HOUSE TRANSPORTATION STANDING COMMITTEE April 27, 1998 1:08 p.m. MEMBERS PRESENT Representative William K. (Bill) Williams, Chairman Representative Beverly Masek, Vice Chair Representative Bill Hudson Representative Jerry Sanders Representative Kim Elton Representative Albert Kookesh MEMBERS ABSENT Representative John Cowdery COMMITTEE CALENDAR * HOUSE BILL 476 "An Act relating to leases of state-owned or state-controlled airport or air navigational facility land." - MOVED CSHB 476(STA) OUT OF COMMITTEE (* First public hearing) PREVIOUS ACTION BILL: HB 476 SHORT TITLE: LEASE OF AIRPORT LAND SPONSOR(S): LABOR & COMMERCE Jrn-Date Jrn-Page Action 3/31/98 2813 (H) READ THE FIRST TIME - REFERRAL(S) 3/31/98 2814 (H) TRANSPORTATION 4/27/98 (H) TRA AT 1:00 PM CAPITOL 17 4/29/98 (H) TRA RPT CS(TRA) 2DP 4NR 4/29/98 (H) DP: MASEK, WILLIAMS; NR: HUDSON, ELTON, 4/29/98 (H) KOOKESH, SANDERS 4/29/98 (H) ZERO FISCAL NOTE (DOT) 4/29/98 (H) REFERRED TO RULES WITNESS REGISTER REPRESENTATIVE NORMAN ROKEBERG Alaska State Legislature Capitol Building, Room 24 Juneau, Alaska 99801 Telephone: (907) 465-4968 POSITION STATEMENT: Presented HB 476. JOHN STEINER, Assistant Attorney General Civil Division Department of Law 1031 West Fourth Avenue, Suite 200 Anchorage, Alaska 99501 Telephone: (907) 269-5100 POSITION STATEMENT: Provided information on HB 476. ACTION NARRATIVE TAPE 98-20, SIDE A Number 0001 CHAIRMAN WILLIAM K. (BILL) WILLIAMS called the House Transportation Standing Committee meeting to order at 1:08 p.m. Members present at the call to order were Representatives Williams, Masek, Hudson, Sanders, and Elton. Representative Kookesh arrived at approximately 1:12 p.m. HB 476 - LEASE OF AIRPORT LAND Number 0005 CHAIRMAN WILLIAMS announced HB 476, "An Act relating to leases of state-owned or state-controlled airport or air navigational facility land," is before the committee. Number 0007 REPRESENTATIVE NORMAN ROKEBERG, Alaska State Legislature, came before the committee. He stated he is interested in this subject because he is from the airport district in Anchorage, and the fact that he spent some 25 years, in his career, for being known as the "dean of leasing" in the state of Alaska and specialized in real property of lease activities. So this is an area of a speciality in the law that he is quite familiar. Number 0011 REPRESENTATIVE ROKEBERG said, "In the Nineteenth Legislature, ... HB 543 was an endeavor to clarify the state leasing polices as related to the airports in the state, particularly the international airports in Anchorage and Fairbanks. In the course of that particular bill, there was some discussion about how this would be implemented and so forth as it relates to the existing 55- year statutory requirement in statute. Our consensus was that we did not want to restrict a current leaseholder, nor from extending their lease, nor do we want to exclude him from having a right without having to put the property out for bid to even enter into a new lease." REPRESENTATIVE ROKEBERG stated, "The concern that's been expressed was because of that particular language - the clarity of what was intended by the legislature has been interpreted two different ways. And as evidence to that, I included it in the package although it wasn't earmarked so it's easy to find, in the back of it is the existing draft regulations that the airport's putting forward. I included those as part of your package to show the problems, if one examines them, of the direction the state has gone in these new regulations. We passed about a two-page bill and then came in with 185 pages of regulations. The aviation interest in the state are just livid, there's been a two-year battle to get these regulations implemented so the intent of the legislation - passed two years ago could be put into place because it's having a dilatory effect on the development of the airports in the state and the aviation community." REPRESENTATIVE ROKEBERG said, "So then the issues I (indisc.) in my sponsor statement is whether or not we need the clarification on this - I have a legal opinion from our legal council indicating that remedial legislation is necessary and to make sure it's absolutely abundantly clear so they can write the regulations accordingly and that was - as I (indisc.) was a tenant allowed to extend an existing lease and enter into a new lease prior to expiration of the existing lease if it was in the best interest of the state? Or was the lease term not exceeding 55 years, including extensions and periods of holdover which is now under regulation." REPRESENTATIVE ROKEBERG continued. "It's clear that the intention of the Nineteenth Legislature was to select the first alternative there allowing for existing businesses to be able to extend their leases and or enter into new leases. There is provisions in the existing law that provide that - if there is - if one were to step out of that lease into a new lease that that lease - the only way this could work is unless he was in compliance with terms and conditions of the existing hold (indisc.) over lease and the continued use of that lease so by that particular tenant unless he is consistent the written airport operation policies and their long-range plans, and that it's in the best interest of the state. These are major hurdles that have to be accomplished. So, therefore, the state has the ability - if they have a best interest finding - finding if it was not, that they would be able to stop that alleged lease of perpetuity." Number 0048 REPRESENTATIVE ROKEBERG concluded, "This bill is brought forward as a technical correction to clarify that, what I believe to be the legislature's intent in the Nineteenth Legislature and it should be consistent with this legislature's intent that we want to see the airports in the state be healthy, robust, and not have any constraints by regulations which in hinder that particular objective. For that reason, I would ask that you take out the committee substitute, version H to the bill, which is different than the original bill." Number 0055 CHAIRMAN WILLIAMS stated for the record that Representative Kookesh is present. Number 0056 REPRESENTATIVE BEVERLY MASEK made a motion to adopt proposed committee substitute 0-LS1725\H, Bannister, 4/22/98 as a work draft. There being no objections, that version was before the committee. Number 0069 REPRESENTATIVE BILL HUDSON asked Representative Rokeberg to explain the basis of 55 years. [Which reads]: The duration of a new lease under this subsection, including any extensions of that lease, may not exceed 55 years. The duration of an extension under this subsection, when added to the lese being extended and to any earlier extensions of the lease being extended, may not exceed 55 years. REPRESENTATIVE ROKEBERG replied, "I've been in the leasing business for over 25 years now and studied the area. I think it's more or less, I hate to use the term customary and traditional in a sense. It's basically arbitrary." Number 0072 REPRESENTATIVE HUDSON interjected the "subsistence" bill. REPRESENTATIVE ROKEBERG replied "Yeah, right. I think it was used in Anglo Saxton jurisprudence because it has to do with, I think the perceived life-time of an individual. ... He pointed out the recent expiration by the lease by the United Kingdom and Chinese Empire on Hong Kong was like some 250 years, it's not uncommon to see leases that are beyond 100 or 200 years in some instances, particularly in Europe. It's pretty common to see 110 year leases or leases beyond 55 years in the United States, normally long-term ground leases is what they are." REPRESENTATIVE HUDSON noted the bill tries to set up some sort of a fixed total - cumulative time period. If it were in the state's best interest, is there a procedure to where they can go beyond that period of time. Number 0088 REPRESENTATIVE ROKEBERG replied this bill provides that you can extend your existing leasehold up to 55 years and then step-out and request a new lease. He pointed out one of the distinctions he made in the prior bill is, one of the advantages of just extending your existing leasehold is that you could have the terms and conditions to be the same as were in that particular document. He indicated his expectation is that if you stepped out of that and requested a new lease, which is provided under the bill - and was provided in the last bill we passed, was that you may be subject to the new terms and conditions and provisions of a new lease document. That was particularly important in the Anchorage airport where there were some new environmental standards that had come into play and had been adopted for the new leases (indisc.). As a result there may have been and advantage of people wanting to extend their lease rather than enter into a new lease..." Representative Rokeberg gave a history on some of the leaseholders in Anchorage that are coming up on that 55-year period. Number 0119 REPRESENTATIVE MASEK asked what is the standard lease term is in other states. REPRESENTATIVE ROKEBERG replied it's his understanding that there are much shorter lease terms in some airports, particularly JFK and LAX which are major airports - might even have five-year terms. He suspects they will use a finance able term for construction of improvements which would be a minimum of 30 or 35 years. If there's existing improvement on land, he understands that some of the policies are short as a five-year turnaround so they can have the ability to raise their rent. He mentioned most of those airports are not owned or operated by state governments. Number 0132 REPRESENTATIVE ROKEBERG noted the Anchorage airport has additional lands, and the capability, and the marketing opportunity right now. For example, in air cargo which we need to be aggressive and provide a long-term financial lease term so improvements can be financed and constructed on those particular parcels. Number 0136 REPRESENTATIVE MASEK referred to page 2, line 4, of the committee substitute. She asked if the policy is the same for the airport in Anchorage, as in Big Lake, or in Willow. Is it the same written policy statewide? (2) the continued use of the leasehold is consistent with written airport operation policies and is in the state's best interest. REPRESENTATIVE ROKEBERG replied no, we have a separate rules and policies for the international airports as opposed to local or rural airports. He pointed out the leasehold applies to both groups. REPRESENTATIVE MASEK asked it does. REPRESENTATIVE ROKEBERG replied, "Yes, it's a perk, there's no reason that the flying service up in Nome, or another rural area - it's on a state airport - shouldn't have this ability to enter under the same lease terms because their conditions and circumstances are the same." Number 0145 REPRESENTATIVE MASEK read: (1) the lessee is in compliance with the terms and conditions of the existing or holdover lease; and REPRESENTATIVE MASEK asked how many they have jeopardized the terms or conditions in the past. REPRESENTATIVE ROKEBERG replied that particular language is what we basically call "border-plate" in the sense that, in order to enter into a new lease or extension, you have to be in compliance and not in breech of your existing lease. He didn't know how many have been jeopardized. You can have a breech of a lease for a relatively minor thing but then you need to be able to correct it which is done pretty commonly. The biggest one is not paying your rent. Number 0156 JOHN STEINER, Assistant Attorney General, Civil Division, Department of Law, provided information on HB 476 via teleconference. He said he would like to explain for the benefit of the committee and provide a little understanding of putting this into the context of some constitutional provisions and some Federal Aviation Administration(FAA) matters which may not lead to an (indisc.) up or down as to whether the bill ought to be acceptable. MR. STEINER stated the committee substitute would appear to provide for a (indisc.) basically in perpetuity to lease and release the airport land subject to the two findings that are listed which have been mentioned already with regard to the state's best interest and the compliance to an existing lease. MR. STEINER noted there would be a 55-year maximum tenancy under particular lease language but at the end of that 55 years, with new lease language, there could be renewal. There was a mention a few moments ago about the desire by some tenants to possibly extend a term rather than getting a new lease because they would like to take advantage of existing lease language. It is important to the airport, and legally to the Department of Law having a concern that there be some period of time that's not too far, at least certainly longer than 55 years, in which a new lease language would be required so that you don't wind up with a lease continuing to exist in lease language which applied 60 years ago and is no longer relevant to today's situations. There needs to be a turnover so that, whether it be for environmental or other adjustments according to changes in the law, otherwise - in conditions and new kinds of aircraft, or new kinds of operations, whatever, that that language can be updated. Number 0178 MR. STEINER stated to put this in context with a true, perpetual or preference right if it were absolute, would probably be inconsistent with Article 9, Section 6 of the Alaska Constitution which forbids the transfer of public property except for a public purpose. MR. STEINER said a true perpetual right of a preference would possibly also violate Article 8, Section 2 of the Alaska Constitution which requires that the legislature provide for use of public lands in the maximum benefit of the people. And the state's best interest finding may help to preserve that it is difficult to determine how you can know whether particular uses at the maximum benefit of the people if there's not competition to consider what other uses might arise out of the public. Number 0188 MR. STEINER mentioned there's also some concern in Article 8, Section 10 of the Alaska Constitution. It forbids disposal of leases without safeguards of the public interest and there's a concern that if there were no safeguards, if this were truly a perpetual preferential lease, then all three of these sections might be violated. MR. STEINER said, "I hasten to add that the two provisions at the end of this statute, which were imposed by the previous HB 543, which require state's best interest finding and require continued compliance of the lease terms may be sufficient to satisfy these constitutional questions, but I believe it's important for the committee to know that we're kind of on a balancing-line constitutionally, so you're just aware of that, there are some issues there that put a limit, and that the legislature cannot rent by continued preferences without making sure that at least there is something to keep us within these limitations." Number 0199 MR. STEINER addressed the concern about FAA grant assurances. He stated the FAA imposes on the state branch assurance requirements. These are agreements that the state must make in order to be eligible for him to receive federal airport and improvement program funds from the FAA which have been important in redeveloping airports and doing airport projects - capital projects. Some of these assurances include that the airport make available for public use, on a fair and reasonable terms without unjust discrimination, lands of all types, kinds and classes of aeronautical uses. This is limited to differences among aeronautical users, but it would be a violation if the airport were to allow it's land to be tied up if certain users - which might exclude other aeronautical users. He remarked that's "grant assurance number 22." Number 0208 MR. STEINER pointed out "grant assurance number 23" requires that the airport makes sure that there is no exclusive rights for use of the airport by anyone providing aeronautical use to the public. In most cases we're probably not going to run into this because there would almost always be additional land available so that there could be competitive services offered on separate lease lots. But their concern would be that if one vendor - one lessor had the only lots that were suitable for certain kinds of uses, and someone else came along wanting to offer the same kind of uses, and there was not land available because the land was tied up in a long-term lease, it could (indisc.) airports ability to make sure that they haven't allowed a defacto monopoly to occur in aeronautical uses. Number 0216 MR. STEINER said there's also a requirement, in "grant assurance number 24," that a rental structure be (indisc.) which will make the airport as self-sustaining as possible under the circumstances at the airport taking into account factors such as traffic volume and economy of collection. Now our current leases at the international airports, he believes most of all them have provision for updating rental amounts every five years. there not necessarily at a market rate right now but they are adjustable. It's important that there not be a lease that would lock in rental prices at an amount they would not be able to be shifted to maximize revenue along the market rate unless we wind up violating the FAA rent requirements. Number 0226 MR. STEINER referred to "grant requirement number 5," it indicates that an airport's sponsor, which is the State of Alaska for the state airports, will not take or permit any action which would operate to deprive it with any of the rights and powers necessary to perform any of the other assurances under the grant agreement. In other words, it's important that a sponsor to the state of Alaska not tie its hands and be able to fulfill the other grant assurances. Number 0231 MR. STEINER informed the committee the effort to clarify that the preference to (indisc.) statute does not have a limit. It's somewhat troubling to the extent that it is at least conceptually, not necessarily consistent with the general policies enshrined in the Alaska Constitution and imposed by the FAA grant assurances and reflected in other public land law. He suggested, for references purposed, the committee members might be interested in looking at Alaska Statue 38.05.073 and the other statute in that vicinity which deal with renewal of natural resource lands under the auspices of the director of the Division of Lands with the State of Alaska, under the Department of Natural Resources. Which does also allow a preference or allowed the possibility of a preference, but not the requirement of a preference if it's in the state's best interest and has numerous safeguards in terms of the manner in which there's preferences for the possibility of those preferences are to be noticed to the public and carried out only if they're in the state's best interest. Number 0243 MR. STEINER said the constitutional provisions, the conditions in number one and number two as he mentioned may well satisfy the actual constitutional requirements such as this, if it were enacted, would withstand constitutional scrutiny. It's not altogether clear whether those would be satisfactory to the FAA or the Office of the Inspector General to do an audit of this state. But it is my opinion that the Department of Transportation and Public Facilities could work with those two conditions and make sure that the FAA grant assurances are not violated on their face. Number 0250 MR. STEINER said the final comment that we have is that we want to make awfully sure that it is (indisc.) and perhaps either by a specific comment or proprietary language in the bill or at least in the intent in the legislative record that there is no attempt by the legislature to create a property right of receiving a preference that might be constitutionally compensable in the event that the airport for redevelopment focuses on or whatever needed to take the property in order to reorient a road or something like that. That the property interest that any individual would have in a lease would be limited to the actual lease and not the possibility of future extensions or renewals unless we wind up being required to compensate tenants for what is effectively a fee interest in the property despite the fact that the state is the owner of the (indisc.). Number 0259 MR. STEINER concluded that the important thing to remember in all of this is that this state land is held by the state specifically as an airport. That being said, we have to abide by certain requirements imposed by federal law in the operation of the airport. The basic fundamental principal of those requirements is that the airport be self-sustaining, maximize revenues in order to not be a burden on the aviation or the traveling public. He reiterated airports that get sizeable economic returns in their real estate properties in order to support the airports. And it's relevant they should because it is basically a mandate of the FAA that the airport lands be used to maximize benefit and support of the airport rather than telling the traveling public or the airlines to spend more than what otherwise would be necessary in order to provide aviation services to the public. He added that Mr. Paul Bowers, Director, Statewide Aviation, Leasing, DOT, was also available to answer any questions. Number 0274 REPRESENTATIVE ROKEBERG said, "I just point out for the record that the minutes for HB (indisc.) of the Nineteenth Legislature, which is an airport leasing bill indicated clearly that the intent of that legislation is embodied in this bill and in '090(c) 1 and 2' for the best interest findings in the words consistent with written airport operation policies means that airport's long-range plan, so the instant that Mr. Steiner mentioned about it if they needed it for a road or other improvement is included in that particular language, and that's on the record. So, there is nothing that an existing leaseholder or business couldn't be terminated or at its expiration not renewed because (indisc.) way of the long-range plan." REPRESENTATIVE ROKEBERG stated, "I just add further that I think that the six cents a square foot, or whatever it is they're charging for Anchorage are way below fair market value as a matter of policy in the airport, and I would make a recommendation that the Department of Law - that they have a provision in any future leases in Anchorage, that this allows the profit-making on a (indisc.) to another successor in interest on the lese and therefore disallowing any profit between a lessee and a sublessee on a lease. So that goes to say, if you have a lease now, and sublet it to another party and charge them a market rent, which may be a dollar a foot higher than what the airports charging, or whatever it would be, that that profit can't flow to the original tenant, it has to flow to the airport. That's a very common technique used and it should be adopted by the airport that way would overcome that problem. And with that Mr. Chairman, I would like to ask the Department of Law whether they can support this language or not, yes or no." Number 0291 MR. STEINER replied in terms of supporting and... UNIDENTIFIED SPEAKER interjected "live with it." MR. STEINER remarked, "We're willing to live with it, yes, I guess we're not going to recommend that it should not be adopted because it would be intolerably illegal - or that it would be illegal. We are prepared to live with it if the legislature deems to see fit to adopt it." Number 0295 REPRESENTATIVE ELTON stated he would like to hear from Mr. Bower on what the implications may be on Rural airports. CHAIRMAN WILLIAMS noted he is apparently not on line. Number 0300 REPRESENTATIVE ROKEBERG replied, "In my study of this I believe it does. This particular provision of the statute does affect Rural airports. Now - as a practical matter, I'm not certain what the differentiation is, I think that's what Representative was trying to get at." REPRESENTATIVE ELTON asked Chairman Williams what further referrals does this bill have. CHAIRMAN WILLIAMS replied this is it. Number 0304 REPRESENTATIVE ELTON asked Mr. Steiner if he could have Mr. Bowers get in touch with his office to let him know what the implications are on Rural airports he would appreciate it. MR. STEINER replied he would be glad to do that. REPRESENTATIVE ROKEBERG asked Mr. Steiner if this bill will help straighten out any difficulties in drafting the new airport regulation. Number 0306 MR. STEINER said, "I believe the airport regulations pretty much assume the policy in this bill was going to be the policy of the regulations as well. It would clarify that this is the legislature's intent and eliminating any possibility, I guess, that the regulations might interpret this statute otherwise. I don't believe that the DOT was intending to interpret this statute any differently on basically on what's in this bill. And I'm told that Mr. Bowers called into this office indicating that he had been knocked off [teleconference] and we'd be happy to try to get him to conference in." CHAIRMAN WILLIAMS replied that's all right. He asked if there was anybody else in the audience that would like to testify. Number 0314 REPRESENTATIVE HUDSON made a motion to move CSHB 476 as amended, with individual recommendations and attached fiscal zero note. CHAIRMAN WILLIAMS asked if there were any objections. There being no objections, CSHB 476(STA) moved from the House Transportation Committee. ADJOURNMENT: Number 0322 CHAIRMAN WILLIAMS adjourned the House Transportation Standing Committee at 1:45 p.m.