Legislature(1993 - 1994)
02/01/1994 10:10 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
February 1, 1994
10:10 a.m.
TAPES
SFC-94, #12, Side 1 (444-574)
SFC-94, #12, Side 2 (574-206)
CALL TO ORDER
Co-chair Drue Pearce convened the meeting at approximately
10:10 a.m.
PRESENT
In addition to Co-chair Pearce, Senators Kelly, Sharp, and
Frank were present. Senators Jacko and Kerttula arrived
soon after the meeting began. Senator Rieger did not
attend.
ALSO ATTENDING: Randy Welker, Legislative Auditor; Mike
Greany, Director, Legislative Finance Division; Bruce
Geraghty, Deputy Commissioner, Dept. of Community and
Regional Affairs; Dugan Petty, Director, Division of General
Services, Dept. of Administration; Remond Henderson,
Director, Division of Administrative Services, Dept. of
Community and Regional Affairs; Jack Chenoweth, Legal
Counsel, Legal Services, Legislative Affairs Agency; and
aides to committee members and other members of the
legislature.
SUMMARY INFORMATION
SB 243 - FOUR DAM POOL TRANSFER FUND
Discussion was had with Bruce Geraghty,
Remond Henderson, and Randy Welker. The bill
was subsequently HELD in committee pending
comprehensive review of the energy program
and funding.
SB 247 - STATE LEASES & LEASE-PURCHASE FINANCING
Discussion was had with Jack Chenoweth and
Dugan Petty. CSSB 247 (2d Fin) the "X"
version was ADOPTED to replace the earlier
"O" draft. CSSB 247 (2d Fin) was then
REPORTED OUT of committee with a "do pass"
recommendation, new title, previous Senate
Finance Committee letter of intent, and zero
fiscal notes from the Dept. of Administration
and the Legislative Affairs Agency.
SB 247 STATE LEASES & LEASE-PURCHASE FINANCING
Co-chair Pearce directed that SB 247 be brought on for
discussion and referenced a new, draft Senate Finance
Committee Substitute (8-LS1447\X, Chenoweth, 1/31/94). Co-
chair Frank MOVED for adoption of the new "X" version in
place of the previously adopted "O" draft. No objection
having been raised, CSSB 247 (2d Fin), "X" version, was
ADOPTED. He then requested that the drafter of the bill
speak to changes incorporated therein.
JACK CHENOWETH, Counsel, Legal Services, Legislative Affairs
Agency, explained that the title was tightened considerably.
It cites new thresholds for legislative approval of annual
rental payments that exceed $500.0 or total lease payments
that exceed $2,500.0 over the term of the lease. Thresholds
in current law are $1 million and $10 million. Further
changes include:
Page 3, line 8 -
"under this subsection" was changed to "under this
paragraph" since "paragraph" is the proper reference.
Page 6, lines 22 through 25 -
Addition of "if the total of all periods provided for
in the lease exceeds the original term of the lease
exclusive of the total period of all renewal options."
Mr. Chenoweth explained that under the foregoing
language, the cumulative total of renewal periods may
not be longer than the term of the original lease.
Page 6, Sec. 7, subsections (b), (d), and (e) -
Earlier adopted amendments inserted "real property"
into lease-purchase language in these subsections.
In response to a question from Co-chair Frank, Mr. Chenoweth
reiterated that under new language at page 6, the
administration would be barred from entering leases with
renewal options beyond the term of the original lease,
regardless of the cost involved. Co-chair Frank requested
comments from the administration.
(Senator Kerttula arrived at this time.)
DUGAN PETTY, Director, Division of General Services, Dept.
of Administration, came before committee. Co-chair Frank
asked if the foregoing addition would be workable. Mr.
Petty responded affirmatively. He explained that the state
has approximately "a half dozen" leases that would ever
approach the existing $10 million threshold. The effect of
lowering the threshold to $2,500.0 is that it now
encompasses approximately 30 "medium-range leases." When
these 30 leases were initially acquired, the state was
barred from ever having anything more than either "two, one-
year renewals or one, two-year renewal." The state was also
barred from renewing an existing lease with a renewal option
in excess of two years. The state was thus looking for
flexibility to establish renewal options or exercise
existing renewal options that exceeded that two-year period.
Mr. Petty voiced his understanding that the intent of the
proposed requirement on renewal options is to prevent the
administration from entering into a lease with numerous
renewals so that the lease is never completed. The
questions is, Where is the appropriate level to cut-off
renewal options and force re-bid of the lease? Most leases
are three to five years in term while larger leases extend
up to ten years. New provisions would ensure that renewal
options would not exceed the initial term of the lease.
(Senator Jacko arrived at this time.)
Senator Kerttula said that his concern relates to
legislative ability to control construction (lease-purchase)
at a certain level and prohibit the administration's
circumvention of that control by leasing for large amounts
for long periods of time. Mr. Petty noted that the leases
and terms he cited relate to operational leases that do not
include a purchase option. Senator Kerttula acknowledged
that fact and stressed that the proposed bill seeks to
extend legislative control over both rental leases and
lease-purchase arrangements. In response to comments by Co-
chair Frank, Mr. Petty acknowledged that newly established
thresholds would apply to both rental leases and renewal
options. Associated amounts would be set out in the budget
and identified in advance. He stressed that all leases are
subject to legislative appropriation.
Discussion followed between Mr. Petty and Senator Kerttula
concerning long-term commitments associated with rental
leases.
End, SFC-94, #10, Side 1
Begin, SFC-94, #10, Side 2
Further discussion followed regarding the means of
identifying leases anticipated to exceed new thresholds.
Co-chair Frank acknowledged that, regardless of language in
the proposed bill, the legislature would "definitely have
our stab at it in the budget process."
Co-chair Frank further noted questions associated with
whether the state should lease-purchase or lease for long-
term periods and never own the facility. Senator Kerttula
voiced his preference for not encouraging the state to enter
long-term leases. Co-chair Frank said that he did not
believe the proposed bill would do so. When the
administration presents large, long-term leases for
legislative approval, the legislature should raise questions
concerning other options such as lease-purchase or a capital
request to construct a facility. The Co-chair voiced need
to ensure that the legislature is "in the loop" while
refraining from placing a "straight jacket" on the
department that ultimately makes leasing or lease-purchase
more costly. Mr. Petty said that it makes sense to provide
a renewal option if it makes sense to be in the lease to
begin with. The eventual impact of the bill over the life
of existing leases will be to bring "some thirty more
leases" before the legislature for approval.
Discussion followed between committee members and Mr.
Chenoweth regarding acquisition of commodities other than
real property. Co-chair Frank acknowledged that large
computer system purchases are also of concern. Last year's
cumulative total was in excess of $20 million. He again
pointed to legislative control through the budget process.
Co-chair Pearce called for additional questions or comments
on the bill. None were forthcoming. The Co-chair queried
members concerning disposition. Senator Kerttula MOVED that
CSSB 247 (2d Fin) pass from committee with individual
recommendations, the previously adopted Senate Finance
letter of intent, and accompanying zero fiscal notes. No
objection having been raised, CSSB 247 (2d Fin) was REPORTED
OUT of committee with a new title (An Act making subject to
prior legislative approval contracts entered into or renewed
by the executive branch of state government, the legislative
council, the Alaska Court System, and the University of
Alaska for the lease of real property if the lease has an
annual rent payable that is anticipated to exceed $500,000
or has total payments that exceed $2,500,000 for the term of
the lease, including any renewal options that are defined in
the lease; prohibiting these entities from entering into or
renewing a lease of real property if any or all renewal
periods in the lease exceed the original term of the lease;
making subject to prior legislative approval lease-purchase
agreements that may be entered into by these entities to
acquire real property, other than lease-purchase agreements
to refinance outstanding balances on existing lease-purchase
agreements and lease-purchase agreements secured by
University of Alaska student fees and university receipts;
authorizing these entities to enter into lease-purchase
agreements only in the capacity of lessee under the proposed
lease-purchase agreement; defining procedures that these
entities must follow when considering whether or not to
enter into lease-purchase agreements, and setting limits on
the duration of these agreements; providing definitions for
applicable terms; and providing for an effective date), the
previous Senate Finance letter of intent, and zero fiscal
notes from the Dept. of Administration and the Legislative
Affairs Agency. All members present signed the committee
report with a "do pass" recommendation. Senator Rieger was
absent from the meeting and did not sign.
SB 243 FOUR DAM POOL TRANSFER FUND
Co-chair Pearce directed that SB 243 be brought on for
discussion and referenced Amendment No. 1 by Senator Sharp.
She noted numerous questions surrounding ramifications of SB
106 and 126, which passed the legislature last year, the
systems that were effected by passage, and how moneys flow
in and out of established funds. Co-chair Frank
acknowledged need for a refresher course on the issue. Co-
chair Pearce advised that meetings would be held with the
bill drafter, staff from the department, and the Legislative
Finance Division, prior to proceeding with SB 243.
BRUCE GERAGHTY, Deputy Commissioner, Dept. of Community and
Regional Affairs, came before committee. He concurred in
need for technical adjustments as a result of last year's
passage of SB 106 and 126. The department has started work
on adoption of regulations. As that effort progresses, the
department will work with the legislature to fix whatever is
necessary.
Co-chair Frank voiced his understanding that policy issues
relating to transfer of energy programs from the Dept. of
Commerce and Economic Development to the Dept. of Community
and Regional Affairs remain. Mr. Geraghty acknowledged
problems surrounding movement of a quasi-independent entity
into a line agency as well as a budgetary shift from CIP
receipts to general funds.
Co-chair Frank asked that Legislative Finance Division be
asked to demonstrate how the transition was structured, what
funds were used to support AEA's budget, and how the effort
will be funded under the Governor's proposed budget. He
voiced concern regarding movement from a CIP-based to a
general fund budget.
REMOND HENDERSON, Director, Administrative Services, Dept.
of Community and Regional Affairs, explained that a policy
decision was made to budget the "entire operation of the
energy division under general funds." There was concern
over the number of positions that had been funded with CIP
receipts and inability to track whether or not all the
positions were needed. The Alaska Energy Authority did not
operate like a line agency in terms of how it charged
operations to CIP receipts. It did not have RSAs between
the operating budget and the capital budget. It direct
charged individual positions to various funds, and there was
no consistency as to how that happened. Mr. Henderson
voiced his belief that CIP receipts could be used as a
funding source and appropriately accounted for. Co-chair
Frank said that such funding is common in the Dept. of
Transportation and Public Facilities and other departments.
Mr. Henderson sought assistance in a situation he said had
only recently arisen. He explained that AIDEA has
identified transition costs that it says it would not
normally have incurred absent passage of the above-noted
legislation. What is in question is whether AIDEA is
entitled to any of the funds that were appropriated last
year, either through normal operations--the $8.4 million
that was appropriated--or the $3.9 million in general funds
that was appropriated for the transition. Until that issue
is resolved, it would be difficult for the Dept. of
Community and Regional Affairs to split the power
development revolving loan fund. The department sought
guidance from the Office of Management and Budget. OMB
suggested that the matter represents an internal policy
decision. Concern remains regarding whether AIDEA is
legally entitled to the funds. Mr. Henderson said that
guidance from the legislature or Legislative Finance
Division would assist in transfer of funds into the four dam
pool. Co-chair Pearce suggested that the Legislative
Auditor, director of the Legislative Finance Division and
director of Legal Services work with the department on the
issue.
Senator Kerttula voiced concern regarding whether allocation
of positions to the newly created division of energy is
adequate for proper function.
Co-chair Pearce asked that Mike Greany, Director of
Legislative Finance Division, coordinate an informational
presentation to committee
RANDY WELKER, Legislative Auditor, advised of a pending
request to the Legislative Budget and Audit Committee that
Legislative Audit "go in, basically, and look at the breakup
of the energy authority and how those programs ended up
where they did." While it is not anticipated that that work
will be completed before the end of the session, concerns
being raised at the present meeting could be worked into the
scope of that review. Independent review should highlight
areas of weakness that could be brought back to the
legislature next session.
Co-chair Frank voiced need for as much information as
possible in order to properly prepare the upcoming budget.
Senator Kerttula concurred. He voiced his belief that the
legislature destroyed an entity that was functioning, albeit
perhaps not that well, and replaced it with one that may not
function at all in terms of services to the public.
ADJOURNMENT
The meeting was adjourned at approximately 11:00 a.m.
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