Legislature(1997 - 1998)

04/23/1997 01:40 PM FIN

Audio Topic
* first hearing in first committee of referral
+ 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.                                                
  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.                   
  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                 
  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                 
            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.                                        
  SERVICES,  provided  testimony  addressing  the  issues   of                 
  (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                 
  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                 
  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."                                                        
  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                 
  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.                                            
  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                 
  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                 
  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.                                              
  REVENUE,   stated  that   the  Department   has  worked   on                 
  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.                         
  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.                                                         
  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                 
  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                 
  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                 
  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.                                                       
  The meeting adjourned at 2:30 P.M.                                           

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