Legislature(2001 - 2002)

04/23/2001 01:50 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                                   
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                                                                   

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