Legislature(1993 - 1994)
02/01/1994 10:10 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 247 STATE LEASES & LEASE-PURCHASE FINANCING Co-chair Pearce directed that SB 247 be brought on for discussion and referenced a new, draft Senate Finance Committee Substitute (8-LS1447\X, Chenoweth, 1/31/94). Co- chair Frank MOVED for adoption of the new "X" version in place of the previously adopted "O" draft. No objection having been raised, CSSB 247 (2d Fin), "X" version, was ADOPTED. He then requested that the drafter of the bill speak to changes incorporated therein. JACK CHENOWETH, Counsel, Legal Services, Legislative Affairs Agency, explained that the title was tightened considerably. It cites new thresholds for legislative approval of annual rental payments that exceed $500.0 or total lease payments that exceed $2,500.0 over the term of the lease. Thresholds in current law are $1 million and $10 million. Further changes include: Page 3, line 8 - "under this subsection" was changed to "under this paragraph" since "paragraph" is the proper reference. Page 6, lines 22 through 25 - Addition of "if the total of all periods provided for in the lease exceeds the original term of the lease exclusive of the total period of all renewal options." Mr. Chenoweth explained that under the foregoing language, the cumulative total of renewal periods may not be longer than the term of the original lease. Page 6, Sec. 7, subsections (b), (d), and (e) - Earlier adopted amendments inserted "real property" into lease-purchase language in these subsections. In response to a question from Co-chair Frank, Mr. Chenoweth reiterated that under new language at page 6, the administration would be barred from entering leases with renewal options beyond the term of the original lease, regardless of the cost involved. Co-chair Frank requested comments from the administration. (Senator Kerttula arrived at this time.) DUGAN PETTY, Director, Division of General Services, Dept. of Administration, came before committee. Co-chair Frank asked if the foregoing addition would be workable. Mr. Petty responded affirmatively. He explained that the state has approximately "a half dozen" leases that would ever approach the existing $10 million threshold. The effect of lowering the threshold to $2,500.0 is that it now encompasses approximately 30 "medium-range leases." When these 30 leases were initially acquired, the state was barred from ever having anything more than either "two, one- year renewals or one, two-year renewal." The state was also barred from renewing an existing lease with a renewal option in excess of two years. The state was thus looking for flexibility to establish renewal options or exercise existing renewal options that exceeded that two-year period. Mr. Petty voiced his understanding that the intent of the proposed requirement on renewal options is to prevent the administration from entering into a lease with numerous renewals so that the lease is never completed. The questions is, Where is the appropriate level to cut-off renewal options and force re-bid of the lease? Most leases are three to five years in term while larger leases extend up to ten years. New provisions would ensure that renewal options would not exceed the initial term of the lease. (Senator Jacko arrived at this time.) Senator Kerttula said that his concern relates to legislative ability to control construction (lease-purchase) at a certain level and prohibit the administration's circumvention of that control by leasing for large amounts for long periods of time. Mr. Petty noted that the leases and terms he cited relate to operational leases that do not include a purchase option. Senator Kerttula acknowledged that fact and stressed that the proposed bill seeks to extend legislative control over both rental leases and lease-purchase arrangements. In response to comments by Co- chair Frank, Mr. Petty acknowledged that newly established thresholds would apply to both rental leases and renewal options. Associated amounts would be set out in the budget and identified in advance. He stressed that all leases are subject to legislative appropriation. Discussion followed between Mr. Petty and Senator Kerttula concerning long-term commitments associated with rental leases. End, SFC-94, #10, Side 1 Begin, SFC-94, #10, Side 2 Further discussion followed regarding the means of identifying leases anticipated to exceed new thresholds. Co-chair Frank acknowledged that, regardless of language in the proposed bill, the legislature would "definitely have our stab at it in the budget process." Co-chair Frank further noted questions associated with whether the state should lease-purchase or lease for long- term periods and never own the facility. Senator Kerttula voiced his preference for not encouraging the state to enter long-term leases. Co-chair Frank said that he did not believe the proposed bill would do so. When the administration presents large, long-term leases for legislative approval, the legislature should raise questions concerning other options such as lease-purchase or a capital request to construct a facility. The Co-chair voiced need to ensure that the legislature is "in the loop" while refraining from placing a "straight jacket" on the department that ultimately makes leasing or lease-purchase more costly. Mr. Petty said that it makes sense to provide a renewal option if it makes sense to be in the lease to begin with. The eventual impact of the bill over the life of existing leases will be to bring "some thirty more leases" before the legislature for approval. Discussion followed between committee members and Mr. Chenoweth regarding acquisition of commodities other than real property. Co-chair Frank acknowledged that large computer system purchases are also of concern. Last year's cumulative total was in excess of $20 million. He again pointed to legislative control through the budget process. Co-chair Pearce called for additional questions or comments on the bill. None were forthcoming. The Co-chair queried members concerning disposition. Senator Kerttula MOVED that CSSB 247 (2d Fin) pass from committee with individual recommendations, the previously adopted Senate Finance letter of intent, and accompanying zero fiscal notes. No objection having been raised, CSSB 247 (2d Fin) was REPORTED OUT of committee with a new title (An Act making subject to prior legislative approval contracts entered into or renewed by the executive branch of state government, the legislative council, the Alaska Court System, and the University of Alaska for the lease of real property if the lease has an annual rent payable that is anticipated to exceed $500,000 or has total payments that exceed $2,500,000 for the term of the lease, including any renewal options that are defined in the lease; prohibiting these entities from entering into or renewing a lease of real property if any or all renewal periods in the lease exceed the original term of the lease; making subject to prior legislative approval lease-purchase agreements that may be entered into by these entities to acquire real property, other than lease-purchase agreements to refinance outstanding balances on existing lease-purchase agreements and lease-purchase agreements secured by University of Alaska student fees and university receipts; authorizing these entities to enter into lease-purchase agreements only in the capacity of lessee under the proposed lease-purchase agreement; defining procedures that these entities must follow when considering whether or not to enter into lease-purchase agreements, and setting limits on the duration of these agreements; providing definitions for applicable terms; and providing for an effective date), the previous Senate Finance letter of intent, and zero fiscal notes from the Dept. of Administration and the Legislative Affairs Agency. All members present signed the committee report with a "do pass" recommendation. Senator Rieger was absent from the meeting and did not sign.
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