Legislature(1995 - 1996)
02/29/1996 03:26 PM House HES
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* first hearing in first committee of referral
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HB 515 - USE OF YOUTH SERVICES GRANTS Number 1760 REPRESENTATIVE BILL WILLIAMS, Sponsor of HB 515, read the following sponsor statement: "House Bill 515 allows the recipient of an operating grant for residential services to use grant money to pay for the purchase of a building. Residential services are defined in statute as `24-hour care and supervision of minors in residential child care facilities that are commonly known as group homes or institutions' (AS 47.40.091). "Currently recipients of these grants may not use grant money to pay the principal of a mortgage loan. They may, however, use the money for rent and least payments. Today recipients pay rent/lease payments year after year with no chance of building equity. The residential youth home in Ketchikan has spent over $200,000 in rent over the last six years. They could own their facility today had it not been for the present statute. "By changing this statute these residential centers can, in many cases, lower monthly payments and eventually own their own facility. In the long run this will lessen their dependency on the state and allow more money for the programs that help our troubled youth. "During these times of fiscal responsibility, we need to get the most out of every dollar the state spends. I believe this legislation will give these homes flexibility toward bettering their programs. I urge you to support this legislation." CO-CHAIR BUNDE asked what prompted Representative Williams to introduce this legislation? REPRESENTATIVE WILLIAMS said individuals who are in charge of the homes in Ketchikan brought it to his attention. He also thought it was something that needed to be looked at, especially when an agency spends that kind of money for lease/rent over a six year period. CO-CHAIR BUNDE asked if Representative Williams knew why the statute was written as it currently exists? REPRESENTATIVE WILLIAMS said he didn't know, but perhaps someone from the Department of Health & Social Services could respond to that question. REPRESENTATIVE ROBINSON said this bill focuses on residential services for certain minors and asked Representative Williams if he had given any thought to including adult treatment programs, battered women's shelters and other programs available for adults. It was her belief that any nonprofit organization receiving state grants should be able to use the money to actually purchase the facility, if they could show good cause. Number 2017 REPRESENTATIVE BRICE asked where the assets would go if one of these homes had been in existence for 20 years, the state had paid off the mortgage on the facility, and the facility closed down after the mortgage is paid off. TAPE 96-19, SIDE A Number 039 TOM LANE, Juneau Facilities Manager, Division of Administrative Services, Department of Health & Social Services, referred to Representative Brice's question and said in any of their capital grants, normally the department would have a deed of trust or some other covenants or restrictions for a 20-year period. The department normally assumes a 20-year period as the depreciation period. After that, the property would revert to the grantee. Number 120 CO-CHAIR BUNDE asked about a situation where the grantee closes down the program after 25 years. MR. LANE responded the 20-year period is somewhat arbitrary, but it is based on federal guidelines the department uses for depreciation. During the 20-year period, it is the assumption that the state does have some interest in the building and it is put in the deed of trust or covenants and restrictions, so the purpose is specifically granted for a public purpose after negotiation. CO-CHAIR BUNDE asked who owns that building if the nonprofit agency that has used it for 25 years goes out of business for some reason and the state no longer has the covenant. MR. LANE replied the nonprofit agency legally would own that building after 20 years. The assumption is the building has essentially depreciated and the state no longer has any right to that building. Prior to the end of that 20-year period, the normal practice is that the state would have some right to the building. CO-CHAIR BUNDE asked if the maintenance was paid by the nonprofit or by the state? MR. LANE responded it was paid by the grantee. REPRESENTATIVE DAVIS pointed out the grantee could also utilize grant monies or state dollars for maintenance and upkeep, so in a sense the state would continually be upgrading to keep the value of the asset, so at the end of the 20 years it was possible the state still could have an asset. Number 220 JACKIE DAMON, Social Service Program Officer, Division of Family & Youth Services, Department of Health & Social Services, said she was the grants administrator for the residential facilities. She said it is true that in the grant process money is allocated to cover expenses for the building, but one of the provisions of all the grants is that at the end of a grant period, when the grantee is no longer a grantee of the department, any of the assets purchased during that time need to be distributed to another grantee providing like services or at least another social service type facility. Ms. Damon commented that she is aware of one or two buildings that had been purchased with state money over a period of 20 years or longer, and are no longer providing services to the Division of Family & Youth Services, but they are being used to provide social services to a group that is also served by the department. MS. DAMON pointed out this particular statute speaks only to the residential child care grants, but department grants speak to all of the grantees. Grant money is allowed to be used for the purchase of a building under the department grants, but it is not allowed under the residential grants. The residential grants take precedent, if there is something in the department's regulations, but not in the residential grant regulations, then the department grant regulations take precedent. In this case, it is only the residential provider grantees who cannot purchase buildings. CO-CHAIR BUNDE summarized that the property doesn't go into limbo, it remains of use to nonprofit agencies who provide social services. In other words, the property is not going to be sold, and the money will end up in someone's pocket. MS. DAMON responded no, because the grant awards specify that it must be used for like services in case of no longer being funded. Number 398 REPRESENTATIVE ROKEBERG verified these were grants to private nonprofit corporations and asked what occurred if the funding was cut off after a period of years, but prior to the satisfaction of the note on the deed of trust. Where is the title vested? MR. LANE replied the state would have some right to that building. He said this is a general problem that works with all the state's capital grants, whatever they are. He explained that in any facility, the state doesn't necessarily own the right for perpetuity, but they try to maintain that it has a public purpose, and then if there is a problem in the future, the state would negotiate with that grantee, possibly even foreclose on the building. He added it's rarely done, but the state does have the legal right to foreclose if they have a deed of trust. REPRESENTATIVE ROKEBERG said it was his understanding there are provisions in those leases that allow the state to terminate their lease/own interest if funding is not approved by the legislature. He commented that accounts for the lease/own interest situation, but he thought it also applied to policy as to purchase (indisc.) fee about what is going to occur with that asset. If there is not a future income stream to service the debt on the promissory under the deed of trust, then there is going to be an automatic default if the funding is cut off by the legislature. He commented that when the federal government does things of this nature, they do it with cash. He said that Representative Robinson's suggestion to include adult programs sounds like a great concept, but the state could have numerous obligations to other deed of trust holders or beneficiaries if the funding was cut back. Number 585 MR. LANG remarked the state wouldn't have any obligation. The obligation would be all on the grantee. REPRESENTATIVE ROKEBERG said that Mr. Lang was alluding to "some state of Alaska right here that (indisc.) law when you're depreciating this and then there's no reversionary interest in the fee afterwards. So, the state would pay for the physical asset and at the end of the satisfaction of the promissory note, then title would revert to the nonprofit organization?" MR. LANG replied it is their general practice that the title is always with the organization, but the state has a deed of trust on the title; it's basically a mortgage like a bank would do. If that property is not being used correctly or is in danger of default, the state could step in and foreclose on that property. CO-CHAIR BUNDE said he would like to hold HB 515 in committee so Representative Rokeberg could work with the department and discuss the real estate implications. Number 661 REPRESENTATIVE ROKEBERG pointed out there is a request from the Department of Health & Social Services for revision in the fiscal note. MR. LANG informed the committee that this particular statute is unique. The department has a lot of grant programs that allow the department to give capital grants, but this is the only grant program that he is aware of that has any restriction. He said this is an anomalous situation and the department is going along with it because it brings this program in line with the other grant practices. Number 784 REPRESENTATIVE DAVIS asked these were tax exempt facilities under the current system of leasing and renting? MS. DAMON replied the nonprofits are tax exempt. She felt this issue had been raised because many of the nonprofit agencies pay hundreds of thousands of dollars over a period of time to some landlord for property, and this legislation would allow them to own the building and the money could then be used for services. She added this particular regulation went into effect in about 1983 and a lot of the nonprofits who provided residential care services to children in the department's custody, were able to get their buildings through capital projects. CO-CHAIR BUNDE said he would like to hold HB 515 over until Thursday, March 7, to allow time for the department to work with the sponsor and Representative Rokeberg regarding the technical issues. MR. LANG added the department feels that rather than just limiting the change to building-related, he whole clause in question should be deleted. CO-CHAIR BUNDE suggested the department work with the sponsor on that issue.
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