Legislature(2021 - 2022)ADAMS 519
03/30/2021 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB93 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 93 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 30, 2021
1:33 p.m.
1:33:21 PM
CALL TO ORDER
Co-Chair Merrick called the House Finance Committee meeting
to order at 1:33 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Kelly Merrick, Co-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Bryce Edgmon
Representative DeLena Johnson
Representative Andy Josephson
Representative Bart LeBon
Representative Sara Rasmussen
Representative Steve Thompson
Representative Adam Wool
MEMBERS ABSENT
None
ALSO PRESENT
Caroline Schultz, Policy Analyst, Office of Management and
Budget, Office of the Governor Office of the Governor; Neil
Steininger, Director, Office of Management and Budget,
Office of the Governor.
PRESENT VIA TELECONFERENCE
Deven Mitchell, Executive Director, Alaska Municipal Bond
Bank Authority, Department of Revenue; Marie Marx,
Attorney, Legislative Legal Services; Alan Weitzner,
Executive Director, Alaska Industrial Development and
Export Authority; Heidi Teshner, Director, Finance and
Support Services, Department of Education and Early
Development; Connor Bell, Analyst, Legislative Finance
Division.
SUMMARY
HB 93 G.O. BONDS: STATE INFRASTRUCTURE PROJECTS
HB 93 was HEARD and HELD in committee for further
consideration.
Co-Chair Merrick reviewed the agenda for the day.
HOUSE BILL NO. 93
"An Act providing for and relating to the issuance of
general obligation bonds for the purpose of paying the
cost of state infrastructure projects, including
construction, communications, major maintenance,
public safety, and transportation projects; and
providing for an effective date."
1:34:18 PM
CAROLINE SCHULTZ, POLICY ANALYST, OFFICE OF MANAGEMENT AND
BUDGET, OFFICE OF THE GOVERNOR OFFICE OF THE GOVERNOR,
presented HB 93 introducing the Power Point Presentation:
"HB 93 - General Obligation." She would provide a quick
high-level overview of what the administration was thinking
when it put the General Obligation (GO) Bond package
together. She would also explain why it was a good time to
get some construction money on the street and take
advantage of very low financing costs. House Bill 93 had a
bond issuance of $356.4 million. It consisted of $354
million in projects and $1.8 million to issue the bonds.
The bill's fiscal note would show an annual debt service of
$22 million beginning in FY 23.
Ms. Schultz continued that the current bond interest rate
was 2.35 percent. She pointed out that one of the reasons
the administration decided to finance capital
infrastructure was because, compared to the lower rates of
borrowing, the state returned a much higher rate on its
savings. The state was projected to return 6.25 percent on
its savings. Financing the projects would result in an
additional savings of $273 million over the long-term
comparing the interest the state would earn to the amount
the state would have to pay on its borrowing.
Ms. Schultz also pointed out that there would be a special
election associated with the bill to be held between 90
days to 120 days after adjournment, and there was a cost
associated with the election of about $2 million.
Co-Chair Merrick indicated Representative Wool had joined
the meeting.
Ms. Schultz turned to slide 3 which showed the project
totals by department. There were projects selected from a
variety of departments but the largest projects were in the
Department of Transportation and Facilities Maintenance
(DOT). Several road, airport, and port projects were
featured in the GO Bond project list. She was prepared to
discuss the project list later in the presentation or in a
later hearing. She turned the presentation over to Devin
Mitchell from the Department of Revenue (DOR).
1:36:47 PM
DEVEN MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND
BANK AUTHORITY, DEPARTMENT OF REVENUE (via teleconference),
introduced himself and discussed the state debt obligation
process on slide 4. He indicated all debt of the State of
Alaska had to be approved by the legislature and affirmed
by the governor or a super-majority of the legislature. He
explained that with GO Bonds there was also the additional
step of having the voters of the state ratify the issuance
of bonds. The high standard for issuing GO Bonds resulted
in the best execution in pricing of any potential offering
the state might put out as a debt instrument. For example,
if the state had one of the state corporations issue a
revenue bond that had a similar rating to the state's
general obligation rating, it would be expected that the
general obligation rating of the state would result in a
lower interest rate than the state agency.
Mr. Mitchell relayed there were only 50 states and only 50
opportunities to buy general obligations - a full faith
taxing authority pledge of a state. Therefore, it carried a
higher value to investors than certain other lesser
pledges. If a GO Bond was approved by voters, the state
bond committee authorized the specific terms of the various
issuances. Caroline referenced the cost of issuance of the
bonds, an estimate included in the bill. It was really a
"not to exceed" amount. There were certain costs the state
would pay only if the state issued bonds. The state
contracts were generally structured so that it paid based
on the size of the issuance. Ratings were smaller fees for
smaller issuances and larger fees for larger issuances. It
was the same for bond counsel and financial advisory
services.
1:40:53 PM
Mr. Mitchell scrolled to slide 5 which contained a summary
of the currently outstanding annual debt service of the
State of Alaska. He pointed out there were gradual
reductions. The state had a debt program of issuing
generally 20-year level debt service bonds. As the
obligations stepped off, the state had been issuing the GO
Bonds included in the table since FY03. In FY 24 to FY 25
the FY 03 bonds would drop off, and from FY 27 to FY 28
there would be a slight reduction because of the
interaction between the FY 13 bonds being paid off and the
FY 10 bonds debt service increasing slightly. The state had
a mature portfolio that was able to withstand the
additional debt service proposed in HB 93.
Mr. Mitchell relayed that the next line in the table showed
the potential annual debt service associated with the
proposed bond issuance. The numbers were based on all of
the bonds being issued immediately. The state would have a
sale as quickly as possible after the election was
conducted and would include the entire authorization. The
entire authorization would be eligible for a 20-year
amortization.
Mr. Mitchell thought the likelihood of the state issuing
all the bonds at once was relatively small. It was more
likely the state would have a couple of issues, and there
would be certain projects on the projects list that would
not qualify for 20-year financing. He explained that bonds
were issued on a tax-exempt basis. The amortization could
not exceed the IRS' opinion about the useful life of the
acquisition. Therefore, certain equipment or other short-
life assets or improvements would have shorter
amortizations. His numbers were estimates but were
reasonable given all of the factors that would come
together for the purpose of sizing the issuance. He
concluded his statement.
Representative Josephson asked why the administration had
not recommended $250 million or $450 million. Mr. Mitchell
responded that it was a function of the compiled project
list. He noted that bond issuance was done in $5000
increments. The principal amount would not be able to
comply with the bill. However, through structuring, the
state would wind up with proceeds equal to the amount
authorized even if it was an odd amount indivisible by
$5000.
Vice-Chair Ortiz referred to the bond project list. He
thought the proposal had been compiled prior to the state
receiving federal funds for COVID relief. He wondered if
federal monies had been considered in lieu of a bond
package proposal.
Mr. Mitchell responded that he did not know the answer to
Representative Ortiz's question. He thought it would be
better directed to the departments that would be spending
the money.
1:44:31 PM
Ms. Schultz responded that the facts had changed
significantly since the GO Bond list was generated. The
availability of federal funds through the Coronavirus
Response and Relief Supplemental Appropriations Act
(CRRSAA) bill and the American Rescue Plan Act (ARPA) bill
had changed things as well as the passage of time and the
information the Office of Management and Budget (OMB) had
gathered from department and community stakeholders
involved in the projects. The administration was happy to
work with the committee on refining the list of GO Bond
projects and projects that would benefit from federal
funding.
Vice-Chair Ortiz was concerned about the possibility of the
use of the GO Bond program tying up options for the state
in the future. Mr. Mitchell agreed that the payments would
be tied up with future legislatures. He indicated the state
had about $1 billion of capacity to issue GO Bonds.
Therefore, it should be used judiciously. He thought the
legislation before the committee was an attempt at being
judicious. He suggested that if other funding options
became available, it would benefit the state's long-term
outlook to use the alternative sources rather than the
state's highest commitment level debt. He suggested that
maybe there could be flexibility structured within the bill
that could provide for such a provision. It boiled down to
ensuring that the projects were critical to the functioning
of the state such that the state was willing to pay for the
projects for the following 20 years.
1:47:31 PM
Representative Edgmon saw many facts changing with many
questions unanswered and many unknowns. He noted the grand
list of deferred maintenance totaling over $5 billion. He
also spoke of the need to jump-start the economy. He
mentioned that the state had not had a capital budget to
speak of in several years. He thought large policy
discussions were necessary and far beyond the scope of the
meeting. He brought up the issue of timing for a GO Bond
issuance as well. He hoped the administration was equipped
to have a larger discussion with the legislature. He had
several questions.
Representative Carpenter had a question regarding future
funds that the state was likely to receive. He queried
whether the GO Bond debt balance could be paid early.
1:50:35 PM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, asked Representative Carpenter to
clarify his question. Representative Carpenter was unsure
whether the federal funding could be used to pay down debt.
He was asking if the structure of the debt would allow the
state to pay it off early. Mr. Steininger thought Mr.
Mitchell could better answer the representative's question.
Mr. Mitchell offered that the tax-exempt municipal market
expected bonds to be issues with a 10-year par call. He
explained that at the tenth year the state would have the
option to redeem the outstanding bonds to either pay them
off or refinance them. The first 10 years of the loan would
be locked in. Even though the state would be issuing the
bonds at a very low yield in the current market, about
2.3 percent, the coupon rate on the bonds was likely to be
much higher. He relayed that what the investors were
looking for and how the state got the lowest yield possible
was by structuring the bonds with a higher coupon, a
premium bond. He provided an example of expenses related to
paying a bond debt off early. He suggested that when the
bonds were issued, the state should be comfortable with
issuing them for at least 10 years or otherwise not sell
them.
1:52:50 PM
Representative Rasmussen asked how the project list was
determined. She thought there was a disparity in the
distribution of funds from district-to-district. She
tallied the projects specific to Anchorage Municipality
house districts which equaled just under $13 million of the
proposed $354 million roughly 3.5 percent of the funding.
It appeared that some of the bond projects should be done
at the local level. The feedback she had received from her
constituents regarding the GO Bond was that they could
agree if the projects brought down the cost of energy or it
made projects more financially feasible for private
companies investing in rural Alaska to develop the state's
resources. However, many of the items were related to
deferred maintenance. She asked Mr. Steininger to expand on
how the list was produced.
Mr. Steininger responded that the administration looked at
existing lists or requests that had come from agencies in
prior years, items the state could not accomplish in prior
capital budgets. The projects on the list needed to be ones
that the state would have done otherwise rather than new
spending to incur debt. The state would be taking advantage
of low interest rates to accommodate needs the state had in
capital infrastructure. There were a couple of projects
like the Houston Middle School that did not fit the
criteria he mentioned but was needed in the respective
communities. The bonding amount associated with the Houston
Middle School would pay the costs not covered by insurance.
In putting together a GO Bond project list, regional equity
was a consideration. However, the administration also
looked at the wider spend the state had for the FY 22
capital budget when considering regional equity.
1:56:38 PM
Co-Chair Merrick indicated OMB could provide more detail
after the committee heard from Legislative Legal Services.
Representative Rasmussen continued to comment on the
disparity of the project list. She desired more
conversation on the topic moving forward.
Representative LeBon thought shovel ready projects should
be a priority. He asked for a proper definition of a
"shovel-ready" project. He thought shovel-ready meant that
a project was designed with specifications available for
bid and simply awaited funds. He was uncertain if the
Fairbanks Youth Facility was shovel-ready.
Representative Wool asked if it had been determined whether
federal funds needed to be appropriated, or if the governor
could use the RPL process again. Mr. Steininger responded
that federal funds would require an appropriation. The RPL
process was another tool for an appropriation of federal
revenues when they were not anticipated at the time a
budget was passed. Once the administration understood the
rules around ARP monies, it would bring forward proposed
appropriations to expend the funding.
1:59:25 PM
Representative Edgmon spoke of receiving the initial
guidelines on or about May 11, 2021. He suggested that it
would likely require a special session. Mr. Steininger
could not predict whether a special session would be
needed. Once the administration understood the rules
regarding ARPA spending, it would work on how the money
could be allocated in the state budget. He was unsure of
the timing and was unsure about the need for a special
session.
Representative Edgmon thought that Mr. Steininger's
response was code for the $1 billion being dispersed by the
governor through the RPL process. He thought the committee
should be aware of that possibility. The legislature was
being asked to apply discretion towards $356 million
possibly in a GO Bond package. However, $1 billion would be
coming to the state through ARPA which might, because of
timing, might have to go through the RPL process going
beyond the appropriation process in the legislature.
Co-Chair Merrick thanked Mr. Steininger and Mr. Mitchell
for their presentation. She directed attention to a legal
memo dated, March 5, 2021 (copy on file), in members'
packets. The memo identified three broad issues with the
bill. Marie Marx from Legislative Legal Services was online
to review the issues.
MARIE MARX, ATTORNEY, LEGISLATIVE LEGAL SERVICES (via
teleconference), spoke of one of the services that
legislative Legal provided was to identify issues and
concerns to help the legislature make informed decisions.
Her memo, dated March 5, 2021, outlined some legal issues
she found in reviewing HB 93, the GO Bond bill. There were
3 main areas of concern. The first related to the single
subject rule which had to do with a provision in the Alaska
Constitution that required that substantive bills be
confined to one general subject or idea.
Ms. Marx reported that, historically, the Alaska Supreme
Court had viewed the rule very broadly and had allowed very
broad subject matter to be in one bill. However, recently
in 2010, the court struck down a piece of proposed
legislation for failure to satisfy the single subject
requirement. The concern was that HB 93 listed numerous and
varied projects. The overarching general idea the governor
identified in the bill was infrastructure.
Ms. Marx highlighted that infrastructure might work as a
single subject but was very broad. If challenged, a court
might find it to be too broad to be permissible. She
prefaced her comments on the main areas of concern that
existing caselaw did not provide a definitive answer on
whether or not the bond authorization in HB 93 was
constitutional. She could not predict what a court would do
if it was challenged. Her comments in the meeting were
simply to bring to the legislature's attention a few legal
issues that raised some significant question marks.
Ms. Marx's recommendation regarding the single subject
issue was that the legislative record clearly established
how each of the provisions in HB 93 were related
thematically. Failure to comply with the single subject
rule could jeopardize the entire bill if it were
challenged.
Ms. Marx relayed that the second issue she identified
related to another provision in the constitution which
limited the uses that might be made of money through the
issuance of GO Bonds. It limited them to capital
improvements. The bonds also had to be approved by voters.
The definition of capital improvements meant something that
was durable and permanent. There was an open question on
whether maintenance especially ordinary or deferred
maintenance would meet the permanency required to be a
capital improvement. There was a chance that issuance of
the GO Bonds for some of the projects in HB 93 might be
ruled unconstitutional if challenged. It was an open
question. The Alaska Supreme Court had not opined on the
issue. However, it had provided an opinion that capital
improvements were things that were permanent and had given
examples of buildings, schools, and roads.
Ms. Marx addressed the third issue which related to project
specificity. There were two statutes that required GO Bond
bills to specifically identify the scope of every project,
its location, and the amount allocated to the project. The
reason the statute was in place was because without the
specificity, there was a risk that the bond proceeds could
be used for something that was not a capital improvement,
therefore, violating the Alaska Constitution. Her
recommendation was that anything that was not specifically
identified (she thought there were a couple of projects
that identified funds rather than projects) be listed out
specifically to make sure they were not used in violation
of the constitution.
Ms. Marx returned to her second point. She recommended that
the legislature clearly establish how each of the projects
in HB 93 constituted a capital improvement. She was
available for questions.
2:06:36 PM
Representative Rasmussen asked if the definition of a
permanent capital investment or improvement meant that the
project had to be a new project or whether it included
repairs or maintenance on something such as an existing
building or road.
Ms. Marx responded that Representative Rasmussen asked a
very good question. Significant case law had not been
established on the issue. In the case of the City of Juneau
versus Hickson, the court noted there was no definition for
capital improvement in the Alaska Constitution, therefore
the state used the plain meaning of the terms. Capital was
generally associated with value represented by real or
personal property in some form with relative permanency.
Broadly, improvement meant betterment. The court case gave
examples of streets, bridges, harbor facilities, municipal
buildings, schools, libraries, and public utilities. The
items had sufficient permanent character.
Ms. Marx continued that there had been attorney generals'
opinions that indicated things like trucks did not have the
required permanency and generally were not considered a
capital improvement items. There was a question about
whether equipment would meet the permanency requirement to
be a capital improvement. There was an attorney general's
opinion that stated bonds could not be issued for the
repair of an existing facility like ordinary repair or road
maintenance as opposed to the construction of new ones.
While the supreme court had not made such rulings there was
an attorney general's opinion supporting that bonds had to
be used for new or major construction. The more major the
maintenance and the more major the construction, the more
likely a project would be considered an improvement.
Representative Rasmussen asked if it was possible for Ms.
Marz to provide the attorney generals' opinions to the
committee. Ms. Marx responded in the affirmative.
2:09:03 PM
Representative LeBon asked if she had the list of projects
available if he were to ask Ms. Marx a question about a
specific project on the list. Ms. Marx responded that she
had the list of projects in the bill and access to the
supporting documents which would provide a complete
picture. She was happy to conduct a further investigation
if the representative wished.
Representative LeBon turned to page 2 of the bill. He
referred to a statewide firebreak construction program in
the amount of $20 million. He wondered if it was a capital
improvement project. He also pointed to a recreational
trail construction project from Fairbanks to Seward. He
suspected it also fell into the broad category of capital
improvement. Ms. Marx responded that just from the
description in HB 93 which referred to a statewide
firebreak construction program, she could not offer an
opinion without additional information.
Representative LeBon speculated that if the state cut a
pathway into the woods to provide a firebreak and did not
maintain it, the capital improvement might disappear.
Representative Rasmussen responded to Representative
LeBon's point. She recalled the legislature approving
funding for a firebreak construction program in the
previous year. In 2019, when she was on the Natural
Resources Finance Subcommittee, the committee over-funded
what the department thought was needed for fire suppression
activities. There was over $100 million in supplemental
costs due to extreme wildfires. She was aware that the
legislature increased the funding on that project, but she
did not know the level reached $20 million. She was
uncertain it was appropriate to fund it through a GO Bond
proposal.
Representative Edgmon asked if Ms. Marx had looked at
previous bond issuances approved by the legislature and
benchmarked them against the issues she had pointed out,
such as the single subject rule. He suggested that no
matter what package was offered, there would be an element
of an open question aspect from a legal standpoint given
the constitutional and statutory parameters.
Ms. Marx replied, "Absolutely." Her job was to bring the
issues to the legislature's attention. Ultimately it would
be up to the legislature to decide what to move forward.
The bonds would also determine how to weigh the risks. She
had pulled the most recent issuances. In 2012, there was an
issuance with a single subject of transportation; in 2010,
there was an issuance with a single subject of education;
in 2008, there was an issuance with a single subject of
transportation; and in 2002 there was an issuance of a
single subject of education/museum. None of the issuances
were challenged to her knowledge, and they fell into a
recognizable single subject. She believed ordinary and
deferred projects were a part of the issuances. In the
past, there had been GO Bond projects that moved forward in
light of a gray area.
Representative Merrick invited Mr. Mitchell to comment.
2:14:45 PM
Mr. Mitchell responded that all of the bond issues that Ms.
Marx brought up had not been challenged. He agreed with her
that there were deferred maintenance and regular
maintenance. He recalled a repaving project in Juneau which
was a routine capital improvement maintenance project. They
were not as varied in the types of projects as was pointed
out.
Co-Chair Merrick thanked Mr. Mitchell and Ms. Marx for
their participation in the meeting.
Ms. Schultz relayed that there was a spreadsheet in front
of members that contained a summary of the project listings
and a significant packet of back-up materials. She noted
there were individuals online available to answer detailed
questions about some of them but not all of them.
Representative Johnson had question regarding the Ambler
Road [The West Susitna Access Project]. She asked Ms.
Schultz to identify what construction activity would be
included in the project if it was funded. Ms. Schultz
deferred to Mr. Weitzner, the executive director of the
Alaska Industrial Development and Export Authority (AIDEA).
2:17:25 PM
ALAN WEITZNER, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY (via teleconference),
indicated that the project request for inclusion into the
GO Bond was comprised of two phases. There was specific
construction activity. He was looking into ways of meeting
the requirements for the capital improvement and project
specificity. He explained that what was being proposed was
approximately $4 million dedicated to creating an
all-season road in replacement of the Fish Creek
Development portion of the winter road access from the West
Susitna Parkway into the Fish Creek Management Unit. It
would also incorporate a bridge access across the Little
Susitna River to the management plan area.
Representative Johnson asked if the road was similar to the
road at the Red Dog Mine. She wondered if it would be a
toll road. Mr. Weitzner responded that she was correct. The
Alaska Industrial Development and Export Authority was
planning to use a private-public partnership structure with
private sector investment and to work hand-in-hand with the
Mat-Su Borough for the development of the road. It would be
a similar type of structure to DeLong Mountains
Transportation System and also very similar to the Ambler
Access Project.
Representative Wool asked if the road would be used for
commercial access only, specifically for mining. Mr.
Weitzner responded that the road would allow for broad
public access along the route which was a requirement for
the borough. The road would allow for broad access between
Port Mackenzie and the road network system to links across
the Little Susitna River and the Big Susitna River into the
West Susitna Area to the Yentna Mining District. It crosses
several resource areas within the borough. The intent of
the tolls or use portions of the road (what was supporting
the financing) would come from the industrial and
agricultural access use. There were other services being
provided by the road including fire retention, timber
access or the borough, and the public's access for
recreational activities.
Representative Wool asked who would be paying the toll. He
wondered if user fees would be limited to commercial
activities or whether fees would also be assessed for
recreational use. Mr. Weitzner replied that the toll would
be limited to commercial usage which would be the higher
volume traffic. It would follow some of the structures the
state had in place with DeLong Mountain Transportation
System and Ambler Access. Local communities and the local
public had rights of use. He noted access was limited and
controlled because of the commercial traffic in place.
However, they had rights of use and access that would not
be obligated to make payment as long as usage remained
under a certain level.
2:21:09 PM
Representative Josephson thought he heard Mr. Weitzner
mention the the Ambler Road would be open to the public
which was not part of the plan several years ago. He asked
if he was correct. Mr. Weitzner indicated that his example
of the West Susitna was the local community's access to the
infrastructure. He concurred that the Ambler Access Road
was not in any case going to be a public road. He
elaborated that AIDEA had permitting in place with the
Bureau of Land Management (BLM) and the National Park
Service. Ultimately, AIDEA was working with the state and
private land owners on a controlled access industrial only
road for the Ambler Access Project.
Representative Josephson asked if the Chuitna River Pac Rim
Development was part of the Yentna Mining District. Mr.
Weitzner did not know.
Representative LeBon had a question about item 2.
Vice-Chair Ortiz asked if the committee was supposed to ask
questions rather than hear a presentation.
Co-Chair Merrick clarified that the intention of the
meeting was to have a high-level overview of the projects.
She thought it would be best to allow for the presenter to
continue for the sake of time.
Ms. Schultz moved to item 2. The item reflected the Houston
Middle School Replacement which was effectively destroyed
in the 2018 Earthquake.
Representative LeBon indicated that the Houston Middle
School Replacement Project was located in the Matanuska-
Susitna Borough. He wondered if there was an expectation
that the borough would ask property owners to bond the
school in some fashion to pay for its replacement. Ms.
Schultz replied that the amount of $9 million in the
GO Bond was reflective of the amount that would not be
matched by the Matanuska-Susitna Borough. The amount was
not the total cost of the project.
Representative LeBon clarified that there was an
expectation that if the bill were approved and the $9
million remained in the GO Bond it would be based on
residents of the borough voting to tax themselves to make
up the difference. Ms. Schultz could not speak to
Representative LeBon's question. She was aware that the $9
million was the remaining amount of the total cost of the
project. She could follow-up with an answer. She also noted
that Ms. Teshner from the Department of Education and Early
Development (DEED) was available and might be able to
answer his question.
Representative LeBon wondered if the borough had any skin
in the game. Ms. Schultz reported that item 3 was the major
maintenance grant funds for schools in the amount of $25
million. Ms. Marx had touched on the item briefly with some
concern. Listing a deposit into a grant fund or a
generalized non-specific appropriation could be
problematic. The reason the administration thought the
amount was an appropriate use of a GO Bond project was
because there was a specific school major maintenance list
that she included in members' packets. The school major
maintenance list was developed with input from DEED and
school districts through a rigorous rating process to
determine which projects had the highest need. The $25
million would fund the first 6 projects on the list.
Representative LeBon would look at the list.
2:25:45 PM
Representative Rasmussen asked if the Department of Law had
weighed in on whether the appropriation would pose a legal
challenge.
Ms. Schultz responded that Department of Law had also
expressed similar concerns as Legislative Legal Services.
There was not clear case law on the item. It was the
administration's perspective that because there was a
statutorily defined list and a process it was acceptable.
She suggested listing out specific projects from the school
major maintenance would be a good option.
Representative Josephson noted the Kasayulie decision. He
wondered if a litigant could argue that the cost of item 3
should be borne by the state rather than the tax payer. He
wondered if the notion had been discussed. Ms. Schultz was
not comfortable speaking to the legal issue. Representative
Josephson suggested it might be something that deserved a
follow-up.
Ms. Schultz moved to item 4 regarding Mt. Edgecumbe. Within
DEED there were repairs needed for Mt. Edgecumbe High
School in Sitka. The amount of $7.9 million would be used
for major deferred maintenance.
Ms. Schultz relayed that the Department of Health and
Social Services (DHSS) had three projects on the list. The
first was item 5 for the Fairbanks Pioneer Home roof and
flooring replacement in the amount of $2.4 million.
Ms. Schultz reported that the second project for DHSS was
phases I and II of the Fairbanks Youth Facility in the
Division of Juvenile Justice. The amount of $18.9 reflected
a total rebuild of the facility. Phases I and II would
complete the project.
Ms. Schultz relayed that the third project for DHSS was
item 7 - the Palmer Veterans and Pioneer Home roof and
flooring replacement.
Ms. Schultz continued to item 8 which was $19.5 million for
the Alaska Vocational Technical Center (AVTEC) upgrades in
Seward. The appropriation reflected major maintenance and
repairs at the AVTEC campus.
Ms. Schultz conveyed that item 9 was a Department of
Military and Veterans Affairs (DMVA) project for the the
Alaska Public Safety Communications Services system
upgrades (previously known as the SATS and ALMAR system) in
the amount of $12 million. The funds would be used to
expand and repair the existing system.
Ms. Schultz reported item 10 related to the Alcantra Armory
and Arc-Flash improvements within DMVA. The armory in
Wasilla was the back-up location in case JBER could not be
used as a headquarter facility. In order for Alcantra to be
well suited for that purpose it needed a major overhaul and
repairs.
Vice-Chair Ortiz thought the federal government was
responsible for armories. He wondered if it was customary
for the state to fund a federal facility. Ms. Schultz
responded that the state would receive a 50 percent federal
match for the project. It was customary for the state to
receive a considerable federal match for many of its DMVA
projects.
2:30:43 PM
Ms. Schultz explained that item 11 and item 12 were
similar. They were both DMVA facility shelter replacement
and improvements projects. Item 11, the Heaney Range
Shelter was falling apart and needed to be replaced. Item
12, the Summit Lake facility, needed extensive foundation
repairs and would likely be rebuilt.
Vice-Chair Ortiz asked if range implied a shooting range.
Ms. Schultz responded that it was not a shooting range. It
was a DMVA communications type of shelter. She could
provide the committee with more detailed information.
Ms. Schultz reported that the last DMVA project was item
13, the statewide tower lighting replacement project. The
lighting on all of the DMVA towers would be replaced with
LED lights for $600,000.
Ms. Schultz moved to the Department of Natural Resources
beginning with item 14. The project in the amount of $2.1
million was for the Arctic Strategic Transportation and
Resources (ASTAR) project. The amount would pay for phase
II of a 4-phased ASTAR project. Phase II was mostly
geological and gravel survey work to evaluate the most
opportune resources and best plans for transportation
corridors in the North Slope area.
Ms. Schultz moved to item 15, the Fairbanks to Seward
multi-use recreation trail for $14.2 million. it was the
administration's consideration that building a new trail or
improving the existing trail functionality was a qualified
capital project. There was a detailed breakdown of the
elements of the trail in members' packets by the Division
of Parks.
Representative Johnson asked if there would be an
opportunity to ask more questions at the end. Co-Chair
Merrick thought questions could be asked per item.
Representative Johnson returned to item 2, the Houston
Middle School replacement project, and whether the borough
had skin in the game. She explained that the school had
been damaged by an earthquake. The Mat-Su Borough had
earthquake insurance. She continued that because Anchorage
did not have earthquake insurance, Mat-Su Borough was
penalized by having to pay for emergency money not coming
in. She reported that the Mat-Su Borough had paid for most
of the repairs to the school. She confirmed that the
borough definitely had skin in the game. She indicated the
amount of $9 million was the remaining cost of the project.
The amount being requested was a small piece of the total
cost of the project and contribution by the Mat-Su Borough.
She wanted to make sure the information was on record.
2:34:43 PM
Representative LeBon returned to the $25 million for school
construction in item 3. The list had some ranking of
projects. The first five projects totaled $25 million in
Galena, Craig, Anchorage, Kake City, and again in
Anchorage. The list had over 100 priority schools on it. He
wondered if voters would know what specific school projects
would be funded with the $25 million.
Ms. Schultz responded that as the bill was written if the
vote was taken the following day, the list would not be
provided. However, the statutory formula funding mechanism
of the school major maintenance fund would result in going
down the priority order list. She opined that for full
transparency and making sure voters had all of the
information in front of them when voting, she did not see
the harm in ranking the specific projects on the list. She
spoke of one of the advantages of making an appropriation
to the school major maintenance fund versus making specific
appropriations for each school was that it allowed for some
flexibility of funding. If a project came in at less than
projected or greater than projected it allowed for
budgetary elasticity.
Representative LeBon noted there was a project listed for
the Eagle River Elementary School improvements. However, it
asked that there would be a participating share of
$2.8 million. He wondered if the community of Eagle River
was expected to contribute to the project. He wondered if
the community would have to initiate a community bond to
have skin in the game. Ms. Schultz deferred to Heidi
Teshner from DEED to speak to the participating share and
state share.
2:37:49 PM
HEIDI TESHNER, DIRECTOR, FINANCE AND SUPPORT SERVICES,
DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT (via
teleconference), responded that the participating share
portion was the district's share required to provide on all
projects. It ranged from 2 percent and 35 percent based on
statute. She explained that when districts submitted their
applications for capital improvement projects for either
major maintenance or school constriction grants, they were
aware of the required participating share.
Representative LeBon asked whether the state would provide
100 percent of the funding if the school was located in an
unorganized area with no taxing authority. Ms. Teshner
replied that a participating share could come from any
source besides Chapter 1411 funding (any kind of funds
received for construction or major maintenance). She
provided an example. Any local funding or other types of
grants such as non-profits providing funding to meet the
share would be allowable in unorganized boroughs.
Representative LeBon asked if the Regional Educational
Attendance Area (REAA) fund be available for the matching
portion. Ms. Teshner responded in the negative.
Vice-Chair Ortiz referred to item 15 regarding trail
development in a broad area over several districts. He was
supportive of access to trails. He wondered how it was
determined that a $13 million appropriation for trails had
a higher priority than school major maintenance. He
suggested that, because the education list was so long, it
might be better to apply the $13 million for trails to the
education list. He wondered if an assessment had been done.
Ms. Schultz replied that $25 million barely scratched the
surface of addressing the total list of deferred
maintenance projects for schools. The GO Bond list was put
together with several competing priorities in mind.
Addressing the state's deferred maintenance liability which
was over $2 billion for all state facilities versus
investing in things that would diversify and grow the
state's economy, such as the trail project, were weighed
extensively. Regional diversity, timing, existing
liabilities, and new investments were all considered.
2:42:10 PM
Representative Rasmussen directed her question to DEED. She
asked if the $9 million for the Houston School replacement
required a participating share. Ms. Teshner replied that
the project would not require a participating share since
it was being funded through a GO Bond.
Ms. Schultz moved to item 16 within the Department of
Natural Resources (DNR). The amount of the project was
$2 million for statewide park sanitation and facility
upgrades. Many of the facilities were park restrooms.
Co-Chair Foster understood there was $2 million for
sanitation facilities in the park. There was also $17
million for Bartlett and Moore Hall modernizations for
restrooms and sanitation infrastructure [Item 54]. He
wondered if there was any consideration to adding more
money to village safe water projects, as there was no
funding in the GO Bond. He thought the governor had $10
million or $15 million UGF elsewhere in the budget. The
amount was the minimum match requirement for $40 million in
federal dollars for village safe water projects. The amount
really only scratched the surface. He asked Ms. Schultz to
comment.
Ms. Schultz thought Co-Chair Foster made a very good point
that the village safe water match was in the capital
budget. It was also financed through an Alaska Housing
Finance Corporation (AHFC) bond proposal. She indicated
that when the administration put the list together it was
thought of wholistically in terms of all of the capital
appropriations across all of the appropriation vehicles.
While Co-Chair Foster was correct that there was not
significant focus on rural sanitation in the GO Bond, it
was funded in the regular capital budget.
Ms. Schultz reviewed item 17 within DNR. The amount was
$20 million for the statewide firebreak construction. It
was true that when trees were cut down, they grew back.
There was a listing of the department's prioritized
firebreak construction items with specific detail in
members' back-up packet on page 23, following the generic
capital write-up.
Representative Rasmussen did not see a list or description
page for item 16, the statewide park sanitation and
facility upgrades. She asked if OMB had a breakdown of the
proposed locations. Ms. Schultz thought the list existed.
She would follow through with a list.
2:46:50 PM
Representative LeBon returned to the firebreak construction
program. He asked how much of the $20 would be used to
return a prior firebreak to a usable state after allowing
it to become overgrown. Ms. Schultz referred to the page
following page 23 without a page number. She directed
attention to the first 6 items referring to maintenance of
existing firebreaks. The remaining projects were new
firebreaks.
Ms. Schultz reviewed item 18 for DNR, the wildland fire
engine replacement for $250,000. She also noted that the
packet was slightly out of order. The statewide park
sanitation and facility upgrades information followed the
firebreak construction program in members' packet.
Ms. Schultz indicated that item 19 for DNR was the
replacement of a wildland fire aircraft. The department was
looking to purchase a replacement aircraft for firefighting
efforts. She pointed out that in the project back-up the
aircraft that the department prioritized was the Shriek
Commander. The department no longer wanted to purchase that
aircraft. Rather, it wanted to purchase a Cessna. If there
were more in-depth questions about aircraft, they could be
directed to DNR.
Ms. Schultz moved to the Department of Public Safety there
were two projects related to the Alaska Wildlife Trooper
Marine Vessel replacement and repair. Item 20 was
$2.4 million to do some major repair overhauls on two of
their larger vessels and some additional funding for medium
and small class upgrades which was also related to item 21.
Item 21 was for the replacement of two medium class
vessels.
Ms. Schultz asked to speak more generally to the DOT
projects. There were three general concepts. The first was
road improvement projects based on the State Transportation
Improvement Program (STIP). Also included were several port
projects including community ports and deposits to the
Municipal Harbor Maintenance Fund. Airport improvement
projects were also funded and were based on the airport
improvement list. The administration sought regional
diversity and looked for high need areas in choosing
projects. She addressed the items beginning with item 22.
Co-Chair Merrick directed Ms. Schultz to move to the
University items. If there were any specific DOT items
members wanted to discuss they could pose a question.
2:51:31 PM
Ms. Schultz moved to item 54 for the University of Alaska
which was the Bartlett and Moore Hall modernization at the
University of Alaska Fairbanks. The project was a major
overhaul to the facility's plumbing and basic utility
infrastructure for $18.7 million.
Ms. Schultz reviewed item 55 which was a University of
Alaska Anchorage building energy performance upgrade for
$10.9 million. It was another major deferred maintenance
item for UAA similar to item 56 which was a large utility
and retrofit for an existing UAA buildings. They were
projects that would have to be done either way through the
deferred maintenance list. However, the administration
believed that the GO Bond was appropriate because of the
magnitude of repair maintenance and because of the ultimate
energy savings that would result from the overhaul.
Co-Chair Merrick asked if members had specific questions
related to the projects under the DOT line items.
Representative Edgmon noted that the other day the
committee heard a presentation from DOT that suggested
there was $320 million in Coronavirus Aid, Relief, and
Economic Security (CARES) Act and CRRSAA funding. However,
he supposed that none of that funding could be used as
matching funds for projects in HB 93. He asked if he was
correct.
Ms. Schultz responded that he was correct. Federal funds
could not be used to match federal funds. Since the list
had gone public, DOT had been able to identify other
funding sources for several of the projects including
possibly the CARES Act FAA funding or private match
funding. As the committee considered the legislation, OMB
and DOT were happy to provide additional detailed
information specific to the DOT projects where there might
be better DOT projects somewhere else.
Representative Edgmon clarified that the DOT project list
was fluid. Ms. Schultz liked Representative Edgmon's
characterization.
Vice-Chair Ortiz had a follow up on the same topic. He
recalled some FAA CARES Act funds that were unincumbered,
and the subcommittee recommended might be used for rural
airports. He referred to a line item containing the Cordova
and Bethel airport projects. He wondered if DOT might be
able to find resources in other areas for the projects
rather than a bond package. Ms. Schultz responded,
"Correct." She noted that the two airports were specific
projects that could be funded through other sources.
Representative Rasmussen speculated that utilizing a
federal match should be a goal of the legislature. She
thought it looked like, out of all of the projects on the
list, about $110 million in projects would receive over $1
billion in federal funds with a state match. She did not
think a GO Bond was the best use of state resources to pay
for certain projects. She suggested having more discussion
with DOT about federal match dollars.
Representative Johnson made additional comments about the
Houston High School. She reported that the Mat-Su Borough
already had $25 million invested in the replacement
project. It was an urgent project.
Co-Chair Merrick asked Mr. Bell to review the fiscal notes.
2:57:08 PM
CONNOR BELL, ANALYST, LEGISLATIVE FINANCE DIVISION (via
teleconference), indicated there were two fiscal notes
associated with the bill. The first was from the Office of
the Governor within the Division of Elections. The fiscal
note estimated the cost of administering a special election
at about $2 million. Half of the amount would be an FY 21
supplemental and the other half would be an FY 22
appropriation. The special election, according to the bill
language, would be held 90 to 120 days after the end of the
regular session which would put the election in late July
or late August.
Mr. Bell reported that the second fiscal note was from the
Department of Revenue within the Treasury Division for the
cost of bonding. The division estimated about $1.8 million
in associated costs such as costs from ratings agencies,
bond counsel attorneys, and marketing. He added that
beginning in FY 22 the estimated payments would be about
$22 million per year. As Mr. Mitchell noted, the fiscal
note assumed a single bond sale. However, due to different
amortization schedules there would have to be multiple
bonds scheduled. The fiscal note also mentioned that not
all projects might be eligible for tax exempt status.
Therefore, some projects might be subject to the
alternative minimum tax in which case there might have to
be a separate series of bonds.
Representative Edgmon asked that in order to do a statewide
special election it would need to occur in late August or
late September as opposed to late July or late August. He
asked where the money would come from for the
administration to promote the GO Bond proposal. Ms. Schultz
indicated that OMB did not feel an additional appropriation
was necessary for advertising costs to promote the
election. There was ample funding within the governor's
office making it unnecessary to put it in a fiscal note.
Representative Edgmon only brought up the issue because
many of his constituents were out hunting in the fall when
the special election was planned.
3:01:07 PM
Representative Wool mentioned the bond of 2012 and wondered
if it was voted on in a special election. He asked if
advertising monies had been needed. He noted low turnouts
in October. He wondered if additional marketing would be
needed. Ms. Schultz thought the vote took place during a
regular election.
Representative Wool asked what the circumstances would be
to hold the vote in the regular election. Ms. Schultz
explained that for the vote to take place during a general
election it would have to occur in the following year. The
haste of having a special election was so that the bond
package could be approved more quickly.
Representative Thompson noted that there was a significant
amount of money in the bond package for projects requiring
a federal highway dollar match by the state. If the bond
package failed, he wondered if the state would be behind on
all of the projects. He wondered if the state would lose a
year by having to wait to get the items in the capital
budget in the following year. Ms. Schultz replied that the
state was already meeting its federal highway
administration match in the regular capital budget. It
would not be a lost opportunity if the state did not get
the GO Bond approved in the current legislative session. It
might bring up the question about the state double funding
the match. It was not necessarily the case. If the state
funded the federal highway projects in the GO Bond bill the
state would be tying up future federal funds for the
projects. It would essentially bounce them up the priority
list.
Co-Chair Merrick thanked all of the presenters and reviewed
the agenda for the following meeting.
HB 93 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
3:04:29 PM
The meeting was adjourned at 3:04 p.m.