Legislature(1997 - 1998)
04/28/1997 08:10 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.