Legislature(2009 - 2010)HOUSE FINANCE 519
03/27/2009 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| HB161 | |
| HB199 | |
| Adjourn | |
| Start | |
| HB127 | |
| HB35 | |
| HB161 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 127 | TELECONFERENCED | |
| += | HB 35 | TELECONFERENCED | |
| + | HB 161 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 199 | TELECONFERENCED | |
HOUSE BILL NO. 161
"An Act relating to the Alaska Mental Health Trust
Authority Subport Office Building; authorizing the
issuance of certificates of participation for
construction of the building and authorizing the use of
up to $25,000,000 from the mental health trust fund for
construction of the building; approving leases of all
or part of the building by the Department of
Administration; and providing for an effective date."
REPRESENTATIVE CATHY MUNOZ, SPONSOR, spoke in support of HB
161 and introduced several people who could answer questions
regarding the legislation.
5:14:18 PM
Representative Munoz informed the committee that HB 161 was
introduced on behalf of the Alaska Mental Health Trust
Authority (AMHTA) so that the trust could develop a piece of
property in the subport area in downtown Juneau. She
explained that the plan calls for the construction of an
office building that will house approximately 500 state
employees.
Representative Munoz added that a primary mission of AMHTA
is to develop land that it holds throughout the state. For
many years, the trust has viewed the subport property as a
top development priority. She pointed to a critical need in
Juneau for office space; two of the state facilities are
aging and face immediate renovation costs of approximately
$8.5 million. In addition, both facilities will need to be
replaced in the future. The Department of Fish and Game
(DFG) building in Douglas is nearly 50 years old, and the
Department of Public Safety (DPS) building downtown is about
40 years old. The DPS building was constructed in 1970; the
intent was to use it for ten years. A lease on the third
facility, the Department of Labor (DOL) building, is due to
expire soon. The state will need to find replacement space
for approximately 300 DOL employees.
5:16:10 PM
Representative Munoz listed four key points regarding the
legislation:
· Over the life of the lease, the state will save
approximately $13 million.
· The trust is allowed to develop a key land holding,
which will provide a stable and dependable revenue
stream for beneficiaries of the trust.
· As land owner, the trust provides the land and half the
construction costs, or approximately $22.7 million.
· The state, in partnership with the trust, is able to
meet a critical space need for around 525 state
employees, and agrees to bond an equal amount of
approximately $22.7 million, with the lease payments as
security on the bonds.
Representative Munoz emphasized that timing is crucial. In
order for the project to work, enabling legislation must
happen in the current session, as the DOL lease expires in
1012.
5:17:47 PM
Representative Foster opined that the bill was the best he'd
ever heard.
Representative Crawford agreed and asked if the legislation
would be under the state's prevailing wage law.
Representative Munoz did not know but offered to find the
answer.
Vice-Chair Thomas asked who owns the building being vacated.
Representative Munoz answered that the state of Alaska owns
the DPS facility on Willoughby Avenue and the DFG building
in Douglas. The DOL facility is owned privately by a family
who lives outside of Alaska.
Vice-Chair Thomas wondered what the Department of
Administration planned for the two state-owned facilities.
Representative Munoz replied that the buildings would
probably be torn down and the property sold for mixed
development such as housing.
Vice-Chair Thomas queried if the proposal included funds to
tear the buildings down. Representative Munoz responded that
the legislation does not provide for demolition costs.
Vice-Chair Thomas hoped there was a plan. He had seen school
districts burdened with old buildings after erecting new
ones. Representative Munoz explained that the state planned
to take the DPS facility down and put in additional parking
for the area. There was also discussion about using the
facilities for things such as record storage.
5:21:36 PM
Representative Austerman wondered if parking space would be
lost in the downtown area with the new construction.
Representative Munoz replied that the facility would require
on-site parking to meet the planning and zoning needs of the
space. She assured him that the needs could be met on-site.
In addition, the city is constructing a parking garage at
Main Street and Egan Drive; this garage is not associated
with the proposed project.
Co-Chair Stoltze queried possible parking variances.
Representative Munoz replied that the project has not gone
through a permitting process yet, but she understood that
there would be enough on-site parking.
5:24:04 PM
JEFF JESSEE, CHIEF EXECUTIVE OFFICER, ALASKA MENTAL HEALTH
TRUST AUTHORITY (via teleconference), testified that when
the Department of Administration approached the trust about
the possibility of constructing the office building, the
trust saw a unique opportunity to develop its resources. The
land office has relied on more tradition methods of land
management such as leases and sales of property. The project
would offer the trust the option of being a developer. The
trustees considered and decided the project was an excellent
investment for the trust. The $22.7 million that AMHTA would
invest in the building would return around 7.5 percent,
which is comparable to the return on the trust's permanent
fund over time. In the current economic environment, being
able to guarantee the return over a 30-year period would
help secure the endowment of the trust. During the 30 years,
the payout would be offset and after the 30 years, the
entire lease would go to the trust, making it an excellent
investment. The state has the advantage of seeing its lease
payments ultimately return to the non-profits that serve
trust beneficiaries in furtherance of the mental health plan
of the state. The mental health needs are expected to
increase, so the additional revenue will be good.
5:28:59 PM
Representative Fairclough asked for further information
regarding the benefit to the state of using the $22.7
million general fund. Mr. Jesse understood that the $22.7
million will come from certificates of participation; the
state will not be fronting general funds. Private investors
will put up the capital. Through the lease payments, the
certificates of participation will be paid off over a 20-
year period of time.
5:30:12 PM
Representative Crawford suggested that the design not
include a flat roof, which does not make sense in Juneau.
Vice-Chair Thomas queried the acreage of the land and who
owns it. Representative Munoz replied that the trust owns
the land.
HARRY NOAH, EXECUTIVE DIRECTOR, ALASKA MENTAL HEALTH TRUST
LAND OFFICE (via teleconference), recollected the size as
approximately four acres.
Vice-Chair Thomas asked the property value of the land. Mr.
Noah replied that comparable appraisals in the area had been
made, but he did not have the data. He offered to get the
numbers.
Vice-Chair Thomas asked why the parking area had the best
view. Mr. Noah answered that the subport area is extremely
valuable land. Initially, the intent was to take (through
the trust land replacement program) the land where the DPS
building stands and build the parking garage. However, the
cost of the parking garage was $20 million. The project
could not offset the high number with lease payments. The
trust has reluctantly decided to use the area where the old
subport building was as surface parking until there is some
economic reason to change. Then the parking garage would be
constructed and the area where the old subport building was
would be developed. He called the measure an interim one.
The trust has no specific use currently for the land. When a
good one comes along, the trust intends to build a parking
garage and further develop the area that will be used for
surface parking.
5:34:37 PM
Representative Gara voiced concern about taking $22.7
million from assets that generate income for the trust. He
wanted to make sure there would be enough. Mr. Jesse replied
that there will be no interruption of cash flow. He
explained that at the end of the fiscal year, the trust pays
out a percentage of its assets held by the permanent fund.
In this case, the $22.7 million will still be in the
permanent fund at the end of FY10; payout will be available
in FY11. For 2012, the lease payments will begin at the
start of the fiscal year, and the lease payments will be
available subsequently.
Representative Gara asked whether there would be a risk if
tenancy did not occur or if construction were delayed. Mr.
Jesse responded that no business deal is entirely free from
risk; however, there are major incentives to make sure the
building is completed on time, including that the state
lease on the current facility expires at same time the new
building will be completed. He added that even if there were
some delay in the commencement of the lease payments, the
amount of money involved is $900,000 a year, an amount that
he believed trust could plan for and absorb without
affecting its goals.
5:38:12 PM
Representative Gara stated that he is fine with the risk if
the trust is fine with it. Mr. Jesse replied that he is
definitely fine with the risk, particularly because at 20
and 30 years out, the investment becomes an excellent deal
for future trustees.
Co-Chair Hawker queried how the state could rationalize
building on expensive Class A real estate. Mr. Jesse replied
that the AMHTA intends to provide the state with quality,
energy efficient, aesthetically appropriate office space
without the health and safety concerns caused by the state's
current space.
Representative Munoz added that rates at other comparable
spaces, such as at the Goldbelt and Sealaska buildings, were
comparable. In addition, the renegotiated DOL lease would be
considerably more than what is currently being paid.
5:41:07 PM
Representative Foster asked what the Department of
Administration thought about the provision.
VERN JONES, CHIEF PROCUREMENT OFFICER, DEPARTMENT OF
ADMINISTRATION, directed attention to the fiscal note and
analysis. He reported that DOA thought the proposition was a
good deal. He mentioned the DOL building lease that was
expiring. If the building does not get built, the
department's other option is to put out an RFP the coming
summer. The department's analysis shows that over the 30-
year life of the lease, the AMHTA option would be $13.5
million less expensive than a lease in the private sector
and maintaining the two older buildings that require a great
deal of deferred maintenance. He pointed out that the fiscal
note was understated; the cost showed for maintaining the
old buildings and continuing the lease is probably low. In
addition, the capital costs for the Douglas Island building
and the DPS building only have the known existing deferred
maintenance projects listed. Over the next 30 years, other
work would need to be done.
Mr. Jones added that DOA analysis calculates the square foot
price at about $353. The department thinks the price is a
bargain for the quality of space being contemplated.
5:44:24 PM
Co-Chair Hawker asked if he was referring to cost to
construct or leasehold costs. Mr. Jones responded the number
represents a cost per square foot under a lease. He pointed
out that the number is a ceiling to negotiate under, not
necessarily the price that will be paid for the building.
Co-Chair Hawker stated his inclination to support the
concept. He referred to arguments by the current owner of
one of the buildings that they could do a better job for
less money. Mr. Jones replied that he had heard the
arguments; departmental analysis does not support them.
Co-Chair Hawker wanted to see a direct response to the
arguments with the financial analysis.
Representative Munoz requested that the committee consider
what the state has invested in the facility. Close to $50
million has been invested in the old building. She thought
it was important for the state to find space that would
allow the department to function better. She reported
numerous, well-documented problems. She believed there would
be good benefit for all the parties involved.
Co-Chair Hawker asserted that the state has to pay for the
property. He wanted questions answered.
Co-Chair Stoltze wanted numbers from the administration.
5:48:45 PM
Representative Kelly was not convinced that the deal was
great. He questioned putting state employees in Class A
space. The trust could also construct a building and rent it
out to doctors and attorneys to make money.
Representative Munoz believed the current cost for the DOL
building was $2.33 per square foot. She asked if the
committee wanted an analysis of comparable space.
Representative Kelly wanted a comparison with costs for
Class B or C space, which he thought was more appropriate.
He referred to criticisms he was hearing about the measure.
5:52:23 PM
Representative Foster relayed his experience with office
space. He opined that space with good parking can be
important for employees.
Mr. Jones reiterated that the $3.53 per square foot is a
ceiling cost and that the price is still not negotiated. He
pointed out that the state is not a typical tenant; it is a
high quality but expensive tenant. Technology needs are much
higher and more expensive to service than for a typical
private tenant. There are higher natural light requirements
as well, which drive up the cost of space. He suggested that
it is not fair to compare to what might be available at a
mall or Class C space. The department projects that the
expectations for price in the RFP will be in the $3.80 to
$4.00 per square foot range. The department thinks it has
good backup to justify those expectations.
5:56:08 PM
Co-Chair Stoltze talked about the information needed by the
committee.
Vice-Chair Thomas wondered if there were letters of support
from the municipality. Representative Munoz responded that
the City and Borough of Juneau had unanimously passed a
resolution of support.
5:58:50 PMRECESSED until 9:00 AM March 28, 2009
9:09:48 AM RECONVENED
| Document Name | Date/Time | Subjects |
|---|---|---|
| A M E N D M E N T 1 - Gara.doc |
HFIN 3/27/2009 1:30:00 PM |
HB 35 |
| A M E N D M E N T 2 - Gara.doc |
HFIN 3/27/2009 1:30:00 PM |
HB 35 |
| CSHB161 Explanation of Changes from (H)CRA.pdf |
HFIN 3/27/2009 1:30:00 PM |
HB 161 |
| Exec Budg Act-HB127-detailed comments 3-23-09.pdf |
HFIN 3/27/2009 1:30:00 PM |
HB 127 |
| AK Railroad briefing.ppt |
HFIN 3/27/2009 1:30:00 PM |
HB 127 |
| AMHTA Subport HB161 Admin Briefing Paper 3 24 09.pdf |
HFIN 3/27/2009 1:30:00 PM |
HB 161 |
| Blank Rome memo to ARRC 032309.pdf |
HFIN 3/27/2009 1:30:00 PM |
HB 127 |
| A M E N D M E N T 3 - Gara.doc |
HFIN 3/27/2009 1:30:00 PM |
HB 35 |
| A M E N D M E N T 4 - Gara.doc |
HFIN 3/27/2009 1:30:00 PM |
HB 35 |
| A M E N D M E N T 5 - Gara.doc |
HFIN 3/27/2009 1:30:00 PM |
HB 35 |
| CSHB161(CRA)-DOR-TRS-03-27-09FN Corrected.pdf |
HFIN 3/27/2009 1:30:00 PM |
HB 161 |
| DHSS Response 033009.doc |
HFIN 3/27/2009 1:30:00 PM |
HB 35 |
| HB127 Letter AK Miners Assoc..pdf |
HFIN 3/27/2009 1:30:00 PM |
HB 127 |
| HB127 Opposition Letter.pdf |
HFIN 3/27/2009 1:30:00 PM |
HB 127 |
| HB127_Sponsor_Stmt.pdf |
HFIN 3/27/2009 1:30:00 PM |
HB 127 |
| HB161 SPONSOR STATEMENT.mht |
HFIN 3/27/2009 1:30:00 PM |
HB 161 |
| HB161 Labor Bldg. Lease Costs.pdf |
HFIN 3/27/2009 1:30:00 PM |
HB 161 |
| Rep Millet Response from Dept of Admin.pdf |
HFIN 3/27/2009 1:30:00 PM |
HB 161 |
| Rep Millet Response from The Land Trust.pdf |
HFIN 3/27/2009 1:30:00 PM |
HB 161 |
| Rep. Millet Questions.pdf |
HFIN 3/27/2009 1:30:00 PM |
HB 161 |
| Subport Architect Presentation.ppt |
HFIN 3/27/2009 1:30:00 PM |
HB 161 |