Legislature(1997 - 1998)

04/28/1997 08:10 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    SENATE FINANCE COMMITTEE                                   
                         April 28, 1997                                        
                            8:10 A.M.                                          
  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.                              
  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                 
       BOB PARKS, JIM SNYDER  and BARRY JACKSON.  DUGAN  PETTY                 
       testified from  Juneau.   SB 178  was HELD  for further                 
       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                 
  SB 178 ANCHORAGE OFFICE BUILDING                                             
  The following testimony was heard via teleconference.                        
  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                 
  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.                                               
  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                 
  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                 
  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                 
  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                 
  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                 
  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.                 
  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                 
  The meeting was adjourned at approximately 10:12 A.M.                        

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