Legislature(1993 - 1994)

02/01/1994 10:10 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    SENATE FINANCE COMMITTEE                                   
                        February 1, 1994                                       
                           10:10 a.m.                                          
  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.                                                                   
  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                 
  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                 
  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                 
  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                 
  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                 
  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.                          
  The meeting was adjourned at approximately 11:00 a.m.                        

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