Legislature(1999 - 2000)
03/09/1999 08:04 AM House STA
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE STATE AFFAIRS STANDING COMMITTEE
March 9, 1999
8:04 a.m.
MEMBERS PRESENT
Representative Jeannette James, Chair
Representative John Coghill
Representative Scott Ogan
Representative Jim Whitaker
Representative Beth Kerttula
Representative Harold Smalley
MEMBERS ABSENT
Representative Bill Hudson
COMMITTEE CALENDAR
CONFIRMATION HEARINGS
Commissioner, Department of Military and Veterans Affairs
Adjutant General, Alaska National Guard
Phillip Oates, Brigadier General
- CONFIRMATION ADVANCED
Brigadier General, Alaska Air National Guard
George Cannelos, Colonel
- CONFIRMATION ADVANCED
* HOUSE BILL 112
"An Act establishing the Alaska public building fund; and providing
for an effective date."
- MOVED HB 112 OUT OF COMMITTEE
* HOUSE BILL 122
"An Act excluding buildings used primarily for office space from
the Housing Project and Public Building Assistance Act, restricting
state ownership of buildings used primarily for office space, and
providing for the disposal of state ownership interests in certain
state buildings used primarily for office space; and providing for
an effective date."
- MOVED HB 122 OUT OF COMMITTEE
HOUSE JOINT RESOLUTION 18
Proposing an amendment to the Constitution of the State of Alaska
relating to an office of administrative hearings.
- SCHEDULED BUT NOT HEARD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 112
SHORT TITLE: ESTABLISH ALASKA PUBLIC BUILDING FUND
SPONSOR(S): REPRESENTATIVES(S) JAMES
Jrn-Date Jrn-Page Action
2/24/99 301 (H) READ THE FIRST TIME - REFERRAL(S)
2/24/99 301 (H) STA, FINANCE
2/24/99 (H) STA RPT 2DP 3NR
3/09/99 (H) STA AT 8:00 AM CAPITOL 102
3/09/99 (H) MOVED OUT OF COMMITTEE
3/10/99 (H) DP: JAMES, WHITAKER; NR: SMALLEY,
3/10/99 (H) KERTTULA, COGHILL
3/10/99 (H) ZERO FISCAL NOTE (GOV/ALL DEPTS)
3/10/99 (H) REFERRED TO FIN
BILL: HB 122
SHORT TITLE: STATE OWNERSHIP OF OFFICE BUILDINGS
SPONSOR(S): REPRESENTATIVES(S) JAMES
Jrn-Date Jrn-Page Action
3/03/99 342 (H) READ THE FIRST TIME - REFERRAL(S)
3/03/99 342 (H) STA, FINANCE
3/03/99 (H) STA RPT 1DP 1DNP 3NR
3/09/99 (H) STA AT 8:00 AM CAPITOL 102
3/09/99 (H) MOVED OUT OF COMMITTEE
3/10/99 (H) DP: WHITAKER; DNP: KERTTULA;
3/10/99 (H) NR: SMALLEY, JAMES, COGHILL
3/10/99 (H) INDETERMINATE FNS (GOV/ALL DEPTS)
3/10/99 (H) REFERRED TO FIN
BILL: HJR 18
SHORT TITLE: CONST. AM: ADMINISTRATIVE HEARINGS
SPONSOR(S): REPRESENTATIVES(S) OGAN, Foster, Dyson, Rokeberg
Jrn-Date Jrn-Page Action
2/24/99 300 (H) READ THE FIRST TIME - REFERRAL(S)
2/24/99 300 (H) STA, JUD, FIN
2/26/99 328 (H) COSPONSOR(S): FOSTER
3/04/99 (H) STA AT 8:00 AM CAPITOL 102
3/04/99 (H) HEARD AND HELD
3/05/99 377 (H) COSPONSOR(S): DYSON, ROKEBERG
3/09/99 (H) STA AT 8:00 AM CAPITOL 102
3/09/99 (H) SCHEDULED BUT NOT HEARD
WITNESS REGISTER
PHILLIP OATES, Brigadier General
Adjutant General/Commissioner Designee
Department of Military and Veterans Affairs
P.O. Box 5800
Fort Richardson, Alaska 99505
Telephone: (907) 428-6003
GEORGE CANNELOS, Colonel
Alaska Air National Guard
Department of Military and Veterans Affairs
P.O. Box 5800
Fort Richardson, Alaska 99505
Telephone: (907) 428-6072
JEANNETTE JAMES, REPRESENTATIVE
Alaska State Legislature
Capitol Building, Room 102
Juneau, Alaska 99801
Telephone: (907) 465-3743
POSITION STATEMENT: Sponsor of HB 112 and HB 122.
KEITH GERKEN, Architect
Facilities
Division of General Services
Department of Administration
P.O. Box 110210
Juneau, Alaska 99811
Telephone: (907) 465-5683
POSITION STATEMENT: Answered questions on HB 112 and HB 122.
ROD WILSON, Architect
Engineering Division
Department of Transportation and
Public Facilities
3132 Channel Drive
Juneau, Alaska 99801
Telephone: 465-6962
POSITION STATEMENT: Provided information on HB 112 and HB 122.
DEVON MITCHELL, Accounting Debt Manager
Treasury Division
Department of Revenue
P.O. Box 110405
Juneau, Alaska 99811
Telephone: (907) 465-3750
POSITION STATEMENT: Provided information on HB 112 and HB 122.
ALISON ELGEE, Deputy Commissioner
Department of Administration
P.O. Box 110200
Juneau, Alaska 99811
Telephone: (907) 465-2200
POSITION STATEMENT: Provided information on HB 112 and HB 122.
ACTION NARRATIVE
TAPE 99-13, SIDE A
Number 0001
CHAIR JEANNETTE JAMES called the House State Affairs Standing
Committee meeting to order at 8:04 a.m. Members present at the
call to order were Representatives James, Coghill, Whitaker,
Kerttula and Smalley. Representative Ogan joined the committee at
approximately 8:45 a.m.
CONFIRMATION HEARINGS
CHAIR JAMES announced that the committee will be considering two
appointees to the Department of Military and Veterans Affairs
[resumes were provided].
[Inadvertently recorded over a small portion of Side A]
PHILLIP OATES, Brigadier General, Commissioner Designee, Department
of Military and Veterans Affairs appeared before the committee.
General Oates said that he was drafted into the Army 30 year ago
and had served two assignments in Alaska. He said he is interested
in this position because he would like to continue to serve the
people of Alaska and to continue his military service for the state
of Alaska.
Number 0049
REPRESENTATIVE WHITAKER remarked that General Oats appears to be
very qualified and looks forward having him serve as commissioner
of Military and Veterans Affairs.
GENERAL OATES noted that he helped build the infrastructure to
included telecommunications with cable to the lower-48, and fought
in the war of the Pacific in the "Aleutian Campaign."
Number 0080
CHAIR JAMES noted that she has a large number of active and retired
military in her district.
GENERAL OATES said that he has lived all over the world and that no
one has a closer relationship between the military, the civilians,
and government than is seen in Alaska.
REPRESENTATIVE COGHILL pointed out that he saw the National Guard
on the beaches in Seward while they were involved in an exercise
with the Marines, Air force and the Army and was impressed with
their commitment. He asked what needs to be implemented - done
differently, and what is the guard's future plan.
GENERAL OATES replied that the Alaska Guard is the Alaska National
Guard, and not the National Alaska Guard because the guard serves
its state first, then its national missions. And in order to get
adequate funding for the National Guard, Alaska has to have viable
national missions. He said, "Our resources, for about an $8
million state input, we generate $160 million state impact and
that's without an economic multiplier."
Number 0151
GENERAL OATES stated that his first priority is to be able to
respond to the emergencies of the state with the Division of
Emergency Services [Department of Military and Veterans Affairs]
and other emergency service organizations at the municipal or
national level. General Oates said, "In Alaska it's not a question
of whether we'll have a disaster, it's when we will have that
disaster."
GENERAL OATES noted that his next priority is the "Youth Challenge
Program" because they are the future of his organization and that
we should work to put our young men and women on the path of self-
esteem and success.
GENERAL OATES stated that the Air Guard is taking steps to assume
the air sovereignty mission of Alaska, NORAD [North American Air
Defense Command], and that the guard will take over the
responsibility for Alaska's air defense from the active forces. He
noted that this is a significant responsibility.
GENERAL OATES reported that he has taken over the space command
mission at the Clear Air Station which will bring jobs and
technology to the state. He said the Air Guard also participates
in war plans in the Pacific and commands and controls the air
bridge as it flows through Alaska to the Pacific, most notably to
Korea. Our nation has entrusted Alaska's National Guard with the
flow of air forces to any theater in the Pacific which is another
significant responsibility.
Number 0200
GENERAL OATES noted that the search and rescue missions by the Air
National Guard, Army, and Coast Guard averages one life saved per
day and, should the United States go to war, that they would be
great search and rescue pallets for downed airmen. General Oates
stated, "On the Army side, we have Army forces here in 84 locations
in this state. What a great way to reach the citizens of this
state whether it is to establish educational programs, whether it's
to establish role models, or whether it's to establish the
structure of discipline that we need in our society. So, we have
that role that also touches on the emergencies that might occur in
remote Alaska. And we need to renew our efforts to push back out
into rural Alaska - our numbers and our strength have gone down in
rural Alaska and that's an effort we will take."
GENERAL OATES pointed out that the Army will have a role in
national missile defense because Alaska is the only location where
they could protect all 50 states. He said, "And when that comes,
our role of homeland defense fits exactly with air sovereignty,
with national missile defense, with emergency preparations, with
weapons of mass destruction and the preparation to deal with that."
GENERAL OATES explained that the guard plays a big role in drug
suppression by providing support whether it's with a helicopter, C-
130 aircraft, night-vision goggles, or radios. He remarked that
the guard doesn't conduct the raids, but provides support and
equipment, and passes on information to the many federal agencies
that are involved. General Oates said, "When our success goes up,
crime rates go down, so, again, what a great impact that has on our
state. So when you look at all those things that we do, our
workforce of 4,400 people, the amount of dollars we bring in, what
we do for the state, this job is not about wearing these stars,
this job is about service to those people and to this state."
Number 0263
REPRESENTATIVE COGHILL asked General Oates if he was recently
promoted to General.
GENERAL OATES responded that he was frocked to Brigadier General,
in other words he is wearing the promotion because of his duty
requirements before actually receiving the promotion and is
currently being paid as a Colonel.
REPRESENTATIVE COGHILL noted that the Army and National Guard
facilities also share some of the deferred maintenance program
problems.
GENERAL OATES replied that there are advantages because the
department receives significant federal dollars and that they have
to make sure that those facilities meet state and federal needs.
The guard receives federal assistance for operations and
maintenance at a 75 percent federal share and a 25 percent state
responsibility which changes at times due to the types of the
facilities. General Oates said that the Department of Military and
Veterans Affairs plans on building new facilities which are more
energy efficient and will pay for themselves over the long-term
with reduced utilities. The department will also be looking for a
smarter use of their facilities and will be tearing down old
facilities that are no longer being used. He said that they will
be looking at the maintenance contracts for those facilities.
Number 0303
REPRESENTATIVE COGHILL asked if the volunteer's payroll is
primarily the state's responsibility and if federal money comes
with that as well.
GENERAL OATES replied that most of the payroll is federally-funded
and that the state's portion is very small. Full-time guardsmen
(active guard - reserve) and part-time guardsmen (serve for a
period of days each year), and civilians (government employees) are
all federally paid.
GENERAL OATES noted that state funding includes the DMVA functions
which have a state role. For example the commissioner, the
director and staff for the Division of Emergency Services, and the
director of the Office of Veterans Affairs are state-funded
positions. He said, "Of those 4,400 positions, the vast majority
of them are federally-funded, so for that $8 million that we
invest, we bring in 160 total impact on the state."
CHAIR JAMES asked when the space command mission at Clear Air Force
Base will begin.
GENERAL OATES replied that he can't answer a time frame but is
optimistic that Alaska has a great chance of getting the mission
because the initiative came from the U.S. Space Command. He said,
"We sent our officers down to a U.S. Space Command, in fact we've
got a liaison officer that works with them on a full-time basis and
are trying to get two more positions for both this mission of the
space command and the missile defense mission when it comes."
Number 0361
GENERAL OATES pointed out that missions can be transferred such as
air sovereignty, the mission at Clear, or ballistic missile
defenses - which the active military is trying to divest itself of
those. He said, "If you will give us the resources to do it, we'll
be happy to do it, but if you don't give us the resources we can't
afford to do it."
CHAIR JAMES mentioned that the people in Clear and Anderson are
excited about the mission because it will bring stability to those
communities.
GENERAL OATES agreed.
GENERAL OATES mentioned that they recently spoke to the Secretary
of Defense about BRAC [Base Realignment and Closure]. General
Oates said, "The Department of Defense feels it needs to be able to
adequately fund its modernization programs, in other words, to
close down infrastructure and put money into modernization. And we
talked about BRAC and its impact on Alaska - and the question was
about the procedures that will be followed if we do go through a
BRAC in the future, which I think we probably will at some point in
time. But, I also think all of Alaska's installations should be
protected and so a big part of my job is to make sure that we have
the integration of the active forces and our reserve forces of the
National Guard to make us an integrated team that shows our value
to the nation."
GENERAL OATES continued, "And I argued to the Secretary that when
you look at BRAC, the model that you build must address not only
efficiency, where you can do it the cheapest, but most importantly
it should address effectiveness where you can do it the best. And
when you look at Alaska, our strategic location, the training
opportunities that we have here, the dollars that have been put in
our infrastructure on the training-side and the installation-side,
and the very very strong community support, and our growing ability
to do experimentation here in Alaska, of this new force that's
being built, I said, 'If you put in your model effectiveness,
Alaska will do very well in any round of BRAC.' So I see a big
part of my job is sending that message very very clearly, if and
when a BRAC effort comes in the future."
CHAIR JAMES complemented General Oates on doing a good job in
explaining his position on the issues.
REPRESENTATIVE COGHILL moved to forward the confirmation of
Adjutant General Oates, Commissioner, Department of Military and
Veterans Affairs. There being no objection, it was so ordered.
CHAIR JAMES announced that Colonel Cannelos is before the committee
for his confirmation.
Number 0431
GEORGE CANNELOS, Colonel, Alaska Air National Guard, Department of
Military and Veterans Affairs, said he was originally in the Navy
and served 75 missions in North Vietnam, went to graduate school
and received a master's degree in regional planning, came to Alaska
in 1975 and has been here since.
COLONEL CANNELOS stated that he was hired by the Department of
Community and Regional Affairs and lived in Juneau for two years.
When he moved to Anchorage he discovered the Air National Guard and
flew for them until last year. He mentioned that he was able to
balance his civilian career with his military career and was
fortunate to lead our forces over Somalia in 1992, commanded the
airlift squadron in 1994, and less than three years ago was offered
a position in the full-time force of the guard as the director of
operations and then chief of staff and is now being offered this
position. Colonel Cannelos stated that, "This is an incredible
opportunity. I'm somewhat spiritual in that you want to do things
for the right reasons, that's very important, and I believe in
public service and I believe in public trust."
COLONEL CANNELOS distributed an article and said that the guard is
blessed with almost 2,000 highly educated and technically trained
volunteers, two-thirds of which (traditional guardsmen) have to
balance their families, employers, and their military career.
Colonel Cannelos said he wants to do the job and serve and believes
that he can do it well.
REPRESENTATIVE COGHILL said that he has a great respect for airmen,
and for the many men and women who have worked in the Air National
Guard. He asked Colonel Cannelos to explain the global positioning
strategy for the Air National Guard and the collective bargaining
of the full-time guardsmen for a better understanding of it.
Number 0487
COLONEL CANNELOS explained that the Air National Guard has been
very careful over the years to develop a strong partnership with
the Air Force and that they have been mutually reciprocal.
Airlift, rescue, and air refueling missions directly contribute to
what the Air Force does in the state every day. For example, they
can't do the "Cope Thunder" exercises without the guard's tankers,
they can't do their fighter exercises without the guard's combat
rescue forces, and they can't do their "Global Reach, Global Power"
without our airlift forces. Colonel Cannelos remarked that that's
a very strong partnership.
COLONEL CANNELOS pointed out that the Air Force is moving quickly
with the "air expeditionary force" concept in which Elemendorf is
taking one of the lead roles. The 11th Air Force generates a slide
monthly which compares how busy the air squadrons are in Alaska and
that our three flying squadrons are right up there with the top of
the Air Force every month even though they do it on a part-time
basis. He said Alaska is fortunate with our strategic position and
that we're going to be vital no matter what role the Department of
Defense plays.
COLONEL CANNELOS remarked who would have thought there would be
unions in the military - but the guard is commanded by the governor
of each state. He said the Association of Civilian Technicians
Union is very active and provides a valuable service. The union
has brought things to their attention that the leaders should have
known. Colonel Cannelos said he chairs a labor-partnership which
meets monthly to discuss candidly the issues facing the bargaining
unit, who represent less than 20 percent of the force, but none-
the-less have a great deal to say and mutually try to work out the
issues.
Number 0540
REPRESENTATIVE COGHILL addressed the mission of refueling. He
asked how do we get those tankers, who pays for them, and do we
need to get more.
COLONEL CANNELOS responded that there is a need for more tankers
because the unit is vital to a 24-hour-a-day alert operation in
which many are classified and that there are not enough tankers to
go around. The Air Guard has not turned down any of the vital
missions but have turned down ancillary requests throughout the
theater force. Other units will have to give up their tankers and
it may be that in the next few years, through the BRAC process,
that that will happen. He said that the unit has made incredible
strides to bolster its credibility, and the guard will be
responsible for the air bridge should it kick off over Alaska.
COLONEL CANNELOS also mentioned that bombers and forces have been
building up in Asia and many of those have reached Asia by
overflying Alaska. Colonel Cannelos concluded that, "And it's our
tankers that have planned those flights, launched those flights,
and refueled those aircraft on the way. We are the only guard unit
in the country with launch and execution approval whenever fighter
aircraft are moved around Alaska and over the North Pacific. So
it's an effort of bolstering in our credibility and working the
political process to get those tankers."
REPRESENTATIVE COGHILL said that he understood the tankers are Air
Force property.
COLONEL CANNELOS responded that the tankers belong to the Alaska
National Guard and that their missions are for the Air Force.
Number 0580
REPRESENTATIVE SMALLEY moved to forward the confirmation of Colonel
Cannelos, Alaska Air National Guard, Department of Military and
Veterans Affairs, There being no objection, it was so ordered.
HB 112-ESTABLISH ALASKA PUBLIC BUILDING FUND
HB 122-STATE OWNERSHIP OF OFFICE BUILDINGS
Number 0587
CHAIR JAMES, presented HB 112, "An Act establishing the Alaska
public building fund; and providing for an effective date," and HB
122, "An Act excluding buildings used primarily for office space
from the Housing Project and Public Building Assistance Act,
restricting state ownership of buildings used primarily for office
space, and providing for the disposal of state ownership interests
in certain state buildings used primarily for office space; and
providing for an effective date."
CHAIR JAMES sated that HB 112 (Plan A) and HB 122 (Plan B) will be
addressed together. She said HB 112 establishes an Alaska building
fund wherein agencies would pay rent and that the accumulated funds
would help meet the state facilities' needs. She noted that HB 112
is the preferred alternative. House Bill 122 would require the
state to divest itself of (indisc.--paper shuffling) spaces by
selling them to the private sector and then leasing them back.
Plan B is, if we can't take care of the buildings let's sell them.
Number 0609
KEITH GERKEN, Architect, Facilities, Division of General Services,
Department of Administration(DOA), said the department discussed
structural changes in the way they managed state buildings and
space. The department also tried to create a businesslike
computation of what the cost of buildings ought to be.
MR. GERKEN stated that HB 112 simply creates a fund in the general
fund which makes accounting easier. It also allows the state to
have somewhat of a "sinking fund" for the replacement of roofs and
major equipment because the fund can be accumulated and can then be
appropriated by the legislature for capital projects. Mr. Gerken
indicated that it is very difficult to collect, in 12 months, the
money to both pay the electric bill, put on a new roof, and get
that spent before it disappears in a new fiscal year.
Number 0651
MR. GERKEN said, if you charge an agency for space, they could pass
that onto the federal program or to their user fee base that
supports that program. Mr. Gerken stated, "What we believe is that
a great deal of the initial money, which we would suggest to be
included in rent actually can be found in the leveraging of non-
general fund and fund sources. Federal programs, and non-general
funded programs currently don't pay any rent ... and would be able
to pass that cost along to their program effectively to generate a
good deal of the money that's not now being spent."
MR. GERKEN said the Department of Administration believes 'renewal
and replacement or depreciation,' is missing in today's
expenditures for state-owned facilities. And, the things that can
easily be put off are the missing ingredients. He stated, "In our
discussions of a rental rate, what we've done to try to account for
that is we're actually using depreciation. We've established a
depreciable basis for eight state-owned buildings, based upon their
replacement cost, and then we have taken the life expectancy of
those buildings and factored that into a rental rate. It makes a
significant difference, it raises what is now being paid and gives
you those dollars - now to go back and do that replacement."
MR. GERKEN remarked that HB 122 gets you to thinking about "do you
own or do you rent." He said the average lease statewide is
between $1.70 and $1.75 and at the shortest are three years, and up
to five to ten years or longer. He mentioned the state also has a
lot of leases that are 10 to 15 years old, and that about half of
the leases are based in Anchorage. Mr. Gerken said it was a very
good market within the last decade or more, however, it changed a
lot in the last couple of years and is getting back to where they
were in the early days. So we've got an average lease rate that's
lower than a market rate right now which is a good deal for us but,
over time that's going to change. He pointed out that the average
Anchorage lease right now is about $l.60 and the current market
rate is $2.00 or more. Mr. Gerken said, "We just had some
appraisals done for space which we leased private tenants in the
Bank of America Building and its $2.10 is what the market rate is
today."
Number 0701
MR. GERKEN further stated that the eight buildings have
approximately 575 thousand useable square feet in them. The state
is currently spending approximately $4.3 million on them which
translates into a rental rate of about 64 cents a square foot -
which is close to half of what the market rates are today. He said
that the amount spent doesn't include all the things that the state
ought to be spending. Mr. Gerken stated, "As I said before, we're
missing that depreciation (indisc.--paper shuffling). And if you
add in depreciation on the way we looked at it - we've got a
depreciable basis in those buildings of about $47.5 million based
upon the way we approached that ... but those eight buildings have
a depreciable base of about $47.5 million. And, if you put that
$47.5 million back into the rental rate, that rental rate goes to
about 93 cents. And, I think that more actively reflects closer to
an apples and apples comparison of owning versus leasing." Mr.
Gerken remarked that the public sector is always going to have some
advantages because the cost of capital to government is a lot less
and the private sector will never be able to beat that.
TAPE 99-13, SIDE B
Number 0001
MR. GERKEN said Alaska is not the only state in this position. A
number of states have rental rates that make agencies pay, a number
of states also have a fund which manages those dollars. For
example, the Texas legislature passed a resolution which prohibits
non-state-funded programs from occupying state-owned space. In
other words, they mandated that the federally-funded programs move
out to less-expensive space. Mr. Gerken said, "They're essentially
saving state dollars by using their own space as the place to put
those agencies, which they can pay for most directly."
CHAIR JAMES asked what the cost would be if you had a payment
(indisc.) your taxes.
MR. GERKEN replied that came up as an issue in the bill which
authorized the purchase of the Bank of America Building because we
were taking that (indisc.) off the tax roles and that the state
pays half the property taxes because it is decreasing, but it is
based upon the percentage of private leaseholds in the building.
It was approximately half last year, and is about 40 percent this
year, and will drop off significantly, eventually the state won't
have to pay taxes.
CHAIR JAMES said that she believes there are too many pieces of
property that are off the local tax roles, for example local police
and fire departments, however, she doesn't have a problem with
excluding churches. Chair James asked Mr. Gerken if there are
private tenants in other state-owned buildings.
MR. GERKEN replied that the Court Plaza Building in Juneau was
purchased approximately five years ago came with private tenants.
The rule has generally been, that for tax-exempt public financing,
you are required to have 90 percent of the space occupied by public
entities. Part of the sale agreement was that the prior owner
reduce the private tenant down below that level, which they did.
There are currently three or four private tenants which have valid
existing leases in the Court Plaza Building. Mr. Gerken said it
his assumption that, as those expire, the private tenants most
likely will not renew their leases and the space will be available
for state agencies. He said this is the same approach that exists
in the Bank of America Building.
CHAIR JAMES said that it seems to her that taxes should be paid for
that space because of unfair competition. She mentioned that this
is not addressed in HB 122 because it is a separate issue. She
said she noticed that the State Office Building in Juneau has
broken tiles and cracks in the cement and that it is her goal to be
sure that the state maintains its buildings. Chair James said that
she likes the idea of the state paying rent and having the fund
which can be appropriated for maintenance projects.
Number 0157
ROD WILSON, Architect, Engineering Division, Department of
Transportation and Public Facilities (DOT/PF), said that DOT/PF is
supportive of the funding mechanism. He referred to a no-
maintenance pilot project that occurred in Nome in 1996 through
1997 in which four agencies combined their forces. If a building
went down, another worker from another agency could take care of
that facility.
MR. WILSON stated that the Department of Military and Veterans
Affairs (DMVA) said, "Ok, we're going to become the accountants for
all the agencies out there, and we'll go through all these RSA
gymnastics, and all this money will come into one pot, and then all
these agencies will be able to build against that one pot." Mr.
Wilson said he believes the effort began in March or April of 1997
with the understanding that would be in place by July 1, 1997 (when
DOT/PF wanted to kick off the field portion of this program).
However, it turned out to be difficult to put together. DOT/PF did
not receive their first access computer run, on how well they were
doing, until December 1997. Mr. Wilson explained that it wasn't
that the people weren't trying, it died because of accounting
technicalities, not of what occurred in the field.
MR. WILSON noted that the field operations were just beginning to
show of the pay-back and that option A [HB 112] would have
incredibly streamlined the effort in Nome. Everybody that was
involved said, "Hey, from a practical standpoint this is the way to
do business." Unfortunately, in June of 1998, the program had to
be curtailed because DMVA's federal funding mechanism, and due to
the risk of forfeiture of federal dollars, they had to step out of
the program (DMVA can only do pilot programs for 12 months at a
time). Mr. Wilson said that there's no question in his mind that
DMVA is the premiere M&O [maintenance and operations] agency in the
state. When DOT/PF lost them, the consensus of the group was that
it wasn't viable for the three remaining agencies to even attempt
to go on.
Number 0234
MR. WILSON further stated that he pulled numbers together for
option B [HB 122], and referred to it as "surplus funding from
DOT/PF" because DOT/PF primarily runs the maintenance and
operations of the state's facilities. The Bank of America
Building, which probably comprises of approximately 50 percent of
the square footage which Mr. Gerken was talking about, is not
within the DOT/PF numbers but it gives the same kind of general
consequence. Mr. Wilson said, "We looked at 29 facilities that we
believe statewide would capture the content of your option B, the
applicable square footage is about 850,000 square feet which is
about 27 percent of the total square footage that DOT/PF manages.
... These were very quick ballpark kinds of figures, but I think
you're looking at somewhere in the neighborhood of about $4.2
million of maintenance and operation costs that are associated with
that square footage. That works out somewhere in the neighborhood
of around 46 cents a square foot. Keith [Mr. Gerken] mentioned 62
cents a square foot in his costs. One of the things that I did get
back from these folks is the cost of the maintenance and the
operations. Keith's numbers also include some overhead costs and
what not."
MR. WILSON stated while the replacement value on the 29 buildings
on inventory totals approximately $145 million, the applicable age
of these buildings averages about 1972 vintage which makes them 27
years old and are not going to be the hot commodity on the market
should the state sell them. In fact, some of these buildings are
probably in the category of, "when we build a new building, some of
the old buildings should come down." For example, the Griffin
Building in Kodiak was built in 1939 and is 60 years old, however,
the state can't do without its 7,200 square feet. He said that
it's common to find building that are 40, 50, or 60 years old which
the state is continuing to maintain.
CHAIR JAMES mentioned that she introduced legislation to deal with
the deferred maintenance issue and wasn't able to get the
legislation passed.
Number 0322
DEVON MITCHELL, Accounting Debt Manager, Treasury Division,
Department of Revenue, stated that HB 122, in as much as it
requires the sale of buildings, there are currently outstanding
leases on both the Court Plaza Building ( which will be near being
paid off), and the Anchorage Times Building. He indicated that he
is not sure how the Anchorage Times Building would fit under the
definition because it has approximately seven years left of
payments and does not fit within time parameters.
MR. MITCHELL noted that the statute, which authorized the purchase
of the Bank of America Building, which is currently owned by Alaska
Housing Finance Corporation (AHFC), outlines the plan of finance
through the state bond committee issuing (indisc.) bonds once it
reaches the 90 percent threshold level of occupancy. He said,
"There is also a question of how that legislation would enact with
this if it was required to sell all state office buildings - that
the AHFC has the capability to continue ownership, or if they would
in fact have to sell that building."
MR. MITCHELL referred to the authorization to the appropriation by
the Department of Administration and said that he is not sure if
the current definition allowed the payment of debt service and
suggested the Department of Law verify that. He indicated that it
could be added so that if there were excess funds available that
they could be utilized for that appropriation, if there is an
outstanding lease, or there is an outstanding bond series, then
there is an annual appropriation for that payment.
Number 0365
CHAIR JAMES noted that she has thought about that issue. She asked
if there is debt on the building, are the folks who are in the
building going to be including the debt services.
MR. MITCHELL indicated that it could be included in the rent
figure, however, it would change the budget request of the agency
that was requesting that particular building. It could change the
lease payment for them from what they were currently paying. He
noted that legislation wasn't introduced for these purchase
agreements.
CHAIR JAMES explained that she knew that there would be situations
that would be affected by the two-year time frame in HB 122 and
that she didn't pursue that because she didn't believe HB 122 would
pass. But if it did pass, part of the changes in HB 122 would be
(indisc.--background noise) of those specific buildings that could
be sold within the two-year time frame.
REPRESENTATIVE WHITAKER said he doesn't understand why a fiscal
note isn't attached to HB 112.
Number 0413
ALISON ELGEE, Deputy Commissioner, Department of Administration,
testified that HB 112 simply sets up the fund and does not require
the expenditure of monies. She said, "In looking at the
operations, as Chair James explained, we would initially look at
establishing a rental base around existing dollars - leveraging
those other funds that would be available to us for that purpose.
There could easily, down the road, be the need for expanded funding
if we are in fact going to properly maintain buildings. But the
legislation you have before you does not require us to spend more
than we are spending today and gives us the advantage of leveraging
other funds to improve that maintenance position."
REPRESENTATIVE WHITAKER remarked that he understands leveraging but
doesn't know that it is applicable to this situation.
MS. ELGEE stated that there are a number of agencies occupying
state-owned space which are funded by fund sources other than
general funds. She further stated, "Alternatively we fund the
maintenance of state-owned buildings through the Department of
Transportation [and Public Facilities] and their maintenance budget
is all general funds. So, if we were to establish a rental basis,
and an ability to capture those rents, to then put back into the
operations and maintenance of the buildings, we would charge each
program based on its underlined fund source. And, one of my
favorite examples is in the State Office Building. Most of the
sixth floor is occupied by the Division of Retirement and Benefits.
Their operations are funded entirely from the trust and benefit
funds that they administer and support. If we were to charge rent,
approximately 14,000 that they occupy, we would be able to pass the
cost of that space onto the retirement funds as a part of their
operating cost and therefore, increase the pool of monies available
to us for the maintenance and operations of the State Office
Building."
REPRESENTATIVE WHITAKER indicated that it's not a question of
redistributing existing dollars, it's a question of infusing new
dollars from an outside source.
Number 0449
MS. ELGEE pointed out that there are two aspects to this. She
stated that, in some cases our federally-funded programs are capped
and the state has a limited number of federal dollars that are
available for whatever those program operations are. In other
cases, the federal dollars will increase as expenditures increase.
So, in the cases where we've got programs that are capped in terms
of the other funds that are available to them, we will have to make
some choices about whether or not to reallocate those federal
dollars from program operations to maintenance operations, or
whether we should be supplementing those program-costs with the
general fund.
CHAIR JAMES asked if that automatically allows you to charge rent.
Or would the legislature have to statutorily give the Department of
Administration that authority, or would we want to statutorily
mandate that.
MS. ELGEE responded that the Department of Administration presently
has the ability to charge rent, however, there is no purpose in
charging rent because there currently isn't a collection mechanism
for it. She stated that, "Most of the rules that surround the
structure, of this kind of an approach, are at the federal level
and we have to take any kind of an internal service fund approach
... back to the Department of Health and Human Services at the
federal level for approval of the rental rate structure, or
whatever the charge-back mechanism is that you are talking about.
The federal government is very concerned that, in establishing
these kinds of mechanisms, that all programs be treated equitably
and that states not make an effort to shove costs
disproportionately to the federal programs."
CHAIR JAMES said that other agencies which are not federally-funded
would have to pay the same applicable calculation of rent for their
space as someone who is federally-funded. That it would have to be
a calculation based on the value of the building - the value of the
space, and the cost maintaining it.
Number 0488
MS. ELGEE agreed. She stated that there is quite a bit of work in
terms of trying to split up the money that is in DOT/PF - to put it
in the agencies and then recapture it. And in setting up that
aspect of it, without that being created, we have no ability to
realize the real benefits of going through that administrative
process in being able to retain the monies that would be - that
depreciation piece that Keith [Gerken] spoke to that would allow us
to do the adequate renewal and replacement in major maintenance
projects.
CHAIR JAMES said she believes that statutory delineation would be
needed which would be very difficult to do through the budget
process.
MS. ELGEE said that would be done through the appropriation
mechanisms. Once the internal service fund is set up the remaining
activity really operates through the budget side.
REPRESENTATIVE KERTTULA said, "The problem I'm having with this is
that it's (indisc.) money, maintenance isn't happening. And, is it
just because you're going to be creating a fund, you're going to
see where it all goes, you're going to see how much cost; is that
the main reason that you think this will work better."
Number 0510
MS. ELGEE stated that there are several advantages to having a
rental rate structure. One advantage is that a rental rate
structure makes program managers more conscious of the space they
utilize. Currently, there is no incentive for them to reduce those
costs. There is the opportunity to leverage other fund sources as
well as the ability to provide an ongoing mechanism to actually
pool dollars for the major maintenance projects. However, a roof
replacement, when it is needed can be quite expensive and competes
against a lot of other equally necessary projects.
MS. ELGEE stated that the internal service funds are similar to
what is being proposed in HB 122 for public buildings. The
information services fund establishes rates for the support,
telecommunications, and data processing operations of the state.
The department has about eight years of experience with that fund
and it has been very successful in providing an opportunity to
recapture costs to depreciate equipment, to have a pool available
to provide monies for subsequent upgrades and expansion.
MS. ELGEE said, "Again, all of those things are subject to
legislative appropriation. And, the charge-back for data
processing and telecommunication costs, you see in every agency's
budget as you review those and then you look again at the Division
of Information Services budget and their capital programs that are
proposed and use the internal service fund as a funding mechanism
for those things. So the legislature has an opportunity, I think
to look at from both directions in that respect. This is the same
design that we're looking at here. The other fund that operates on
a similar basis is the highway working capital fund that supports
our state equipment fleet."
Number 0542
REPRESENTATIVE SMALLEY referred to the examples, from the Division
of Retirement and Benefits in being able to access part of their
funds for rentals, operation maintenance, and so on. In years past
there have been attempts to leverage those retirement funds, to
which the board reacted to that. He didn't see the mechanism in HB
112 that would allow for that kind of leveraging.
MS. ELGEE noted that she works with the Division of Retirement and
Benefits in the Department of Administration. The department would
not suggest that trust funds be used in any way different from the
department would use monies from any other program. The Division
of Retirement and Benefits would not be charged rent if no one else
was being charged rent. However, when you have a mechanism that is
essentially common in its approach to every program regardless of
the fund source, then you have the ability to meet the objections
of any concern that you were treating the trust fund in some kind
of disproportionate way. Ms. Elgee further stated that the
Division of Retirement and Benefits currently (indisc.--coughing)
state-owned space. If they were in lease today, they would be
paying that cost.
CHAIR JAMES said that she believes HB 112 would provide the
mechanism where we could get there from here. With good thoughts,
good direction, and good accounting this can work. And, maybe over
the long-term there will not be fighting over the deferred
maintenance issue as in the last six years.
Number 0590
CHAIR JAMES concluded that she is very supportive of HB 112,
however, HB 122 is just sending a message that if facilities cannot
be maintained then those facilities should be sold.
REPRESENTATIVE COGHILL moved to report HB 112 out of committee with
individual recommendations and the accompanying fiscal notes.
REPRESENTATIVE WHITAKER objected. He believed HB 112 it is a good
idea, however, there may be more of an effect on the agencies
involved. He also indicated there is a possibility of starting a
bidding war between the state and the private sector.
MS. ELGEE recognized the possibility of a bidding war as a fair
concern. Establishing a public building fund is merely one more
fund in the state statutes until the budget process can accommodate
that fund. In terms of implemention, monies presently slated for
maintenance in DOT/PF would be dispersed to the agencies
proportionate to the space the agency occupies. The money
collected from those bills would be placed into the public building
fund.
Number 0639
MS. ELGEE stated that as the legislators make their budget
decisions, the expense of maintenance and any capital projects that
would be funded with this money would be reviewed. The legislators
would also be reviewing the program operations, the space being
occupying, and the rental rates as a part of the program expenses.
There is a great deal of administrative work involved in actually
implementing something like this through the budget process,
furthermore, there is no value to it without the public building
fund being in place. Therefore, the department decided to seek
support of legislation which created the internal service fund
mechanism before proceeding to the next step, the actual
implemention of the program through the budget process. Ms. Elgee
said, "If this legislation were to pass this year, it would be our
intent to have rental structures established and available for your
review and appropriation decisions next session."
Number 0657
CHAIR JAMES pointed out one of the issues that wasn't considered,
in her previous legislation, was a separate line item for the
physical part of deferred maintenance. She said the problem that
they had with that is that there is only a small amount, and what
do you spend it on. For example, the furnace in the Capitol
Building has to be replaced in 20 years, and when that time is
reached, you only have the annual allocation for maintenance
operations. So, the only way that you can be certain that the
money will be there, is that a certain amount is put into a fund
which doesn't lapse. In other words, when it needs to be replaced,
you allocate the funds money, it doesn't come out of the normal
budgeting process.
CHAIR JAMES further stated, "The more consistent over time, that we
can do the budgeting process, the easier it's going to be for
people to understand. And the much easier it's going to be for us
to rationally see why we should spend a little bit more this year."
However, if you allocate ahead of time on a cost basis, then the
money is there when you need it for repairs. The money doesn't
lapse, it does have to be appropriated by the legislature, and it
doesn't effect the general fund so to speak - the ongoing general
fund that we look forward to having to meet our overall budget
requirement.
REPRESENTATIVE WHITAKER said that the goal is very clear, it is the
manner in which the goal is being approached. It may be a chicken
and an egg.
Number 0700
CHAIR JAMES pointed out that this was part of the recommendation
from the Deferred Maintenance Task Force from last year. She said
she agrees with Ms. Elgee that money can't be placed in this fund
without an appropriation. Therefore, if the Department of
Administration were to get this calculated, and come back with a
program that allocated rent for the various buildings, that would
be a line item next year. She indicated that perhaps there should
be a statutory requirement for this calculation to be made. Chair
James said, "I tend to agree with you, Representative Whitaker that
we need another (indisc.) piece here that says just exactly where
the money is going to come from to go into this fund that says that
during this period of time that the Administration shall determine
a rent program and bring it back for approval next year. I think
that is a possibility as well, but I can see that it can be done
without that too."
Number 0716
REPRESENTATIVE WHITAKER expressed concern that once it is passed,
it becomes a matter of law. At that point it would seem to be a
mandatory function of the budgetary process and the budget process
would dictate the mandates of the bill, the effect of which can
remains unclear. He reiterated his concern with the uncertainty of
where this is heading.
TAPE 99-14, SIDE A
Number 0001
REPRESENTATIVE WHITAKER added that the preliminary work relates to
buildings rather than departments and agencies. He inquired as to
the effect on those. He acknowledged that funds will have to be
transferred. He asked, "What is the differential and where is that
money going to come from? That's the sort of analysis that I would
like to see, because to make a decision without that is to hope
that it turns out well."
REPRESENTATIVE KERTTULA stated that deferred maintenance is a
problem and agreed that something must be done. She recommended
that the costs be placed in at the beginning so that the costs for
the life of the building are known from the start. What happens
when there is an older building that is going to need a lot more
maintenance and cost? She inquired as to how that money would be
dispersed in a fair manner.
MR. GERKEN pointed out that HB 122 doesn't mandate any rent.
CHAIR JAMES agreed with Representative Whitaker that a fund should
not be set up, statutorily. She noted that the Children's Trust
Fund was established years before money was in the fund. When a
fund is created, the provision of how the money in placed in the
fund is not necessarily created simultaneously.
Number 0061
MR. GERKEN stated, "It clearly is our intention to try to implement
a rental fund, and agencies have been concerned about how does it
work, how does it impact them. And, we could set up this fund and
charge rent, that is even less than we spend now, and have more
deferred maintenance and agencies would make money on the deal.
That we can charge tremendous rent..."
CHAIR JAMES interjected, "I think you're probably right."
MR. GERKEN stated that, "We can charge a tremendous amount of rent
and accumulate a lot of cash in the fund, and drive them broke. I
mean, the budget and the (indisc.) process is where those decisions
get made. In terms of the theory, and Representative Kerttula's
question, the federal rules that we would need to operate under do
require the assessment of rent to be equitable, to be based on
actual costs and to be trued up at the end of the year; if you
spend less, your future rate goes down, if you spend more, your
future rate goes up. It's a very accurate accounting of what you
really do spend."
MR. GERKEN continued "But on the expenditure-side, when you're
talking about capital investment you don't have to spend the dollar
that you collect on building A, on building B, you spend it where
the need is greatest and like any other capital expenditure that
also is a discussion that we had in a budget. We envision this,
there'll be a certain amount of money from the fund which would be
the depreciation ... available for reinvestment in those facilities
and we would come with a list of the needs for those facilities.
The facilities in the pool, though, can share those and the
legislature would authorize a certain amount per year, or a certain
amount per project, to be put back in based upon the
recommendations that the DOA or DOT [/PF] would come back within
terms of the greatest need for those buildings. A fair amount of
work has already been done on a lot of those through the lists that
have been put together for deferred maintenance backlog here in the
last couple of years. So, we have a pretty good idea about what
some of those needs are right now."
Number 0109
CHAIR JAMES noted that rent is not going to serve needs on the
deferred maintenance list. There needs to be another infusion of
cash, because there is no way to catch up on all of the deferred
maintenance and this would only be for providing for future needs.
Nothing short of legislative appropriations in the capital budget
has seemed to work and that only takes place when the situation is
near a disaster. For example, in some of the buildings she has
visited in the rural areas water is coming down the inside walls.
Chair James said state employees should not have to work under such
circumstances.
REPRESENTATIVE KERTTULA wondered if different rents would be
charged to different agencies.
MR. GERKEN replied, no, the rule is that a building has a rate and
everyone in that building pays that rate. However, he believes
that if you have a totally generally funded program you could
charge them more, because the federal rules are different. The
rate must based upon the actual costs associated with that
building, both operating and depreciation costs.
Number 0167
MS. ELGEE stated, "As we've looked at the ways to implement this,
we have always looked at it in the context of holding agencies
harmless. Agencies would not be asked to come up with rent money
that were not already available in their budget. So the rental
rates would be developed using the existing general fund dollars
and whatever we can anticipate in terms of expanded dollars by
leveraging these other fund sources that we spoke of earlier. What
happens after we set that all up, in terms of holding the agencies
harmless, really revolves around the decision that you as a body
make through the appropriation process."
REPRESENTATIVE WHITAKER said there currently is a legislative
process that could and should deal with deferred maintenance. The
concern is that another opportunity is being created which does not
fund a very pressing need. He expressed the need to deal with
deferred maintenance.
REPRESENTATIVE OGAN reminded the committee of the motion on the
floor.
CHAIR JAMES said the committee can continue to object to the
motion, or the motion can be removed.
Number 0200
UNIDENTIFIED SPEAKER removed his motion to (indisc.--fading).
REPRESENTATIVE OGAN remarked that maintenance is a problem and that
the Administration does what they want to do with the budget. If
HB 112 mandated that something is used for maintenance he said he
would be more supportive of the concept.
CHAIR JAMES pointed out that the system does not allow money to be
set aside for maintenance, and money cannot be set aside unless
there is a place for it. State agencies know they have to set
money aside for maintenance, but they also have to convince the
legislature that they need that capital expenditure. It would be
easier if money was saved for a specific purpose in order to help
take the political side out of acquiring money when repairs are
needed. She noted that the idea of deferred maintenance as a
natural problem of government occurring in every state. She said,
"My goal is that when it needs painting, paint it."
CHAIR JAMES called an at-ease at 9:55 a.m. and called the meeting
back to order 9:56 a.m.
REPRESENTATIVE WHITAKER removed his objection.
Number 0307
REPRESENTATIVE COGHILL moved to report HB 112 out of committee with
individual recommendations and the accompanying zero fiscal note.
There being no objection, it was so ordered.
Number 0326
REPRESENTATIVE SMALLEY made a motion to move HB 122 from committee
with individual recommendation and attached zero fiscal note.
REPRESENTATIVE OGAN objected because HB 122 is a major change of
policy.
REPRESENTATIVE SMALLEY supported moving HB 122 as a message.
Upon a roll call vote, Representatives Smalley, Kerttula, Whitaker
and James voted in favor of moving HB 122. Representatives Ogan
and Coghill voted against it. Therefore, HB 122 passed by a vote
of 4-2.
ADJOURNMENT
Number 0349
CHAIR JAMES adjourned the House State Affairs Standing Committee at
10:00 a.m.
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