Legislature(1999 - 2000)

02/01/2000 09:04 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE                                                                                                        
February 1, 2000                                                                                                                
9:04 AM                                                                                                                         
SFC-00 # 17, Side A and Side B                                                                                                  
CALL TO ORDER                                                                                                                   
Co-Chair John Torgerson convened the meeting at                                                                                 
approximately 9:04 AM.                                                                                                          
PRESENT Co-Chair John Torgerson, Co-Chair Sean Parnell,                                                                         
Senator Al Adams, Senator Lyda Green, Senator Randy                                                                             
Phillips and Senator Gary Wilken.                                                                                               
Also Attending:                                                                                                                 
Senator ROBIN TAYLOR; ANNALEE MCCONNELL, Director, Office                                                                       
of Management and Budget; JACK KREINHEDER, Senior Policy                                                                        
Analyst, Office of Management and Budget; ALISON ELGEE,                                                                         
Deputy Commissioner, Department of Administration; KEITH                                                                        
GERKEN, Architect, Facilities Section, Division of General                                                                      
Services, Department of Administration; BARBARA COTTING,                                                                        
Legislative Aide to Representative Jeannette James.                                                                             
SUMMARY INFORMATION                                                                                                             
SJR 29-DURATION OF REGULAR LEGISLATIVE SESSION                                                                                  
This bill was scheduled but not heard.                                                                                          
SB 165-LTD PARTNERSHIPS AND LTD. LIAB. COMPANIES                                                                                
The Committee heard testimony from the sponsor. The bill                                                                        
was reported out of Committee with no objection.                                                                                
HB 112-ESTABLISH ALASKA PUBLIC BUILDING FUND                                                                                    
The Committee heard testimony from the sponsor, the Office                                                                      
of Management and Budget and the Department of                                                                                  
Administration. The bill was held.                                                                                              
SENATE BILL NO. 165                                                                                                             
"An Act relating to the remedies available to judgment                                                                          
creditors against limited liability company members                                                                             
and their assignees and against limited partnership                                                                             
general and limited partners and their assignees; and                                                                           
providing for an effective date."                                                                                               
Senator ROBIN TAYLOR referred to the sponsor statement                                                                          
saying that he would not read it into the record.                                                                               
Senator Taylor told the Committee of two differing court                                                                        
decisions addressing how a creditor would receive judgement                                                                     
taken against a member of a limited partnership. In the                                                                         
Florida case it was ruled that the creditor had the right                                                                       
to go after the limited partnership to obtain only that                                                                         
member's interest in the partnership to satisfy the debt.                                                                       
The other case was held in Connecticut. The court in this                                                                       
case allowed the judgement's creditor to foreclose upon the                                                                     
partnership's assets, which essentially destroyed the                                                                           
partnership. Senator Taylor asserted that the ruling made                                                                       
in the Connecticut case allows actions to be taken against                                                                      
a limited partnership that are beyond the control of the                                                                        
other members not involved in the judgement. If one member                                                                      
is sued then the entire partnership could be ruined, he                                                                         
stated. This bill relieves members of a limited partnership                                                                     
from that liability while still allowing the creditor of a                                                                      
specific member to receive that member's distribution from                                                                      
the partnership.                                                                                                                
Co-Chair Torgerson commented that this bill is strait                                                                           
Co-Chair Parnell offered a motion to move SB 165, 1-                                                                            
LS0919\A from Committee with accompanying zero fiscal note                                                                      
from the Department of Law and individual recommendations.                                                                      
There was no objection.                                                                                                         
HOUSE BILL NO. 112                                                                                                              
"An Act establishing the Alaska public building fund;                                                                           
and providing for an effective date."                                                                                           
BARBARA COTTING, staff to Representative Jeannette James                                                                        
apologized that the Representative could not be present and                                                                     
read the sponsor statement into the record.                                                                                     
Alaska has an enormous problem with maintenance of its                                                                          
public facilities. Funds are not allocated for on-                                                                              
going maintenance, so we are forced to continually                                                                              
repair and replace our existing facilities at great                                                                             
House Bill 112 would establish the Alaska public                                                                                
building fund as a special account in the general                                                                               
fund. It would also create an agreement whereby the                                                                             
occupants of state-owned buildings would pay "rent"                                                                             
into this fund. The money collected could be                                                                                    
appropriated by the Legislature to pay use,                                                                                     
management, operation, maintenance, and depreciation                                                                            
Ms. Cotting noted the bill passed the House of                                                                                  
Representatives with no objection.                                                                                              
Ms. Cotting directed the Committee's attention to the                                                                           
effective date, which will need to be updated from last                                                                         
year's date.                                                                                                                    
Senator Phillips noted the vote tally in the House was 33                                                                       
to five. Ms. Cotting pointed out that there were five                                                                           
excused absences and two other absences on that day and                                                                         
that the bill did not receive any "no" votes.                                                                                   
ALISON ELGEE, Deputy Commissioner, Department of                                                                                
Administration testified that this legislation provides a                                                                       
tool that better enables the state to manage its buildings.                                                                     
She stated that the bill creates an internal service fund                                                                       
that will enable the Department of Administration, as rent                                                                      
is collected, to collect a portion of that rent for the                                                                         
capital portion of building repair and replacement. She                                                                         
noted that the internal service fund will "pool" until                                                                          
there is sufficient funding for major part replacements,                                                                        
such as heating, ventilation and air conditioning. She                                                                          
added the department would be collecting money for                                                                              
maintenance and operations and the administration of the                                                                        
internal service fund program.                                                                                                  
Ms. Elgee explained that the federal government allows the                                                                      
state to establish a rent structure that provides for these                                                                     
major projects through depreciation of the building. She                                                                        
elaborated saying that as long as the state charges rent on                                                                     
a uniform basis to all programs, additional federal funds                                                                       
can be used to pay for the housing of some of the programs                                                                      
the federal government financially supports.                                                                                    
By establishing this rent pool, Ms. Elgee told the                                                                              
Committee the state will also be able to leverage other                                                                         
fund sources within state government, such as the Division                                                                      
of Retirement and Benefits. Currently this self-supporting                                                                      
division occupies space in the Juneau State Office Building                                                                     
at no charge. Under this legislation, she explained, funds                                                                      
collected to administer the retirement and benefits program                                                                     
can be used to pay into the internal service fund program.                                                                      
Ms. Elgee assured the Committee that this program would                                                                         
just redistribute existing funds and not require additional                                                                     
funds. She said, "We are distributing the monies that are                                                                       
currently existing within the budget to the respective                                                                          
programs but expanding the available pool of dollars by the                                                                     
ability to capture those other funds."                                                                                          
According to Ms. Elgee, the department's intent is to start                                                                     
the process with a few select buildings rather than all                                                                         
state-owned facilities. In determining which buildings will                                                                     
be included in the first phase, she said the department                                                                         
would look at those facilities with the greatest leverage                                                                       
for outside funds.                                                                                                              
Co-Chair Parnell pointed out language on page 1 lines 8 and                                                                     
9 of the bill, ".by a public or private occupant of the                                                                         
building." and asked who were some of the private occupants                                                                     
that would be paying into this account. Ms. Elgee gave                                                                          
examples of the Court Plaza Building in Juneau and the                                                                          
Atwood Building in Anchorage, which currently have some                                                                         
private tenants. She noted that this bill allows the state                                                                      
to charge those private tenants depreciation expenses on                                                                        
the same basis and pool those revenues as well.                                                                                 
Co-Chair Parnell next referred to depreciation costs shown                                                                      
on page 2 line 1 of the bill. He wanted to know how funds                                                                       
are currently appropriated to cover those costs. Ms. Elgee                                                                      
replied that it is part of the "approved cost allocation                                                                        
methodology" used by the federal government. Instead of                                                                         
trying to anticipate an allotment in the rental structure                                                                       
for repairs and replacement, she explained, the state is                                                                        
allowed to depreciate the building. She said a depreciation                                                                     
schedule is determined using the purchase price of the                                                                          
building, the remaining useful life and other factors. The                                                                      
depreciation allotment is then added into the rent                                                                              
structure and charged based on square footage.                                                                                  
Co-Chair Parnell then asked why the bill is structured so                                                                       
the appropriations don't lapse after one year like most                                                                         
appropriations do. Ms. Elgee responded that absence of the                                                                      
one-year lapse allows the department to continue to collect                                                                     
the money in the fund, which needs to accrue in order to                                                                        
reach an adequate amount for large capital projects. She                                                                        
added that once enough money is collected, the department                                                                       
would come before the legislature to request appropriations                                                                     
for certain capital projects.                                                                                                   
Co-Chair Torgerson questioned how the payments made will                                                                        
not be shown as an annual expense and whether the payments                                                                      
don't need to be accounted for in the program's individual                                                                      
budgets. Ms. Elgee answered that the rental cost would show                                                                     
up in each program and appropriated annually. Once that                                                                         
money is appropriated for that program, she explained, it                                                                       
is paid into the fund, the fund accrues a balance and the                                                                       
legislature appropriates the fund for maintenance and                                                                           
Co-Chair Torgerson said he could understand collecting rent                                                                     
for operation expenses. However, with the $400 million in                                                                       
state assets and considering that many buildings have a                                                                         
limited life, he predicted a huge amount of money will be                                                                       
needed to fund the depreciation. He suggested this program                                                                      
is a back door attempt to get revenue bonds for deferred                                                                        
maintenance projects.                                                                                                           
ANNALEE MCCONNELL, Director, Office of Management and                                                                           
Budget stressed that the state has a huge deferred                                                                              
maintenance problem. She noted that when the state leases                                                                       
space from the private sector, part of the rent paid is set                                                                     
aside by the owner to use to keep the building in good                                                                          
condition. She stated that other governments, particularly                                                                      
in Canada, have realized if a government only operates on a                                                                     
year to year basis, with no consideration for future need,                                                                      
the government finds itself with a large deferred                                                                               
maintenance problem. She stated that in addition to                                                                             
addressing the existing deferred maintenance problem, the                                                                       
Administration wants to prevent future situations where a                                                                       
needed repair cannot be funded. She pointed out that                                                                            
establishing a rent structure is a long-standing practice                                                                       
in the private sector and in many forward-thinking                                                                              
governments. She assured the Committee the intent of this                                                                       
legislation is not to build up enormous amounts of unused                                                                       
money, but to keep building conditions up to standards. She                                                                     
added that there would be continuous pressure to plan                                                                           
wisely and not over-fund the future needs of existing                                                                           
Co-Chair Torgerson appreciated the forward thinking but                                                                         
argued that this is already done. He stressed that he needs                                                                     
to know the impact of this legislation on each program's                                                                        
individual budget. He believed it would have a large impact                                                                     
and unless the legislature decides to increase those                                                                            
individual operating budgets, those budgets will have to be                                                                     
cut in order to set aside money for depreciation.                                                                               
Ms. McConnell responded that in considering this plan, the                                                                      
Administration looked at the ability to capture non-general                                                                     
fund dollars, such as federal reimbursement programs that                                                                       
are not capped and some state programs that are supposed to                                                                     
be self-supporting but in fact receive free rent. This will                                                                     
allow the state to capture some of that money and put it                                                                        
toward the overall resolution of the issue, she stressed.                                                                       
She pointed out that this program would add $1.5 million                                                                        
revenue from non-general fund sources to the FY 01 budget.                                                                      
Co-Chair Parnell requested a fiscal note that shows all the                                                                     
federal and other funds included for comparison, rather                                                                         
than having each budget subcommittee try to figure out the                                                                      
costs for each program.                                                                                                         
Ms. McConnell replied that the information was being                                                                            
prepared. She restated Ms. Elgee's comments that no                                                                             
additional general funds are requested for this year to                                                                         
fund this program. She spoke of the ability of charging the                                                                     
Division of Retirement and Benefits.                                                                                            
Senator Leman said he thought the rent would be established                                                                     
at the market rate. However, it seemed to him that the rent                                                                     
principles seem to be calculated differently in the bill.                                                                       
He also noted that the program is to charge all tenants the                                                                     
same rate. He asked if space rented at the Atwood Building                                                                      
is rented at an established market rate for downtown                                                                            
Ms. McConnell responded that when this bill was prepared                                                                        
the fact that private agencies still occupy some state-                                                                         
owned buildings was not considered. She stressed that the                                                                       
state is not looking at making a profit, but looking to                                                                         
break even for both the operation costs and future deferred                                                                     
Senator Leman wanted to make sure the rent calculation                                                                          
method does not violate generally recognized accounting                                                                         
principals. Ms. McConnell assured him it does not. She did                                                                      
note that the private tenant contracts would reflect their                                                                      
rental agreements.                                                                                                              
Senator Green requested a side-by-side printout showing the                                                                     
current situation and the proposed plan. She wanted to know                                                                     
where the money for future repairs is currently going. Ms.                                                                      
McConnell said she would provide some information but noted                                                                     
that there currently is no money set-aside for future                                                                           
repairs. She stated this is the problem with the existing                                                                       
Co-Chair Torgerson agreed that a "side-by-side" would be                                                                        
helpful, and requested a breakdown by maintenance and                                                                           
depreciation per building and per tenant.                                                                                       
Senator Wilken clarified that this legislation applies only                                                                     
to buildings owned by the State Of Alaska and located                                                                           
within the state. Ms. McConnell affirmed but pointed out                                                                        
that in the future, it could apply to any state-owned                                                                           
buildings located outside of the state.                                                                                         
Senator Wilken asked if the rent is calculated on the                                                                           
square footage occupancy of each agency. Ms. Elgee                                                                              
Senator Wilken asked if there was any correlation between                                                                       
the amount of space an agency occupies and the cost of                                                                          
their building operation. Ms. McConnell said there is not,                                                                      
which is part of the current problem because there is no                                                                        
incentive for an agency to reduce the amount of space it                                                                        
uses when the need goes down. She stated this legislation                                                                       
would help with overall space management.                                                                                       
Senator Wilken then asked if contributions to the fund are                                                                      
specified for the particular building from where the rent                                                                       
was charged.                                                                                                                    
KEITH GERKEN, Architect, Facilities Section, Division of                                                                        
General Services, Department of Administration replied that                                                                     
the department will account for the revenues and                                                                                
expenditures by building.                                                                                                       
Senator Wilken noted the substantial amount of money                                                                            
involved and was surprised at the zero fiscal note. He                                                                          
asked where the program's administrative costs would                                                                            
appear. Ms. Elgee responded that this program establishes a                                                                     
fund within the general fund and costs will be reflected                                                                        
through "access programming". The costs are for actual                                                                          
implementation of the program not for establishment of the                                                                      
fund, according to Ms. Elgee. She said the distribution of                                                                      
funds and the administration of the program will be                                                                             
reflected in the budget.                                                                                                        
Co-Chair Torgerson wanted to know when discussions would                                                                        
begin to address establishing a separate agency for                                                                             
facilities and moving it out of the Department of                                                                               
Transportation and Public Facilities. Ms. McConnell replied                                                                     
that because the issue was so large it was decided to take                                                                      
it one step at a time and this bill was a first step.                                                                           
Co-Chair Torgerson asked if the report will show how much                                                                       
each agency currently spends for such services as                                                                               
janitorial versus what the plan intends to charge. Ms.                                                                          
McConnell pointed out that janitorial service is currently                                                                      
shown as part of the Department of Transportation and                                                                           
Public Facilities' maintenance budget. However, she said                                                                        
the report will show the actual expense of these services.                                                                      
Co-Chair Torgerson was still concerned this program will                                                                        
require more funds than are currently set aside. He                                                                             
believed that the charge for these services and the fund                                                                        
would be more than currently charged and he needed to see                                                                       
all the information for comparison. However, he did not                                                                         
disagree with the direction the legislation was taking.                                                                         
Ms. McConnell again stated that there would be no change to                                                                     
the general fund for the FY01 budget. The only additional                                                                       
money involved, she explained, is what could be gained from                                                                     
other funding sources of different agencies.                                                                                    
Co-Chair Torgerson asked when the department would start                                                                        
charging for depreciation. He understood that the                                                                               
Administration was requesting the bill be passed now but                                                                        
does not intend to implement the plan for a couple years.                                                                       
Ms. Elgee responded that lots of work goes into the process                                                                     
of establishing the building value and setting an                                                                               
appropriate rate structure that reflects what is actually                                                                       
being spent on a building-by-building basis. She stressed                                                                       
that the federal government requires the state to do this.                                                                      
She listed eight buildings that have been identified as                                                                         
having the highest leverage of non-general funds. These                                                                         
buildings include the Alaska Office Building in Juneau that                                                                     
houses the Department of Health and Social Services; the                                                                        
Atwood Building, the Court Plaza Building, The Douglas                                                                          
Island Building that houses the Department of                                                                                   
Transportation and Public Facilities, the Department of                                                                         
Corrections and the Department of Fish and Game, the                                                                            
Fairbanks Regional Office Building, The Juneau Community                                                                        
Building that formally housed the Department of Community                                                                       
and Regional Affairs, the Juneau Public Safety Building and                                                                     
the Juneau State Office Building. She pointed out that                                                                          
these buildings represent about a third of all state-owned                                                                      
office space. Eventually, the program would expand to cover                                                                     
all state-owned office buildings, she said.                                                                                     
Co-Chair Torgerson stressed the point is that the bill                                                                          
contains items that the department is currently not                                                                             
charging for, yet claiming that without changing the                                                                            
general fund impact, more federal funds would be brought                                                                        
in. He stated that the witnesses were testifying that                                                                           
although depreciation costs are not currently being set                                                                         
aside, they would be soon. He wanted to know what the                                                                           
depreciation and management fee costs will be, regardless                                                                       
of whether or not they are included in the FY 01 budget.                                                                        
Ms. McConnell responded saying in order to implement this                                                                       
program, federal rules governing how much rent is charged                                                                       
have to be followed. As part of that process, the state                                                                         
must establish up-front, the depreciation amounts and also                                                                      
establishes an overall rent structure. We will bill all                                                                         
agencies for the full amount of the direct expenses for                                                                         
that year of plus the depreciation amount. She then stated,                                                                     
"In the case of agencies that are purely general fund                                                                           
supported, we understand that full bill may not be                                                                              
collected. But if we're going to request reimbursement from                                                                     
the federal government or from other entities, we have to                                                                       
be sure that we are including all of those costs and                                                                            
treating everybody identically so that the federal                                                                              
government is not being charged for depreciation but the                                                                        
Retirement and Benefits folks are not. We can't have that                                                                       
kind of pick and chose."                                                                                                        
Co-Chair Torgerson stressed "that it is even more confusing                                                                     
now where you say you are going to set a policy but you                                                                         
don't care if the departments give you the money."                                                                              
Ms. McConnell responded that this is a situation where                                                                          
building maintenance has been under-funded due to economic                                                                      
conditions. She stressed that this program will begin to                                                                        
address the problems.                                                                                                           
Co-Chair Torgerson argued that this method of addressing                                                                        
the situation doesn't make sense but said he would look at                                                                      
the new fiscal note when provided.                                                                                              
Senator Green asked what two or three projects the                                                                              
department intends to use this money to fund. Ms. Elgee                                                                         
replied this bill would set up an internal service fund                                                                         
that will allow the department to balance of money from                                                                         
year to year, which can't be done now.                                                                                          
Senator Green then asked what traditional money could be                                                                        
accrued that can't be accrued currently. Ms. Elgee gave                                                                         
examples of the Division of Child Support Enforcement,                                                                          
which is heavily funded by the federal government. The                                                                          
federal government will allow the state to charge for rent,                                                                     
she said.                                                                                                                       
Senator Green wanted an explanation of why the costs cannot                                                                     
currently be collected. Ms. Elgee replied that the federal                                                                      
government will not allow the state to charge them for                                                                          
costs not charged to state agencies or other tenants.                                                                           
Ms. Elgee answered another of Senator Green's questions                                                                         
saying that the department anticipates receiving an                                                                             
additional $1.5 million in federal funds.                                                                                       
Co-Chair Torgerson predicted that in some cases, these                                                                          
would only be a reclassification of federal funds that will                                                                     
be deducted from other functions. He not think there would                                                                      
be a net increase to general funds.                                                                                             
Ms. McConnell responded that was taken into account in the                                                                      
proposal and the decision was make to not reallocate from                                                                       
those programs that have limited funding. This program will                                                                     
only go after the programs where the rent is simply                                                                             
reimbursed and not those that receive no federal rental                                                                         
reimbursement, she promised. "We are not, in our proposal                                                                       
at this point, disadvantaging if you will, the programs                                                                         
where the federal dollars are limited. Now there is                                                                             
obviously a policy choice that could be made in the future                                                                      
if we want to do that, but we're not taking that step at                                                                        
this point. We're simply going after the federal funds that                                                                     
are out there for the asking but that we simply haven't had                                                                     
the mechanism to [receive them]."                                                                                               
Co-Chair Torgerson asked if all of the $1.5 million would                                                                       
all be new federal dollars.  Ms. McConnell clarified that                                                                       
some of those funds would come from other sources, such as                                                                      
administration fees for the retirements and benefits                                                                            
programs. She elaborated on the appropriateness of the                                                                          
Division of Retirement and Benefits paying rent costs.                                                                          
Co-Chair Torgerson conceded that he stood corrected on his                                                                      
earlier comments about redistribution of existing funds.                                                                        
Senator Wilken noted that the Department of Administration                                                                      
Budget Subcommittee spent time on this matter last year. He                                                                     
appreciated the other members' questions because he felt it                                                                     
is important to understand this issue since it is a bold                                                                        
move. He spoke of the public asking why the state is not                                                                        
run more like a business and he views this bill as an                                                                           
attempt to run government like a business. He signed on as                                                                      
a co-sponsor because he thought the bill has great merit                                                                        
for accountability.                                                                                                             
Co-Chair Torgerson commented that this bill has broad                                                                           
language and doesn't only address the eight buildings                                                                           
currently proposed for inclusion in the program. Ms.                                                                            
McConnell replied that more buildings could be added later                                                                      
and that is the intent of the program. This simply creates                                                                      
the funding mechanism, she said.                                                                                                
Co-Chair Torgerson stressed that this legislation is much                                                                       
broader and could have larger impact than it appears. He                                                                        
compared the program to data processing, where each                                                                             
department is charged for the services but has no control                                                                       
in the matter.                                                                                                                  
Tape: SFC - 00 #17, Side B    9:51 AM                                                                                           
Co-Chair Torgerson ordered the bill HELD in Committee to                                                                        
await new fiscal notes.                                                                                                         
Senator Torgerson adjourned the meeting at 9:52 AM.                                                                             
SFC-00 (12) 02/01/00                                                                                                            

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