SENATE RESOURCES COMMITTEE October 24, 1995 2:00 p.m. Wasilla, AK MEMBERS PRESENT Senator Loren Leman, Chairman Senator Rick Halford Senator Robin Taylor (Participated from Wrangell via teleconference network) Senator Georgianna Lincoln (Participated from Rampart via teleconference network) MEMBERS ABSENT Senator Drue Pearce, Vice Chairman Senator Steve Frank Senator Lyman Hoffman COMMITTEE CALENDAR SENATE BILL NO. 162 "An Act relating to land used for agricultural purposes and to state land classified for agricultural purposes or subject to the restriction of use for agricultural purposes only; and annulling certain program regulations of the Department of Natural Resources that are inconsistent with the amendments made by this Act." PREVIOUS SENATE COMMITTEE ACTION SB 162 - No previous action to record. WITNESS REGISTER Senator Lyda Green State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Prime Sponsor of SB 162 Brett Huber, Staff to Senator Green State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Offered information on SB 162 Ron Swanson, Director Division of Land Department of Natural Resources 3601 C St., Suite 1122 Anchorage, AK 99503-5947 POSITION STATEMENT: Department neutral on SB 162 Billy Lemon, Jr. HC89, Box 8107 Talkeetna, AK 99676 POSITION STATEMENT: Supports SB 162 Michael Swann P.O. Box 987 Soldotna, AK 99669 POSITION STATEMENT: Supports SB 162 Harvey Baskin P.O. Box 877306 Wasilla, AK 99687 POSITION STATEMENT: Supports SB 162 Henry Cole P.O. Box 71330 Fairbanks, AK 99707 POSITION STATEMENT: Supports SB 162 Bob Franklin P.O. Box 75184 Fairbanks, AK 99707 POSITION STATEMENT: Supports SB 162 Bill Ward P.O. Box 350 Soldotna, AK 99669 POSITION STATEMENT: Testified in support of SB 162 Scott Schultz HC62, Box 5440 Delta Junction, AK 99737 POSITION STATEMENT: Testified in support of SB 162 Frank Burris HC62, Box 5780 Delta Junction, AK 99737 POSITION STATEMENT: Supports SB 162 Mike Crouch HC62, Box 5780 Delta Junction, AK 99737 POSITION STATEMENT: Supports SB 162 Charles Fork P.O. Box 929 Delta Junction, AK 99737 POSITION STATEMENT: Suggested legislation needs clarification language Mike Carlson P.O. Box 953 Delta Junction, AK 99737 POSITION STATEMENT: Supports SB 162 Mrs. Dana Olson HC30, Box 5438 Wasilla, AK 99654 POSITION STATEMENT: Supports SB 162 Charles Thompson, Agriculture Credit Director Farm Service Agency P.O. Box 2365 Palmer, AK 99645 POSITION STATEMENT: Testified in support of SB 162 Herb Simon HC1, Box 2292 Glennallen, AK 99688 POSITION STATEMENT: Expressed concerns on AG lands Don Quarberg P.O. Box 349 Delta Junction, AK 99737 POSITION STATEMENT: Commented on SB 162 ACTION NARRATIVE TAPE 95-64, SIDE A Number 001 SB 162 AGRICULTURAL LAND  CHAIRMAN LEMAN called the Senate Resources Committee meeting to order at 2:00 p.m. in the Mat-Su Legislative Information Office conference room. He noted the following teleconference sites were participating in the meeting: Juneau, Kenai/Soldotna, Fairbanks, Homer and Anchorage. SENATOR LYDA GREEN, prime sponsor of SB 162, said the legislation expands the state's ability to convey interest in lands classified for agricultural purposes that the state has conveyed or may convey. Currently, the state conveys agriculture interests only and the state retains all other interests. With the passage of SB 162, the state will convey fee simple title, subject to certain restrictive covenants that would underpin the use of the land for agricultural purposes. This change would allow owners of agricultural parcels the opportunity to obtain financing from other than the state. Agricultural land disposal represents a cost effective means of transferring public land into private ownership. Increased private ownership expands the local tax base and reduces revenue sharing needs while promoting community development and supporting infrastructure development for a variety of other resource uses, i.e.. public recreation, mining and transportation. Other provisions of SB 162 aid future land disposals in two ways: by allowing the use of a site-specific plan to support a land classification for new commercial agricultural projects, and by authorizing the sale of Ag land in parcels or tracts by aliquot parts. The remaining provisions of the bill emphasize a greater level of autonomy for the individual agribusiness owner, while ensuring the state's interests are protected. The bill also reduces the state's direct control over individual farm development and utilization and allows Ag land owners the ability to make business decisions responsive to the economic factors of the marketplace and their individual circumstances. Concluding her overview, Senator Green said SB 162 redefines the state's role in agricultural land disposal and development to better enhance economic development opportunities. Its passage will allow the state of Alaska to reap the benefits of agriculture as an economically viable and expanding resource industry. She respectfully requested the committee's support of SB 162. Number 055 SENATOR GREEN then presented the following sectional analysis on SB 162: Section 1: The primary issue is to provide title that will make it easier for Ag producers to secure conventional financing, and to ensure that any decisions with regard to adversionary cause be determined by the courts with full judicial review, rather than internally by the administration. Section 2: It eliminates the requirement for Ag land to be surveyed first before disposal takes place. Currently, the costs to perform and the backlog of workload involved with surveys has created a bottleneck slowing the process of Ag land disposal. Section 3: It gives the department authority to use a site- specific land use plan for agricultural development. Section 4: It does away with pre-qualification and requirement of farm development plans and schedules. This is to allow greater flexibility of individual Ag producers to make determinations on how to proceed with development in the face of changing needs and market factors. Section 5: It is a technical change that reflects the repeal of the Ag Council statutes. Section 6: It provides for Ag land disposal by aliquot parts. Section 7: The language clarifies contract terms. Section 8: It will lower interest on Ag land sales to 8 percent. Section 9: It requires fee simple title be used to convey land subject to an agricultural only covenant; provides a covenant permitting subdivision down to 40 acres; and establishes remedies for breech of covenants. Section 10: It provides for Ag land transfers to municipalities. Section 11: It allows the commissioner to require cooperation with soil conservation districts; it restricts use of farm development plans unless they are able to be modified for economic hardship or other circumstances; and provides for greater autonomy in the use of the land for construction of improvements, utilization for incidental uses, sale of timber and use of gravel. Sections 12 & 13: It requires the commissioner to issue new conveyance documents on all agricultural parcels sold since August 15, 1976. Section 14: It repeals current regulations affecting agricultural land disposals since August 1978. Number 090 SENATOR LEMAN asked why the retroactive application reaching back 20 years is necessary. BRETT HUBER, staff to Senator Green, explained that part of the concern that has been heard from industry and Ag producers that have parcels already conveyed is the problem with securing other conventional financing, as well as property rights issues that they are dealing with. Number 105 SENATOR HALFORD said that in changing the conditions, you are, in fact, granting a substantial increase in value, and he asked if any consideration was given to that change in value. BRETT HUBER responded that his understanding is that the reduction in values during the previous disposal process were reflective of the use of agriculture only, and SB 162 would not change the utilization of these lands being designated for agricultural purposes. SENATOR HALFORD said it changes the way the lands are designated, and a subdivision restriction has an economic effect on the value, which may be substantial. He pointed out that the Supreme Court has said that you can't take away from somebody's property value by covenants after the fact, and, if your action by a government represents a taking, you've got to pay for it. He said in this case, the action would represent a giving because those things weren't given already, and he would be curious what the fiscal implications of that are. BRETT HUBER agreed it was a point that should be researched. Number 161 SENATOR TAYLOR said he was primarily concerned about what the department's plans are for the future, and are they, in fact, going to be putting up additional acreages, whether they be restricted or not. SENATOR LEMAN said that probably goes a little bit beyond the topic of this bill, although it is an interesting piece of information that he is interested in also. He then asked Ron Swanson to address the department's concern with the legislation. RON SWANSON, Director, Division of Land, Department of Natural Resources, responding to Senator Taylor's concern, said the department is currently having a land disposal, with the drawing scheduled for the following day. They have received 31 bids on Ag parcels, and the parcels range in size from 21 acres to 184 acres, with a value ranging from $700 to $66,400. Mr. Swanson stated that the administration has not taken a position on SB 162. They do see some good points to it, but they do have concerns with some areas of it. Referring to Section 1, which deals with patents, Mr. Swanson said his first concern with the section was that it wasn't meeting the current statute, AS 30.05.321. The Attorney General's office has said that the patent currently issued by the department does meet state law and recommends that no changes be made. He added that the department is neutral on the patent issue; they understand the concerns on financing, but they are also very concerned that they have an enforceable contract. Turning to Section 2, Mr. Swanson stated the department is opposed to removing the survey requirements. All disposals of state land are presently required to be surveyed. The department has had numerous problems with paper plats and unsurveyed land in the past, and unless they have some kind of platting authority, those problems will continue. He noted that HB 80, which is currently in Senate Finance, makes DNR the platting authority within the unorganized borough. Addressing Section 3, Mr. Swanson stated the department opposes excluding agricultural land from the land use planning and classification process. The planning and classification statutes (AS 38.04) are the result of a 1986 Supreme Court case where it was found that disposals of state land cannot occur unless the land has been classified as a result of an area or regional planning process. The department opposes Section 4, which takes away the authority to do pre-qualification of agricultural land buyers. They do not want to lose all control of how the land will be used and ensuring that only viable people obtain agricultural land for that purpose. However, the department supports the ability of the commissioner to waive, postpone or modify contract terms based on economic considerations. The department does not oppose Section 5, although they do not see the need for the provision. The department opposes Section 6, which allows the sale of agricultural tracts by aliquot parts, for the same reason as outlined in their opposition to Section 2. The department supports the language in Section 7 which will clarify contract terms. The department does not support lowering of the interest rate to 8 percent for Ag loans as provided in Section 8. HB 191, which is in Senate Finance, establishes an interest rate for all land loans at the prime rate plus 4 percent (this is currently 12.2 percent) and not to exceed 13.5 percent. The department believes that interest rates for all land loans should be the same. They feel the appraisal makes the adjustments for the value of the land. Number 360 SENATOR LEMAN commented that by lowering the interest rate, it is not necessarily supporting the goal of creating an opportunity for people to get their financing elsewhere. By lowering the interest rate artificially, it may encourage people to get financing from the state, especially if commercial rates go higher. SENATOR GREEN said one of the goals is to see more land in agriculture, and the budgetary climate is such that eventually the lending source for agricultural land may not be here, so it has been set up via the other mechanism in the bill to have it in place so that people can go to a private lending institution. SENATOR LEMAN said he understands and agrees with that goal, but he wasn't sure this helps to accomplish that goal. His concern is that it creates something that isn't financially viable and would need continued funding by the state. Number 400 Addressing Section 9, Mr. Swanson said the department is concerned about somewhat allowing unlimited subdivisions. Current regulations allow subdivisions down to 40 acres on a limited basis, which may be too tight, but unlimited is too loose. The concern is the balance of making sure that the land is being used for the purpose it was intended for. Section 10 provides that land classified fora agriculture may be conveyed to municipalities under the Municipal Land Act without any restrictions. Currently, only the agricultural interest in the land may be conveyed to municipalities. The state would lose control in making sure that Ag land is used for Ag purposes. The department fully supports Section 11, which are major issues to the agricultural industry. The department opposes Sections 12 & 13, which require the commissioner to issue new conveyance documents on agriculture parcels sold since 1976, and which would be a major workload for the department. The department opposes Section 14 which repeals the executive branch's regulations. Number 533 SENATOR LINCOLN asked how many parcels the department would have to go back to since 1976. SENATOR GREEN responded there are 213 parcels from 1979 to date, as well as 15 in the process right now. SENATOR LINCOLN asked if the department was in opposition to Section 12 & 13 because of the workload or was it because they felt it was not fair to those who chose not to purchase agricultural property. RON SWANSON responded that it was a little bit of each. He does not think it is fair to people who chose not to bid because of the restrictions, and then to give the people who did bid an additional right without paying for it. Number 634 SENATOR LEMAN then opened the meeting to public testimony. BILLY LEMON, JR., a resident of Talkeenta, said if he was sold a piece of land for $10,000, the chances are that to clear and make it a farm, he would have to put $100,000 into it. If he sold off 40 acres of 200 acres, he may or may not get his original investment back, but it gives him some operating capital. There are all kinds of problems that have to be overcome to make three acres viable in a lot of cases, and he doesn't see that there is any value added in these cases. He acknowledged that being able to subdivide does increase the value, but, he said chances are that the individual is getting back less than what it cost to do that. TAPE 95-64, SIDE B Number 010 Mr. Lemon said that seven years from now he wants to have 15 acres in production and a five-acre homesite. Right now, he can go to a friend and lease 40 acres, but he can't put a house or a barn on it and turn it into a working farm. He wants to have a truck farm, and if there was some way he could do that, he would get going on it. Mr. Lemon pointed out that the Mat-Su Borough has a Title 23 program whereby he can pick some land, and, if the local people don't object, he can go for it. He questioned that if the borough can do that, why can't the state do the same. Mr. Lemon spoke to the financial problems that many of the farmers in the state are having, and he said these people need help and the legislature needs to make good on the promises it made to them in the 1980's. Number 070 MICHAEL SWANN of Soldotna, representing the Alaska Soil & Water Conservation Districts, stated their support for SB 162 and their belief that it is a real positive effort for agriculture throughout the state. Mr. Swann noted that he is a land surveyor, and he pointed out that the Kenai Peninsula Borough has an ordinance that allows for platting waivers and they do have some paper plats. He stated he supports aliquot parts to help get land out to the public a little faster. He also pointed out that survey section is understaffed and they have the whole state to look at so it takes a lot of time to get parcels through. Number 100 HARVEY BASKIN of Wasilla, testifying from Anchorage in support of SB 162, stated he was one of the surviving dairy farmers from the Point MacKenzie project. He said SB 162 is a positive approach that people like himself have fought for since day one, because it was such a struggle to borrow money to develop these farms. His farm was developed through hard work, personal investment, and the monies that they could borrow from the Agricultural Revolving Loan Fund, which was their sole source of money. Mr. Baskin said there is going to be a day when he will no longer be able to run his dairy farm, but he can't talk his son or grown grandsons into touching that farm with a patent as the ownership document. In his opinion, a patent is just a glorified land use permit; it is just for a longer term. He said the American way of life has always been that the farmer would own his farm, not just have a right to use it. He believes that one of the reasons that the Point MacKenzie project was such a colossal flop is because there was no future in owning a patent. Number 142 HENRY COLE, Fairbanks, Director of the local order of the Interior Alaska Economic Development Council, stated his support for SB 162. He said he has been doing quite a bit of work in the Delta region because of the base closure and he has been becoming more and more familiar with the problems that the farmers have in that region in trying to raise money for development, for processing, and further value added on to their projects. He has been working with a number of individuals who would like to borrow money either from the bank of the Agricultural Revolving Loan Fund and the passage of SB 162 will make it much easier for them to do so. Number 162 BOB FRANKLIN, State President of the Alaska Farm Bureau and owner of a meat processing facility in Fairbanks, stated SB 162 is very important to the agricultural community statewide due to the fact that in order for agriculture to develop, the land has to be owned by the farmer. They cannot be state of Alaska tenants and expect to progress, and something needs to be done to make this renewable natural resource of agriculture survive and prosper in the future. Number 196 SENATOR LINCOLN asked how many farms there are in the Alaska Farm Bureau. MR. FRANKLIN answered there are approximately 260 members, although all are not actively farming and some are just associate members who support agriculture. He added that according to the U.S. Census, there are 513 actual farms in the state of Alaska. Number 205 BILL WARD, owner of Ward Farms in Soldotna, stated SB 162 is important legislation that deserves passage this session. Mr. Ward said ever since its inception, there has been argument and debate over the language of the Ag rights patent and the degree of ownership vested with the title. The existing patent does not follow conventional land law, is vague in intent and there is dispute regarding the ownership value. SB 162 will clarify the issue by selling the fee simple interest in the surface estate, but it will impose a restrictive use covenant to the title which will limit the land's use to agriculture. This follows standard land law, the covenant is enforceable in court and the fundamental freedom of private property ownership in this country is protected. Mr. Ward also stated that much of the problem associated with agriculture in Alaska has been the direct result of the state's mandatory requirements for development and operation of the farms. There are already a multitude of agencies providing oversight, and the farmers do not need the additional oversight of DNR to regulate their businesses. He said if agriculture is to contribute to the economy of Alaska, then it will succeed by the efforts of the individual farmers and ranchers of the private sector and not by the interference and manipulation of the state. Number 270 SENATOR LEMAN stated testimony would be taken from witnesses waiting to testify in Delta Junction. SCOTT SCHULTZ of Delta Junction, an owner and operator, along with his brother, of a farm in Delta Junction, said there needs to be a change to the covenant on the Ag title to bring it in line with common land law, which will make the land and the improvements on the land a better asset for collateral for loans, as well as providing a due process as to how violations can be handled. Speaking to restrictions on a title, Mr. Schultz said it is one thing to have restrictions on a contract when you are purchasing something, but once it is paid off, the owners should be free to do as they see fit on their land. Mr. Schultz encouraged the passage of SB 162. Number 330 FRANK BURRIS, a co-owner of Eagle Ridge Ranch in Delta Junction testifying in support of SB 162, said they have 400 acres out of a total of 2,800 acres that they farm every year, as well as a game bird facility, dog training, etc. They would like to have the opportunity to diversify so that they can make a viable business opportunity out of the ranch they are operating. They would like to build a lodge on their land, but they cannot have any permanent buildings on the 20 acre homesite they currently have approved in the farm plan for that land. They have no intentions of subdividing their land and converting it into smaller plots that they can sell; their intention is to farm and to run a game bird facility. Number 400 MIKE CROUCH with Road Creeks Ranch in Delta Junction stated he has farmed in various locations in the state for the past 18 years. He said one of the biggest threats to agriculture in the Lower 48 are large corporate farms, but, to his knowledge, there is not one large corporate farm in Alaska. Every farm in Alaska is owned by a family and the family runs the operation. He believes passage of SB 162 will enable the small family farm to not only continue, but to flourish as well. Number 435 CHARLES FORK, a part-time hay farmer in Delta, referred to Section 9, which provides that the department shall include in a document that conveys state land classified as agricultural land: (1) a covenant running with the land that restricts or limits the use of the land exclusively for agricultural purposes. He suggested that language should be referenced in Section 11, subparagraph (B) because he believes that language is a little ambiguous standing alone and it would be helpful if it made reference to the covenant. Mr. Fork also referred to Section 9, paragraph (3) which provides that the department shall include in the document provisions that establish remedies for a breach of the covenants described in the subsection. He said to him that goes to the heart of what Bill Lord has been getting at about the present commissioner's ability to take the land back. He said his understanding is that the idea is to establish a remedy through the court system so that state can sue the land owner and that some kind of judicial remedy would be provided, but he doesn't see that the bill specifies what that remedy would be. He suggested there needs to be additional language relating to provisions that establish remedies. In closing, Mr. Fork said he basically supports SB 162. Number 505 SENATOR GREEN acknowledged that Mr. Fork's suggested changes had been caught by the drafter of the legislation after its introduction and that these changes would be made in a committee substitute. Number 515 MIKE CARLSON, a 28-year resident of Delta Junction, said he has owned both fee simple parcels and Ag rights parcels, which he subsequently got rid of. He said the original intent of Ag rights was to protect agricultural lands, not to put restrictions on land owners and their ability to get loans. That original intent has been lost either through regulations or the way the bill was written originally. He believes that SB 162 will get back to what perhaps was the original concept of what agricultural interests in lands was going to be. Number 570 DANA OLSON of Wasilla, testifying from the Mat-Su LIO, spoke to the Agricultural Homestead program, which, she said, has always been looked at as being kind of a hobby type of agriculture. She pointed out said there are people who saw the deficiencies in the current commercial agricultural program and felt it would not work and, instead, engaged in the homestead program knowing that it was a less restrictive form of agriculture. She said the legislature needs to decide whether or not the program of homestead agriculture is a viable, and she also suggested adding a section to the legislation that would provide a remedy for people who participated in the 1984 homestead lottery. TAPE 95-65, SIDE A Number 025 CHARLES THOMPSON, Agricultural Credit Director for the Farm Service Agency, stated their mission is to support farming and to promote the family farm concept. They particularly provide assistance to beginning farmers and to other farmers who have financial difficulties of one type or another, particularly when there is a disaster. As a lender, they like to see fee simple land as the vehicle to put land into private ownership because it provides them the greatest flexibility in coming up with a feasible and successful operation. Mr. Thompson pointed out that the agency has had many applicants request assistance on Ag rights land, but, due to the state's present policy, they have not be able to help these individuals because of the inability to secure a lien on the property. It appears from their standpoint that if this is corrected, then considerable assistance from their agency and probably from the commercial sector will be able to promote agriculture and provide needed capital in these areas that are trying to develop now such as Delta Junction, Point MacKenzie, Mat-Su Valley, Kenai Peninsula and other areas of the state that are yet untapped. Concluding his comments, Mr. Thompson stated the agency's support for SB 162. Number 075 HERB SIMON, owner and operator of Little Nelchina Farm, stated his family has farmed and ranched in the headwaters of the Matanuska and the headwaters of the Copper River since right after World War II. What land they own is fee simple and they are in a designated non-agricultural area, according to the Division of Lands. He expressed his contempt for the Division of Lands, stating that his family has been denied the opportunity to secure agricultural land since 1977, and the basic cause for this is because they don't believe in serfdom and the tenant-type provisions that have prevailed in the so-called agricultural development. He suggested that the legislature consider that not only the agricultural land but all Alaska land belongs to the people and not to the bureaucracy. The state, in retaining ownership and erecting barriers to the ownership of the land, mitigates any economic development and any tax base. Mr. Simon also suggested that the legislation should mandate that when the state conveys fee simple title with the covenants in it, that foremost when the state conveys land, that they convey good title. He said a classic example is the title to every parcel of Point MacKenzie which was let with the known encumbrance of the mental health lands issue. Number 198 SENATOR HALFORD pointed out that at the time the Point MacKenzie project went forward, it wasn't encumbered. Number 230 SENATOR HALFORD commented that he doesn't think the value difference is going to be anything as a result of the title change provisions, instead, he thinks the subdivision provision is going to be the thing that has potential in the value change. He said there has got to be some middle ground that allows for more development and still doesn't get into all the problems with the huge parcels being cut up into multiple 40s. SENATOR LEMAN responded that would be something he would encourage those interested in the bill to work on in trying to come up with something that makes some sense. Number 250 DON QUARBERG of Delta Junction said he has listened to the discussion over the size of the parcels for a number of years, and he suggested people can sit around for the rest of their lives and try to determine what the most opportune size of a farm is. He thinks if that land is released and made available, then the people that are more efficient are going to buy up their adjacent neighbors, which has happened all across the country anyway. He said we get hung up on Delta I and Delta II Ag projects, and people tend not to realize that there were eight small farms released in Delta for every large one, so it is not all big parcels. He thinks the industry will guide itself in this line. Number 288 SENATOR LEMAN thanked all the people who had participated in the discussion on SB 162 and then adjourned the meeting at 4:16 p.m.