Legislature(2015 - 2016)HOUSE FINANCE 519

04/11/2016 01:30 PM House FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHB 118(FIN) Out of Committee
<Bill Hearing Canceled>
<Bill Hearing Canceled>
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved HB 290 Out of Committee
Moved CSHB 375(FIN) Out of Committee
HOUSE BILL NO. 290                                                                                                            
     "An  Act extending  the termination  date  of the  Real                                                                    
     Estate  Commission;  and  providing  for  an  effective                                                                    
1:59:24 PM                                                                                                                    
LAURA STIDOLPH,  STAFF, and REPRESENTATIVE KURT  OLSON, read                                                                    
from a prepared statement:                                                                                                      
     Before  you today  is HB290,  this legislation  extends                                                                    
     the termination  date of the Real  Estate Commission to                                                                    
     June 30, 2018.                                                                                                             
     Each  year the  Division of  Legislative Audit  reviews                                                                    
     state  boards  and  commissions to  determine  if  they                                                                    
     should be  reestablished per AS 24.44.  The Division of                                                                    
     Legislative Audit  reviewed the activities of  the Real                                                                    
     Estate  Commission. The  purpose of  this audit  was to                                                                    
     determine whether  there is a demonstrated  public need                                                                    
     for the board's continued  existence and whether it has                                                                    
     been operating in an effective manner.                                                                                     
     As the  members noted in  their review of the  audit in                                                                    
     their packets, it  is the opinion of  our auditors, the                                                                    
     board is  serving the public's interest  by effectively                                                                    
     licensing real  estate brokers, associate  brokers, and                                                                    
     As  the members  also may  have noted  from the  audit,                                                                    
     there    were   two    recommendations.   First,    the                                                                    
     commission's   chair   and   the  DCCED   Division   of                                                                    
     Administrative Services  director should  work together                                                                    
     to  procure  a  masters,  errors  &  omissions  policy.                                                                    
     Second,  the  Division  of Corporation,  Business,  and                                                                    
     Professional  Licensing should  take  action to  ensure                                                                    
     cases are actively investigated.                                                                                           
     To  speak  to  the   recommendations,  Kris  Kurtis  of                                                                    
     Legislative Audit  is here,  Sara Chambers  Director of                                                                    
     the    Division   of    Corporations,   Business    and                                                                    
     Professional   Licensing   with   the   Department   of                                                                    
     Commerce, Community  & Economic Development,  and Nancy                                                                    
     Davis,  the  Chair of  the  Commission  is online  from                                                                    
     In  closing,  the  Real  Estate  Commission  serves  an                                                                    
     important  role by  improving  operations and  industry                                                                    
     practices by modifying and adopting regulations.                                                                           
     Thank you for your support of this legislation.                                                                            
Representative  Kawasaki  asked  about  the  original  audit                                                                    
recommendation.  He wondered  why  the  board extension  was                                                                    
only  two  years.  Ms.  Stidolph   replied  that  the  audit                                                                    
recommended that the commission  procure a master errors and                                                                    
omissions insurance  policy and if  accomplished recommended                                                                    
a 6 year  extension. If the policy was not  acquired, a four                                                                    
year extension  was suggested. She related  that the sponsor                                                                    
decided to  reduce the  extension to  two years  because the                                                                    
policy was  an important part of  the commission's statutory                                                                    
requirement that  should be obtained in  a reasonable amount                                                                    
of time.                                                                                                                        
Representative Guttenberg  asked why the commission  did not                                                                    
obtain the policy.  Ms. Stidolph responded that  in 2008, HB
357 (Real  Estate Licensees/Recovery Fund) [CHAPTER  113 SLA                                                                    
08  06/26/2008]  the  House  Labor  and  Commerce  Committee                                                                    
sponsored a bill  that changed the real  estate surety fund.                                                                    
She delineated that the fund  was changed to the Real Estate                                                                    
Recovery fund  that allowed consumers via  an administrative                                                                    
hearing  to  receive up  to  $15  thousand in  damages.  The                                                                    
legislation mandated that each  realtor would have to obtain                                                                    
the  insurance  policy  in  order  to  protect  the  public.                                                                    
However, a clause in the  bill stated that if the commission                                                                    
did  not obtain  the  umbrella  policy coverage,  individual                                                                    
salespersons  did not  have to  procure  the policy  either.                                                                    
Since  2010,   when  the  bill  regulations   were  written,                                                                    
disagreement ensued about whether  the regulations were "too                                                                    
prescriptive."  The  regulations  stated  that  the  maximum                                                                    
premium for  the insurance  policy was  $300, which  was too                                                                    
low.  She commented  that after  six  years of  bureaucratic                                                                    
wrangling the  solution to require the  commission to obtain                                                                    
the masters policy was warranted.                                                                                               
2:04:55 PM                                                                                                                    
Vice-Chair  Saddler wondered  whether there  were any  other                                                                    
measures   that  addressed   the  situation.   Ms.  Stidolph                                                                    
indicated  that there  was  currently SB  158  in the  House                                                                    
Labor and  Commerce Committee, which dealt  with real estate                                                                    
broker licenses. The committee  was offering an amendment to                                                                    
repeal the provision in HB  357 that mandated the commission                                                                    
to obtain the umbrella  policy. Vice-Chair Saddler asked for                                                                    
clarification.  Ms.  Stidolph  further explained  that  each                                                                    
individual would be required to  obtain the policy until the                                                                    
commission  obtained the  policy.  Vice-Chair Saddler  asked                                                                    
what  the timeline  was and  how it  comported with  the two                                                                    
year  extension of  the commission.  Ms. Stidolph  indicated                                                                    
that the  repeal would occur  in 2018. The date  granted the                                                                    
industry  time to  obtain the  insurance and  gave the  real                                                                    
estate  commission more  time to  procure the  policy. Vice-                                                                    
Chair  Saddler  asked  what  would  happen  in  the  2  year                                                                    
timeline  with  adoption  of  the  amendment.  Ms.  Stidolph                                                                    
answered that all real estate  salesperson and brokers would                                                                    
operate under the  policy within two years and  in 2.5 years                                                                    
a master policy would be obtained by the commission.                                                                            
2:07:25 PM                                                                                                                    
KRIS  CURTIS,   LEGISLATIVE  AUDITOR,  ALASKA   DIVISION  OF                                                                    
LEGISLATIVE AUDIT,  reported that the audit  recommended a 6                                                                    
year  extension  because  at   the  time  Legislative  Audit                                                                    
understood that  the commission could procure  the policy by                                                                    
January 2016.  She spoke to  the recommendations.  The first                                                                    
recommendation regarded obtaining the  master policy and the                                                                    
second  recommendation   requested  that  the   Division  of                                                                    
Corporations, Business,  and Professional  Licensing (DCBPL)                                                                    
chief  investigator   take  action  to  ensure   cases  were                                                                    
investigated and completed in a  timely manner. She noted 29                                                                    
cases of "significant periods of  inactivity" in a sample of                                                                    
Representative  Kawasaki  asked  when  the  next  audit  was                                                                    
required with only a two  year extension. Ms. Curtis relayed                                                                    
that the division  would conduct the audit in  the spring or                                                                    
summer  of 2017.  Representative  Kawasaki  asked about  the                                                                    
cost  of the  audit.  Ms. Curtis  responded  that the  audit                                                                    
would be succinct and short  having just completed an audit.                                                                    
However, she  was unable to  guarantee the possibility  of a                                                                    
short audit. Representative Kawasaki  cited the audit report                                                                    
that identified 36  of the 235 open  investigative cases and                                                                    
that 29 of the cases  had periods of inactivity ranging from                                                                    
124  to 1,669  total days.  He  noted that  some cases  were                                                                    
closed due  to the length  of investigation. He  thought the                                                                    
situation  appeared  "problematic."   He  wondered  why  the                                                                    
investigations  took so  long. Ms.  Curtis replied  that the                                                                    
finding  was  consistently   discovered  within  DCBPL.  She                                                                    
communicated that  in the current case  "excessive time lags                                                                    
were   due  to   inadequate   monitoring  and   insufficient                                                                    
oversight to  ensure investigations were  completed timely."                                                                    
Representative Kawasaki  thought the  DCBPL was  not serving                                                                    
the  "major  public  purpose" of  the  board.  He  expressed                                                                    
concern  with the  excessive  timelines.  Regardless of  the                                                                    
issues,  he  announced  that he  would  offer  a  conceptual                                                                    
amendment that would increase the  extension "by a couple of                                                                    
2:12:30 PM                                                                                                                    
Representative Guttenberg offered that  he was "troubled" by                                                                    
both  recommendations.  He  wondered  what  the  "mechanical                                                                    
problem"  was that  kept the  commission from  obtaining the                                                                    
master  policy.  Ms. Curtis  explained  that  she had  heard                                                                    
various different  reasons why  the policy was  not obtained                                                                    
but that "no one could  really answer the why." She recently                                                                    
discovered that  the original  legislation was  "flawed" and                                                                    
not  in line  with a  policy that  actually was  possible to                                                                    
procure. She added  that "no one could  really pinpoint" why                                                                    
it took  since 2008 and still  no real progress was  made to                                                                    
procure the policy. She shared  that recently the commission                                                                    
and  the  division, in  response  to  the audit  made  great                                                                    
effort towards obtaining the policy.                                                                                            
Representative   Guttenberg    asked   about    the   second                                                                    
recommendation regarding  the timing  and inactivity  of the                                                                    
investigations.  He wondered  whether a  correlation existed                                                                    
between   the  functioning   of  the   board  and   the  two                                                                    
recommendations.  Ms. Curtis  clarified that  he was  asking                                                                    
whether   the   "efforts   of   the   board   impacted   the                                                                    
recommendations."  Representative  Guttenberg  deduced  that                                                                    
regarding  the  first   recommendation  the  commission  was                                                                    
"unfocused" and decide  what to do in the face  of a muddled                                                                    
statute  and  recently sprang  into  action  because of  the                                                                    
sunset.  The  second  recommendations  had to  do  with  the                                                                    
inactivity  regarding complaints.  He  wondered whether  the                                                                    
board was "functional." Ms. Curtis  responded that the board                                                                    
was functioning and  able to serve the  public interest. She                                                                    
commented  that Legislative  Audit would  not recommend  the                                                                    
extension  if  the  audit  determined   the  board  was  not                                                                    
functional.  She  noted  that the  investigative  lags  were                                                                    
"reflective"  of  a  "lack  of  good  case  management"  and                                                                    
constantly  experienced   the  problem.  She   reminded  the                                                                    
committee  that   the  audit  was  "looking   backward"  and                                                                    
currently the issue could have been resolved.                                                                                   
2:17:38 PM                                                                                                                    
Vice-Chair Saddler asked whether  the licensing fees covered                                                                    
the  commission's  costs   and  investigations.  Ms.  Curtis                                                                    
responded in  the affirmative and  confirmed that  the board                                                                    
had a surplus of $274  thousand as of March 2015. Vice-Chair                                                                    
Saddler wondered how much of  the surplus would remain after                                                                    
the master  policy was obtained  and whether the  cost would                                                                    
affect  the licensing  fees. Ms.  Curtis expected  that some                                                                    
indirect  costs would  be incurred  in obtaining  the policy                                                                    
but  the expense  would not  impact the  surplus. Vice-Chair                                                                    
Saddler asked  whether the  indirect costs  were due  to the                                                                    
policy premium. Ms. Curtis answered  that the licensee would                                                                    
pay the  premiums to  the board  under the  umbrella policy.                                                                    
Vice-Chair Saddler reiterated whether  the surplus would pay                                                                    
the premiums.  Ms. Curtis replied  that the  licensees would                                                                    
participate  and  collectively  pay   for  the  policy.  She                                                                    
suggested that  Vice-Chair Saddler clarify the  question for                                                                    
the  department. Vice-Chair  Saddler  mentioned the  audit's                                                                    
unfavorable findings  of the investigator. He  asked whether                                                                    
the  investigator was  a staffer  or contractor.  Ms. Curtis                                                                    
responded  that  the  investigators were  employees  of  the                                                                    
DCBPL  and  sometimes  an investigator  was  assigned  to  a                                                                    
specific board  and others were  shared among  boards. Vice-                                                                    
Chair Saddler had heard in  the past that some investigators                                                                    
were  independent contractors.  Ms. Curtis  answered in  the                                                                    
2:20:52 PM                                                                                                                    
SARA CHAMBERS,  ADMINISTRATIVE OPERATIONS  MANAGER, DIVISION                                                                    
OF  CORPORATIONS,   BUSINESS  AND   PROFESSIONAL  LICENSING,                                                                    
DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT,                                                                     
Co-Chair  Thompson  understood  that the  division  was  "in                                                                    
charge"  of investigators  and investigations.  Ms. Chambers                                                                    
answered  in the  affirmative. Co-Chair  Thompson asked  why                                                                    
the problem with investigators  repeatedly happened over the                                                                    
years.  Ms. Chambers  confirmed  that the  problem had  been                                                                    
identified over the "last few  years." She detailed that the                                                                    
scope of the  audit was 2010 through 2015. In  the summer of                                                                    
2014,  the  division hired  a  new  chief investigator  that                                                                    
created a  management shift.  The new  manager had  put into                                                                    
place  some  new  policies and  procedures  and  supervisory                                                                    
restructuring in an attempt to  resolve the issues that were                                                                    
due to  a lack of management  in a particular unit  prior to                                                                    
2014.  She suspected  that  the samples  in  the audit  were                                                                    
prior to  late 2014. She  blamed the issue on  a "management                                                                    
oversight  responsibility." She  pointed  out  that the  new                                                                    
measures resulted in a reduction  in caseload and turnaround                                                                    
2:23:08 PM                                                                                                                    
Representative  Guttenberg  hoped  that  the  situation  was                                                                    
remedied.   He   asked   about  conflicting   statues   that                                                                    
interfered with  the commission  obtaining a  master policy.                                                                    
He  wondered what  mechanism was  preventing the  board from                                                                    
purchasing  the  policy.  Ms. Chambers  explained  that  the                                                                    
statute required  individual licensees  to carry  the policy                                                                    
but  the commission  was not  required  by use  of the  word                                                                    
"may."  However, the  other clause  stated that  individuals                                                                    
were not required  to carry the policy  until the commission                                                                    
obtained an umbrella policy.  She summarized that individual                                                                    
brokers  and salesperson  were not  required  to obtain  the                                                                    
policy until the commission procured  an umbrella policy yet                                                                    
everyone was  required to obtain  it and the  commission was                                                                    
not required to procure the  umbrella policy all at the same                                                                    
time.  She could  not speak  to the  situation prior  to her                                                                    
involvement  in  mid-2014  but   "sensed  that  someone  was                                                                    
dragging  their feet."  She reported  that she  "dug in"  to                                                                    
remedy the situation  and was hopeful that  the policy could                                                                    
be attained  by January  2016. The  "intent to  bid" process                                                                    
was initiated  and the  department received  "zero response"                                                                    
from the  market. She indicated  that the premium  level set                                                                    
in statue  was far  too low and  the potential  bidders were                                                                    
concerned  that   they  did  not  have   enough  information                                                                    
regarding the brokers  and agents they would  be covering to                                                                    
assess the  risk. In response,  the division  reexamined the                                                                    
regulation  setting   process  to  evaluate   resetting  the                                                                    
premium. She  stated that the insurance  process was complex                                                                    
and the procurement process was  unusual. The policy covered                                                                    
individuals and  was not  just "a  simple contract  with the                                                                    
2:27:42 PM                                                                                                                    
Representative Guttenberg  restated his concern  that action                                                                    
only took place  when the commission was  bumping up against                                                                    
the  sunset  date.  He  agreed  that  the  insurance  policy                                                                    
sounded complex. He wondered whether  the two year extension                                                                    
was an  adequate amount of  time to  clear up the  issue. He                                                                    
asked  her to  comment on  the 2-year  sunset. Ms.  Chambers                                                                    
shared her concern that the  length of time was not adequate                                                                    
due the short time period  before the new sunset audit would                                                                    
Vice-Chair  Saddler   asked  about   the  reasons   for  the                                                                    
shortcomings with the investigation  process and whether she                                                                    
was confident the issue was  remedied. Ms. Chambers was very                                                                    
confident in  the actions and progress  of the investigators                                                                    
under  the  new  management.  She  referred  to  a  detailed                                                                    
department response  on page 26  of the audit  that provided                                                                    
great   feedback.  She   delineated   that   prior  to   the                                                                    
restructuring, the  investigations unit  had one  manager to                                                                    
19  investigators. The  department added  a level  of senior                                                                    
investigators working under the  chief to allow "more hands-                                                                    
on" supervision  and accountability to meet  guidelines. She                                                                    
reported  that a  new guideline  was that  every 30  days an                                                                    
investigator   reviewed  her   caseload   and  worked   with                                                                    
management to  discern why any  inactivity occurred  and how                                                                    
to address  it. She relayed  that other audit's  results and                                                                    
end of  fiscal year  statistics proved  that the  remedy was                                                                    
2:33:02 PM                                                                                                                    
Co-Chair Thompson OPENED public testimony.                                                                                      
TRACY BARICKMAN, ALASKA REAL  ESTATE COMMISSION, MAT-SU (via                                                                    
teleconference), supported  HB 290.  She reported  having 20                                                                    
years of experience  in the industry and  was a commissioner                                                                    
on  the board.  She  relayed  that she  was  also a  subject                                                                    
matter expert on  a national level for  Pearson Vue [Testing                                                                    
Services  of Philadelphia,  Pennsylvania  contracted by  the                                                                    
Real Estate  Commission of Alaska].  She noted that  she was                                                                    
sitting in for the chair  of the commission, Nancy Davis who                                                                    
had  medical  issues.  She   supported  the  extension.  She                                                                    
recounted  that  the  commission operated  well  within  its                                                                    
budget due to  adequate licensing fees and was  not a burden                                                                    
the   state's   budget.   She  worked   with   the   state's                                                                    
investigator  to   review  complaints  as  a   result  of  a                                                                    
transaction or  licensees interaction  with the  public. She                                                                    
reported that  most complaints were  legitimate and  in many                                                                    
cases licensees  were disciplined through  education, fines,                                                                    
and at times suspension or  revocation of their license. She                                                                    
stated  that  without  the  board   the  only  recourse  for                                                                    
consumer complaints was through  litigation and the consumer                                                                    
might not  have the resources to  take a case to  court. She                                                                    
believed  the  scenario  would  allow  improper  actions  to                                                                    
continue. She noted  that the audit failed  to recognize the                                                                    
remedies that  were already established  in response  to the                                                                    
investigative  inactivity. The  65 case  backlog took  place                                                                    
from 2011 through 2014 and  the new investigator had cleared                                                                    
all of  the cases. Currently  the investigator had  23 cases                                                                    
with the  oldest dating back  from 2015. She  indicated that                                                                    
the  commission constantly  improved industry  standards via                                                                    
the   modification   and   adoption  of   regulations.   She                                                                    
communicated that the low premium  set in statute and a lack                                                                    
of historical  data prohibited the board  from procuring the                                                                    
master policy.  She suggested that  the simple  solution was                                                                    
to  remove  AS  8.88,172  sub  paragraph  (e).  The  statute                                                                    
eliminated  the requirement  of  the  umbrella policy.  Once                                                                    
that was  established the  insurance companies  could gather                                                                    
the  historical  data. She  stressed  that  the low  premium                                                                    
estimate of  $300 was not  practical. The premium  should be                                                                    
$1,200  to $20,000  per year  depending on  the size  of the                                                                    
brokerage  and what  services were  offered. She  added that                                                                    
property management coverage even was more expensive.                                                                           
2:39:12 PM                                                                                                                    
Co-Chair Thompson CLOSED public testimony.                                                                                      
Ms.  Stidolph noted  that the  Labor and  Commerce Committee                                                                    
was  offering additional  provisions  to  another bill  that                                                                    
removed the  requirement to carry  the Errors  and Omissions                                                                    
insurance  in  two  years. The  provision  was  expected  to                                                                    
rectify the situation.                                                                                                          
2:40:37 PM                                                                                                                    
Representative Kawasaki commented  that the committee should                                                                    
not discuss  other legislation.  He did  not have  a problem                                                                    
with extending the date of  the sunset. He believed that the                                                                    
short  period of  time  for the  sunset  burdened the  audit                                                                    
division. He offered the following conceptual amendment.                                                                        
Representative   Kawasaki  MOVED   Conceptual  Amendment   1                                                                    
extending the sunset year from 2018 to 2022.                                                                                    
Representative Kawasaki WITHDREW Conceptual Amendment 1.                                                                        
Representative   Kawasaki  MOVED   Conceptual  Amendment   2                                                                    
extending the sunset year to 2020.                                                                                              
Representative Wilson OBJECTED for discussion.                                                                                  
Representative  Wilson  read  from the  audit  Findings  and                                                                    
     …  However, the  legislation also  required errors  and                                                                    
     omissions  insurance  as  a condition  of  real  estate                                                                    
     licensure.  The  new   insurance  requirement  has  not                                                                    
     successfully   protected   the   public   because   the                                                                    
     commission  has  not  obtained   a  master  policy  and                                                                    
     licensees  have  continued  to  practice  without  this                                                                    
     important consumer protection in place.                                                                                    
Representative Wilson believed that  the finding pointed out                                                                    
that  an   important  aspect  of  consumer   protection  was                                                                    
lacking. She felt that the  pressure of a sunset would bring                                                                    
about  a  resolution  to the  problem.  She  maintained  her                                                                    
objection to the amendment.                                                                                                     
Vice-Chair Saddler shared Representative Wilson's concerns.                                                                     
He also expressed some concerns  regarding the problems with                                                                    
the commission's  investigations. He acknowledged  that some                                                                    
improvements  were put  into effect  but felt  the two  year                                                                    
sunset was warranted.                                                                                                           
Representative Wilson MAINTAINED her objection.                                                                                 
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Kawasaki                                                                                                              
OPPOSED:  Munoz, Pruitt,  Saddler,  Wilson, Edgmon,  Gattis,                                                                    
Guttenberg, Thompson.                                                                                                           
The MOTION FAILED (1/8).                                                                                                        
Representative  Gara and  Representative Neuman  were absent                                                                    
from voting.                                                                                                                    
Vice-Chair  Saddler  reviewed  the fiscal  impact  note.  He                                                                    
noted that  new zero  Department of Commerce,  Community and                                                                    
Economic  Development  fiscal  note  that  appropriated  the                                                                    
amount  of $8.7  thousand dollars  and was  included in  the                                                                    
governor's budget request.                                                                                                      
2:45:45 PM                                                                                                                    
Vice-Chair Saddler MOVED  to REPORT HB 290  out of committee                                                                    
with individual recommendations  and the accompanying fiscal                                                                    
There being NO OBJECTION, it was so ordered.                                                                                    
HB  290   was  REPORTED   out  of   committee  with   a  "no                                                                    
recommendation" recommendation  and with a  new accompanying                                                                    
zero fiscal  note by the  Department of  Commerce, Community                                                                    
and Economic Development.                                                                                                       
2:46:06 PM                                                                                                                    
AT EASE                                                                                                                         
2:48:05 PM                                                                                                                    

Document Name Date/Time Subjects
HB 118 AEA Graphic.pdf HFIN 4/11/2016 1:30:00 PM
HB 118