Legislature(2003 - 2004)
05/13/2003 01:40 PM Senate STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 215-SEAFOOD AND FOOD SAFETY LABORATORY ERNESTA BALLARD, Commissioner of the Department of Environmental Conservation, said she would testify to the program aspects of the bill. She gave the following testimony: Imagine it is 5:00 pm on Friday, you are a dairy processor and your pasteurization equipment breaks down. The scenario is not uncommon. To fulfill your school and military contracts, FDA requires that a state lab certify your equipment is operating correctly again and test the product to make sure. Milk can't wait until Monday morning. The Seafood and Food Safety Laboratory staff is there to make sure your product is safe for consumption and makes it to market while it's fresh. Ours is the only lab certified in Alaska to test dairy products to ensure successful pasteurization so they can be sold to the military and schools. SB 215 provides the funding mechanism to build a new Seafood and Food Safety Lab. The expense is already in our proposed capital budget. The facility we have leased for 34 years will not be available after 2006. It is overcrowded and not fully compliant with safety codes and laboratory design standards. It was developed in Palmer when the principal lab business was agriculture and dairy. In recent years entrepreneurs in coastal Alaska have developed a wide variety of value added seafood products adding a significant and time sensitive testing responsibility for our lab. Our proposed new lab will be in Anchorage where valuable hours can be saved between sample collection and test results for raw and live seafood industries. A core function of government is protection of human health and the environment. Government must be prepared to respond to unanticipated outbreaks of disease or the presence of contamination in food, water and animals. The Alaska seafood and food safety laboratory fulfills these functions. We analyze raw, finished, and value-added food products for bacteria, chemicals, and toxic contaminants. The laboratory protects Alaskans by monitoring animals for zoonotic diseases-transferred from animals to humans-such as brucellosis. Lab technicians test food products for botulism, salmonella, listeria and fecal coliforms and also test public drinking water for giardia, a common contaminant found in surface water, and cryptosporidium. The laboratory supports the seafood, dairy and shellfish industries. To successfully market Alaska's high quality shellfish and seafood, the public must be assured they are safe. Federal requirements for shellfish are very strict because the health risks are great. Through monitoring and testing the lab assures the safety of Alaska's growing shellfish industry, including geoducks, mussels and oysters. Through new PSP sampling and testing procedures, live geoduck sales have begun to enable the industry to ship approximately 50-60 percent of its geoduck quota live, increasing its value three fold. When the industry reaches its goal of 85 percent live shipment, the industry's value will be worth approximately $2.5 million. A perfect example of how this lab has and will continue to help Alaska's economy grow is the farmed oyster industry. As I'm sure you all know, Alaskan oysters are top quality and easily merit their good wholesale price. In the recent past, this industry did not exist. DEC lab staff are some of the experts who helped oyster farmers get started. With our assistance, farmers set up operations that met National Shellfish Sanitation standards, which must be met to sell raw product. Those standards require that DEC sample the growing water to ensure it is free from contamination. As the industry grew, it became more difficult for our staff to travel to remote locations for the collection of water samples. We developed a method for harvesters to collect their own water samples thereby increasing the opportunity for growing areas to be approved. The laboratory is also providing proof that Alaska's commercial fish species are of the highest quality and free of contaminants by monitoring commercially caught species for pollutants. Over 600 samples were collected last year and the results will be available next month. The laboratory supports Alaska's private labs by certifying them to conduct drinking water analysis. We train 190 private lab staff a year on how to test drinking water according to EPA standards, and assist private laboratories in obtaining certification and approval to perform federally regulated tests. We cannot depend on private laboratories to maintain testing and analytical capabilities for situations when there is no profit margin. When private markets develop, our laboratories get out of the business. For example, the Seafood and Food Safety Laboratory does not test drinking water for fecal coliform because private labs are capable of conducting those tests. The DEC laboratory only conducts tests that are federally required to be done by a state lab or are not provided elsewhere in the state. The health of Alaskans and the success of Alaska's seafood, shellfish and dairy industries are contingent upon the smooth and continued operation of the seafood and food safety laboratory. Through our testing, monitoring, and technical support, the laboratory assures the health of Alaskans and our environment, and supports the development of our abundant resources. CHAIR GARY STEVENS announced he had a memo from legal counsel suggesting an amendment to change the title. He asked for a motion to adopt the committee substitute (CS). SENATOR JOHN COWDERY made a motion to adopt CSSB 215 \D version. There being no objection, it was so ordered. SENATOR COWDERY asked why certificate of participation bonds (COPs) rather than general obligation bonds were suggested as the financing mechanism. DEVEN MITCHELL, Treasury Division Debt Manager with the Department of Revenue, explained that COPs are a type of financing tool that are used for specific projects that don't warrant a statewide election. The Legislature authorizes the appropriation of the lease payment on an annual basis. They are a lower obligation than general obligation bonds (GO), which carry the full faith and credit of the state. SENATOR COWDERY referred to the fees listed on page 2 and asked whether they were typical for this type of funding and where the fees go. MR. MITCHELL explained the costs associated with COPs are the project itself and the cost of issuing the bonds. [Balance indiscernible due to background noise.] SENATOR COWDERY asked if the fees would go directly to the lab. MR. MITCHELL said the fees on page 2, lines 12-17 are interrelated. They are the sizing of the COPs and anticipate the reinvestment of bond proceeds over the course of the project period. There is a $140,000 estimate on earnings on those proceeds so the issuance amount is $14,145,000 identified on line 9. That is added to the $140,000 in anticipated earnings for a project total size of $14,285,000. The $1,391,000 on line 15 is the anticipated principal and interest payments for the COPs that would be paid on an annual basis. The $20,862,000 on line 16 is the total principal and interest repayment that would occur over the 15 year life of the certificates. SENATOR COWDERY asked whether any pass-through federal funding was available. COMMISSIONER BALLARD said they were not aware of any. SENATOR COWDERY asked how many employees were in the existing lab and how many would be in the new lab. KRISTIN RYAN, Director for the Division of Environmental Health, replied there are 25 employees in the Palmer lab. Eleven positions are specifically lab related and would move to the new facility. Fourteen would remain in the Palmer facility and one additional wastewater specialist would join that facility. SENATOR COWDERY said he thought the lease was due to expire at the Palmer lab. MS. RYAN replied the current lease expires in 2006. Some non-lab related personnel have already moved to another facility and more would do so. SENATOR FRED DYSON referred to the 1997 Department of Administration (DOA) determination regarding long-term leases and statutory rent reduction requirements and asked for an explanation. COMMISSIONER BALLARD admitted there was no one present that could provide an explanation. SENATOR DYSON remarked it would be easier to change the statutes than to move to a new facility. He reviewed the Department of Revenue (DOR) fiscal note and asked if it was correct that $200,000 per year would pay back the COPs. MR. MITCHELL admitted the numbers in the fiscal note from DOR and those in the bill differ slightly. The fiscal note shows $1,362,800 being paid annually for debt service. SENATOR DYSON asked where that money would come from. MR. MITCHELL said it would come from the general fund. SENATOR DYSON asked what the annual total would be for operating expenses, including debt reduction, utilities and other costs. MS. RYAN explained it would be a combination of the operating costs and the debt servicing costs. SENATOR DYSON noted that would amount to roughly $1.6 million per year. He asked where the public health lab is located. COMMISSIONER BALLARD replied it is next door to the proposed lab. SENATOR DYSON asked how much is paid for the current lease at the Palmer facility. COMMISSIONER BALLARD said it is considerably less. MS. RYAN estimated current payments were closer to $100,000 per year. SENATOR DYSON asked when the state would finish principal payments for the COPs. COMMISSIONER BALLARD advised the term is 15 years. CHAIR GARY STEVENS thanked Senator Dyson for comparing the projected $200,000 payment to the current $100,000 lease payment. SENATOR GRETCHEN GUESS said the department was speaking of $200,000 per year in utilities and maintenance, but they said the lease purchase was $100,000, not the utilities and maintenance. She asked why there was such a difference between the current operating costs and the projected costs. MS. RYAN explained that the new facility meets all codes for heating, ventilation and air handling and includes an auxiliary power source. All of which accounts for the cost differential. SENATOR GUESS stated she was surprised that only half the employees would move from the Palmer facility and asked which jobs would stay. MS. RYAN said there are two food safety inspectors, four pesticide program employees, a state and a federal veterinarian and a variety of indirectly related DEC positions that don't necessarily rely on the lab services. SENATOR GUESS asked about the resolution to examine a facility near the airport for the lab. CHAIR GARY STEVENS said Mr. Mitchell's letter addresses the ASI consideration [SCR 6]. He asked the commissioner to comment on the status of that resolution. COMMISSIONER BALLARD explained that the department conducted a side-by-side analysis of remodeling some of the facility occupied by Alaska Seafood International that is located by the airport versus the stand-alone facility that is on state owned property at Tudor and Boniface and next to the public health lab. Upon reviewing the analysis, the governor recommended that DEC proceed with the stand-alone facility. SENATOR GUESS requested a copy of the analysis and asked if there was a reason to set the amount in statute rather than an giving an "up to" figure. She then asked what assurance the public has that the cost would be at or below the projection. MR. MITCHELL said that, from his perspective, the "sum certain" is the requirement, by law, that the Legislature approves an amount. It could be expressed as a "not to exceed amount" but the Legislature has preferred to know more definitively how much they would spend. This bill has had a lot of effort expended to accomplish the new facility and to help that DOR provided an estimate of investment earnings on the proceeds while they are being drawn down. Although it's only $140,000, current budgetary conditions make it desirable to make sure that the authorizing body of the Legislature is aware of where the money would go. COMMISSIONER BALLARD informed the committee the site is prepared, the utilities are stubbed to the site, and the drawings are at 70 percent completion. The project has been in the works for seven years so many of the design and construction uncertainties have already been addressed. JOHN MACKINNON, Deputy Commissioner with the Department of Transportation & Public Facilities, said the state health lab was recently completed and is a similar facility with regard to code and laboratory requirements. They have accurate numbers on the cost of that facility and the proposed lab would likely be similar in square foot costs. There are contingency pockets in the overall budget process to take up any unforeseen circumstances. SENATOR COWDERY asked if there were private sector facilities that could meet the need. DEPUTY COMMISSIONER MACKINNON said he would compare leasing a facility to use as a food lab to taking a warehouse and turning it into a hospital. It would be a tremendous amount of work to meet the code requirements. SENATOR COWDERY asked if anyone had approached the private sector. TOM LIVINGSTON, project architect, said his company did a feasibility study for leasing versus building several years ago and they determined they would be faced with constructing a building within a building if they were to lease space. Overall, lease costs were higher than ownership costs. SENATOR COWDERY said he supported the need for the facility. SENATOR GUESS asked how lab use would differ in the proposed facility because the operating expenses are projected to be ten times higher. MS. RYAN explained the current laboratory does not meet laboratory or OSHA standards, which means their results are at risk and could be refuted. Although there might be an increase in samples tested at the new lab, the main thing the public is getting for the increased cost is knowledge that the results are accurate. ROGER PAINTER, representative of the Alaska Shellfish Growers Association, spoke in support of SB 215. With regard to contracting services to the private sector, he said that there are no private labs in the country that conduct paralytic shellfish poison tests or that can process water quality samples for marine waters. Since the lab facilities were originally leased in Palmer, the clientele has shifted from agriculture to seafood. Because seafood samples must be in the lab within 30 hours from the time they are collected, having the lab in Anchorage rather than Palmer would make it easier for businesses such as his to fit within the time constraints. He commented that the current lab was hopelessly antiquated when he visited it last 15 years ago. ROGER SHANNON from Kenai asserted that the lab should be placed in the ASI [Alaska Seafood International] building. JULIE DECKER, executive officer from the Southeast Regional Dive Fishers Association, testified via teleconference in support of the bill. She said the proposed lab is economically vital to the dive fishery and the current lab staff does excellent work. SENATOR COWDERY made a motion to move CSSB 215(STA) and attached fiscal notes from committee with individual recommendations and asked for unanimous consent. CHAIR GARY STEVENS asked for a roll call. SENATOR DYSON asked to speak to the issue and stated it almost defies logic to build a new stand-alone lab rather than placing it in the state owned building that houses ASI. Second, he said he is intimidated by the 15 year obligation and has trouble with the engineering estimates that make it almost as expensive to put the lab in the existing building as it is to build a new free standing building. In his view, the ASI building is a monument to how poorly government does when it gets involved in areas that should be left to the private sector. SENATOR GUESS asked what the design costs were for the state owned building. MR. MACKINNON said about $1 million was spent in design costs for the stand alone building and those design costs aren't adaptable to putting the facility in the ASI building. SENATOR GUESS asked if a true analysis would show that one would be about $15 million and the other about $13.3. MR. MACKINNON agreed if you were to start from ground zero. SENATOR GUESS said, sunk costs are sunk costs, but from the marginal cost perspective the ASI building looks to be a better long term option. She questioned why the Administration decided on the stand-alone building. CHAIR GARY STEVENS asked Senator Cowdery to remove his motion so Mr. MacKinnon could answer the question. SENATOR COWDERY removed his motion to move the bill from committee. MR. MACKINNON stated that the ASI building would be a better option if the seafood lab were needed for just 15 years, but at the end of 15 years there would be operating costs to consider. SENATOR COWDERY commented placing the lab in the ASI building would limit future tenants. CHAIR GARY STEVENS noted Mr. Mitchell wrote a memo on March 28, 2003 that said the seafood lab would use just five percent of the ASI building and locating the lab there would make it difficult to find a tenant for the rest of the space. SENATOR DYSON asked what portion of the operating costs would be recovered through customer fees. COMMISSIONER BALLARD replied they might recover between 25 and 30 percent in fees by next year. They are raising fees as quickly as possible, but some of the projected increases require statutory change. Current fee income is about $100,000 per year and with statutory changes they hope to increase it to about $300,000. She added that AIDEA (Alaska Industrial Development and Export Authority) only considered housing the lab in the ASI building in the last year and by that time the $1 million to design the stand-alone building was already spent, which is why there isn't a true side-by-side comparison. CHAIR GARY STEVENS said the current questions were of a financial nature and he would like the Finance Committee to address them. SENATOR COWDERY made a motion to move CSSB 215(STA) and attached fiscal notes from committee and asked for unanimous consent. CHAIR GARY STEVENS asked if there was any objection. There being no stated objection, CSSB 215(STA) moved from committee.
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