Dear Governor; 

Alaska's number one physical asset is Real Estate not Oil. Owning the Real Estate gives Alaskans subsurface rights including oil, coal, copper, gold and all the other mining. Above ground wealth from our real estate includes timber, recreation and renewable energy resources, all part of the wealth Alaska possesses as a result of our ownership of the real estate. Because of the vast wealth Alaskans have as a result of the real estate we own, it is important as stewards of that wealth to support citizen knowledge and vigilance in protecting our greatest asset.

Hundreds of Alaskans have educated themselves for decades and have developed expertise which collectively represents thousands of years of Alaska Real Estate experience, knowledge and wisdom. They represent a significant intellectual asset worth millions of dollars to the State of Alaska in the informational age.

There is a proposed regulation that would wipe out over a third of the industry. It won't hit everyone equally. Particularly hard hit will be the most experienced who are used as consultants and advisors to major corporations. Small independent mom and pop brokerages, who serve throughout the state providing property management and other non-sales services, will reduce services or close-up. Many brokers maintain their license for family portfolios as well as a sense of commitment to the industry and their fellow Alaskans, many have told me they won't renew if this regulation goes through. 700 less licensees of this caliber is an egregious error. I have spoken to 4 people in the past 2 weeks representing 50, 40, 30 and 25 years of experience. 145 years total extrapolated to 700 licensees and it is easy to see tens of thousands of years of Alaska Real Estate experience lost on your watch if something isn't done to correct the mistake.

There are 2 Major issues that have led to the current situation.

Issue 1 has been thoroughly identified in the June 29, 2011 Legislative Audit:

Additional resources can be found at the link below including Audit Report, Letter from Brad Cole, REC Fee Adjustment Letter, Schedule of Revenues AREC which outlines many costs which haven't been credited, as required, to the real estate industry and Schedule of Revenues and Expenditures which outlines the increase in investigation costs over the 6 years. 

 http://www.alaskatraining.com/ARECFeeAdjustmentOctober2011/tabid/196/Default.aspx

DEPARTMENT OF COMMERCE, COMMUNITY, AND ECONOMIC DEVELOPMENT  DIVISION OF CORPORATIONS, BUSINESS AND PROFESSIONAL LICENSING
SELECT OCCUPATIONAL LICENSING AND ENFORCEMENT ISSUES:

"There were discrepancies between the fees cited in regulation and the fees included in the most recent fee analysis calculations. For five licensing programs, not all fee types cited in regulation were included in the analysis. The differences between fee types in regulation and fee types included in the analysis may result in inaccurate calculations and unreliable fee adjustment recommendations for the affected occupations."

Real estate fees generated by Alaskan Real Estate Licensees have been severely understated by $1,303,829 dollars in the last 4 years alone. I have included the detail clearly showing the additional revenues we have paid as an industry to fund our regulatory oversight and are included in the Schedule of Revenues AREC with the link above. 

"State law regarding occupational licensing fees is clear; fees are established at amounts necessary to cover the costs incurred by the State in regulating the occupation/program. This objective cannot be met when occupations and specific fees are omitted from the annual analysis, and fee change recommendations are not implemented."

"This audit covers activity during FY11. However, DCCED occupational boards and commissions are subject to audit under the State's sunset provisions mandated in AS 44.66. Prior year sunset audits have identified numerous and varied issues related to licensing and enforcement activities. Some of these issues include:

Accumulation of excessive deficits or surplus;

Failure to implement required fee changes;

Errors in fee analysis calculations;

Inadequate investigation tracking system;

Insufficient and/or untimely investigation closure rates; and

Excessive periods of case inactivity."

The Schedule of Revenues AREC detail with the huge accumulated surplus clearly shows that a real estate license renewal fee of $150 along with the additional recovery fund fee of $125 is more than adequate to fund the real estate commission for the next 4 years.

The 2nd problem is identified both by the audit and in a letter from Don Habeger, director DCBPL.

The legal and investigative expenses increased more than 207 percent from the previous licensing period. This increase, from $189,230 to $590,370, is reflected in the Personal Services and Contractual Service lines on the attached Schedule of Revenues and Expenditures.

During the FY09 to FY11 time period, the number of open investigative cases rose significantly from 69 to 170 open cases.

Bob Lynn in a letter to Susan Bell, Commissioner and Don Habeger, Division Director

Department of Commerce, Community & Economic Development raised his concerns:

"Director Don Habeger's October 7 letter to the Real Estate Commission says that legal and investigative expenses increased more than 207 percent from the previous licensing period but it's never been explained to me why. What was the reason for such a jump in open investigative cases? What is driving the increase in legal and investigative expenses?"

In Susan Bell's Response to the legislative audit she provides some of the insight into the problem.

"First, and foremost, it is critical to note that a new Director was appointed to CBPL June 28, 2010 and key division positions were restructured with new incumbents over the past year. This new CBPL management team was assembled specifically to address weaknesses that were hindering the division from achieving intended goals and had resulted in impacts to Alaska businesses, corporations and other agencies. Under this intensive top down management effort it quickly became apparent that a multitude of previously unidentified problems exist within the division, and that a dearth of long term inappropriate historical practices were continuing to impede progress. During this past year, the new CBPL team and other department resources have triaged on critical areas, implemented several corrective actions, and are continuing to work on a long term strategy to correct historical practices and strengthen the division.

Noted in this audit report is CBPL's long historical record of unaddressed audit issues, which goes back about ten years. This is an indicator of the depth of issues and challenges that the new CBPL management has faced this past year."

While the obvious and glaring problems are being addressed in triage there was a cancer growing in CBPL that had been identified and improperly handled.

Going back to FY06 or FY07 an inexperienced investigator was hired to do real estate investigations. With no real estate experience, problems started happening in the way this person was conducting themselves. They used threats, intimidation, and bullying to overcome their inexperience in real estate and abused their position. It became outrageous and complaints regarding the misconduct were filed. In the private sector the person would have been discharged. Marc Davis the head of CPBL at the time in responding to the Alaska Real Estate Commission's complaints agreed to reassign the investigator to other than real estate investigations, since firing a union worker was problematic.

It didn't solve the problem it just buried it deeper making it virtually impossible to discover for the new management team that started after his departure the true underlying cause for the runaway costs in real estate investigations .

In reassigning the investigator to other industries, complaints started rising from those industries as a result of continued misconduct. More directly to the runaway costs in investigation on the real estate industry, the new investigator that was assigned was completely inexperienced.   The new investigator relied of the disgruntled former investigator who had been rejected by the industry for inappropriate and unprofessional conduct. The investigator who had been removed was now making decisions on which real estate cases to investigate and leading the inexperienced investigator to go after the industry that had had them removed.

It is easy to see the success of the campaign to damage the real estate industry, the numbers speak for themselves.                                                                                                                                                  
                           FY06      FY07    FY08      FY09       FY10       FY11

Hundreds of thousand of dollars have been wasted pursuing an agenda designed to damage the real estate industry, the asset that is the most valuable Alaskans have. In addition Real Estate Brokers and Salespeople have spent hundreds of thousands of dollars defending themselves from persecution from an angry state worker using unlimited state resources at everyone's expense. 

Cases have been opened wholesale for minor infractions when no investigation at all was necessary. More than 25 cases were opened based on letting a real estate license lapse. Real estate licensees must pay $250 to reinstate a lapsed license where mortgage originators pay $50 for the same service. So it is already an overpriced penalty, but opening up an investigation is like calling detectives and a CSI team to investigate a parking ticket.

So the 2 solutions to the 2 problems:

1. Appropriately establish the Real Estate License Fees to reflect an accurate figure of $150 for this year's renewal fee by giving appropriate credit to all fees collected on the industries behalf.
2. Real estate commission working with the Executive Director of the real estate commission conduct an assessment of the open 170 files. The investigative software new case management system was implemented but the legislative audit stated "the new system will not adequetly meet the case management needs of the investigative section."

Since expenses for the 2012 budget look forward to determine necessary fees are collected to fund the real estate commission, Budget no more than $120,000 for investigative purposes, which is still historically high. In addition the investigator should prepare a report in collaboration with the Executive Director to the next real estate commission the following fields for all investigations should be included in an Excell spreadsheet:

1. Date Investigation opened

2. Was a consumer complaint filed?

3. Who decided to open the investigation

4. What statutes were violated

5. What damage was done

6. What is a summary of the issues

7. Date of last action by investigator

8. Case number but leave names off.

The investigator should coordinate with the executive director to identify cases that are administrative in nature. The cases should be brought before the real estate commission at their next 3 meetings on the second day so that there can be a move to executive session and a full day working on closing and adjudicating files can be done in an effective judicious manner.

There are many other challenges facing the real estate industry but the resolution of these two issues will help remedy the current emergency.

Sincerely,

Jerry Royse

Broker

Cc:      Susan Bell, Commissioner susan.bell@alaska.gov'

            Don Habeger, Division Director don.habeger@alaska.gov

            Jun Maiquis, Regulations Specialist jun.maiquisalaska.gov

            Alaska Real Estate Industry