Legislature(1995 - 1996)
03/28/1995 09:15 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
SENATE BILL NO. 121 "An Act making an appropriation for deferred maintenance for the University of Alaska; and providing for an effective date." Co-chair Halford stated that SB 121 would appropriate $135 million from AHFC after the Board transferred it to the general fund to the university for major maintenance. He referred to the resolutions and the statement by the university regarding major maintenance. Senator Phillips asked how much money was being removed from AHFC. Co-chair Halford responded that the capital budget utilizes $70 million of AHFC money. The governor's proposal on major maintenance uses another $30 million, which requires AHFC to sell bonds and carry the debt service on the bonds. In the governor's cash flow projection, it is showing $450 million from the constitutional budget reserve and $70 million from AHFC. He stated that deferred maintenance has to be addressed. Wendy Redman, University of Alaska, stated the need for the maintenance. She pointed out that nearly 80% of the buildings are 30 years or older, and that the university is contained in 50% of the buildings owned by the state. This puts a hardship on the state, with an investment of thousands of dollars in buildings that are beginning to fall apart. Ms. Redman spoke to the concern of the mismanagement over the years to allow the buildings to deteriorate. She stated that this is not true. There was no money moved from maintenance accounts into administration or academics. In 1986 when there was a 20% budget reduction, there was $1 million at the Fairbanks campus that was taken from maintenance to keep programs going. The money was replaced that fall, into the maintenance account, which has been audited. The problem has developed over time because there hasn't been enough money appropriated to fix the buildings. She stated that last year the university received zero capital dollars. She stated that this has been a 10-year accumulation which has accelerated. It continues to be the Board's highest priority. There are major health and safety issues that the campuses are facing with deteriorating facilities that are dangerous for students to be occupying. The Anchorage campus will cost $40 million in deferred maintenance, with Fairbanks needing even more attention. Senator Rieger asked who determines the needs of the various campuses? Ms. Redman responded that the Board of Regents and the university use a formula system of prioritizing deferred maintenance programs, which is also used by DOT. The formula is updated several times a year as needed. The Office of Management and Budget (OM&B) has the complete backup list of all the projects, starting with the most need. OM&B is not involved in making individual project decisions. The university makes the decisions. Senator Donley stated that in his opinion the maintenance should not be a capital item, but rather an operational item in the budget. Ms. Redman said she agreed with this logic. Three years ago, the Board of Regents did mandate that the university would not be dependent on "hoping that the legislature funded the operating maintenance requests". In building new buildings there has been requests for operating maintenance to go along with those facilities. It is rarely, if ever, funded. The university's general fund operating budget is exactly where it was 10 years ago. There has been an increasing enrollment of 22% over the past 10 years, but the general fund has remained flat. The tuition money has been utilized to meet the need in student growth. The Board of Regents agree with what you are indicating. The Board has said to the university, "don't expect any money from the state to build up the operating deficit in maintenance" which is at this time guessed to be $11 million. The Board has reallocated existing resources over a 3-year period of time to bring the maintenance budgets up to where they need to be, based on a formula. The Fairbanks campus will have to reallocate from current funds this year $4 million. Senator Donley asked about future maintenance issues. Ms. Redman responded that it is the Board's intention to have the maintenance costs rolled into the operating budget. The campuses have to cut programs, restrict enrollments, and essentially do whatever they have to do, to bring the maintenance budgets up. Pat Pourchot, Legislative Director for Governor Knowles, stated the administration's concerns with the direct draw against the reserves. In this case, $35 million versus putting a number into the on-going annual capital projects of the AHFC. AHFC would issue and be responsible for servicing bonds. That is the case in the governor's bill for the $30 million allocated from the governor's bill for student housing maintenance. The allocation is limited to student housing maintenance which the governor feels is more in line with the on-going work and purposes and mission of AHFC. This bill does not distinguish between major, or deferred, maintenance for housing as opposed to other items. The governor's approach is to address the other key non- housing maintenance needs in the capital budget. There is about $7 million in the capital budget that the governor has submitted for non-housing goals. The difference within AHFC, due to its special tax situation, is its ability to borrow money at low interest rates. In turn, AHFC can invest its reserves at higher interest rates. By having AHFC servicing their bonds over a length of time, the real cost of that money is significantly reduced. So, there are very real and clear reasons for having AHFC finance and amortize the costs of the bonds, opposed to a straight draw in cash off the reserves. The reserves work for AHFC in its on-going projects and missions, one of which, can be legitimate student housing maintenance. Co-chair Halford stated he has the same goals, expressing concern with last years approach to revenue bonding or borrowing. He emphasized that with the huge maintenance backlog, this method borrowed into the future to pay for the mistake of the past. He supports allocating the funds to where they are needed, to catch up from real dollars, instead of borrowing from the future. AHFC internally does not gain or loose very much from the difference. Mr. Pourchot stated that in terms of revenue bonds and university or housing maintenance, there is no cash flow going towards those bonds. Ideally, capital budget cash would be the best way of addressing the problem. He stated that now, the state is faced with an incredible backlog of maintenance and even with a 5-year plan, it would be a stretch for capital dollars. That is what has led to the governor's proposal. The disadvantage again of the straight draw off the reserves is that by keeping the reserves of AHFC, it can provide valuable programs into the future with the ability to make money or at least narrow the real rate of borrowing within their own agency to minimal levels. Co-chair Halford asked what the governor's approach is for next year when the answer this year is $30.0 for housing? If it means borrowing continuously for each and every step, then what is created is a passing debt. Mr. Pourchot said that is why the "back stop" legislation was introduced. It was granting the university authority to issue its' own revenue bonds that would be repaid through a general fund budget category, if the administration and legislature did not act on some other plan prior to June, 1. Co-chair Halford stated that it does not apply to maintenance. It would work on a new dormitory with new receipts, but asked how that works on past maintenance on a common building. Mr. Pourchot stated that it work only in the sense that there is no revenue stream to repay the bonds. The repayment comes into the front section of the budget along with $10-$11 million. It's just another operating budget item for debt service. The reason for that was to meet pressing needs. The development that Co-Chair Halford was referring to is the project in the next several months, in the development of the whole budgeting process for next year. There is no concrete plan for the mechanism of addressing the balance of the backlog of maintenance. The governor's pledge is to work on this and develop a plan. No options have been selected beyond this year. Co-chair Halford stated his concerned that if revenue bonds are passed, and becomes a state appropriation, it is in violation of the state constitution. When using a revenue bond to build a dormitory, with new receipts, it is different than using a revenue bond to pay for major maintenance held over from the past. Mr. Pourchot stated that it was authorized under law. Co-chair Halford recognized that it would never be found illegal in Alaska because it was first done by the Court System to build the court building in Juneau. Other buildings were subsequently built for the court system. Co-chair Frank moved for passage of SB 121 with individual recommendations. Senator Phillips OBJECTED without having a plan for the full-scale funding. Co-chair Halford stated the question is not decided regarding AHFC. He said that SB 121 is legitimate start, tho it will probably sit in the Rules Committee, while other parts are discussed. He recommended moving it. Senator Phillips withdrew his objection. With no further objection, SB 121 REPORTED OUT of committee with "other recommendations" by Senators Rieger, Phillips, Donley and Zharoff. Co-chair Halford and Frank and Senator Sharp recommended "do pass".
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