Legislature(1997 - 1998)
04/23/1997 01:40 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
APRIL 23, 1997
1:40 P.M.
TAPE HFC 97 - 111, Side 1, #000 - end.
(Tape malfunction - Side 1)
TAPE HFC 97 - 111, Side 2, #000 - #081.
CALL TO ORDER
Co-Chair Gene Therriault called the House Finance Committee
meeting to order at 1:40 P.M.
PRESENT
Co-Chair Hanley Representative Kelly
Co-Chair Therriault Representative Kohring
Representative Davies Representative Martin
Representative Davis Representative Moses
Representative Foster Representative Grussendorf
Representative Mulder was not present for the meeting.
ALSO PRESENT
Karen Perdue, Commissioner, Department of Health and Social
Services; Dugan Petty, Director, Division of General
Services, Department of Administration; Forrest Browne,
State Investment Officer, Department of Revenue; Randy
Welker, Legislative Auditor, Legislative Audit Division;
Mitch Gravo, Representative, Frontier Building, Anchorage.
SUMMARY
HB 202 An Act relating to the medical assistance program;
and providing for an effective date.
HB 202 was placed into Subcommittee with
Representative Therriault as Chair and with
members Representative Hanley and Representative
Grussendorf.
HB 236 An Act giving notice of and approving a
lease-purchase agreement by the Department of
Administration for an office building in
Anchorage; relating to the financing of the
lease-purchase agreement; and providing for an
effective date.
CS HB 236 (FIN) was reported out of Committee with
"no recommendation" and with two fiscal notes by
the Department of Administration and one by the
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Department of Revenue.
HOUSE BILL 202
"An Act relating to the medical assistance program; and
providing for an effective date."
Co-Chair Therriault placed HB 202 in Subcommittee with
himself as Chair and with members Representative Hanley and
Representative Grussendorf. He requested the Department to
present an outline of their concerns.
KAREN PERDUE, COMMISSIONER, DEPARTMENT OF HEALTH AND SOCIAL
SERVICES, provided testimony addressing the issues of
concern.
(Tape Malfunction-for portion of tape HFC 97-111, Side 1).
Commissioner Perdue noted that the Department has made a
detailed list of the cost management activities which will
produce necessary savings. Because of the number of claims
and the volume, the Department cannot guarantee those
savings. There has been discussion regarding a possible
supplemental request.
The Medicaid program is currently a large insurance program.
There are about thirty-nine hundred Alaskan providers
serving roughly seventy thousand patients per year and
submitting 1.8 million claims. A small staff of employees
and the contractor, co-located in Anchorage, manage that
system on a timely basis. The program is run well as an
insurance program.
The Medicaid program is an entirely general fund supported
program which either lapses money into the general fund or
over expends. She commented that the margin of error has
become increasingly more problematic as the program has
gotten larger.
The intent language details approximately $21 million
dollars in cost savings which the Department will achieve
next year. She reiterated that the Department is committed
to making the savings.
Commissioner Perdue advised that the options list had not
been intended to be a tool placed in statute. All the
options were not covered. The list was not meant to be a
budgetary tool because the lag time needed to make changes
to the program is at least six to eight months. She
stressed that it would be important to remember that the
program must be managed far in advance.
Commissioner Perdue concluded noting that the providers
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stability and the State's need to pay the bills is essential
for the patients ongoing access.
Co-Chair Therriault explained that it was his intent to have
the medical assistance priority list rewritten, and that the
Subcommittee would work on those concerns during the
interim.
HB 202 was HELD in Committee for further consideration.
HOUSE BILL 236
"An Act giving notice of and approving a lease-purchase
agreement by the Department of Administration for an
office building in Anchorage; relating to the financing
of the lease-purchase agreement; and providing for an
effective date."
DUGAN PETTY, DIRECTOR, DIVISION OF GENERAL SERVICES,
DEPARTMENT OF ADMINISTRATION, referenced the fiscal note,
component serial number #81, and the follow-up information
included in that packet. He began with reference to Page #3
of the Bank of America Executive Summary. [Copy on file].
This page provides an analysis of a 20 year/ 40 year
evaluation scenario and would provide the requested
information.
Mr. Petty commented that a low case and market case scenario
had been modeled in the packet. Page #3 of the handout
provides a graphic demonstration. The Committee requested
that the Department provide a continuation of existing
leases as a baseline to compare the Bank scenario to. Page
(market rates), prior Frontier lease rate (1994=$3.28),
continued leasing (current rates) and the purchase of the
Bank of America (BOA) building.
Representative J. Davies asked if the upward slope of the
graph represented the 4%. Mr. Petty replied that the 4%
slope was adjusted for the leases, 35% of the base rent.
The slope appears to be gaining on the other lines
representing a 4% adjustment on the 100%, whereas, in that
case, it would represent the operation and maintenance
expense including a 4% factored adjustment. That explains
why a market adjustment exists.
Page #4 provides the net change. There has been no change
in the continuation of the lease scenario. The adjusted
market rate demonstrates the numbers used on the upper end.
The significant changes are in the second two of the
"Purchase BOA Building" scenario.
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At the request of the Committee, the Department re-adjusted
the operating expenses, maintenance and repairs; also the
capital reserves were removed in order to demonstrate what
the State pays for repairs and maintenance. That
information is part of the spread sheet cost benefit
analysis. Additionally, property tax was included and
identified upon the projected 1997 Municipality of Anchorage
property tax, based upon Amendment #1, property tax on the
privately sold interest. [Copy on file].
Mr. Petty advised that the business improvement district was
added in order to clearly define that it be funded. That
addition constitutes the special assessment, agreed to by
the Department and which they plan to participate in
throughout the life of the assessment.
Page #9 of the fiscal note provides more complete
information on the operating and maintenance costs
associated with the building. The high management level
costs have been adjusted down. Snow removal was added and
then removed from repairs and maintenance costs; parking was
also added. The Department understands that the building
will have the needed amount of parking space, using a
standard which stipulates that one parking space will be
provided for each 357 square feet. Additionally, added into
the contract would be eighty-four spaces at $45 dollars per
month.
Mr. Petty spoke to the maintenance and capital reserves. He
pointed out that the Department had included some capital
reserves in the capital numbers. He spoke to the changes in
those numbers. The fiscal note does not reflect the $80
thousand dollar cost, although, it does show the cost
benefit analysis with consideration to long term reserves.
Mr. Petty referenced Page #16, which identifies the
reexamination of the cost assumptions associated with moving
in and tenant improvements. He pointed out that those
numbers would add $1 million dollars back for project costs.
Included would be the American with Disabilities Act (ADA)
upgrades and code compliances. Sufficient funds have been
allocated to tenant improvements. He believed he had
sufficiently addressed the changes requested by the
Committee.
Representative Martin asked if a study of the public
transportation accessibility for the building had been
overlooked. Mr. Petty pointed out that the building is
located close to the bus depot.
FORREST BROWNE, STATE INVESTMENT OFFICER, DEPARTMENT OF
REVENUE, stated that the Department has worked on
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restructuring the financing. He spoke to the fiscal note
provided by the Department. The bill authorizes lease-
purchase financing of less than $38.9 million dollars to
purchase the Bank of America building in Anchorage, with
annual lease payments of less than $4.07 million dollars and
total lease payments of less than $81.4 million dollars.
A financing plan has been structured for the State to
acquire the property within the above guidelines. It would
include the use of taxable certificates of participation for
four (4) years, followed by the use of tax-exempt
certificates of participation for 16 years, for a total term
of twenty years. The financing plan defers lease payments
for two years and gives the State flexibility on converting
to tax-exempt financing depending on future operational
events in the building and on future interest rates.
RANDY WELDER, LEGISLATIVE AUDITOR, LEGISLATIVE BUDGET AND
AUDIT COMMITTEE, responded to his memo which summarized the
results prepared by the Division of Legislative Audit
investigating requested information. The long term
investment would be a good deal for the State; reviewing
additional information, he acknowledged that the short term
concerns had been addressed. The Legislative Audit Division
agrees with the analysis and believes that the acquisition
of the proposed office building would be in the best
interest for the State.
Representative Foster questioned if the Division's
conclusion would hold true if the worst case scenario had
been adopted. Mr. Welker responded that the proposal before
the Committee was the "worst case scenario". The first
concern is the time-line; when the lease expires in the
Frontier Building and then making space available in the
Bank of America (BOA) building. The tenants remaining in
the BOA Center would be paying a higher rate than the State
would want to pay. The longer the time current tenants
remain in the BOA Center, general fund will make money. Mr.
Welker characterized the BOA purchase close to a 80-90%
worst case scenario.
MITCH GRAVO, REPRESENTATIVE, FRONTIER BUILDING OWNERS,
ANCHORAGE, commented that the Legislature had solicited an
offer from the owners of the Frontier Building at the last
hearing. He noted that it was their intent to provide a
long-term lease offer very soon. He requested that the
Committee examine that proposal before making their
decision.
Mr. Gravo pointed out that there are many people in
Anchorage who want to testify on the proposed legislation
and who have not had the opportunity to do so. Mr. Gravo
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believed that the House Finance Committee would be the
appropriate forum for that testimony, and requested the bill
be held. Co-Chair Therriault commented that because of
legislative time constraints, it would be prudent for the
Committee to take action on the legislation at this time.
He noted that public testimony could be taken in the House
Rules Committee.
Co-Chair Therriault MOVED to adopt Amendment #1. [Copy on
file]. He stated that the amendment provides that municipal
property tax would be paid on the square footage held by the
third party lessors. Co-Chair Therriault pointed out that
the spread sheets indicate those numbers had been factored
in and would cushion the impact to Anchorage residents.
There being NO OBJECTION, Amendment #1 was adopted.
(Tape Change HFC 97-111, Side 2).
Representative Martin MOVED to report CS HB 236 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal notes. Representative Kohring OBJECTED,
pointing out that it was the Legislature's intent to cut the
budget and reduce government. As an alternative to
acquiring the building, he proposed:
1. Lease less spaces through a reduction of
state employees; and/or
2. Explore renegotiating existing leases.
Co-Chair Therriault pointed out that the legislation does
not propose any new construction. The State will be paying
less rent while providing a savings.
Representative Kohring WITHDREW his OBJECTION to passage of
the legislation. There being NO further OBJECTION, it was
passed.
CS HB 236 (FIN) was reported out of Committee with
"individual recommendations" and with new fiscal notes two
by the Department of Administration and one by the
Department of Revenue.
ADJOURNMENT
The meeting adjourned at 2:30 P.M.
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