Legislature(2003 - 2004)

05/13/2003 01:40 PM Senate STA

Audio Topic
* first hearing in first committee of referral
+ 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.                                                                        

Document Name Date/Time Subjects