Legislature(2009 - 2010)HOUSE FINANCE 519
04/03/2009 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB161 | |
| HB121 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 161 | TELECONFERENCED | |
| += | HB 121 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 3, 2009
1:36 p.m.
1:36:08 PM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 1:36 p.m.
MEMBERS PRESENT
Representative Mike Hawker, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas, Jr., Vice-Chair
Representative Allan Austerman
Representative Harry Crawford
Representative Anna Fairclough
Representative Richard Foster
Representative Les Gara
Representative Reggie Joule
Representative Mike Kelly
MEMBERS ABSENT
Representative Woodie Salmon
ALSO PRESENT
Representative Kathy Munoz, Sponsor; Deven Mitchell,
Executive Director, Alaska Municipal Bond Bank Authority,
Department of Revenue; Wayne Jensen, Jensen, Yorba,& Lott,
Inc., Juneau; Remond Henderson, Deputy Director, Division of
General Services, Department of Administration; Ben
Mulligan, Staff, Co-Chair Bill Stoltze; Karen Lidster,
Staff, Representative John Coghill; Representative Beth
Kerttula
PRESENT VIA TELECONFERENCE
Jeff Jessee, Chief Executive Officer, Alaska Mental Health
Trust Authority
SUMMARY
HB 161 "An Act relating to the Alaska Mental Health Trust
Authority Subport Office Building; authorizing the
issuance of certificates of participation for
construction of the building and authorizing the
use of up to $25,000,000 from the mental health
trust fund for construction of the building;
approving leases of all or part of the building by
the Department of Administration; and providing
for an effective date."
CSHB 161 (FIN) was heard and HELD in Committee for
further consideration.
HB 121 "An Act relating to a municipal property tax
credit for an improvement that aids in improving
air quality."
CSHB 121 (FIN) was REPORTED out of Committee with
a "do pass" recommendation and with zero fiscal
note #1 by the Department of Commerce, Community
and Economic Development.
1:36:32 PM
HOUSE BILL NO. 161
"An Act relating to the Alaska Mental Health Trust
Authority Subport Office Building; authorizing the
issuance of certificates of participation for
construction of the building and authorizing the use of
up to $25,000,000 from the mental health trust fund for
construction of the building; approving leases of all
or part of the building by the Department of
Administration; and providing for an effective date."
REPRESENTATIVE KATHY MUNOZ, SPONSOR, requested that Deven
Mitchell present information on Certificates of
Participation (COP's).
DEVEN MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND
BANK AUTHORITY, DEPARTMENT OF REVENUE, described how the
Alaska Mental Health Trust (AMHTA) assets currently invested
in the Permanent Fund would be used in combination with
state COP's in a favorable partnership to fund a new office
facility on land the Trust owns in Juneau. The state would
provide a title interest lease to a trustee bank for the
COP's. He described the way the lease would be divided into
blocks that are equivalent to $5,000 bonds which are sold to
individual investors. It is a "subject to appropriation"
commitment. He continued to discuss the pricing of the
bonds.
Mr. Mitchell related that the expectation is that the bonds
would receive an AA rating. Currently, the interest rate on
general obligation bonds is 4.04 percent. He discussed
market conditions.
1:41:27 PM
Co-Chair Stoltze asked which of the Mat-Su projects were
sold. Mr. Mitchell reported that there was a cash flow
issue. For the bonds sold in 2003 for transportation
projects, about 7 percent was spent. The project would
eventually be fully funded.
Mr. Mitchell commented further about the COP's and talked
positively about the partnership. He said it was a good
opportunity for the state to meet its mission to provide
adequate space for state employees and an opportunity for
the AMHTA to meet its mission. Use of the state's credit
for a portion of the funding would benefit the transaction.
Co-Chair Hawker voiced appreciation for the high level of
liquidity. He asked Mr. Mitchell, as the state debt
manager, if he was comfortable with this legislation. Mr.
Mitchell agreed that it was a policy decision as to how the
project might be funded, and said there would be no
detriment to the state's credit rating by the use of the
COP's.
Mr. Mitchell commented on COP's, the rating reports, and the
low debt burden of the state. He talked about percentage of
unrestricted revenue. A large portion of revenue is not
derived from the state. The revised forecast for FY 10 at
$56 per barrel would be just over 5 percent as a percentage
of unrestricted revenue for state supported debt service.
He gave examples.
1:46:10 PM
Co-Chair Hawker summarized that the debt increment would not
detrimental to the state and the state would not suffer in
its credit rating. Mr. Mitchell agreed.
Co-Chair Hawker inquired if there was a better mechanism or
way to structure this proposal than a 50/50 debt equity
using COP's. Mr. Mitchell replied that the only way to get
a lower interest rate would be to sell general obligation
bonds. For state supported financing, COP's are best
because they are understood by those outside of Alaska. He
used the Mat-Su Borough as an example of outsiders being
unfamiliar with the area's bonds.
1:47:59 PM
Co-Chair Hawker asked what the difference between general
obligation bonding and COP debt was. Mr. Mitchell explained
that general obligation bonds cannot be issued in this
instance because it would require a statewide election.
Co-Chair Hawker stated that the advantage of going with
COP's is the timing. Mr. Mitchell agreed.
Co-Chair Hawker pointed out that it is presumed that the
public would have the option to weigh in on general
obligation bonds. He wondered of the use of COP's
circumvents that process. Mr. Mitchell related that a
Supreme Court ruling allows for COP financing. He discussed
the disadvantages of using general obligation bonds.
Co-Chair Hawker wondered if using COP's is a way of getting
around needing the entire state's approval of a local
project. Mr. Mitchell said that was correct.
1:51:04 PM
Co-Chair Hawker asked if this process is circumventing the
people's right to have a say as to where the state makes
capital investments. Representative Munoz emphasized that
this process is addressing a need. She used the prison as
an example, which allowed the state to move prisoners back
to Alaska. She listed the benefits of this project: it is a
top priority of the AMHTA, it provides a long-term revenue
stream for the beneficiaries of the Trust, and it meets the
critical space needs in Juneau.
Co-Chair Hawker concluded that the legislature has to make a
call in the public's interest.
Co-Chair Hawker asked Mr. Mitchell what "the price to be
paid" was. Mr. Mitchell explained that in today's market, a
subject to appropriation credit, versus a general obligation
credit, would be in the range of 25 to 50 basis points,
depending on the day. That is going to change from market
to market. He questioned if this issue should come to a
vote. It is in the interest of the state to accomplish that
project rather than create a large capital budget of
projects that might not be "on the same plane" as the
project that is being proposed.
Co-Chair Hawker called it strategic and surgical. He
pointed out that "25 to 50 basis points" is a quarter to a
half percent difference in the rate the state would be
paying on the debt. Mr. Mitchell agreed. Co-Chair Hawker
asked what a good rate might be. Mr. Mitchell offered to do
the math.
1:54:54 PM
Co-Chair Hawker related that the mechanics of the bill are
rigid due to the 50/50 ratio of debt to equity. He inquired
if there would be an advantage in the market if there was
more flexibility. He gave a hypothetical example of 75
percent debt equity. Mr. Mitchell agreed that flexibility
is always an advantage. He thought the real benefit was
that there was an equity position in the project. There is
a commitment to provide equity in the legislation, which
allows creditors to feel more comfortable.
Co-Chair Hawker asked if there was anything else that would
enhance the bargaining position when approaching the
markets. Mr. Mitchell thought that additional flexibility
in the amount, rather than in the participation levels,
might be an advantage. If there is a cost override,
flexibility would be built in.
Co-Chair Hawker thought that might be looked at. He
wondered how significant that issue might be. Mr. Mitchell
thought it was unlikely that the flexibility would be more
attractive to the market. Co-Chair Hawker pointed out that
if it doesn't work, it would be another year before it could
be taken up again.
2:00:22 PM
Mr. Mitchell emphasized it is the "market of the day" that
is more important. Co-Chair Hawker shared that he had found
his own comfort zone. He noted that this amount is not
large on Wall Street.
Co-Chair Stoltze thought there might be more awareness
recently regarding Mat-Su issues.
Representative Kelly brought up the prison issue and asked
for a response about prison debt financing timing. Mr.
Mitchell thought the legislative discussion on the project
did not change the timing of the financing.
Co-Chair Stoltze did not like COP's and thought that they
should be used infrequently.
2:05:07 PM
Co-Chair Hawker said it appears that the construction cost
on the project would be about $300 per square foot. Typical
commercial grade costs are generally $500 - $600 per square
foot. He concluded that it was a mid-grade building. He
wondered if it was under-designed.
Representative Munoz agreed that the square footage estimate
was about $315. However, it does not include the price of
land, which was donated.
2:08:07 PM
WAYNE JENSEN, JENSEN, YORBA, & LOTT, INC., JUNEAU, explained
that the cost estimates, done by a professional cost
estimating firm in Anchorage, were based on the conceptual
design, the site development costs, and comparisons of
similar projects built in the state. The wide range of
costs depends on many factors. His company gave criteria
based on space standards, size of building, and date of
construction, and the estimating firm came up with a
reasonable cost estimate. The Trust came up with "soft
costs" or development costs. He concluded that the costs
are reasonable and construction costs are favorable right
now.
Co-Chair Hawker agreed with the timing.
2:10:40 PM
Co-Chair Hawker asked what the state is getting for its
money. He requested a life quality comparison.
Mr. Jensen reported that he researched "class of space"
because of a previously-asked question. He found it to be
an ill-defined term because it tends to depend on a
comparison with other projects in the community, the age of
the buildings, the tenant, and the finish materials, as well
as use of space. This building follows the Alaska Space
Standards, which are not generous. The building is
efficient and functional, with not a lot of wasted space.
Mr. Jensen explained that the building would be made of
structural steel, have a good life expectancy, be energy
efficient, have good internal environmental conditions, and
have life-safety systems. It would be long-term, requiring
little maintenance, and be energy efficient. It would be
functionally efficient, as well.
2:14:39 PM
Co-Chair Hawker summarized that class designations are a
function of the real estate industry. Mr. Jensen agreed.
Co-Chair Hawker termed the building low on the opulent
scale. Mr. Jensen agreed. Co-Chair Hawker asked if the
building was designed for flexibility. Mr. Jensen reported
that was a high priority and was reflected in the state's
space standards.
Co-Chair Hawker asked if the project was over or under-
designed and if it would fit into the community's portfolio.
Mr. Jensen thought it would fit into the city's and the
state's portfolios. Design codes have changed and the
building will have modern features not found in current
office buildings.
2:17:15 PM
Co-Chair Hawker noted that the proposal was quite rigid. He
asked Mr. Jensen how high his cost overrun anxiety was. Mr.
Jensen reported that there are contingencies built into the
project: time, budget, and space requirements.
Representative Crawford recalled pictures of early Juneau
when all the buildings had pitched roofs. After WW II the
trend was for flat roofs that leaked. He wondered what the
roof would be like on the new building.
Mr. Jensen thought it would be a low, sloped roof with a
membrane. He shared the difficulties of having a sloped
roof on such a large building. A large consideration is the
snow/rain damage potential. Those factors will all be
considered.
Representative Crawford suggested designing a building with
sloped roofs.
2:22:15 PM
Co-Chair Hawker addressed the "lease or buy" question. He
discussed square foot modeling which, for this building, is
$4.07 per square foot. He wondered about alternatives such
as leased space elsewhere in the state or in the community.
Representative Munoz reported that the most recent estimate
was $3.50 per square foot and would probably be less than
that. For all state-leased facilities, the market rate does
not take into account the investments Alaska must make to
come up to code. She noted that extensive examples of this
were included in the estimate. She mentioned the Frontier
Building in Anchorage, which leases for about $3 per square
foot. The state had to invest about $1 million to bring the
facility up to standards.
2:25:22 PM
Co-Chair Stoltze requested information about the fiscal
notes.
Mr. Mitchell reported that the fiscal note from the
Department of Revenue contains an appropriation required for
debt service and cost of issuance for FY 10 for $1,001,500
and debt service in FY 11 through the balance of the fiscal
note for $1,866,000 per year based on a 20-year certificate
of participation being issued at a rate of 5.5 percent.
Co-Chair Stoltze reported on the Department of
Administration fiscal note. Mr. Mitchell noted that there
would be two separate leases. He discussed the possibility
of deferring the fiscal impact in FY 10.
2:29:08 PM
Co-Chair Hawker noted a third fiscal note from the
Department of Natural Resources. He thought the RDU leases
on the Department of Administration's fiscal note made
sense. It is $1.3 million out of general funds for
contractual services (paying the rent) beginning in FY 2013.
He commented that the Department of Revenue's fiscal note
expenditure is debt service in the out years and questioned
the source of funds. He wondered if they were general
funds. Mr. Mitchell reported that they were general funds
subject to appropriation. He did not want the funds to
"float through another agency".
2:30:28 PM
Co-Chair Hawker addressed the Department of Natural
Resources (AMHTA) fiscal note to support debt service. He
asked for further clarification.
AT-EASE: 2:31:17 PM
RECONVENED: 2:40:18 PM
JEFF JESSEE, CHIEF EXECUTIVE OFFICER, ALASKA MENTAL HEALTH
TRUST AUTHORITY, offered to answer questions.
Co-Chair Hawker asked if Mr. Jessee could address the fiscal
notes. Mr. Jessee reported on his understanding that the
Department of Natural Resources fiscal note funded the
actual operations and maintenance costs of the building.
Co-Chair Hawker related that the fiscal note shows a change
of revenues of $5.7 million per year for the Mental Health
Lands Administration beginning in FY 2013. He pointed out
that the Department of Administration leases, the tenant, is
spending only $1.3 million.
Mr. Jessee could not answer the question without viewing the
fiscal notes.
Co-Chair Hawker explained that it shows MHTAAR paying a
contractual expense of $1.5 million to the general fund to
pay the debt service. His concern was that the Department
of Administration is only paying $1.3 million.
2:42:46 PM
REMOND HENDERSON, DEPUTY DIRECTOR, DIVISION OF GENERAL
SERVICES, DEPARTMENT OF ADMINISTRATION, reported that rent
funds will also be received from the leasing of commercial
space, which may account for the difference. Co-Chair
Hawker needed assurance in the matter. Mr. Henderson
clarified that the amount that the Department of
Administration would be paying in FY 13 is $5.4 million; in
FY 14 it is $5.424; in FY 15, $5.450; in FY 16, $5.476. He
thought the money beyond the $5.4 million amount would be
from commercial leases. Co-Chair Hawker wondered why that
was not reflected in the cover sheet.
2:44:27 PM
Mr. Mitchell explained that the amount reflected in the
cover sheet is the difference between what would be paid
under the status quo versus moving into the new building.
Co-Chair Hawker asked if $300,000 was the anticipated amount
of commercial rent revenue.
Mr. Jessee did not know if that was the anticipated
commercial space revenue.
2:45:32 PM
Representative Munoz recalled that it was anticipated rental
revenue. She also recalled $20,000 per year in property
tax. She suggested having confirmation from Mr. Noah.
Co-Chair Hawker suggested setting the bill aside until the
fiscal notes are cleared up. Co-Chair Stoltze agreed.
Co-Chair Hawker requested further information about the
interrelationship of the fiscal notes.
HB 161 was heard and HELD in Committee for further
consideration.
2:48:51 PM
HOUSE BILL NO. 121
"An Act relating to a municipal property tax credit for
an improvement that aids in improving air quality."
Vice-Chair Thomas MOVED to ADOPT CSHB 121, labeled 26-
LS0540\P, Cook, 4/2/09.
Co-Chair Hawker OBJECTED.
BEN MULLIGAN, STAFF, CO-CHAIR BILL STOLTZE, explained three
changes in the new CS. The first change is on page 1, lines
5-7, and stipulates that the air quality improvement tax
credit only applies to a municipality that has air quality
issues with fine particles that are less than or equal to
2.5 micrometers. The second change is that language was
removed that set guidelines for how the municipality should
award the tax credits. The third change occurs on line 13,
and adds a sunset clause on January 1, 2016.
Co-Chair Hawker agreed with the second change, taking out
guidelines because it gives municipalities wide latitude to
make their own determination as to how they might want to
structure such a program. He requested more information
about the repeal.
Mr. Mulligan related that it is a pilot project. If it
works, the legislature can extend or modify it.
2:52:33 PM
Co-Chair Hawker spoke to the first change, which responded
to his and Representative Stoltz's concern that the bill was
designed to target Fairbanks and Juneau, not Anchorage. The
broadness of the language also included Anchorage. The
intent of the bill was to benefit only the two communities.
The change would make Anchorage ineligible for this
legislation.
2:54:16 PM
Co-Chair Hawker WITHDREW his OBJECTION to adopting CSSB 121.
There being NO OBJECTION, CSSB 121 was adopted.
Representative Gara maintained that the bill gives the
municipalities an option, not a mandate. It is giving only
those municipalities that are violating federal air quality
standards the ability to give a tax break at their
discretion to folks who use energy efficient heating. He
thought that should be a local decision. The amendment says
that any community that wants to give their taxpayers an
incentive to use energy efficient heating could. It does
not impose a mandate, it gives discretion to municipalities,
and it is a policy statement. He did not see it having a
high cost.
2:58:00 PM
Representative Kelly reported that Fairbanks is in a bind
regarding the 2.5 air quality standard. He was concerned
that the amendment would open the bill to further protest
and would kill it. He was not opposed to the discussion.
He gave examples of his support of energy-saving devices and
his concern when the borough shuts them down. The bill is
important because it helps people convert to modern devices.
The bill also helps Fairbanks address pollution issues.
Co-Chair Hawker echoed Representative Kelly's concerns. The
bill is very specific and addresses a specific problem. He
feared the unknown of the amendment.
3:02:54 PM
Representative Gara MOVED to ADOPT Amendment 1:
Page 1, line 5, following "municipality":
Delete "that includes within its boundaries an area
that fails to meet federal or state air quality
standards for fine particles that are less than or
equal to 2.5 micrometers in diameter"
Co-Chair Hawker OBJECTED.
Representative Gara didn't see a problem letting a community
decide to write its local tax code. He maintained it was
not a mandate.
3:04:53 PM
Vice-Chair Thomas gave examples from Haines showing that it
already has the ability to write its local tax code. He did
not think the amendment was necessary.
Representative Crawford wondered if Fairbanks already had
the option to correct the problem. He thought local control
was good.
Co-Chair Hawker agreed with Representative Gara's wanting to
provide discretion to local communities. He viewed it as a
creation of different classes of taxpayers. He did not
trust the municipalities to fairly reallocate tax zones.
3:07:30 PM
Representative Gara reported that he discovered that some
communities do not have this discretion.
Co-Chair Hawker stated that the bill was brought forth by
communities that saw a need.
Representative Kelly reported that Fairbanks does have a
problem. He gave as an example the Senior Exemption on
property tax. He maintained that the bill was necessary.
Representative Crawford asked how Haines could grant an
exemption from the sales tax. Representative Kelly said the
bill is relative to property tax, not to sales tax and the
exemption must be approved by the state.
3:10:47 PM
Representative Crawford suggested rebating the sales tax.
Representative Kelly said they do not have a sales tax.
Co-Chair Hawker MAINTAINED his objection.
A roll call vote was taken on the motion.
IN FAVOR: Crawford, Gara
OPPOSED: Thomas, Austerman, Fairclough, Joule, Kelly,
Hawker
The MOTION FAILED (2-6).
3:14:11 PM
Representative Kelly MOVED to ADOPT Conceptual Amendment 2,
to change 2.5 "micrometers" to "microns" on line 7.
Co-Chair Hawker OBJECTED.
Representative Kelly noted the change was on page 1, line 7.
Co-Chair Hawker MAINTAINED his objection.
KAREN LIDSTER, STAFF, REPRESENTATIVE JOHN COGHILL, quoted
the Department of Environmental Conservation and maintained
that the correct term is "micrometers". Co-Chair Hawker
asked if the sponsor prefers the bill to reflect the
language of the federal EPA designation. Ms. Lidster said
yes.
3:17:28 PM
Representative Kelly argued that it should say microns. He
suggested holding the bill and asking the Department of
Environmental Conservation for an opinion, although he
preferred to move the bill.
Representative Kelly WITHDREW Conceptual Amendment 2.
3:19:13 PM
Representative Kelly MOVED to REPORT CSHB 121 (FIN) with
individual recommendations and the accompanying fiscal note.
There being NO OBJECTION, it was so ordered.
CSHB 121 (FIN) was REPORTED out of Committee with a "do
pass" recommendation and with zero fiscal note #1 by the
Department of Commerce, Community and Economic Development.
ADJOURNMENT
The meeting was adjourned at 3:19 PM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| CSHB 121 Amendment 1.doc |
HFIN 4/3/2009 1:30:00 PM |
HB 121 |