Legislature(2001 - 2002)
04/23/2001 01:50 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE BILL NO. 51 "An Act giving notice of and approving the entry into, and the issuance of certificates of participation for, a lease-purchase agreement for a seafood and food safety laboratory facility; and providing for an effective date." JANICE ADAIR, DIRECTOR, DIVISION OF ENVIRONMENTAL HEALTH, DEPARTMENT OF ENVIRONMENTAL CONSERVATION testified in support of HB 51. She noted that the legislation would authorize certificates of participation to replace the Palmer seafood and food safety laboratory with a new facility in Anchorage. She responded to questions raised during the previous committee hearing (see memorandum dated 4/3/01, copy on file). She explained that she was unable to obtain a letter from the current building owner indicating that they were not interested in a 15 percent lease reduction, which would allow the laboratory to remain in the current location. However, the landowner did communicate this information verbally to Ms. Adair. The landowner indicated that a 15 percent reduction would be below the cost she would be willing to rent the building. She provided members with a copy of an email from the Federal Drug Administration (FDA) explaining that they no longer certify private laboratories to test for paralytic shellfish poisoning. She answered the questioned of why the department could not use the building that currently houses the Alaska Seafood International Seafood (ASI) processing center in Anchorage. She contacted Bob Poe, Executive Director, Alaska Industrial Development and Export Authority (AIDEA), who confirmed that the facility is not available. The ASI facility is expected to be in full production by the summer. She was asked why a RFP was not issued to see if the private sector could build a facility cheaper. General Services advised her that they could not go out for a RFP unless there is an intent to issue a contract. The estimated development cost for a RFP would be just over $1 million dollars. Since there was no funding available for the RFP development and no way to solicit bids a private consultant was hired to provide professional judgment on the cost differences between building and leasing. The consultant concluded that leasing would be far more expensive than building a state owned laboratory. The per square cost of the entire 20 year bond repayment term would be $4.87 dollars a square foot. The building would be paid for after the 20-year term. The state chemistry laboratory located in Juneau and managed by the Department of Environmental Conservation costs $4.26 dollars a square foot and is expected to increase. Laboratories are sized according to the type of analysis that takes place and the type of equipment needed. Air handling systems must be located internally. Laboratories require counter tops, space hoods, fuel hoods, walk-in coolers and freezers and other big pieces of equipment that take up room. She compared the 20,500 square foot proposed laboratory to the existing laboratory. She noted that of 20,500 square feet only 11,890 would be available for use by employees. There would be over 9,000 square feet for ventilation, mechanicals, walls and hallways. She addressed the question of what part of the proposed laboratory could be deleted if the bond package was reduced. She noted that reduced administrative space was identified for a savings reduction of $200 thousand dollars [840 square feet]. A conference room and one office would be eliminated, and the waiting area would be reduced. The non- bondable costs would be covered by general funds because it is not qualified for federal funds and Alaska Housing Finance Corporation (AHFC) funds were already obligated. If the legislation is not passed, the laboratory can only stay in their current location as on emergency extension basis. There is an obligation not to go into emergency procurement. They would be asked by General Services to go out with a RFP this summer for a lease facility to have a facility on-line before their current lease expires. The estimated cost to develop a RFP exceeds a million dollars. The increased rental costs would have to come out of their operating budget. The department does not have funds for either item and would be "in a world of hurt if the bill doesn't pass." Representative Harris referred to a memorandum by Representative Ogan, dated 3/23/01 (copy on file.) He noted that the memorandum stated that the department was willing to work toward achieving three goals: move the seafood testing portion of the laboratory closer to tidewater, leave functions other than seafood in the valley [Matanuska] and find a way to obtain a more affordable reasonable sized facility with a acceptable square foot cost in Anchorage. Ms. Adair noted that she met with staff from Representative Ogan's office and responded to questions in a memorandum dated 4/11/01 (copy on file.) She noted that the laboratory does about 85 percent seafood work. She reviewed other activities of the laboratory. The same staff and laboratories are used to do other activities such as dairy product testing. She explained that it would not be cost affective to split functions and only move seafood activities. The state would have to build two laboratories in order to leave the other activities in the valley. There would not be enough work to operate a valley laboratory full time and hire a full time microbiologist. Functions that have a historical connection to the valley will remain there, such as the pesticide program. The dairy sanitarian (the person that inspects the dairy farms and processors) and the state veterinarian will remain. Representative Harris noted that he is concerned with the removal of the facility from the valley without consultation with the district's members. In response to a question by Representative Hudson, Ms. Adiar noted that seafood samples come from all over the state. There are federal requirements for smoked fish. A certain amount of each lot of smoked fish must be tested. Shellfish and other seafood are also tested. A greater focus is being given to after testing the processed product. Smoked fish samples from Southeast [and other areas of the state] are shipped to Palmar for testing. Shellfish cannot be sold until they have been tested. The shellfish and growing waters are tested. The growing waters must be tested within 30 hours from the time the sample was taken. Representative Lancaster stressed that the issue is whether the laboratory is moved. He stated that it would make sense to move the laboratory to Anchorage and emphasized the time sensitivity of the lease. He acknowledged that there are still questions that need to be answered. Representative Hudson asked if Ms. Adair had made arrangements to meet with Representative Ogan to look at the possibility of retaining some aspects in Palmer. Ms. Adair reiterated that it does not make sense to split the laboratory. Splitting the function would not reduce the seafood aspect of the laboratory. Splitting the aspects would create an additional need in Palmer for the non- seafood aspect. She stressed that the impact to Palmer would be minimal. She noted that informal conversations have indicated that the Palmer employees plan to commute into Anchorage. In response to a question by Co-Chair Williams, Ms. Adair acknowledged the necessarily of reducing the project's cost. Some equipment purchases could be deferred until the laboratory is ready to open and purchased in the capital budget. She estimated that this could reduce the price by $1 million dollars to $11.2 -$11.6 million dollars. Representative Carl Moses stressed the importance of serving the needs of the industry and pointed out that the time delay in shipping can be critical. Representative Harris questioned how long it would take to build the facility. DEVON MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND BANK AUTHORITY, DEPARTMENT OF REVENUE explained that there are restrictions on the time of the bond issuance. There has to be a reasonable expectation that proceeds would be expended within 3 years. The Department of Transportation and Public Facilities has done an initial analysis on the project that showed a final 5 percent of the piece occurring in year four. This would have to be shifted into year three. He acknowledged that reasonable expectations do not always play out in reality. Co-Chair Williams questioned options for reducing financing costs. Mr. Devon observed that net funding could be used to decrease the bond size. Assumptions on cash flow and investment earnings are made during the construction period to reduce the bond sizing. HB 51 was heard and HELD in Committee for further consideration.