SENATE LABOR AND COMMERCE COMMITTEE April 18, 1998 9:43 a.m. MEMBERS PRESENT Senator Loren Leman, Chairman Senator Jerry Mackie, Vice Chairman Senator Tim Kelly Senator Mike Miller MEMBERS ABSENT Senator Lyman Hoffman COMMITTEE CALENDAR HOUSE BILL NO. 399 "An Act relating to an optional exemption from, and deferral of payment of, municipal taxes on deteriorated property, and defining 'deteriorated property' for purposes of the exemption or deferral; and providing for an effective date." - MOVED HB 399 OUT OF COMMITTEE CS FOR HOUSE BILL NO. 33(FIN) am "An Act relating to real estate licensees and to the real estate surety fund; relating to the Real Estate Commission; and providing for an effective date." - MOVED CSHB 33(FIN) am OUT OF COMMITTEE PREVIOUS SENATE COMMITTEE ACTION HB 399 - No previous action to record. HB 33 - See Labor and Commerce Committee minutes dated 3/19/98. WITNESS REGISTER Representative Joe Ryan State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Prime Sponsor of HB 399 Ms. Annette Kreitzer, Committee Aide Senate Labor & Commerce Committee State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Offered information on CSHB 33(FIN) am Dick Ward, Executive Director VETS POSITION STATEMENT: Suggested amending CSHB 33(FIN) am Jerry Royce Alaska Association of Realtors Anchorage, AK POSITION STATEMENT: Testified in support of CSHB 33(FIN) am Dirk Blumendahl, Corporate Counsel Amway Corporation Michigan POSITION STATEMENT: Testified in opposition to CSHB 33(FIN) am Ms. Ruth Blackwell, Representing the Alaska Real Estate Commission 4240 Lakeshore Drive Juneau, AK 99801 POSITION STATEMENT: Testified in support of CSHB 33(FIN) am Representative Norman Rokeberg State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Prime Sponsor of HB 33 ACTION NARRATIVE TAPE 98-22, SIDE A Number 001 HB 399 - EXEMPT/DEFERRAL DETERIORATED PROPTY TAX CHAIRMAN LEMAN called the Senate Labor and Commerce Committee meeting to order at 9:43 a.m., and brought HB 399 before the committee as the first order of business. REPRESENTATIVE JOE RYAN, prime sponsor of HB 399, explained the legislation provides a municipality the option to waive or to forgive the taxes for a person who has a piece of deteriorated property under the premise that the person is going to improve the property and add to the tax base. He emphasized that this provision is purely voluntary on the part of the governing body, and would have to be passed by an ordinance to become effective. REPRESENTATIVE RYAN noted this type of ordinance has been used frequently in large cities where people have had large buildings and rent control has kept them from keeping the buildings from deteriorating. It has been a tool that has allowed economic development and reinvestment in the community. CHAIRMAN LEMAN referenced line 5 and 6 on page 2 and asked if that language meant that any new construction could be exempted from property tax for up to five years if it is in a deteriorated area. REPRESENTATIVE RYAN replied that the governing body would have to sit down and make that determination. It would allow the municipality the latitude to try to improve areas. Number 089 SENATOR MACKIE asked why this can't be done already. REPRESENTATIVE RYAN answered that it doesn't come under the exceptions in Title 29. SENATOR MACKIE asked if the whole idea is to get new construction built in a deteriorated area, and, as result, they don't have to pay taxes on the new construction. REPRESENTATIVE RYAN replied that the governing body could decide not to charge a tax or it could decide to charge a reduced rate as an incentive. He said the breadth of the law is such that it does allow for innovation and some imaginative things as to how they would go about this. SENATOR MACKIE asked if there are particular areas in Anchorage where the municipality wants to pursue this kind of a deal. REPRESENTATIVE RYAN replied that the municipality didn't tell him they had a particular area in mind, but he thinks there are a lot of areas in Anchorage where the city would like to have the ability to do this. SENATOR KELLY voiced his concern that if there is no change of ownership required, property owners could allow their property to deteriorate to the point where they wanted it to be condemned, and then not have to pay taxes for the next five years. He questioned where the incentive was for people to keep their property up if they can go through a condemnation procedure and not have to pay taxes for the next five years. REPRESENTATIVE RYAN replied that he didn't think it would be a wise business move to allow the building to depreciate and get a tax break versus what it would then take to rehabilitate the building. SENATOR KELLY said he presumed the municipalities were in favor of this legislation, and REPRESENTATIVE RYAN acknowledged that it is supported by the Anchorage Assembly and the Alaska Municipal League. SENATOR KELLY said he was also concerned that the more property that is taken off the tax roles, the more other property owners' taxes will go up to make up for it, as well as it will open up a whole new can of opportunity at the local level for people to manipulate their planning and zoning boards, city councils, etc. He asked where in Alaska is the problem so bad that it necessitates opening up a potential for the abuse that this could bring. SENATOR MACKIE commented he shares some of Senator Kelly's concerns. He asked if there were some areas in Anchorage where because of the property taxes being so high it makes development or improvement unworkable. REPRESENTATIVE RYAN pointed out that there were several residential buildings in Juneau that were constructed in the late 1920s and early 1930s that are in need of rehabilitation, and if the Juneau Assembly had this particular tool, they could offer incentives for people to fix up these residences. He reiterated that it is up to the municipalities to decide if they want to partially or totally exempt the deteriorated property from taxation. Number 281 SENATOR KELLY noted that the Missouri law doesn't allow this exemption for residential areas, just commercial areas. He wondered why it was needed in this state for residential areas, because there are a lot of people who look for low price homes that need fixing up, and there are a lot of federal fix-up programs where these people go in, do the renovations, and then turn around and sell them at a profit. There being no further comments from committee members, CHAIRMAN LEMAN asked for the pleasure of the committee. SENATOR MACKIE moved HB 399 be passed out of committee with individual recommendations. Hearing no objection, it was so ordered. CSHB 33(FIN) am - REAL ESTATE LICENSING CHAIRMAN LEMAN brought HB 33 back before the committee. He said questions were raised on Section 34 at the March 19 hearing, and since then, he has met with a number of people on both sides of the issue and a committee substitute was drafted with some minor changes and editing. However, he said he wanted to deal with the major issues regarding Section 34, as well as property management, as separate amendments before the committee. ANNETTE KREITZER, committee aide for the Senate Labor and Commerce Committee, speaking to the draft L&C SCS, said the most significant change is the language on page 17, lines 20 - 23, relating to a commission on a transaction. The other changes are very minor grammar changes that do not change the meaning of the sections. CHAIRMAN LEMAN noted the language on page 17, relating to the negotiation of a commission, was suggested by some of the people in the real estate industry. He then stated testimony would be taken from witnesses waiting to testify before the committee via teleconference. Number 342 DICK WARD, Executive Director of the VETS, which is the military reunion service of the American Legion, said he was a Realtor for 15 years and served as a national director of the National Association of Realtors. He said there is some controversy with Section 34, particularly the portion that would prohibit rebates to principles in their own real estate transactions. The industry is rapidly changing and there is a broad based move to allow consumers to get involved with negotiating discounts and other rebates. VETS is such a group, and they have just completed negotiating with the Veterans Administration for them to allow, at the federal level, veterans to receive rebates and discounts on real estate transactions. He requested that HB 33 be amended to allow principles to receive these rebates and discounts. CHAIRMAN LEMAN asked if he was recommending that both the buyer and seller be eligible for the rebates and discounts, and MR. WARD acknowledged that was correct. CHAIRMAN LEMAN said a concern of people involved in the real estate business, the insurance business, mortgage banking, etc., is full disclosure, and he asked Mr. Ward if he favored full disclosure of any of the services associated with these transactions. MR. WARD replied that his group would not support or encourage any hidden conditions, and they believe the full nature of any relationship should be required to be disclosed in the best interest of all parties. JERRY ROYCE, representing the Alaska Association of Realtors, stated the association supports the right for consumers to be able to negotiate the real estate fees, and they support the legislation as it was passed by the House because it protects Alaskan consumers from misleading schemes and kick-backs by out-of-state unlicensed and unregulated corporations that damage Alaskan consumers and businesses while claiming Alaskans are incapable of conducting commerce. The association supports the rights of Alaska's citizens to receive the greatest benefits with the least cost in a real estate transaction, and HB 33, as passed by the House, ensures and maximizes those consumer rights. CHAIRMAN LEMAN said Mr. Royce had spoken to protecting Alaskan consumers from unlicensed and unregulated corporations, and he said if that is happening, he thinks it may be the fault of enforcement, not the Legislature. MR. ROYCE explained that the reason why the Real Estate Regulatory Agency supported this regulatory change was because of an opinion by an assistant attorney general that basically put the Real Estate Commission on notice that they really didn't have statutory authority to enforce unregulated activity by unlicensed people. DIRK BLUMENDAHL, a corporate counsel for the Amway Corporation, which is based in Michigan, said he was speaking on behalf of over 4,300 Alaska citizens who are independent Alaskan distributors in opposition to the bill. Amway is very concerned about any law which could hurt these Alaskan citizens and the very small Alaska businesses. MR. BLUMENDAHL said Amway distributors participate in a program called the Amway Realty Network, which is available in 44 states, including Alaska, and is designed and intended strictly for the Amway distributors to use. Amway's program is a no-cost benefit for distributors to help them save money when they buy or sell their personal real estate, including their homes. Alaska brokers participate in the program voluntarily, and they are licensed under the Alaska real estate licensing law, and the consumer is protected, not only by this law, but by Alaska consumer protection laws. Many participating Alaska brokers, and elsewhere, believe Amway's program and others like it, bring to them business they otherwise might not have had, including people who would have sold their property on their own without using the services of a Realtor. After a real estate transaction has been completed, a portion of the commission is sent to the Amway Realty Network and a cash rebate check is sent back to the Alaska distributor. In 1997, the average rebate, nationwide, to distributors for a transaction was $525, so they feel that the bottom line is that Amway's program reduces the cost of real estate services to Alaska's consumers. Mr. BLUMENDAHL said Amway believes HB 33 would, in essence, ban a cash rebate program to Alaska's consumers bringing into question equal protection issues, as well as freedom of contract issues. They believe HB 33 is being proposed for only reason, and that is to eliminate competition within the Alaska marketplace. He urged the committee to vote against the legislation. TAPE 98-22, SIDE B Number 585 CHAIRMAN LEMAN asked if in Amway's experience in the other 43 states, they are aware of unlicensed entities participating in these transactions. MR. BLUMENDAHL responded that all he could speak to was Amway's program, but in their program, only licensed Realtors are used all across the spectrum. RUTH BLACKWELL, representing the Alaska Real Estate Commission and testifying in Juneau, voiced the Commission's support for HB 33, as passed by the House. She said she was available for questions from the committee. CHAIRMAN LEMAN asked Ms. Blackwell is she had the opportunity to look at the draft L&C SCS. MS. BLACKWELL replied she had looked at it, but she did not see a need for stating in it that commissions are negotiable because it is already an industry standard. Number 516 REPRESENTATIVE NORMAN ROKEBERG, prime sponsor of HB 33, said this legislation is about a whole change in merchandising of how real estate business is conducted, as well as the mortgage business in this country. All of these people are in this to make money, they have an obligation to their shareholders to produce a profit, and to think otherwise is really a smoke screen. REPRESENTATIVE ROKEBERG stated he thinks the draft L&C SCS and the amendments are unnecessary, redundant and not of any need. He thinks requiring somebody to negotiate a commission, when it is basic common law, may end up increasing the commission. He prefers that the committee pass out the bill as it came from the House. Number 430 CHAIRMAN LEMAN asked if the committee wished to adopt the committee substitute and work with the other amendments, or to start with the base bill and work through each amendment. He added that he preferred to start with the committee substitute. SENATOR KELLY said his preference is to listen to the Alaska Real Estate Commission and move forward the bill that was brought to the committee without either the committee substitute or Representative Rokeberg's amendments. CHAIRMAN LEMAN relinquished the chair to VICE CHAIRMAN MACKIE and then moved the adoption of SCS CSHB 33(L&C). SENATOR KELLY objected. The roll was taken with the following result: Senator Leman voted "Yea" and Senators Miller, Kelly and Mackie voted "Nay." The motion failed on a 1-3 vote. Number 417 CHAIRMAN LEMAN moved the adoption of Amendment No. 1. SENATOR KELLY objected, stating he was objecting because the Alaska Real Estate Commission doesn't feel the amendment is necessary. CHAIRMAN LEMAN said the amendment provides that nobody would be involved in real estate transactions unless they are a licensee, but payments could be made to the principles in the transactions, which would be either the buyers or the sellers. He said it gets to the issue that Mr. Royce talked about, which is unlicensed people participating in the transactions, but it allows for rebate type programs that are existing all across the country. VICE CHAIRMAN MACKIE called for a roll call vote on the adoption of Amendment No. 1. The roll was taken with the following result: Senator Leman voted "Yea" and Senators Miller, Kelly and Mackie voted "Nay." The motion failed on a 1-3 vote. VICE CHAIRMAN MACKIE said the next amendment was one offered by Representative Rokeberg. REPRESENTATIVE ROKEBERG stated he wanted to withdraw the amendment. Hearing no objection, the amendment was not offered. CHAIRMAN LEMAN stated that he is a member of a number of discount buyers clubs and marketing organizations that may or may not be affected by this legislation. He then asked for the pleasure of the committee on the legislation. SENATOR MACKIE moved that CSHB 33(FIN) am and the accompanying fiscal note be passed out of committee with individual recommendations. CHAIRMAN LEMAN objected. The roll was taken with the following result: Senators Miller, Mackie and Kelly voted "Yea" and Senator Leman voted "Nay." The motion carried on a 3-1 vote. There being no further business to come before the committee, the meeting adjourned at 10:50 a.m.