SENATE RESOURCES COMMITTEE January 17, 1996 3:37 P.M. MEMBERS PRESENT Senator Loren Leman, Chairman Senator Drue Pearce, Vice Chairman Senator Steve Frank Senator Rick Halford Senator Robin Taylor Senator Georgianna Lincoln Senator Lyman Hoffman MEMBERS ABSENT None 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." SRES - 1/17/96 SB 128 (NONRESIDENT HUNT, SPORT FISH, TRAP FEES) was scheduled, but not taken up this date. PREVIOUS SENATE COMMITTEE ACTION SB 162 - No previous action to consider. SB 128 - No previous action to consider. WITNESS REGISTER Representative Lyda Green State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Sponsor of SB 162 Brett Huber, Legislative Aide c/o Senator Lyda Green State Capitol Juneau, AK 99801-1182 POSITION STATEMENT: Commented on SB 162. Ron Swanson, Deputy Director Division of Lands 3601 C St., Ste. 1122 Anchorage, AK 99503-5947 POSITION STATEMENT: Commented on SB 162. John Cramer P.O. Box 2636 Palmer, AK 99645 POSITION STATEMENT: Supported SB 162. Karen Lee, Director Farm Service Agency 1113 W. Fireweed Anchorage, AK 99503 POSITION STATEMENT: Supported SB 162. Charles Forck P.O. Box 929 Delta Junction, AK 99737 POSITION STATEMENT: Supported SB 162. Bill Ward P.O. Box 350 Soldotna, AK 99669 POSITION STATEMENT: Supported SB 162. Mike Schultz HC 62, Box 5440 Delta Junction, AK 99737 POSITION STATEMENT: Supported SB 162. Herb Simon Glennallen, AK POSITION STATEMENT: Supported SB 162. Don Kratzler Nenana, AK POSITION STATEMENT: Supported SB 162. Bill Spencer Nenana, AK POSITION STATEMENT: Supported SB 162. Niilo Koponen 710 Chena Ridge Rd. Fairbanks, AK 99709 POSITION STATEMENT: Supported SB 162. Tim Green P.O. Box 204-405 Douglas, AK 99824 POSITION STATEMENT: Commented on SB 162. Harvey Baskin P.O. Box 877306 Wasilla, AK 99687 POSITION STATEMENT: Commented on SB 162. Ed Bostrom P.O. Box 56822 North Pole, AK 99705 POSITION STATEMENT: Supported SB 162. Larry Devilbiss HC04, Box 9302 Palmer, AK 99645 POSITION STATEMENT: Supported SB 162. Mike Bronson 2229 Turnagain Pkwy. Anchorage, AK 99517 POSITION STATEMENT: Opposed SB 162. ACTION NARRATIVE TAPE 96-2, SIDE A Number 001 SRES - 1/17/95  SB 162 AGRICULTURAL LAND  CHAIRMAN LEMAN called the Senate Resources Committee meeting to order at 3:37 p.m. and announced SB 162 to be up for consideration. SENATOR HALFORD moved to adopt the CS, Chenoweth, January 15 version, to SB 162. There were no objections and it was so ordered. SENATOR LYDA GREEN, sponsor of SB 162, said she introduced this bill after talking with numerous agriculture (ag) land owners, industry organizations, soil and water conservation districts, and consumers of Alaska agriculture products. The changes are designed to facilitate the growth, stability, and economic viability of agriculture as a renewable resource industry for Alaska, she said. BRETT HUBER, legislative aide to Representative Green, reviewed the technical changes in the CS to SB 162. He said there are two changes. The first one is in section 9, page 6, which redefines an allowable subdivision under the agricultural covenant. The second change is in section 11 (e), page 7, which clarifies the remedy for breach of covenant to be by civil proceeding. SENATOR LEMAN asked how that was different from now. MR. HUBER answered that now it is an administrative proceeding. Number 99 SENATOR LINCOLN asked if there was correspondence on this issue from the Director of the Division of Agriculture. SENATOR LEMAN answered that the Committee was told the Division of Lands was answering for the State. SENATOR LINCOLN asked if the Director of Agriculture had been involved in this process. SENATOR LEMAN said his staff had contacted Mr. Kerttula's office and his staff said that Mr. Swanson would be providing the testimony on this bill for the administration. SENATOR LINCOLN remarked that it seemed a bit unusual that there was no testimony from the Division of Agriculture which has the expertise on this issue. Number 148 RON SWANSON, Deputy Director, Division of Lands, said he had testified on this bill extensively in October and asked them if the Committee had any questions regarding his testimony. SENATOR LEMAN asked him to summarize his position for the Committee. MR. SWANSON said the Administration had not taken a position on SB 162. SENATOR HALFORD asked if that meant after the legislature leaves town, they would or would not recommend a veto. MR. SWANSON said he couldn't answer that now, because the Administration had not taken a position on this issue. SENATOR HALFORD said he wanted to know if the CS addressed any of his concerns. Number 184 (MR. SWANSON'S testimony was inaudible and, therefore, these are his written comments.) MR. SWANSON said that section one states the intent of the Legislature is to convey fee simple title to agricultural land, subject to an agricultural only covenant. This language may make it easier for owners of agricultural parcels to obtain financing from other than the State. If adopted, section 12 of this bill would require the Department to issue new conveyance documents for all patents issued since August 15, 1976. We should also point out that if the State wants to use the land for another use (pipeline, telephone, etc.), we would have to buy those rights back. Section two, removes survey requirement for agricultural land sales which they oppose. He explained that all disposals of State land (sales or leases) are presently required to be surveyed. They have had numerous problems with unsurveyed land and paper plats to a point that legislation (HB 80) to make DNR the platting authority within the unorganized borough is likely to pass this legislature. This provision would not be supported by many municipal platting authorities. Section three removes the requirement that agricultural land be included in an area plan and classified prior to disposal. The Department opposes excluding agricultural land from the land use planning and classification process. The planning and classification statutes(AS38.04) are the result of a 1986 Supreme Court case, Alaska Survival vs. State, 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. There is no reason to exempt just agricultural land from this requirement. Section four removes authority to require pre-qualifications of agricultural land buyers and allows the Commissioner to waive development requirements based on economics. The Department opposed this section. Pre-qualification enables the State to try to limit sales to those people who are most likely to pursue actively the development of agriculture. The Department supports the ability of the Commissioner to waive, postpone, or modify contract terms based on economic considerations. While it would be helpful to have this authority, they also foresee a possible increase in workload due to requests and appeals. Number 218 SENATOR HALFORD asked if the Department now has the ability to pre- qualify under the court's interpretation of the prior law. MR. SWANSON said he thought they did. SENATOR HALFORD said he had a legal opinion saying they don't and that they haven't had it since 1979. MR. SWANSON said he would check on that question for him. Section five restricts the lottery application process on land sales that involve land from former agricultural land disposal projects such as Delta I-II and Pt. MacKenzie. MR. SWANSON said they have no problem with that, although they don't see the need. Section six allows sale of agricultural parcels described by aliquot parts and they oppose this section. They prefer survey requirements as noted in the discussion in Section two. Section seven changes language to be consistent. Section eight sets agricultural land sale interest rate at 8% and makes interest payments also subject to a moratorium. The Department does not support lowering the interest rate to 8% for only agricultural purposes. HB 191, which is before the Senate Resources Committee, establishes an interest rate for all land loans at the prime rate, plus 4% (currently 12.2%) and not to exceed 13.5%. They do support the change that would ensure that interest payments are to be considered as part of any payment moratorium. SENATOR HALFORD requested a fiscal note on the exact consideration. MR. SWANSON said a fiscal note had been submitted by the Division of Agriculture stating about $1,000 per plat. Section nine, he wrote, has a covenant running with the land that restricts or limits the use to agricultural purposes and allowing subdivision to a certain extent as long as the covenant runs with the subdivided land, and as long as the resulting subdivision is not less than 40 acres in size. The Department believes that the State should be reimbursed by landowners when the land is subdivided for the added rights to the land that are conveyed in this bill. They believe that the land values will increase from 25% to 200%, based on the size of the parcel. Section 10 provides that land classified for agriculture may be conveyed to municipalities without any restrictions. Currently only the agricultural interest in the land may be conveyed to municipalities. Current law allows for transfer of other interests, if it is in the best interest of the state. Section 11 requires cooperation by land owners with appropriate soil and water conservation districts when implementing soil conservation plans. The Department supports this. The second part, (2) as a condition of the conveyance, the Commissioner may not require a development plan unless the Commissioner permits modification of a plan based on economic hardship or other extenuating circumstances, they support, but see an increase in workload to perform the task of analyzing economic hardship claims and appeals. The third part states, (3) The Commissioner may not limit (a) the right to construct improvements related to agricultural use, (b) the right to use the land and improvements for purposes that are incidental to and not inconsistent with the primary use, (c) the right to subdivide and sell, if the resulting parcels are not in violation of the minimum parcel size. The Department believes the State should be reimbursed for lost revenue when agricultural land is subdivided. The difference between the original price of the agricultural right compared to the increased value of fee title for subdivision purposes should be returned to the State. They do not oppose incidental gravel use or disposal of timber incidental to clearing for agricultural production. "(e) A covenant described in (a) of this section may be enforced only by a civil action," puts the burden of proof on the State which still has the administrative procedures to follow and will have the additional workload of unnecessary civil litigation. Administrative appeals provide the applicant the ability to go to court, if they so chose. The Department opposes that section. The Department does not oppose the definition of agricultural purposes, MR. SWANSON said. Section 12 requires the Commissioner to issue new conveyance documents to all agricultural parcels sold since 8/15/76 which they very strongly oppose. This is a major workload and not fair to those who choose not to purchase agricultural property, because of the deed restrictions. There is also a very good chance of title problems as "wild deeds" will result, because of dual title interests being conveyed by the State. Further, there are fair market value issues, as discussed above. (Section 11, 3(c)). Section 13 requires conveyance documents for municipalities which the Department opposes based on workload and title problems as noted above. They currently have the ability to remove restrictions, if it is in the best interest of the State. Section 14 repeals current regulations affecting agricultural land disposals since August 1978 and the Department opposes repeal of executive branch regulations. Number 354 JOHN CRAMER, former Director, Division of Agriculture, supported SB 162. He said the Administration has done a lot to help the oil companies on the North Slope and SB 162 helps the farming community in Alaska. He especially supported the 8% interest rate. Number 389 KAREN LEE, Director, Farm Service Agency (USDA), said she has a long history of agriculture in this State. USDA does a lot of farm lending in every other state, but Alaska. The reason has been, because of the reversionary clause that's in the agricultural- rights-only-deeds that the State issues. She urged their favorable consideration for modification along the lines proposed in SB 162. Because of the reversionary clause, the Federal Farm Loan Program has been practically dead in Alaska since the 1970's. Each year nearly $2 million has been earmarked for the program in Alaska and each year the money sits in an account for about six months and is then transferred to one of the other 49 states who have reasonable land titles. Well over $20 million has been diverted in this way. MS. LEE said her agency took over the Federal Farm Loan Programs in 1995 and they are now actively making farm loans. However, they are restricted to movable collateral for farms on the 500,000 acres the State has sold. Farm ownership loans are restricted to fee simple land such as those acquired under the old federal Homestead Act. Another interesting anomaly caused by the restrictive deeds is that they have a loan program to help farmers pursue a non-agricultural business on their farms to supplement the agricultural income. This program acknowledges the huge shift of income experienced by family farms in the last two decades, nation-wide. In 1994, over 90% of farms were at least somewhat dependent on off-farm income. However, the agricultural rights restrictions mean such supplementary income producing enterprises are actually illegal in Alaska, even though they often mean the difference between success and failure. Number 420 SENATOR LINCOLN asked if a person needed a minimum acreage to qualify for a farm loan. MS. LEE answered, no, because of the agricultural rights only clause on land, they are actually making farm loans to people with no land at all. SENATOR TAYLOR asked if a reversionary clause is a normal thing in other states. MS. LEE answered that nobody else has it. SENATOR HALFORD asked her if she thought the covenant was just as enforceable as the reversionary clause. MS. LEE replied, certainly. She thought in reality they would have to go to court in either case. Number 444 CHARLES FORCK, Delta Junction, said on page 4, section 6 he thought that aliquot parts needed to be specifically defined. MR. FORCK supported the 8% interest rate. Language on page 6, line 3, he thought should reference section 11, (3) (B) because explanations are made of land uses. He also had a concern whether or not the covenant is as protective of the agricultural rights as the present provision. He couldn't remember there ever being a provision allowing the Commissioner to take the land back and that bothered him. Number 499 BILL WARD, Delta Junction owner of agricultural land, said he supported SB 162. He said he had talked to a lot of agricultural people and none of them had ever intended to violate any agricultural restricted use. Their focus is on the ownership of the land, itself. Existing statute says they own an "interest" in the land and they are referred to as the land holder, not the land owner. MR. WARD also thought a covenant had a greater degree of enforcement behind it, since a violation would go to court right away instead of getting tied up for years in an administrative proceeding. Number 546 MIKE SCHULTZ, Delta Junction, supported SB 162. He said over 12 years he had been working to put several parcels together to build up an operation and make it economically viable. He said they are using the agricultural land for its highest and best use which is growing crops. There is no pressure to divide into housing lots. He thought interest rates should be down in the 8% - 10% range. Existing rates are above market. SENATOR PEARCE asked him what interest the farmers in the midwest were paying for their farm loans. MR. SCHULTZ answered that the rate a year ago was in the 7 - 8% percent range. TAPE 96-2, SIDE B Number 588 SENATOR PEARCE asked why they decided to peg the interest rate at 8%, instead of floating with the market like in the lower 48. MS. LEE said the rate a couple of days ago was 6.25% and a commercial bank would probably charge 2 - 2 1/2% on top of that. She explained that the "Farmer Mac" rate is the whole credit system. A direct loan from them would be about 7% interest. There is also the guaranteed program which guarantees up to 90% to a commercial bank. They would add whatever the bank would want to charge to their rate. SENATOR FRANK commented that maybe we should explore changing the way in which farm land has been financed. Going to a fee simple basis would allow Alaska to participate in some federal programs that will allow the State to pass through a subsidized rate to the farm community. Maybe the State could be cashed out of this business. SENATOR TAYLOR suggested looking at the federal formula for their rate and using the same formula for total consistency between the programs. SENATOR FRANK said they should look at all the State's rates as a policy matter. HERB SIMON, Glennallen, supported SB 162. He questioned the estimated $250,000 to implement this program. He thought the cost was too high. MR. SWANSON said he submitted a letter to the Committee on November 13 explaining the reasons for the expense. He said he would be happy to provide this to Mr. Simon. MR. SIMON said the use of agricultural land and its disposal seriously needs to be revised and updated. He thought SB 162 was a step in the right direction. Number 451 DON KRATZLER, Nenana agricultural land owner, supported SB 162, because he thought a fixable title with an agricultural covenant would protect the agricultural integrity of agricultural lands better than what we have now. It would give farmers a true sense of ownership. Now the land simply cannot be collateralized, because of the restrictions on the title. He also supported lowering the interest rate from 12% - 13% down to 8%. Number 408 BILL SPENCER, Nenana land owner, supported SB 162. He has a 225 acre parcel on which he raises pigs, potatoes, and hay. He drew the parcel in 1985 and has developed it for the last 10 years by hard work and not borrowing any money. He said this bill would treat Alaskan farmers like all other farmers in the United States. SCOTT MILLER, President, Delta Farm Bureau, said they unanimously passed a resolution supporting SB 162. As a member of the Delta Community Coalition, he reported that at their last meeting, agriculture and economic development was voted as the most popular economic development idea that they would like to spend grant monies pursuing. Clearing up title in SB 162 is a step in the right direction. He noted that he was getting calls from in-state and out-of-state people on a weekly basis who want to pursue farming in Alaska. As a farmer with agricultural land, MR. MILLER said, he found it an extreme hardship to not be able to get any financing. SENATOR TAYLOR said he wanted to personally thank Senator Green for bring this issue before them. He said it is the first major piece of reform legislation on agriculture in this State he has seen in 12 years. Number 359 SENATOR PEARCE said she remembered with the State dairy project, the farmers complained they were required to build farm buildings on each farm, rather than being able to take advantage of economies of scale and build one barn to handle all the dairy cattle. Now people are being told they can't build fixed, farm-related structures on their land. She asked how they could be restricted in both directions. MR. SWANSON replied that it was possible the buildings were not going to be built in the right places. He said they had to make sure the buildings' primary use was agricultural. Number 337 NIILO KOPONEN said he homesteaded in 1952 and proved up in five years. He thought one of the principal problems is that the banks and "credit outfits" were using a form of urban red-lining, because in other states, agricultural rights are accepted by loan agencies. He thought the banking agencies were trying to force some changes. He thought the legislature had never done anything to adequately protect farm land in organized boroughs and didn't think this bill would do much for them, either. He thought it was extremely important to have adequate title. To ensure adequate rights-of-way to property, there must be a survey. He said the State was remiss in not developing surveys and adequate property descriptions when it disposes of land. Going from covenants to ag rights is another subsidy for the bar association. MR. KOPONEN thought that section 10, "However, only rights in the land for agricultural purposes may be transferred and all other interests in the land will remain with the State." should not be deleted. He thought it was necessary to increase our agricultural production in the State for local use and also to meet the developing Asian market. SENATOR TAYLOR noted that Mr. Koponen had earned his land through his own hard work and now owns it fee simple. He asked if he would support a State homestead bill that would provide others with the same opportunity he had. MR. KOPONEN replied, certainly. He added that he is still being taxed at the rate of suburban subdivision land. He said that sort of pressure is one of the things that has destroyed the agricultural support businesses. He thought it was also the people who do business with the farmers who are hurt by the disappearance of agriculture. Number 209 TIM GREEN said he has had property in the Trapper Creek area since 1984. It was part of a larger parcel that was subdivided and there are covenants on it that say "no building of fixed or immoveable structures." Because of that, it is worthless for a greenhouse operation which is what he wants to do with the property. He said he has paid taxes on it for 11 years. SENATOR FRANK asked him what the value of his ag land was compared to other land in the area that is fee simple. MR. GREEN said that it was appraised at $6,000 for the 40 acres. He said there was not even a road to his property, so it was completely undeveloped and not worth as much as property with a road to it. SENATOR FRANK said there should be a way property values could be quantified for the purpose of this legislation. SENATOR GREEN explained that the frustration was that once the original five-acre developable plot is peeled off, the rest of the land cannot have any structure on it. SENATOR PEARCE asked if the law had changed since he bought his land and he said no. Number 110 HARVEY BASKIN, Pt. MacKenzie, said he is one of the two remaining dairymen at Pt. MacKenzie and he has an agricultural use only tract. He was concerned that he couldn't sell his property to his heirs, because he doesn't have a fee simple title. ED BOSTROM, North Pole, said he was a full-time farmer for 10 years. He said the important issue in Alaska is economic development. TAPE 96-3, SIDE A Number 001 He said he had developed 100 of his 240 agricultural acres. He had to diversify to make it work economically. His is the exception where smaller is better. They cannot handle all the things they are doing and will need to lease or sell some of their operations, like their haying operation. Under current regulation, he can't lease it out so that a person could build a cabin on the part that is leased, in order to run the haying operation. LARRY DEVILBISS, Palmer, said he is a third generation farmer in the Mat-Su Valley. He said they are living with subdivision all the way around them, but he has just doubled the size of his farm in his generation. All the dynamics in this State are not to subdivide, he said. In his area, subdivisions are being bought up and put back into farming. In the subdivision process he would like to make sure there are both physical and legal accesses. Number 120 MIKE BRONSON urged the committee to oppose SB 162. He thought the solution to poor planning by DNR was to give the farmers more discretion to deal with land. The title provision is not a solution to those problems. He said the original agricultural land program was not meant as a means of getting public lands into the private sector, it was meant to protect farming as a land use in Alaska. Specifically, he opposed section 1, the fee title section and section 11, the provision for improvements that are only incidental to agricultural use. Number 200 SENATOR LEMAN thanked everyone for their testimony, said they would hold SB 162 over, and adjourned the meeting at 5:20 p.m.