SENATE JUDICIARY COMMITTEE April 8, 1998 1:40 p.m. MEMBERS PRESENT Senator Robin Taylor, Chairman Senator Sean Parnell Senator Johnny Ellis MEMBERS ABSENT Senator Drue Pearce, Vice-Chairman Senator Mike Miller COMMITTEE CALENDAR SENATE BILL NO. 232 "An Act relating to electronic signatures, electronic records, requirements for records, and the reproduction of public records." - HEARD AND HELD CS FOR SENATE BILL NO. 190(CRA) "An Act relating to eminent domain and to negotiations to purchase property before it is taken through eminent domain; and providing for an effective date." - HEARD AND HELD SENATE BILL NO. 306 "An Act relating to the authority to claim a child who is the subject of a child support order as a dependent for purposes of a federal income tax exemption; relating to certification of child support arrears; amending Rule 90.3, Alaska Rules of Civil Procedure." - MOVED CSSB 306(JUD) PREVIOUS SENATE COMMITTEE ACTION SB 232 - See Labor and Commerce Committee minutes dated 3/31/98. SB 190 - See Community & Regional Affairs minutes dated 2/18/98. SB 306 - See HESS minutes dated 2/25/98. WITNESS REGISTER Senator Dave Donley State Capitol Juneau, Ak 99801-1182 POSITION STATEMENT: Presented SB 306 Senator Jerry Mackie State Capitol Juneau, Ak 99801-1182 POSITION STATEMENT: Presented SB 190 Mr. Dave Gray Staff to Senator Jerry Mackie State Capitol Juneau, Ak 99801-1182 POSITION STATEMENT: Commented on SB 190 Mr. Andy Kline Special Assistant to Lt. Governor Fran Ulmer PO Box 110017 Juneau, Ak 99811-0017 POSITION STATEMENT: Supported SB 232 ACTION NARRATIVE TAPE 98-31, SIDE A Number 001 CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to order at 1:40 and called up SB 306 as the first order of business. SB 306 - TAX EXEMPTIONS IN CHILD SUPPORT CASES SENATOR DAVE DONLEY, prime sponsor of SB 306, said the current federal tax law allows a tax deduction for a person even if this person fails to make child support payments, unless they voluntarily sign over the deduction to the custodial parent or the custodial parent takes them back to court. SENATOR DONLEY said his original bill set up a system whereby the non-custodial parent would fill out a form during the settlement, to be held by the court until such time the non-custodial parent was in arrears and the court would release the form, which would trigger the reversion of the tax credit to the custodial parent. SENATOR DONLEY said the court system had objected to the expense and trouble of keeping these forms on file and had no better suggestions to offer, so the bill had been modified to require a judge to include a provision in a child support order that stipulates if the payor receiving the tax deduction fails to pay, the deduction will revert to the custodial parent. SENATOR DONLEY said this bill is not as good as the original bill and won't be as easy for the custodial parent, but will be better than the current system and addresses the concerns of the court system. SENATOR PARNELL moved the adoption of the new committee substitute, version H. Without objection, it was so ordered. Number 098 SENATOR ELLIS asked if the person wanting the exemption would need to request the document in writing, or if an automatic issuance had been considered. SENATOR DONLEY replied that was how the original bill had been set up. Now, the person seeking the exemption may have to go to the court again but it would be easier for them since the court order would already be in their favor if the payor is in arrears. SENATOR ELLIS thought that the Internal Revenue Service (IRS) held a dim view of conditional exemptions. SENATOR DONLEY replied that if the court orders the award of the exemption, the IRS will go along with it. CHAIRMAN TAYLOR remarked that federal tax law allows the exemption to the parent who is paying more than 50 per cent of support and this is difficult to determine. He said this exemption seemed to be awarded by the court as a part of the settlement, and said he was concerned about a person who may be paying more than 50 per cent of their net pay plus arrearage might lose this exemption on top of all that. SENATOR DONLEY explained that current law provides that if a non-custodial parent cannot pay, they are allowed to enter into an agreement of a payment schedule that is liveable. If they do not fall more than four months behind on this payment schedule, they are allowed to keep the deduction. CHAIRMAN TAYLOR asked if this also applied to keeping any licenses this person held and SENATOR DONLEY said it did. Number 198 CHAIRMAN TAYLOR said that a significant change of circumstance is required before a change to a support order and a request for such a change can only be filed once every six months. He said he, as a judge, has required each party to send a copy of their tax return to the court and to their ex-spouse. This allows each spouse as well as the court a self-enforcing mechanism to appropriately adjust a support order. This mechanism is self-enforcing due to the fact that perjury committed on a tax return is a felony. CHAIRMAN TAYLOR asked if there was any way to work some kind of provision like this into the bill. MS. CECILIA LACARA, Deputy Director of the Child Support Enforcement Division (CSED) of the Department of Revenue, testified that she had not seen the latest version of the bill but had no position for or against the original bill. She mentioned it will cost something to track compliance and likely would require the hire of a temporary person for part of the year. CHAIRMAN TAYLOR asked if the division already tracks those people who are in arrears. MS. LACARA said the way an arrearage is now traced is in the form of a long audit statement, the division had envisioned a simple one page form. SENATOR DONLEY reported that the section of the bill dealing with CSED was the same in both versions of the bill. CHAIRMAN TAYLOR moved to the next order of business, SB 190. SB 190 - ATTEMPT TO PURCHASE BEFORE EMINENT DOMAIN SENATOR JERRY MACKIE, prime sponsor of SB 190, said this bill attempts to bring fairness as well as expediency to the acquisition of land by the state and municipal government. SENATOR MACKIE explained that SB 190 requires the government to make a good faith effort to purchase land from a land owner prior to invoking the law of eminent domain. SENATOR MACKIE said he is not trying to remove the authority of the state to take land by eminent domain, only adding a provision to ensure there is a good faith negotiation on the part of the state or municipal government before they claim land under eminent domain. SENATOR MACKIE indicated that in some cases a landowner can be at the mercy of the government, as their only recourse to keep their land once eminent domain has been invoked is a costly and time-consuming court challenge, which generally only serves to set the price to be paid for the land anyway. SENATOR MACKIE stated that 23 other states have similar requirements. SENATOR PARNELL asked what is meant by the language that adds "and the property interest to be taken." SENATOR MACKIE replied that this change was added by the drafter to make the bill more specific. MR. DAVE GRAY, staff to SENATOR MACKIE, interjected that these would be interests in addition to the property itself and might include rights of way or logging rights. CHAIRMAN TAYLOR asked if a view could fall under this, for example if a power line was directly obstructing a view from a view lot - would this diminish the property. CHAIRMAN TAYLOR expressed concern that this "property interest" may expand things beyond the actual property itself. SENATOR MACKIE said he was only concerned about things that would be taken under eminent domain; he said a view would not be taken under eminent domain and CHAIRMAN TAYLOR disagreed, saying it would apply if the value of a view lot was diminished by the loss of the view. MR. GRAY specified that there was never any discussion of this, and the change was intended for other kinds of interests other than pure ownership, like partnership. Number 385 SENATOR MACKIE mentioned he had a proposed committee substitute that would clear up some ambiguities in an earlier draft of the bill and he hoped the committee would consider it. SENATOR ELLIS asked why one version of the bill had included a reasonable and diligent effort and the proposed committee substitute required a good faith effort. SENATOR MACKIE replied that the Community and Regional Affairs Committee thought reasonable and diligent was too stringent a standard to require and could prevent any takings by eminent domain, so they had changed the wording to good faith. SENATOR ELLIS clarified that good faith is a lower standard than reasonable and diligent. SENATOR MACKIE agreed good faith would be less problematic for a government entity. CHAIRMAN TAYLOR interjected that these are terms often used in title actions and a diligent inquiry can be quite a bit of work. SENATOR MACKIE said all he wanted to see was that agencies extend the common courtesy of a good faith effort before taking a piece of property under eminent domain. SENATOR MACKIE said he did not mean to imply this was not being done now, he just wanted to ensure it would always be done. Number 440 SENATOR PARNELL asked if under the current process, the state used eminent domain to obtain a right of way. SENATOR MACKIE said they did. SENATOR PARNELL asked if this bill expands or just clarifies how things are done now. SENATOR MACKIE replied that depends on who you ask. He said there are good and bad cases of takings by government entities. SENATOR PARNELL clarified that this bill would only add the requirement of a good faith negotiation and consideration of other property interests and SENATOR MACKIE said he was not sure but further testimony might enlighten them. MR. BILL CUMMINGS, representing the Department of Transportation and Public Facilities (DOT/PF) for the Department of Law, urged everyone to remember that 95 to 98 per cent of the land obtained by DOT/PF was through negotiation, while only 2 to 5 per cent was through the condemnation process and the invocation of eminent domain. MR. CUMMINGS said he is the last person to see a project before it goes out to bid and briefly explained the process by which a piece of property is appraised; an offer is made and the negotiation takes place. He said eminent domain is used as a last resort. CHAIRMAN TAYLOR noted they were working off the Community and Regional Affairs Committee as the work draft brought by the sponsor had not yet been adopted. MR. CUMMINGS said now, a property owner who is not satisfied or unable to reach an agreement with the state can, when the state has taken his or her land under eminent domain, file a petition with the court challenging the project in terms of if it really achieved the goal of the maximum public good for the minimum private injury. MR. CUMMINGS said this bill adds two new provisions; a property owner can now file an additional court challenge to the appropriateness of the particular property interest that the state takes for any particular project. MR. CUMMINGS explained the state can take a number of different property interests in a piece of property depending on the particular needs of a given project. For example, some projects require a fee simple interest which is the ultimate property right and acquires the entire property down to the core of the earth. Other projects may require only an easement, and the type of property interest to be taken is generally left to the discretion of the condemning authority. MR. CUMMINGS said generally they try to take the minimum property right they need for any project. MR. CUMMINGS said his question about this bill is: what's broken? He said good faith negotiations are happening now and only exceptional cases wind up in court. This bill will introduce a complicated process that will add to the cost of projects. MR. CUMMINGS concluded by saying that eminent domain is very generous in its compensation to property owners and owners who contest eminent domain and win are reimbursed for their court costs, awarded any damages due to their land and they get their land back. MR. CUMMINGS said his concern is that there is nothing wrong with this process to require the changes proposed in this bill. CHAIRMAN TAYLOR said he did not see how this could be a major hurdle if it was already being done in 95 per cent of cases. MR. CUMMINGS replied that this legislation allows a property owner to contest the propriety of the taking as well as whether the negotiations were conducted in good faith. MR. CUMMINGS explained this may significantly delay a project while waiting for a court decision. He said this provision would allow for significant, inappropriate delays. SENATOR MACKIE interjected that this is exactly what the bill is intended to do - to allow property owners recourse when the entity taking their land cannot show that just compensation was awarded for it after good faith negotiations. SENATOR MACKIE said it is not his intent to stop development, but only to codify the requirement for a good faith negotiation to prohibit an any possible abuse of the process. Number 569 SENATOR PARNELL asked again about the "property or interest" language and asked if this will expand the type of property interests the state will be paying for or if it only puts in statute what is already happening. MR. CUMMINGS replied it increases an owner's ability to contest a taking, they may contest the nature of the interest taken as well as the taking itself. For example, a property owner may contest the necessity of a fee simple taking, saying an easement could have been used instead. SENATOR PARNELL said this gets at the issue of the maximum public good for the minimum private harm, but MR. CUMMINGS disagreed, saying that issue has more to do with the nature and location of a project than the type of land interest taken. Tape 98-31, Side B Number 001 CHAIRMAN TAYLOR said he's afraid the bill expands beyond negotiating in good faith. He asked about page two of the latest draft ("K"). MR. CUMMINGS said he thinks that part says if a property is to be condemned the condemning authority must be able to show they participated in a good faith negotiation prior to the condemnation, and that the person with whom they negotiated was not lacking intellectual capacity. Number 552 SENATOR MACKIE agreed with the question regarding what might be considered an additional interest, but he asked for them to consider possible timber interests and like things. CHAIRMAN TAYLOR asked MR. CUMMINGS if since most cases are resolved through negotiation, the others are not simply because there was no attempt to negotiate. MR. CUMMINGS replied the reasons cases are not settled include bad legal advice, greed and philosophical differences. He cited a case in Ketchikan in which the property owner wanted an amount about twenty times higher than what the state was willing to pay. SENATOR MACKIE asked if the state determined the price through an appraisal process and MR. CUMMINGS indicated that was correct. SENATOR PARNELL asked if a jury would then determine what the value is using a body of case law that assign value to different things. MR. CUMMINGS said this was also correct, and a master would be appointed to make the final declaration of value under instructions given by the Superior Court. If the owner is dissatisfied with the decision of the master, they can appeal and exercise their right to a jury trial. CHAIRMAN TAYLOR asked if the appraisal happened before this and MR. CUMMINGS said it did. CHAIRMAN TAYLOR clarified that the master comes in after the owner has said no and a condemnation and a declaration of taking has been filed. MR. CUMMINGS said this is correct. CHAIRMAN TAYLOR mentioned that they then deposit the amount of the appraisal in an account on behalf of the property owner who has immediate access to the money should he or she choose; the owner can even take this money, continue the protest and try to get more money on top of this. MR. CUMMINGS agreed this was all correct. CHAIRMAN TAYLOR explained the master can then rehash the whole situation and change the award made by the condemning entity. If the master does increase the award, the property owner can even appeal this, all the while having access to the extra money deposited for the increased award. CHAIRMAN TAYLOR said the government entity has already had the land conveyed at this point and may continue with the project even as the value continues to be contested. MR. CUMMINGS replied this was also correct. CHAIRMAN TAYLOR asked if the property owner still at this point has the right to challenge the public interest of the project and MR. CUMMINGS said no, that must be done within 20 days of the filing for the taking. He added there are provisions for expedited discovery in these cases. CHAIRMAN TAYLOR concluded that the project could still be delayed by a court proceeding over the public interest issue. MR. CUMMINGS replied that was correct. Number 450 MR. RICHARD HARRIS, representing Sealaska Corporation, supported the bill. MR. HARRIS stated that Sealaska Corporation, an Alaska Native Claims Settlement Act (ANCSA) corporation, holds about 330,000 of fee estate land and an equal amount of subsurface land in Southeast Alaska. Sealaska also owns other properties and MR. HARRIS said Sealaska views and values all these properties differently. ANCSA lands are a treasure that took hundreds of years to secure and Sealaska finds condemnation of these properties problematic, and thinks SB 190 is an important vehicle to provide additional protection for landowners and ensure a diligent attempt is made to buy private land before any condemnation proceeding. MR. HARRIS said Sealaska would merely like to level the playing field by requiring two simple things: a good faith effort at negotiation and the requirement of demonstrating a project is necessary. MR. HARRIS indicated that 20 other states do this now and it is recommended procedure under the Universal Eminent Domain Act. Number 418 MR. HARRIS remarked that it is not always necessary to take a fee simple interest in a piece of property. He gave an example in which he did not think the proper property interest had been taken; it involved an air easement needed for an airport. The government bought only the air rights to the land adjacent to the airport, but placed restrictions on how high the trees on the land could grow. Because this was timber land, the height restriction devalued it considerably, though Sealaska was not compensated for this. MR. HARRIS said a good faith effort is a reasonable requirement, and might help avoid some problems in the future. MR. HARRIS said the bill does not expand the jurisdiction of government entities, and added that view rights can be challenged now as a property interest. MR. HARRIS said the bill is a reasonable one and sufficiently protects the state. The burden of proof is on a property owner to show grounds for a complaint and the state is only required to show that a proper assessment has been made, that they are taking the least interest needed for the project and that they have negotiated the deal in good faith. MR. HARRIS gave an example in which the state took fee estate for a piece of jointly owned property and left the two property owners to fight amongst themselves for the lump sum of money. He does not see this as a proper good faith negotiation. MR. HARRIS stated that though Sealaska is not interested in selling land, they are willing to trade for other land. Unfortunately, the agency they deal with most (DOT) has no lands of its own and is unlikely to get land from its "sister agencies." MR. HARRIS said he is not happy with this and has tried to address this problem to no avail. MR. HARRIS restated his point that this is a reasonable bill that does not require much more than what is happening now. He stated it gives a level of protection to landowners and levels the playing field for negotiations between the two parties. SENATOR PARNELL asked, in the airport example, what prevented Sealaska from showing a loss of interest in the land. MR. HARRIS replied that nothing prevented that, he would just prefer for Sealaska to ask the state to buy the fee estate in a case like this. He said it is important to have a fair consideration of the land owner's interest and come to an agreement about the appropriate interest to be acquired. SENATOR PARNELL asked if the language "or interest in the property" would extend this beyond the direct property owner and MR. HARRIS replied he did not think so. Number 285 CHAIRMAN TAYLOR asked if any other states are held up in their condemnation proceedings by this type of provision, as they only employ the good faith negotiation portion of this legislation. MR. HARRIS said he was only saying that the interest to be taken should be negotiated with a property owner as well, in order to determine the minimum necessary property owner. CHAIRMAN TAYLOR asked if there are any other states that do this, he said he could imagine a dispute over the property interest might hold projects up or overly limit them. CHAIRMAN TAYLOR said he could see a myriad of opinions as to the correct property interest to be taken for a given project, and he remarked that the efficiency of the process must be maintained. MR. HARRIS replied that there is insurance built into the bill by the fact that the burden of proof is on the party opposing the taking. He said a simple challenge will not stop a project from progressing, especially if the state realizes it is an invalid claim. CHAIRMAN TAYLOR asked if, in the airport example, they could file a suit of inverse condemnation for wrongful taking. MR. HARRIS said they could and CHAIRMAN TAYLOR added they could prove that through the same mechanism in the bill also if it were adopted. MR. HARRIS said they were trying to avoid getting to that point and merely avoiding the "iron glove" of condemnation by establishing a system in which the interest and its worth are negotiated in good faith. He again said this would simply codify, for the most part, what is already being done. Number 195 MR. BOB NAVRO testified via teleconference and said the bill is "wonderful." He is in the middle of a condemnation proceeding and takes exception to the comment that sometimes people contest these proceedings due to greed. He argued that our Constitution guarantees life, liberty and the pursuit of happiness. He equates happiness with property and says an assessment might not equal the value of a piece of property in a property owner's mind's eye. He disagreed with the state's appraisal of his land and supported the bill. SENATOR PARNELL moved to adopt work draft "K" as the committee's working document. Without objection, it was so ordered. MR. BILL CUMMINGS testified again, saying he is sympathetic to Sealaska's concerns, but feels they have been dealt with in good faith. Number 058 CHAIRMAN TAYLOR commented that it seems the state is limited by the value determined by the appraiser. CHAIRMAN TAYLOR asked how and when the state can deviate from this appraisal. MR. CUMMINGS replied there must be a good reason for any deviation and an owner needs to show some level of proof for their claim that the land is worth more than the assessment, but the state wants to settle these disputes and they benefit from being able to do so. CHAIRMAN TAYLOR asked if there was an offset for any increase to the value of the property made by the condemning authority to the condemned land. MR. CUMMINGS replied this was correct. SB 306 - TAX EXEMPTIONS IN CHILD SUPPORT CASES CHAIRMAN TAYLOR expressed his intent to hold on to this bill for now and entertained a motion to move CSSB 306(JUD). SENATOR PARNELL so moved and without objection, it was so ordered. SB 232 - ELECTRONIC RECORDS; RECORD REQUIREMENTS SENATOR PARNELL, prime sponsor of SB 232, explained that this bill establishes electronic signatures as a legal practice with the same standing as a standard signature and allows the Lt. Governor or another state agency to promulgate regulations for using electronic signatures by private and public entities. The bill also establishes criteria for electronic signature regulations and repeals some state agencies' selective notarization requirements to better utilize the efficiencies of electronic signatures. SENATOR PARNELL said the bill will allow such practical applications as filing articles of incorporation or dissolution or articles of merger, etc. using electronically transmitted signatures. CHAIRMAN TAYLOR asked who benefits from this and SENATOR PARNELL replied both public and private industry will benefit by allowing the use of electronic signatures, as well as state agencies. CHAIRMAN TAYLOR asked if this included all corporate officers and SENATOR PARNELL replied it did. CHAIRMAN TAYLOR asked why the penalty was being changed from "verified and under oath" to one of "unsworn falsification." SENATOR PARNELL suggested that MR. ANDY KLINE, staff to Lt. Governor Fran Ulmer might be better able to answer that. MR. KLINE came forward and explained the idea behind the change is that an oath is something sworn in person, involving writing. He said this is the same penalty, applied in an electronic format. SENATOR PARNELL offered an amendment on this point which ties the penalty for unsworn falsification to the precise criminal statutes it would fall under. CHAIRMAN TAYLOR said the amendment takes care of one of his concerns. SENATOR PARNELL moved his amendment as amendment #1. Without objection, it was adopted. SENATOR PARNELL remarked that he had no opposition to the bill and the Department of Administration and the Lt. Governor both supported the bill. SENATOR PARNELL said he had a second amendment regarding certification of electronic signatures and asked MR. KLINE to explain it. MR. KLINE said the bill does not specify what type of technology will be used for electronic signatures, since this technology changes so rapidly. MR. KLINE said instead the sets out certain criteria that electronic signatures must meet. MR. KLINE explained that the way this works is there are two halves to an electronic signature: the public key and the private key. The two keys contain encrypted codes which must match for the signature to be authentic. The electronic signer keeps one key and the other is retained by the certifying authority. MR. KLINE indicated there are two ways to set up a certifying authority, either through the state or through the private sector. MR. KLINE said the amendment establishes that the certifying authority will be public in a private to private transaction. This will encourage businesses, typically banks, to come forward and act as certifying authorities. The amendment allows the state to be the certifying authority in any transactions in which the state is involved, permitting the state to go forward with the use of electronic signatures even if the private sector is not yet employing them. CHAIRMAN TAYLOR said he was concerned about hacking and the possibility that someone might break into the system and alter information. MR. KLINE said the bill does not set out any anti- hacking criteria. CHAIRMAN TAYLOR agreed, saying electronic signatures eliminate the third party witness currently required by law to prosecute crimes such as forgery. He said he would not have much comfort as a bank president under this bill. SENATOR PARNELL informed him that was part of the reason he wanted the state to act as a certifying authority. He said the bill enables the state to be the certifying authority and to set standards and protocols to prevent hacking. CHAIRMAN TAYLOR asked what would protect other transactions to which the state is not a party. Number 212 SENATOR PARNELL explained if CHAIRMAN TAYLOR would like the state to be the certification authority for all transactions, he should vote no on amendment #2. SENATOR PARNELL then moved amendment #2. CHAIRMAN TAYLOR objected. SENATOR ELLIS asked MR. KLINE what his position was on the amendment. ANDY KLINE indicated he supported the amendment. He added that he shares CHAIRMAN TAYLOR's concerns but explained that all the literature he has reviewed has indicated that these electronic signatures are secure and very verifiable. MR. KLINE says the bill does not specify the technology to be used, but only requires electronic signatures to meet the same criteria set out for written signatures. SENATOR PARNELL commented that another safeguard is the fact that it is very much in the interest of a private certification authority to ensure safeguards are in place to protect the validity of electronic signatures. MR. KLINE also mentioned that the bill is permissive, not restrictive, and simply allows the use of electronic signatures in addition to written signatures. CHAIRMAN TAYLOR called the roll on the amendment and voted against it. Both SENATOR ELLIS and SENATOR PARNELL voted in favor of the amendment. CHAIRMAN TAYLOR explained he has further concerns with the bill including state bank reporting requirements. SENATOR PARNELL moved the bill with individual recommendations but CHAIRMAN TAYLOR said he'd rather hold it. The bill was held in committee. CHAIRMAN TAYLOR indicated he had a list of witnesses suggested by MR. NORSWORTHY and asked if any members had additional witnesses to add to the list. Hearing none, CHAIRMAN TAYLOR said he would bring the matter up later for discussion with the entire committee. The meeting was adjourned at 3:30 p.m.