operations as it is tied to the moving of freight. He said the communities might want to do something different and the state might not want to see that property in private hands. Number 1829 REPRESENTATIVE SANDERS referred to Section 1(c) and said CSHB 136 requires legislative approval and the legislature would have the opportunity to object to the ultimate sale once the conditions of the sale were known. Number 1844 MR. HICKEY said a number of answers could be provided to the legislature, but mentioned the short time span and said how thoroughly things are thought through depends on how good of a job is done. He said CSHB 136, according to his interpretation, states that the Governor has to enter into an agreement with the most responsive offer so long as that offerer agrees to conditions one, two and three. "It does come to you and if you act to disapprove it doesn't occur, but if you fail to act, as I read it, then it does go forward." He said CSHB 136 (TRA) does not require a subsequent act by the legislature to allow the sale to happen, but it does give the legislature one opportunity to stop the sale. Number 1886 REPRESENTATIVE BRICE said requiring affirmative action by the legislature to stop the sale, rather than a positive action by the legislature to agree to the sale raises some concerns which will need to be addressed in the amendment process. He asked what happens to those jointly owned assets such as facilities which were bought by the state and used by the railroad, specifically the coal facility. He also asked what would happen to the coal cars which the legislature has appropriated money to purchase. Number 1938 MR. HICKEY said on the question of the coal dock, currently, it is a lease arrangement. He referred to Section 1(b)(2) and said it would require the continuation of that arrangement, but the new private owner would be the lessor. He said other assets would have to be evaluated on a case by case basis. He said he had forgotten about the Wishbone Hill money which was an appropriation to the Alaska Railroad, for a specific asset to facilitate the Wishbone Hill coal project and the movement of coal if it comes on line. He said this issue would have to be addressed now in legislative input. Number 2000 REPRESENTATIVE BRICE asked if there were other appropriations which would be similar to the Wishbone Hill and asked about those assets bought by the state. Number 2021 MR. HICKEY said there is one other appropriation for Ship (ph.) Creek. An issue currently being debated for reappropriation by the Anchorage caucus. He said this appropriation was for facilitating development, using private money on a matching basis. He said another appropriation involves the purchase of railcars for the Ag. (Agricultural) Project, but he said he believed these cars were all gone. He said these are the types of questions that arise when you consider a sale. He said the better part of four years was spent, going through federal and state legislation, three maybe four separate sessions of the legislature dealing with the acquisition, and two years for the Alaska Railroad Corporation to get on its feet and run. He said the Alaska Railroad has successfully run without the need for any state money and money earned has been reinvested into the company. Number 2089 REPRESENTATIVE JAMES said there is $11 million that is in the Wishbone Hill account and cannot be spent without appropriation by the legislature even though it remains in the bank. Number 2109 MR. HICKEY said the Wishbone Hill fund is an appropriation to the railroad for purchases by the railroad which consists of a contractual agreement signed by the state, the Department of Transportation Commissioner, and questioned if it would or would not be transferred to the purchaser. Number 2130 CHAIRMAN GARY DAVIS said the passage of CSHB 136 (TRA) will bring about a lot of questions and it is a benefit that those questions will be answered. He said different requests have been made to find out if the railroad is for sale, such as the expressed interest by Montana Rail Link. Number 2171 CHAIRMAN GARY DAVIS said he would like to keep CSHB 136 (TRA) intact. Number 2203 REPRESENTATIVE BRICE made a motion to adopt proposed Amendment 1, striking, "by February 15, 1997," and capitalizing, "Governor". He said the date limits it to ten months and questioned whether or not it was a realistic timeline. Number 2262 REPRESENTATIVE WILLIAMS objected to proposed Amendment 1. He said the smaller amount of time that a business is up for sale, the smaller the impact on the business. Number 2299 REPRESENTATIVE JAMES concurred, but added another objection which was that she did not believe CSHB 136 (TRA) was workable and said removing the date just makes it more unworkable. She said she would want to amend the whole bill, but since she can't do that she doesn't want to see it amended at all. Number 2315 REPRESENTATIVE BRICE said once CSHB 136 (TRA) is put into law, potentially it would become law in May or June. He said the Railroad Corporation has stated that an honest appraisal might take upwards of eight months, yet the time constraints in the bill limit this from occurring. He said a realistic time frame must be included in legislation. Number 2352 A roll call vote was taken on Amendment 1. Representative Brice voted yea. Representatives Williams, James, Sanders, Long and Chairman Gary Davis voted nay. Representative Masek was absent for the vote. Amendment 1 failed to be adopted to the CSHB 136 (TRA) by the House Standing Committee on Transportation. Number 2416 KENNETH HUBBARD was next to testify via teleconference from Mat-Su. He said this sale would be too sudden and that replacement cost appraisals should have been received before this bill was proposed. He said the bridges and (indiscernible) may be worth more than what will be offered for the railroad. He said freight companies might make an offer or Princess Tours and said it should be a closed bid process. TAPE 96-16, SIDE B Number 0000 REPRESENTATIVE BRICE referred to Section 1(c) and said CSHB 136 (TRA) is requiring an affirmative action by the legislature to disapprove of the sale. He said language needs to be added to approve of the sale. He said, considering the amount of questions, that a sale proposal should go through the committee process. Proposed Amendment 2, on line 11, Section 1(c), read, "the legislature may approve the agreement by a concurrent resolution, if the agreement is not approved by the legislature before the adjournment of the regular session during which the agreement was submitted the agreement is disapproved." Number 0075 REPRESENTATIVE JAMES objected to the proposed Amendment 2. Number 0078 CHAIRMAN GARY DAVIS said he objected because a sale would come before the legislature anyway. Number 0085 REPRESENTATIVE BRICE said a sale would only come before the legislature if "a majority member, to put it bluntly, wants to disapprove of the contract." He said assets of this type and size, which affects the private and public economic well being of the state, should require an affirmative action by the legislature. Number 0144 A roll call vote was taken on Amendment 2. Representative Brice voted yea. Representatives Masek, Williams, James, Sanders, Long and Chairman Gary Davis voted nay. Amendment 2 failed to be adopted to the CSHB 136 (TRA) by the House Standing Committee on Transportation. Number 0171 REPRESENTATIVE BRICE proposed Amendment 3 in Section 1(f), deleting, "A contract for the appraisal under this section is exempt from AS 36.30." and striking Section 1(j). He said this is a potential million dollar contract that will not receive one iota of public oversight. He said the procurement procedure would allow for oversight to insure that the necessary appraisals, determining the valid cost, were done in an appropriate manner. REPRESENTATIVE JAMES objected to the proposed Amendment 3. Number 0248 A roll call vote was taken on Amendment 3. Representative Brice voted yea. Representatives Masek, Williams, James, Sanders, Long and Chairman Gary Davis voted nay. Amendment 3 failed to be adopted to the CSHB 136 (TRA) by the House Standing Committee on Transportation. Number 0264 REPRESENTATIVE BRICE said he is proposing Amendment 4 which would give the Alaskan Railroad employees the first right of refusal to insure that if they come up with a proper amount of money they be given the first opportunity to purchase the railroad. REPRESENTATIVE WILLIAMS objected to the proposed Amendment 4. Number 0325 REPRESENTATIVE JAMES said she would not want to change CSHB 136 (TRA) today, but said the employees should have the opportunity to buy the railroad. Number 0347 CHAIRMAN GARY DAVIS said there was no provision in CSHB 136 (TRA) precluding the employees from making a bid to buy the railroad. Number 0365 REPRESENTATIVE BRICE said the reason behind giving the employees the first right of refusal gives them a legal standard by which they must be considered. Number 0248 A roll call vote was taken on Amendment 4. Representative Brice voted yea. Representatives Masek, Williams, James, Sanders, Long and Chairman Gary Davis voted nay. Amendment 4 failed to be adopted to the CSHB 136 (TRA) by the House Standing Committee on Transportation. REPRESENTATIVE BRICE proposed Amendment 5 which would require the sale of the Alaska Railroad to be approved by the railroad employees as it is such an important change. He said giving the employees this power would give them the surety and the stability that they need. Number 0471 REPRESENTATIVE JAMES objected to the proposed Amendment 5. She said the legislature does not think as businesses do. She said if she was the person who had the money to buy the railroad, made an offer and then found out that the offer was contingent upon whether or not someone could meet that offer, she did not think she would make the offer in the first place. She said the proposed Amendment 5 does this when it gives the employees of the railroad 90 days, after the Governor enters into an agreement, to make an offer to purchase the railroad. Number 0514 REPRESENTATIVE BRICE said if this amendment does anything, it is to require that the purchasing group to be involved with the employees of the corporation, which would prevent any displacement of employees. A roll call vote was taken on Amendment 5. Representative Brice voted yea. Representatives Masek, Williams, James, Sanders, Long and Chairman Gary Davis voted nay. Amendment 5 failed to be adopted to the CSHB 136 (TRA) by the House Standing Committee on Transportation. Number 0600 REPRESENTATIVE BRICE said there are too many questions surrounding CSHB 136 (TRA) which have not been answered. He said the timelines are unrealistic, there are no real assurances for the employees of the corporation, nothing that requires the legislature to address this issue once an agreement has been made and the legislation does not allow for any scrutiny by the public, the Administration or the legislature. He said there is no oversight regarding the "contract" and said anyone can participate in this without any scrutiny. Number 0700 REPRESENTATIVE JAMES disagreed that anyone is qualified to bid on this, CSHB 136 (TRA) states that it needs to be done by a qualified railroad appraiser and she said she doubted whether or not anyone on the committee would fit that standard. Number 0720 REPRESENTATIVE JAMES said she is not comfortable with CSHB 136 (TRA), but could not find any easy way to fix it. She said she liked the provision for the continuation of the railroad for a minimum of 20 years and agree to all signed labor contracts and agreements. She questioned whether or not the amount of the purchase price should exceed the fair market value of the railroad or equal the amount the state has expended to obtain, maintain and subsidize the Alaska Railroad. She said, when you sell an asset, it is not realistic to say that the state is going to get the money back. She said everything that is sold is based on fair market value, which could be more or it could be less. She said all the appraisals in the world can be done, but if no one is willing to offer that amount, then that appraisal is incorrect. She said enough time should be given to make offers yet prevent the disruption of the railroad and avoid the appearance of a "fire sale." She said the state should avoid acting like they need to get rid of the railroad "before next Tuesday." Number 0793 REPRESENTATIVE JAMES said CSHB 136 (TRA) has a good intent, the state should move forward to privatize the railroad and find a purchaser who has the money and the ability to expand the railroad. She said the railroad will never expand as long as it is under the control of the state and it should pay money to the tax rolls for its operation. She does not believe that CSHB 136 (TRA) is going to do anything. She moved CSHB 136 (TRA) from the committee with the attached fiscal note and individual recommendations. Number 0833 REPRESENTATIVE BRICE said CSHB 136 (TRA) requires a qualified railroad appraiser and then questioned what this was as there was nothing in statute to define what that was. Number 0843 REPRESENTATIVE SANDERS said he was going to vote for CSHB 136 (TRA) to "stir things up." He said the bill protects the workers because it requires the purchaser to comply with all the bargaining agreements. Number 0877 A roll call vote was taken on whether to move CSHB 136 (TRA) out of committee. Representatives Masek, Williams, James, Sanders, Long and Chairman Gary Davis voted yea. Representative Brice voted nay. The CSHB 136 (TRA) was moved from the House Standing Committee on Transportation. HB 403 - CONSUMER PROTECTION:USED CAR & MAIL ORDER Number 0933 CHAIRMAN GARY DAVIS said the next item on the agenda was HB 403, an act relating to consumer protection involving contracts for the sale, transfer, or assignment of used motor vehicles and involving telephonic solicitations. Number 0933 REPRESENTATIVE KAY BROWN, sponsor of HB 403, said she introduced this bill at the request of the Department of Law (DOL) and the Governor's office to address some consumer protection issues related to the sale of used cars and telephone solicitations. She noted that HB 403 is a straightforward bill and said Section 1 requires the used car dealer to provide a buyer with a copy of a certificate of auto emissions compliance or non-compliance before a contract is consummated. Section 2 requires telemarketers, who are under the mail order exemption, to have legitimate mail order businesses. She said she would answer any questions and said she would defer to Mr. Schwartz, who works in consumer protection and put forth these concepts for legislative consideration. Number 0991 REPRESENTATIVE WILLIAMS asked if the sponsor would be willing to amend HB 403 so that a seller would be obligated to show if a car had been involved in an accident. Number 1026 REPRESENTATIVE BROWN said she would be willing to include this consumer protection right in HB 403. She said the concept of requiring disclosure, if a car has been damaged and rebuilt, seems to be good. Number 1046 CHAIRMAN GARY DAVIS said it is a good concept, but questioned how effective this provision would be. He questioned the degree of inspection that would be needed and said a walk around inspection would often prove to be insufficient. Number 1086 REPRESENTATIVE LONG asked if HB 403 affected people who occasionally worked on vehicles, in a "moonlighting" capacity. Number 1104 REPRESENTATIVE BROWN said the language in HB 403 applies to a person engaged in the business of selling used motor vehicles. Number 1110 CHAIRMAN GARY DAVIS said that does appear to be a bit restrictive, there are plenty of auto sales done on a private basis that this would not cover, I think it is probably the crux of your question. Number 1130 REPRESENTATIVE BEVERLY MASEK asked how the language in HB 403 would affect the rural areas where vehicles are sold. Number 1160 REPRESENTATIVE BROWN said it was her understanding that there are only a few areas of the state that are subject to this emission inspection program. She did not know of any rural areas that would require the emission certificate. Number 1176 CHAIRMAN GARY DAVIS said the rural areas which are not affected now by the emissions certification would not be affected later. Number 1190 REPRESENTATIVE BRICE referred to page one, line 13 and 14, "under the air pollution control requirements applicable in that area" and said this would answer Representative Masek's question. Number 1202 REPRESENTATIVE MASEK asked why used cars and telemarketers were combined in HB 403. Number 1220 REPRESENTATIVE BROWN said the common thread in HB 403 is consumer protection and said it was the DOL's preference to put these separate items together in this manner. She said the two items are clearly addressing different aspects of consumer protection. Number 1264 DAVEED SCHWARTZ, Assistant Attorney General, Commercial Section, Civil Division, Department of Law, testified next via teleconference from Anchorage. He said he was responsible for the consumer protection responsibilities for the state. He began discussion on Section 1 of HB 403 relating to auto emissions, inspection certificates and used cars. He said AS 45.45.400, enacted in 1992, prohibits a used car dealer from transferring or assigning the owners title or interest in a vehicle intended for use in a state approved auto emissions inspection area, currently Anchorage or Fairbanks, unless a vehicle has a certificate of auto emission compliance or non-compliance as required by the local areas. Number 1390 MR. SCHWARTZ said the legislative history reveals that the prime sponsor of AS 45.45.400, then HB 454, intention was that consumers who were considering the purchase of a vehicle, from a used car dealer, be informed of the current Inspection and Maintenance (I/M) status of the vehicle before they actually made the purchase. He said four years ago, in February of 1992, the prime sponsor of HB 454 explained that the intent was to require used car dealers to provide a certificate of compliance or non-compliance to the prospective purchaser and explained that the rational was to allow the prospective purchaser that piece of information to help them in their decision. The prospective purchaser would know, up front, what the I/M status was. He said, despite this intent, the statute as presently worded does not appear to require a used car dealer to present or display any I/M information to the prospective purchaser. MR. SCHWARTZ said the present statute only requires that a used vehicle have an I/M certificate of compliance or non-compliance at the time of transfer or assignment of the owners title or interest. Frequently, the vehicle title is not transferred to the purchaser until days or even weeks after the contract sale is signed. He said the transfer of ownership can happen 30 days after the sale contract. He said HB 403 amends the statute to clarify that the I/M certificate must be presented to the prospective purchaser before the sale of the used vehicle and added that it is a consumer protection safeguard. He reiterated that the prime sponsor of HB 454 recognized and intended for the statute to achieve this goal. Number 1497 MR. SCHWARTZ said, given the current and long standing low level of consumer protection funding in Alaska, HB 403 gives consumers a measure of self help by making a violation of HB 403 a violation of the Consumer Protection Act. He said, currently, consumers are not told about the I/M status of the vehicle if they didn't think to ask which might cost them, at minimum, hundreds of dollars to get their vehicle into compliance. He said the Attorney General's office, the I/M offices and the Better Business Bureau have all received complaints over the last few years and continue to receive complaints on this issue. He said there are horror stories about people who have paid $3,000 to $5,000 to buy a used vehicle only to find out they would need to spend that type of money, in addition, to get their vehicle in compliance. He said, this year, a pizza delivery person bought a $3,800 used vehicle and afterwards found that this vehicle was not in compliance. She needed to quit her job, temporarily, in order to make other transportation arrangements as she used her vehicle in her line of work. Number 1654 CHAIRMAN GARY DAVIS asked if Mr. Schwartz had any comments on the telemarketing section of HB 403. Number 1666 MR. SCHWARTZ said, as the mail order exemption stands right now, it is possible for telemarketers, who would otherwise be regulated under the Telemarketing Registration Act, to hide behind a mail order catalog exemption. He said, currently, the scope of the mail order exemption under the telemarketing law is the subject of an Alaska Supreme Court case with oral arguments occurring over the next few months. He said the provisions in HB 403 would require that a person have a legitimate mail order catalog in order to qualify under that exemption. Number 1740 CHAIRMAN GARY DAVIS asked if the language in HB 403 would adequately give the Attorney General's office enough information to certify whether or not a mail order catalog was legitimate. Number 1750 MR. SCHWARTZ said yes, particularly the proposed exemption which would require "a mail order catalog company to sit back and wait for a call initiated by the prospective customer, rather than sending out a catalog and then flooding the consumers with unsolicited, unwanted telephonic solicitations." He said the problem of unwanted telephonic solicitations is being addressed by HB 109. He said the provisions in HB 403 would assist the DOL in its enforcement of the Telemarketing Registration Act. Number 1817 REPRESENTATIVE BRICE said, on the mail order exemption, there appeared to be a few parameters, under (b)(vi) and (b)(viii), and asked if the numbers 10 and 10,000 were arbitrary. Number 1856 MR. SCHWARTZ said in terms of the (b)(vi) parameter, "10 or more pages" minimum is intended to guard against a telemarketer who produces a one or two page flyer and tries to claim that the flyer is a mail order catalog qualifying under the exemption. He said the "10 pages or more" is designed to provide the consumer with enough information to make an informed decision and contact the telemarketer. If the mail order catalog has less than ten pages they tend to provide less information. He said most catalogs, that he has seen, have well over ten pages and so this provision should not affect legitimate mail order companies. MR. SCHWARTZ referred to the (b)(viii) provision and said other states tend to have a higher circulation number. He said the 10,000 circulation number is designed to accommodate any Alaska small businesses which might consider getting into the mail order business. He said most catalogs and telemarketing centers are based outside of Alaska. Number 1995 STEPHEN CONN, Member, Alaska Public Interest Research Group, (AKPIRG), said HB 403 prevents consumers from being cheated. He said AKPIRG has 3,000 members and is the only non-profit consumer protection organization exclusively representing the consumers. He said the number one area that AKPIRG deals with is the purges of defective vehicles. He said these vehicles were often wrecked vehicles and camouflaged by people in the business of selling vehicles. Number 2087 MR. CONN said someone bought a vehicle, by what she thought was a private owner, but upon investigation it was determined that this person had put 500 advertisements into the Anchorage Daily News, within a three year period, and had sold more than 300 vehicles. The vehicle she purchased, at upwards of $15,000, was defective. Number 2146 MR. CONN said the provision, where the I/M certificate is given before the vehicle is purchased, will allow the purchaser to make a good decision and protects the consumer against a dishonest car dealer. He urged the committee to support HB 403. Number 2259 RICK MORRISON, Past President, Alaska Auto Dealers Association, was next to testify via teleconference from Anchorage. He said as a car dealer he is concerned about the consumer, the business and the dealers who take care of the business. He said the association is involved with the Better Business Bureau and have had numerous conferences with the Attorney General's office and others to become educated about the laws and create an understanding of the responsibilities. MR. MORRISON said, when HB 454 passed, there were considerable difficulties getting information on the aspects of the legislature. He expressed concern over the confusion on what those items were supposed to be and cited examples such as "title only waiver," "certificate of compliance or non-compliance," and the "I/M certificate." He said there is a need for clarification of the terms and added that additional information is needed because the I/M requirements for Anchorage, Fairbanks and the state are not consistent. He said there are laws that allow certain things in Anchorage that cannot be done in Fairbanks. He said there are a number of things the state says can be done which the municipality says cannot be done. He said a consistency in provisions needs to be determined. MR. MORRISON referred to a new auto dealer, who also sells used cars,... TAPE 96-17, SIDE A Number 0000 MR. MORRISON said the certificates are just like titles, the dealer cannot change title until a certificate of compliance or non- compliance is obtained. He said when a dealer does an I/M compliance and the certificate must then go with the title to the Department of Motor Vehicles (DMV). He said the general dealer practice has been to do this I/M test on the vehicle when it arrives. He said if the vehicle is not I/M passable then the vehicle is disposed of or it is sold to a wholesaler. MR. MORRISON said the statute states that in order to transfer the title, a certificate of non-compliance has to be given. He said HB 403 is a "belt suspender approach" to a current law. He said the confusion of where the I/M process is going needs to be addressed so that each department is consistent. Number 0128 MR. MORRISON said HB 403 creates a paperwork and logistical burden for the dealers. He said 99 percent of the car dealers do not act unscrupulously. He said there is a business of people selling cars who are not car dealers and said the association has a problem with those businesses. He said this is a different issue from the I/M certificate and said the association would support legislation to address that issue. He said, in regards to the damaged vehicle concern, this is a national issue where there is an attempt to brand titles. He said the current state process is ineffective regarding branding titles and providing that information to the consumer and the dealer. He said there are cases where even a trained eye will not be able to spot the damages to the vehicle. He said the association would be very interested in setting up disclosure and branding of damaged vehicles. He said the association would also support title regulation for people who are in the business of selling cars, so that dealers are reputable and are concerned about the consumer. Number 0237 MR. MORRISON concluded that HB 403 would create a lot more paperwork and burden especially for those dealers who own more than one lot. He said in this case, the titles and I/M certificates are all kept at one lot. He expressed concern over the combining of this issue with the telemarketing issue as they are separate from each other. Number 0298 CHAIRMAN GARY DAVIS said it appeared that most of the objections expressed would be geared to the regulations rather than the statute. He said the statute only addresses a certificate of compliance or non-compliance. Number 0350 REPRESENTATIVE BROWN said she had found the same confusion with his testimony. Number 0363 MR. MORRISON said, "my understanding is that it would to accompany...we would have to have the I/M certificate accompany the car to its location, so as in the terms of the process of buying the car we would have to have that available at that location. Right now what we do is we have that available for them as they close out their paperwork." CHAIRMAN GARY DAVIS said he was reading that correctly and said a key point in HB 403 is that the time of transfer can occur after the sale. Number 0422 REPRESENTATIVE BROWN said the language of HB 403 reads that the certificate has to be made available before entering into the contract. Number 0433 MR. MORRISON says that it has to be a certified copy to be given to the customer. Number 0445 MR. SCHWARTZ said Mr. Morrison was describing a situation where a dealer has several car lots and only one administrative office where the I/M certificate are kept. He said there is no requirement in HB 403 that the valid copy of a certificate of compliance or non-compliance be in the vehicle on the lot where the vehicle is. The only requirement in HB 403 is that the consumer be presented with a certificate of compliance or non-compliance prior to the sale. If the sale occurs at the administrative office where the file is located, the I/M certificate would be available to present to the consumer. Number 0476 MR. SCHWARTZ said there is no language requiring a display of the certificate or that the certificate be in the vehicle. He said one suggestion, in informal discussions between the Attorney General's office and the dealers association, was that it would be a relatively simple thing to do to make a copy of the certificate of compliance or non-compliance from the administrative file and put the copy in the vehicle. He said there is nothing in HB 403 that requires this. Number 0592 REPRESENTATIVE JAMES said, in Fairbanks, an emissions test produces a print out which is turned over to the state. She said, if these used cars already have a license on them and had an emissions certificate to get that license, the new owner would still have to get an new I/M inspection to get another one for the file. Number 0645 MR. MORRISON said she was correct. He said, as a dealer, if he brings a car in he does an I/M certificate when it is brought in. He said, up until a year ago, he had to do a new I/M certificate every 90 days. He said the current state law is that the I/M certificate is good for one year providing that the vehicle does not change hands and go into a consumers possession. He said the municipal law is not consistent with the state law. He said it is expensive to maintain these certificates and it creates a burden. Number 0715 REPRESENTATIVE JAMES said the only thing HB 403 requires is that a seller give a copy of the certificate to the purchaser and the purchaser signs something to acknowledge that they received it. Number 0741 MR. SCHWARTZ said her statement was correct and added that all HB 403 does is to clarify that the consumer must be presented with a certificate by the used car dealer prior to sale. He said HB 403 does not require a new certificate or requirement of any sort, nor does it change the timing of the I/M certificate requirement. Number 0772 REPRESENTATIVE JAMES referred to a vehicle which has been on a lot for nine months, with no miles put on the vehicle, and asked if the I/M certificate was okay to give to the consumer in context of the state extension. Number 0790 MR. SCHWARTZ said the statute as presently worded, not subject to changes by HB 403, makes the certification requirement in line with the local air pollution control requirements. He said the differences in air pollution control creates different requirements for Anchorage and Fairbanks. He said, in Anchorage, the seller has to present an I/M certificate to a buyer where an I/M certificate has been obtained not less than 90 days prior to the sale. MR. SCHWARTZ said Mr. Morrison referred to the state providing an exemption for dealers with vehicles in inventory. He said this exemption was worked out between the Department of Environmental Conservation (DEC) and the dealership association in 1995. He said, other than that arrangement, the local air pollution control requirements would apply. He said he is unclear whether or not the municipality of Anchorage would agree with the interpretation of their own ordinance by the DEC. Number 0916 DON JANSSEN, Member, I/M Task Force, was next to testify via teleconference from Anchorage. He said he auctions off vehicles and said it is unclear as to who will purchase a car at an auction until the hand is raised. He said a contract is signed by the purchaser agreeing to the conditions of the sale which specifically states the as, is, whereas conditions of the car and provides for the removal of plates for vehicles which do not have current I/M certificates and the acquisition of a title only waiver from the municipality for $10. MR. JANSSEN said HB 403 would put him out of business and it requires additional paperwork. He said people do not read the paperwork and ignorance is going to be the key thing. He said HB 403 is not going to do a thing to change the general public awareness about having vehicles comply with the I/M conditions. He said, with the advent of SB 28, there will be significant changes in the way the testing is done. He said, until DEC does a better job of educating the public, there will be continued litigation and radical consumer activity on the part of individuals. He said it costs small businesses money to protect themselves from the activities of consumers. He said the government does not understand their own rules and that a task force needs to be put together that crosses departmental lines in conjunction with the dealer association. MR. JANSSEN said HB 403 would create a situation where he could not comply as he does not know who the purchaser would be. He said the municipality concluded in their I/M inspection and maintenance program an exclusion specifically deferring themselves from EPA guidelines. He said this is in "their own implementation of a disclosure that no vehicle needs to have an I/M if it is sold to an impound sale and all they have to do is take off the plates. But, me if I sell a vehicle for $25, I have to go out pay $10 for a certificate and this car did not run in the first place and the people that bought it were aware of it. But, if a year later he wants to sue me, because I did not provide him with that document. He said it is out of line with what the intent of the law originally was." He referred to a letter, dated in 1993, from Michael Ford who responded that all of "this stuff" is voluntary disclosure and that was the original intent, not the requirement of passing multiple documents between buyers and sellers. Number 1146 RICK GILMORE, President, Better Business Bureau (BBB), was next to testify via teleconference from Anchorage. He said the BBB gets about 40,000 phone calls a year and said used car sales is number three on the list of complaints. He said BBB talks with consumers every day who have received bad cars from both private parties and from used car lots. He said he did not know if HB 403 was the answer to the problem, but said something needs to be done to address the concerns of the consumers. Number 1187 MR. JANSSEN said DMV already tracks I/M certificates and the municipality of Anchorage has the authority to implement the I/M inspection program. He said a better process would be some type of tab or sticker which shows what date the car was inspected attached to the car. Number 1254 CHAIRMAN GARY DAVIS said HB 403 has other referrals, but said most of the debate centers around regulations, as opposed to the statute, and differences in how some of these situations are handled. Number 1271 REPRESENTATIVE BRICE said many of the concerns also revolve around the municipal ordinance versus the state laws. He then moved HB 403 with individual recommendations and zero fiscal note. Number 1286 REPRESENTATIVE JAMES said she was not comfortable with this business on the vehicles, but that she was willing to move HB 403 out of committee. She said government tries to make everything 100 percent risk free for people. She said people need to be responsible for themselves. She said HB 403 requires extra things for people to do in order to solve a problem which is not that difficult to solve. Number 1328 CHAIRMAN GARY DAVIS said HB 403 will go next to the House Labor and Commerce Committee. He said the sponsor will take into consideration the expressed concerns. Hearing no objection HB 403 was moved from the House Standing Committee on Transportation. ADJOURNMENT There being no further business to come before the House Standing Committee on Transportation, the meeting was adjourned at 3:04 p.m.