Legislature(1997 - 1998)
04/28/1997 08:10 AM Senate FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
April 28, 1997
8:10 A.M.
TAPES
SFC-97, # 130, Sides 1 & 2 (000-590, 590-000)
SFC-97, # 131, Side 1 (000-336)
CALL TO ORDER
Senator Bert Sharp, Cochair, Senate Finance Committee,
convened the meeting at approximately 8:10 A.M.
PRESENT
In addition to COCHAIR SHARP, SENATORS PHILLIPS, TORGERSON
and ADAMS were present when the meeting was convened.
SENATORS DONLEY and PARNELL arrived as the meeting was in
progress. COCHAIR PEARCE did not attend the meeting.
Also Attending:
DUGAN PETTY, Director, Division of General Services,
Department of Administration; SAM KITO, III, Special
Assistant, Office of the Commissioner, Department of
Transportation and Public Facilities; JAMES BALDWIN,
Assistant Attorney General, Department of Law; RANDY WELKER,
Director, Division of Legislative Audit; and aides to
committee members.
Also Attending via Teleconference:
Seattle: RICHARD THALER, Attorney; BOB PARKS, President, TRF
Pacific; JIM SNYDER, President, Kennedy Associates;
Anchorage: DON DWIGGINS, Architect; MELBA PINNOW, Manager,
American Building Maintenance; SHANE OSOWSKI, Attorney;
BARRY JACKSON, Contracting Manager, Division of General
Services; Department of Administration; PAULA HALEY,
Executive Director, Alaska State Commission on Human Rights.
SUMMARY INFORMATION
SB 178 ANCHORAGE OFFICE BUILDING
Testimony was heard via teleconference from DON
DWIGGINS, RICHARD THALER, MELBA PINNOW, SHANE OSOWSKI,
BOB PARKS, JIM SNYDER and BARRY JACKSON. DUGAN PETTY
testified from Juneau. SB 178 was HELD for further
consideration.
SB 103 HUMAN RIGHTS COMMISSION FEES & HEARINGS
PAULA HALEY testified on behalf of the bill. COCHAIR
SHARP HELD the bill pending receipt of an updated
fiscal note.
SB 42 ALASKA RR BUDGET AND LAND
Testimony was heard from SAM KITO III, JAMES BALDWIN
and RANDY WELKER. SB 42 was HELD for further
consideration.
SB 178 ANCHORAGE OFFICE BUILDING
The following testimony was heard via teleconference.
Anchorage:
DON DWIGGINS, Architect, testified that he had been doing
all the tenant improvements for the Bank of America building
since 1991 and the Frontier building since 1988. He stated
that it was important not to miss hidden costs in the
purchase of the building. As a taxpayer, he was offended by
the concept of the state owning the most prestigious office
building in the state. He believed it would increase
property taxes downtown when the building was taken off the
city tax rolls.
The presence of Senator Donley was noted.
MR. DWIGGINS discussed extra costs, such of paying rent on
the remaining DNR lease on the Frontier building, the buy
out of leases of current tenants, displacement and
improvement costs, new phone systems and moving costs. He
also brought up issues regarding parking. He summarized
that it was an economic decision and that not all the
numbers have been considered or evaluated.
SENATOR PHILLIPS inquired about the Kincaid Riley report.
DUGAN PETTY, Director, Division of General Services,
Department of Administration, explained that the report from
the independent real estate consultant looked at assumptions
and projections to analyze costs. He addressed in detail
the issues brought up by Mr. Dwiggins, noting that the
report addressed many of them as well. Many of the costs
were estimated to be lower than Mr. Dwiggins estimates.
The presence of Senator Parnell was noted.
MR. DUGAN handed out a pie chart showing vacancy
comparisons. He continued his explanation of issues
addressed by Mr. Dwiggins. He summarized that this was the
most cost-effective way to house state offices in the
future. He believed the analysis was defensible in that it
was not overloaded or low-balled in either direction. He
pointed out that the discussions of lease/purchase of the
Frontier building didn't come close the purchase price
associated with the Bank of America building. He asked
Richard Thaler to respond to issues concerning moving
expenses.
Seattle:
RICHARD THALER, Attorney, testified that he represented the
state in this transaction. He reviewed the issue of lease
buy outs and relocation of tenants, noting that the state
would honor all existing leases. The intent was to operate
the building in the same manner as the present. He was
confident of the numbers in the report, adding that he had
looked at them very carefully.
Anchorage:
MELBA PINNOW, Manager, American Building Maintenance,
informed the committee that they held the janitorial
contract for both the Frontier and Bank of America buildings
since they opened. She expressed concerns about losing the
contract because the state would put the contract out to bid
and award to the lowest bidder. She knew what the building
required to keep it looking the way it does and thought that
another company that did not would come out as the low
bidder. She would have to cut back staff and it would
create economic impact. She agreed with Mr. Dwiggins about
increased property taxes because of the sale of the building
to the state. She also believed other vendors in both
buildings would be impacted.
MR. PETTY explained that the approach would be to manage the
property with a third party manager and the building ought
to be managed in much the same way as it currently is. The
projections of costs for janitorial would be the same and
they would look to the property manager to insure the
standards remained at the same level. The state would not
be contracting out for janitorial services, rather it would
be a responsibility of the property manager. Regarding the
property taxes, the private lease hold interests would still
be subject to property tax.
SHANE OSOWSKI, Attorney, testified that he was with a law
firm currently located in the building. As a tenant, he
stated concerns with relocation, the lower quality of
improvements, the image of the building and disruption of
businesses. He also spoke of problems with parking and
summarized that he opposed the bill.
MR. PETTY addressed the parking issue, noting there would be
646 spaces acquired with the building and an additional 86
spaces to be purchased were factored into the analysis. He
believed there would be sufficient space. He pointed out a
figure of $15 per square foot for tenant improvements,
noting that it was reasonable for state offices, but would
not provide for the same quality as what exists.
BOB PARKS, President, TRF Pacific, stated they were the
general partner that owns the Frontier building. He
formerly managed the Bank of America building. He had
comments on the executive summary by the Department of
Administration.
End SFC-97 #130, Side 1, Begin Side 2
MR. PARKS indicated he would also present a proposal for
lease-purchase of the Frontier building. He addressed the
parking issue first by comparing the two buildings available
parking spaces. He concluded that 283 additional spaces
would be needed at the Bank of America building to be
equivalent with the Frontier building. He next discussed
tenant improvement costs, suggesting that they should be
around $40 per square foot instead of $15. Regarding
occupancy costs, he believed purchase of the building would
further reduce the market rate for office space in Anchorage
which was already seriously depressed in terms of
replacement costs. He stated a buy-out was inefficient for
tax-exempt financing and suggested there was a wide
divergence between the state analysis and private sector
estimates of costs.
MR. PARKS informed the committee that in a proposal for a
purchase option for the Frontier building they would provide
a comparison. The proposal was currently at the lender for
review and he hoped to have an agreement for presentation by
Wednesday.
JIM SNYDER, President, Kennedy Associates, Seattle, stated
they had been involved as advisor. He was biased toward
striking a deal with the Frontier building because he
represented the entity that provided financing for it. He
was optimistic that they would be able to provide a proposal
soon and thought it would be a workable situation.
COCHAIR SHARP pointed out that the delay to Wednesday would
only leave thirteen days remaining in the session, and a
decision would be forthcoming by the legislature. He
encouraged getting the information to the committee as soon
as possible.
SENATOR PHILLIPS stated that the DOA had testified that they
approached the Frontier owners about purchasing the building
and the meeting only lasted three minutes, indicating lack
of interest. He asked if Mr. Parks cared to comment.
MR. PARKS believed they were dealing more with a political
issue and the meeting was very short. The parties agreed to
go through the appraisal process which they did. They
discussed how they might make it work but the DOA was afraid
to take it forward because of the appraisal. He was pleased
with the opportunity to come forward now with a competitive
offer. He believed the state belonged in the Frontier
building. There was further discussion about the
negotiations between MR. PARKS and SENATOR PHILLIPS.
COCHAIR SHARP asked if there were additional questions.
SENATOR ADAMS asked if he wanted a motion to move the bill.
COCHAIR SHARP indicated he wanted to hold the bill for new
data to show up for comparison. He indicated a deadline of
9:00 A.M. Wednesday to Mr. Parks for additional information.
MR. PETTY commented that they were pursuing a purchase
agreement in good faith and that there was no intent to use
the transaction to better their position or negotiate a
better deal concerning the Frontier building. His purpose
was to pursue the negotiated transaction concerning the Bank
of America building and close within sixty days of approval
by the legislature by way of the effective date of the bill.
SENATOR PARNELL asked about delaying action on the bill.
MR. PETTY responded that it would be unrealistic to ask the
seller to hold the offer in limbo for an additional session.
MR. THALER informed the committee that if the session
adjourned without approving the measure, the offer would
terminate automatically. SENATOR PARNELL further discussed
what other options may be available, such as the ARCO
building.
BARRY JACKSON, Contracting Manager, Division of General
Services; Department of Administration, testified that he
had met with John Schwam (ph.) of Schwam and Frampton
regarding the ARCO facility and it was his impression that
ARCO was not interested in selling as they did not receive a
response. They did respond concerning leasing. No other
proposals had been solicited and he didn't believe there
were additional markets available that compared with the
current proposal.
COCHAIR SHARP indicated that SB 178 was HELD for further
consideration.
SB 103 HUMAN RIGHTS COMMISSION FEES & HEARINGS
PAULA HALEY, Executive Director, Alaska State Commission on
Human Rights, testified on behalf of the bill via
teleconference from Anchorage. She explained that the bill
was part of the agency's response to the public's increased
demand for services in the wake of declining resources.
Complaints had tripled over the past fifteen years while the
agency lost 35 percent of its staff. They had worked to
increase efficiency, reviewed, revised and amended
regulations to streamline and reduce costs. SB 103 would
provide cost saving measures and grant authority to charge
fees for educational services. Any fees generated or money
saved would be used toward investigation and enforcement.
She urged support of the bill.
SENATOR PARNELL inquired why the fiscal note did not reflect
a change in revenues. MS. HALEY responded that any money
saved would vary from year to year, but would be used for
temporary staff, overtime and moving 330 cases along in the
investigative process. SENATOR PARNELL believed the fiscal
note should reflect a change to the general fund if more
fees were being collected. He asked what revenues were
expected. MS. HALEY replied that they didn't expect more
than $5,000 by the second year, but it was hard to estimate.
Educational service fees would be for sexual harassment
trainings, disability law trainings, general discrimination
and prevention education. There was no filing fee because
legislators did not want that authority granted to the
commission. Other problems with filing fees had to do with
the fact that many people come to them after they've lost
their job. It also would disqualify the commission from
receiving a $120 thousand federal contract to process
federal EEO complaints, so the loss would be greater than
the gain with a filing fee.
COCHAIR SHARP indicated he would hold the bill pending
receipt of an updated fiscal note. MS. HALEY indicated she
would do her best to provide an estimate of anticipated
savings.
In response to a comments from COCHAIR SHARP, MS. HALEY
explained that they had removed redundant language from
regulations last year. She commented about teleconferencing
hearings as a cost saving measure. She responded to a query
by COCHAIR SHARP by stating that a complainant had never
been represented by the Office of Pubic Advocacy.
Occasionally they would hire their own counsel to help them
through the process, but it was rare.
SB 103 was HELD pending a revised fiscal note.
SB 42 ALASKA RR BUDGET AND LAND
SAM KITO, III, Special Assistant, Office of the
Commissioner, Department of Transportation and Public
Facilities, testified in opposition to the bill. He
explained that the Alaska Railroad Corporation had been set
up to function as both a public and a business entity. To
operate effectively, they needed the flexibility to make
business decisions unencumbered by yearly appropriations.
Long-term lease agreements would be hampered by the
uncertainty of legislative approval for repayment on a
yearly basis. He referred to an ISER report that described
disadvantages of subjecting the railroad to state oversight.
The most critical would be the inability to obtain capital
investment funds. He believed by placing the railroad under
the executive budget act would result in the kinds of
limitations mentioned in the ISER report.
SENATOR PHILLIPS brought up AHFC and AIDEA, noting that
similar fears of putting them under the executive budget act
were not occurring. He believed it would improve
communications between the railroad and the state and
provide a better working relationship.
End SFC-97 #130, Side 2
Begin SFC-97 #131, Side 1
SENATOR PHILLIPS briefly continued his comments.
JAMES BALDWIN, Assistant Attorney General, Department of
Law, testified that public corporations could be made
subject to legislative appropriation, but there was no
consistent way of dealing with them based on different
circumstances of the various corporations. He described
certain areas that were not made subject to appropriation
with regard to AHFC and AIDEA. SB 42 would made debt
service of the railroad subject to appropriation and that
would present a severe business problem. He referred to a
broad statement on page 3, line 12 of CSSB 42 (STA). It had
been the intent of the legislature to operate the railroad
budget as a business entity. As the bill currently reads,
it would be disastrous to the railroad. Debt was negotiated
without consideration of an appropriation risk. It may
create an incident and enough uncertainty with lenders to
declare the right to accelerate the debt.
SENATOR PARNELL inquired if a legal opinion had been
requested regarding whether the bill would result in
acceleration of current indebtedness. MR. BALDWIN said
there had not been a request. There was additional
discussion on this matter between SENATOR PARNELL and MR.
BALDWIN.
RANDY WELKER, Director, Division of Legislative Audit, gave
a brief overview of the bill, noting it had come from issues
raised during overviews early in the session. The state
would benefit from bringing the railroad under the executive
budget act. The intent was not to limit the railroad to a
specific dollar amount or line items. Language provides
that the amount necessary to operate the railroad would be
appropriated. It would be in keeping with the important
aspect of oversight by the legislature which had been
missing in the past. The railroad was the only state entity
not subject to the oversight process and he believed it
would be a healthier situation to bring the railroad into
the process. In response to a question from SENATOR
PHILLIPS, MR. WELKER had no comment regarding debt service.
SENATOR PARNELL stated his opinion that a legal opinion was
needed to shed light on whether the bill would trigger
acceleration of debt. MR. BALDWIN indicated the railroad
had established about $4-5 million in a line of credit.
General language in the loan agreement had terms regarding
when the lender felt insecure.
SENATOR PARNELL brought up environmental liability that the
Department of Law would have to take over. MR. BALDWIN
noted that had been removed under the State Affairs CS.
SENATOR PARNELL reiterated a request for an opinion
regarding debt acceleration. MR. BALDWIN indicated he would
pass the request on to the railroad.
SENATOR PHILLIPS inquired about the difference between this
and AHFC debt service. MR. WELKER responded that
appropriations for AHFC didn't cover debt service on
outstanding bonds, so it was not a significant issue. The
main concern was with the process of oversight.
SENATOR PHILLIPS asked what the railroad's response would be
if they removed debt service language from the bill. MR.
BALDWIN indicated that their position would be a preference
to not be covered under the executive budget act at all.
COCHAIR SHARP briefly mentioned lines of credit and bonds.
He concluded the discussion by stating an opinion would be
requested. SB 42 was HELD for further consideration.
Announcements were made regarding the next committee
meeting.
ADJOURNMENT
The meeting was adjourned at approximately 10:12 A.M.
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