Legislature(2009 - 2010)

04/02/2009 03:06 PM FIN

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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."                                                                      
3:14:22 PM                                                                                                                    
Representative Foster spoke in support of the bill.                                                                             
REPRESENTATIVE  CATHY  MUNOZ,   SPONSOR,  addressed  specific                                                                   
questions  that  had  been  asked   previously  by  committee                                                                   
members. She  referred to additional materials  covering cost                                                                   
comparison   data,   due   diligence   information,   and   a                                                                   
construction analysis.                                                                                                          
Representative  Munoz addressed  concerns  that the  proposed                                                                   
building was considered Class  A space. She detailed that the                                                                   
proposed construction  cost was  $315 per square  foot, which                                                                   
is considered  Class B  space when  compared to office  space                                                                   
around the state.  New office space ranges from  $200 to $500                                                                   
dollars per square foot.                                                                                                        
Representative  Munoz  turned   to  the  question  of  square                                                                   
footage  price   and  reported   that  a  ceiling   had  been                                                                   
established  at $3.50  per  square foot;  the  intent was  to                                                                   
negotiate  down from the  ceiling. She  pointed to  extensive                                                                   
data  regarding cost  comparisons for  Anchorage and  Juneau.                                                                   
She reminded the  committee that the square  footage costs do                                                                   
not include investments  that the state makes  on lease space                                                                   
to  make   the  space   meet  information  technology   (IT),                                                                   
lighting, and  other requirements. For example,  the Frontier                                                                   
Building in  Anchorage is  leased at  $3.00 per square  foot,                                                                   
but recently  required over  $1 million  in upgrades  to make                                                                   
the space adequate.                                                                                                             
Representative  Munoz  discussed  concerns raised  about  the                                                                   
owner of  the Department of  Labor and Workforce  Development                                                                   
(DLWD) building.  She noted that the state  is not interested                                                                   
in  renegotiating a  lease contract  at the  site because  of                                                                   
environmental and repair issues.                                                                                                
Representative  Munoz emphasized  that  the proposed  project                                                                   
provided great  opportunity for the  state of Alaska  and for                                                                   
the Mental  Health Trust;  the state  would save $13  million                                                                   
and the trust would be able to develop a key asset.                                                                             
Representative  Munoz  mentioned  a proposed  amendment  that                                                                   
would allow the Alaska Housing  Finance Corporation (AHFC) to                                                                   
purchase an  administrative building in Anchorage  using AHFC                                                                   
3:19:54 PM                                                                                                                    
Vice-Chair Thomas  puzzled over the location  of the building                                                                   
and questioned the  price that would be paid.  He thought for                                                                   
the price the  building should be where the  subport building                                                                   
used to be.  Representative Munoz responded  that the project                                                                   
architects could  speak specifically to site  issues; she was                                                                   
presenting the mental health trust's proposal.                                                                                  
Co-Chair Stoltze  noted that  the bill  would be heard  again                                                                   
the next day.                                                                                                                   
Representative  Kelly commented  that his previous  questions                                                                   
had been answered completely.                                                                                                   
3:23:15 PM                                                                                                                    
Co-Chair Hawker stated  some of his concerns  for the record.                                                                   
He  had  questions regarding  cost,  value,  quality  issues,                                                                   
financing alternatives, and the structure of the bill.                                                                          
Representative Crawford  requested a short explanation  as to                                                                   
why it  would be  to the  state's advantage  to have  someone                                                                   
else build, own,  and operate the building instead  of owning                                                                   
the building  itself. He  understood that  the deal  would be                                                                   
increasingly good  for the mental health trust  over time and                                                                   
wondered how the state would benefit.                                                                                           
Representative Munoz emphasized  that the mental health trust                                                                   
and  the state  should  be regarded  as  partners. The  state                                                                   
works  very  closely with  the  trust  and encourages  it  to                                                                   
develop  its assets.  She thought  the  project provided  the                                                                   
trust  with an  opportunity to  develop  their portfolio  and                                                                   
provide a revenue stream to beneficiaries  over the course of                                                                   
the project.  The state  would benefit  as a funding  partner                                                                   
with the trust.                                                                                                                 
REPRESENTATIVE  BETH KERTTULA,  SPONSOR,  added that  another                                                                   
advantage to the state would be saving $13.5 million.                                                                           
3:25:59 PM                                                                                                                    
Representative  Crawford  did not  understand  how the  state                                                                   
would save $13.5 million. He thought  the trust could gain by                                                                   
selling  the land  and investing  the earnings.  He had  been                                                                   
told that  the state had  paid over $50  million in  rent for                                                                   
the DLWD building. He asked why  the state should rent rather                                                                   
than  buy and  why  the state  should  not appropriate  money                                                                   
directly to the trust instead  of give it money through rent.                                                                   
Representative  Munoz responded  that  the proposal  involves                                                                   
three different sites. The Department  of Public Safety (DPS)                                                                   
building on  Whittier Street, was  built in 1970 to  last ten                                                                   
years,  but has  been occupied  by  the state  for nearly  40                                                                   
years.  Renovation  of  the  DPS   building  and  the  second                                                                   
building, the Department  of Fish and Game (DFG)  building in                                                                   
Douglas, would  cost much more  than $8.5 million.  She added                                                                   
that the  $13 million  savings does  not include  replacement                                                                   
costs  that the  state  foresees  for both  the  DPS and  DFG                                                                   
3:28:25 PM                                                                                                                    
Vice-Chair Thomas  queried whether  the buildings  would have                                                                   
60-foot atriums  and whether  they would  meet the  new state                                                                   
energy  efficiency  codes  being   proposed  because  of  the                                                                   
stimulus funds.                                                                                                                 
Co-Chair  Stoltze thought  the  architect  could address  the                                                                   
Co-Chair  Stoltze  MOVED Amendment  1,  26-LS0605\W.1,  Cook,                                                                   
4/2/09 (copy on file):                                                                                                          
     Page 1, lines 2-3:                                                                                                         
          Delete "the Alaska Mental Health Trust Authority"                                                                     
          Insert "a separate trust land development account"                                                                    
     Page 1, line 6, following "Administration;":                                                                               
          Insert  "authorizing  the  Alaska  Housing  Finance                                                                   
          Corporation   to  acquire  the  building   that  it                                                                   
          occurpies  for  an  amound  that  does  not  exceed                                                                   
     Page 5, following line 20:                                                                                                 
          Insert a new bill section to read:                                                                                    
     "*Sec.8. The  uncodified law of  the State of  Alaska is                                                                   
     amended by adding a new section to read:                                                                                   
          AUTHORIZING THE ALASKA HOUSING FINANCE CORPORATION                                                                    
     TP  ACQUIRE  A  BUILDING.  The  Alaska  Housing  Finance                                                                   
     Corporation  is authorized  to acquire  the building  in                                                                   
     Anchorage it occupies on  the effective date of this Act                                                                   
     for  an amount that  does not  exceed $14,500,000.  This                                                                   
     section   constitutes  the   approval  required   by  AS                                                                   
     18.55.100(d) and AS 18.56.090(d)  for that acquisition."                                                                   
     Renumber the following bill sections accordingly.                                                                          
Co-Chair Hawker OBJECTED for DISCUSSION.                                                                                        
JOHN BITNEY,  STAFF, REPRESENTATIVE JOHN HARRIS,  SPONSOR and                                                                   
CHAIRMAN, LEGISLATIVE  COUNCIL, reported  that the  intent of                                                                   
the amendment  was to  bring forth  a proposal. He  explained                                                                   
that the  Anchorage Legislative  Information Office  (LIO) is                                                                   
on   a   year-to-year   lease   and   needs   office   space.                                                                   
Conversations  with AHFC  about space  and financing  options                                                                   
led to a cost-savings idea. The  corporation has needed space                                                                   
as well  and had calculated costs  for a mortgage  that could                                                                   
result in savings of several million dollars.                                                                                   
3:34:04 PM                                                                                                                    
DAN FAUSKE,  CEO/EXECUTIVE DIRECTOR,  ALASKA HOUSING  FINANCE                                                                   
CORPORATION,   DEPARTMENT  OF   REVENUE,   provided  a   memo                                                                   
regarding the  proposal (copy on file). He  provided history,                                                                   
explaining  that   AHFC  has  owned  4.3  acres   in  midtown                                                                   
Anchorage since  1995; the corporation  had planned  to build                                                                   
office space  but the contract  was cancelled. In  1997, AHFC                                                                   
entered into  an agreement  to lease  office space.  In 1999,                                                                   
AHFC unsuccessfully  sought legislative  approval to  acquire                                                                   
the property.  Tatitlek Corporation  bought the building  for                                                                   
$6 million  and has been open  to sell the property  to AHFC.                                                                   
The native  corporation wants  the 4.3  acres that  AHFC owns                                                                   
and AHFC wants  the building they are currently  leasing from                                                                   
Mr. Fauske  continued  that there have  been negotiations  to                                                                   
trade  assets. Appraisals  on the  building show  that it  is                                                                   
worth about $14.5 million. No  cash will be required from the                                                                   
legislature, lease  payments will  be reduced, and  AHFC will                                                                   
acquire an asset. In addition,  the increased net income will                                                                   
increase the dividend available to the state.                                                                                   
Mr. Fauske added that the governor's  office had not objected                                                                   
to the idea  of AHFC purchasing the building.  He referred to                                                                   
a  spread  sheet  with  detailed   descriptions  and  figures                                                                   
related to the properties (copy on file).                                                                                       
3:39:59 PM                                                                                                                    
JOE DOOGLER, CHIEF FINANCIAL OFFICER,  ALASKA HOUSING FINANCE                                                                   
CORPORATION,  DEPARTMENT OF  REVENUE,    summarized  that the                                                                   
net  present   value   savings  [of  the   trade]  would   be                                                                   
approximately  $7.5 million,  and  possibly  $12 million.  He                                                                   
continued  that the purchase  price includes  $2 million  for                                                                   
needed upgrades.                                                                                                                
Representative Foster  cited experience with city  taxes, and                                                                   
reported that most of a city can  be tax-exempt. He asked how                                                                   
the  proposal  would affect  tax  income for  Anchorage.  Mr.                                                                   
Fauske responded  that the  building would  be tax  exempt as                                                                   
AHFC would own  it as a state entity. He referred  to similar                                                                   
discussion regarding other property.                                                                                            
Co-Chair Stoltze asked if the  taxable and tax-exempt aspects                                                                   
would cancel each  other out. Mr. Fauske replied  that it was                                                                   
3:43:54 PM                                                                                                                    
Representative Gara asked whether  the building was currently                                                                   
not taxed because  it was owned by Tatitlek  Corporation. Mr.                                                                   
Fauske thought it was being taxed.                                                                                              
Representative  Gara wondered how  much property  tax revenue                                                                   
the municipality  would  lose. Mr. Fauske  responded  that he                                                                   
did not know but would find out.                                                                                                
Representative   Gara  asked  if   Anchorage  would   end  up                                                                   
collecting  less  money. Mr.  Fauske  replied  that the  city                                                                   
would collect  less money. He  defended AHFC regarding  taxes                                                                   
because the corporation brings  a lot of assets to Anchorage.                                                                   
He thought the  issue was more a state issue.  He referred to                                                                   
past debates with the legislature regarding taxes.                                                                              
3:45:31 PM                                                                                                                    
Representative  Gara  wanted  to  know the  position  of  the                                                                   
municipality. Mr. Fauske did not know.                                                                                          
Co-Chair Stoltze noted that the  municipality is not asked in                                                                   
other similar situations.                                                                                                       
Representative Fairclough  spoke on the taxing  issue. In her                                                                   
experience,  taxes do  not go  up but are  spread across  the                                                                   
entire  body.  There  are many  components:  property  values                                                                   
might  go  up  or  down,  the mill  rate  goes  up  or  down,                                                                   
depending on  Anchorage's budget; but government  spending is                                                                   
not cut back when less tax income is available.                                                                                 
Representative Gara  asked for clarification.  Representative                                                                   
Fairclough  responded that  state government  has a  bill for                                                                   
various  items;  if revenue  declines,  people  who have  the                                                                   
ability pay  in. She  pointed to other  variables, such  as a                                                                   
mini-permanent fund that draws interest.                                                                                        
Representative Gara asked whether  AHFC's fund and ability to                                                                   
further its mission  would be impacted if AHFC  purchased the                                                                   
3:48:17 PM                                                                                                                    
Mr.  Fauske  responded  that  there  would  only  be  a  cash                                                                   
displacement  and other  programs  would not  in  any way  be                                                                   
Representative  Fairclough  asked whether  there  would be  a                                                                   
small increase  in income  to the  state. Mr. Fauske  replied                                                                   
that there would  be a positive increment because  AHFC would                                                                   
be spending less in operating  expenses and 75 percent of the                                                                   
corporation's  net income is  available for appropriation  by                                                                   
the state.                                                                                                                      
Vice-Chair Thomas  asked for  clarification about  the trade.                                                                   
Mr.  Fauske responded  that  the amount  of  the land  value,                                                                   
estimated at  between $4.5 million  and $5 million,  would be                                                                   
deducted  from  the $14.5  million  and  AHFC would  owe  the                                                                   
difference. The  additional revenue from the  second piece of                                                                   
land would also be deducted.                                                                                                    
Vice-Chair  Thomas asked  whether  the amendment  would  give                                                                   
legislative  authority  to  release the  assets.  Mr.  Fauske                                                                   
explained that  AHFC needs authority to purchase  a building.                                                                   
He  stressed  that in  the  present  proposal AHFC  would  be                                                                   
exchanging and not disposing an asset.                                                                                          
Mr.  Doogler interjected  that  AHFC  would be  disposing  an                                                                   
asset  as well. He  added that  AHFC also  has the  statutory                                                                   
authority  to dispose  of assets. Mr.  Fauske clarified  that                                                                   
AHFC cannot sell  assets as a private entity  would; there is                                                                   
a public process.                                                                                                               
Mr. Doogler pointed  out that Anchorage would  get more taxes                                                                   
from  the land  when  it is  developed,  which would  replace                                                                   
taxes lost by AHFC acquiring the building.                                                                                      
3:51:54 PM                                                                                                                    
Co-Chair Hawker  asked about the quality and  desirability of                                                                   
the  exchanged  land  in the  Anchorage  market.  Mr.  Fauske                                                                   
responded that  land on 34  street  was appraised in  2008 at                                                                   
$4,168,000;  current  market value  would  put  it closer  to                                                                   
between $4.7  million and $5.1  million. As of  February 2008                                                                   
the  1.4  acres  at Boniface  and  DeBarr  was  appraised  at                                                                   
$511,000; current market value could be slightly higher.                                                                        
Co-Chair  Hawker  queried  the probability  of  the  property                                                                   
being developed.  Mr. Fauske responded  that there was a very                                                                   
high probability that Tatitlek  Corporation would develop the                                                                   
site. Co-Chair  Hawker confirmed  that the property  would be                                                                   
developed for taxable commercial purposes.                                                                                      
Co-Chair  Hawker  asked  whether   AHFC  would  be  the  only                                                                   
occupant of  the building acquired.  Mr. Fauske  replied that                                                                   
one  tenant,  the  Alaska  Public   Safety  Employees  Union,                                                                   
occupies a small space. Co-Chair  Hawker confirmed that there                                                                   
was no commercial plaza involved.                                                                                               
Mr. Fauske stated  that AHFC needs to own a  building. He did                                                                   
not want higher  leases and thought the opportunity  was good                                                                   
as the  location is centrally  located and the  property will                                                                   
only increase in  value. He did not feel the  amendment would                                                                   
harm HB 161.                                                                                                                    
3:55:59 PM                                                                                                                    
Co-Chair  Hawker noted  that questions  he had had  regarding                                                                   
deferred maintenance  and other issues had been  answered. He                                                                   
hoped  negotiations would  continue in  such a  way that  the                                                                   
state  would receive  the  best  value possible.  Mr.  Fauske                                                                   
Co-Chair Stoltze  spoke to personal  experience with  an AHFC                                                                   
purchase and appreciated the open process.                                                                                      
Representative  Gara stated  his support  but wanted  to hear                                                                   
from the municipality.  Mr. Fauske replied that  he would get                                                                   
the information.                                                                                                                
3:59:04 PM                                                                                                                    
Representative  Salmon asked which  native corporation  owned                                                                   
the building.  Mr. Fauske  responded Tatitlek Corporation,  a                                                                   
subsidiary of Chugach Alaska Corporation.                                                                                       
Representative Kelly asked if  there would be further issues.                                                                   
Mr. Bitney  stated that  "this is  it." Mr. Fauske  explained                                                                   
that the purchase of the building  was originally going to be                                                                   
a stand-alone bill.                                                                                                             
Co-Chair  Hawker  WITHDREW  his  OBJECTION.  There  being  no                                                                   
further objection, Amendment 1 was ADOPTED.                                                                                     
HB  161  was   HEARD  and  HELD  in  Committee   for  further                                                                   
4:02:30 PM          AT EASE                                                                                                   
4:06:22 PM          RECONVENED                                                                                                

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