Legislature(1997 - 1998)
02/12/1997 09:45 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
February 12, 1997
9:45 A.M.
TAPES
SFC-97, # 34, Side 1 (000-590)
Side 2 (590-428)
CALL TO ORDER
Senator Bert Sharp, Co-chair, convened the meeting at
approximately 9:45 A.M.
PRESENT
In addition to Co-chair Sharp, Co-chair Pearce, Senators
Torgerson, Phillips and Adams were present when the meeting
was convened. Senators Parnell and Donley arrived as the
meeting was in progress.
Also Attending:
Gregory Hayes, Chief, Public Health Laboratories, Department
of Health and Social Services; Tom Lane, Juneau Facilities
Manager, DHSS; Michael Propst, MD, Medical Examiner, DHSS;
Elmer Lindstrom, Special Assistant, Office of the
Commissioner, DHSS; Forrest Browne, Debt Manager, Treasury
Division, Department of Revenue; Tim Benintendi, Legislative
Aide to Senator Kelly; and aides to committee members.
SUMMARY INFORMATION
SB 51 APPROVE CENTRALIZED PUBLIC HEALTH LAB
Testimony was presented by Gregory Hayes and Tom Lane.
Michael Propst, Forrest Browne, Tim Benintendi and Elmer
Lindstrom addressed various questions posed by committee
members. SB 51 was held in committee.
SENATE BILL NO. 51
"An Act giving notice of and approving the entry into, and
the issuance of certificates of participation in, a
lease-purchase agreement for a centralized public health
laboratory facility."
GREGORY HAYES, Chief, Public Health Laboratories, DHSS,
testified before the committee. He gave a brief description
of his education and background in public health lab
management, then began his presentation for a new
consolidated public health laboratory facility. (The
presentation closely tracked a handout before the committee
and on file.) The facility would be located in Anchorage
and would include the functions of the Juneau and Anchorage
labs as well as the Medical Examiner's laboratory. Design
and construction costs would be paid through debt financing
through the sale of certificates of participation/lease-
purchase financing. The services of the state public health
labs are unique. They are directed toward prevention and
control of disease and therefore differ from clinical labs
directed at individual patient care. The focus is on
communicable disease testing and advanced testing for
infection agents not routinely performed in the private
sector. Mr. Hayes gave examples of how the labs have
benefited the public in recent years by helping to quickly
establish the cause of epidemic outbreaks in the state.
They also monitor tuberculosis outbreaks and are the only
laboratory in the state which performs specialized rabies
testing. He continued by describing their mission to
provide scientific and technical information for disease
prevention, noting they are the state's first line of
defense in recognizing and controlling the spread of
communicable diseases. Additional functions and
responsibilities were listed.
Mr. Hayes next addressed the issue of privatization. All
fifty states and U. S. territories have public health
laboratories, none of which have been privatized because the
service they provide is inherently public. He listed
criteria commonly used by state governments in determining
whether privatization is appropriate, concluding that none
of the criteria for privatization fit the state public
health laboratories.
The presence of Senators Donley and Parnell was noted.
Mr. Hayes told the committee why a new laboratory was
necessary. Two facilities are in urgent need of repair,
having mechanical and structural inadequacies for conducting
laboratory testing. They are on leased space, have poor
layouts and space limitations for future growth. The Juneau
and Anchorage labs were constructed as office space and
currently have major health and safety concerns such as
inadequate ventilation systems for working with infectious
organisms, inadequate electrical wiring, heating system
failures, flooding from burst pipes. Another reason for a
new lab would be as a permanent location for the Medical
Examiner. That office is temporarily occupying space at the
Department of Public Safety's Crime Detection Laboratory and
they need the space to develop a DNA analysis laboratory.
Money could be saved by not having to invest unrecoverable
money to repair existing facilities and by consolidating so
that staff functions are not duplicated at multiple
locations. Problems resolved by building a new lab include
fragmentation of services, reduced efficiency, problems
associated with leased and temporary space that is not
designed for current operations, and the expense of
operating four separate laboratories. Mr. Hayes elaborated
on the inadequacies of the four existing labs located in
Fairbanks, Anchorage and Juneau. He noted that the
department has a long history of analyzing the needs and
reviewing the alternatives. Fourteen studies since 1985
have looked at the issue and support construction of a new
facility.
Mr. Hayes addressed the fiscal aspects. During the first
year of occupation the new lab would save the state
approximately $293,000 ($218,000 in personnel and lease
costs from DHSS, $75,000 in lease costs for DOA). The cost
of the new facility is estimated at $18.4 million. Annual
payments would be approximately $2.4 million for ten years,
with a total estimated debt of $24.9 million. Costs from
last year's proposal have been adjusted for inflation and
the assumption of coroner responsibilities by the Medical
Examiner's program. He pointed out the importance that the
Medical Examiner's lab be near the DPS Crime Detection lab
because of their close operations so alternatives for state-
owned land are being considered adjacent to the crime lab.
He referenced an overview photograph of the site and urged
the committee's support for the project.
TOM LANE, Juneau Facilities Manager, Department of Health
and Social Services; spoke to a query by Senator Phillips as
to whether a firm decision had been made regarding the site,
which is currently the DOT maintenance shop. He said they
were working with DOTPF and DMVA and they were fairly
committed to provide a site at that location. He confirmed
that the site is on state-owned land.
Senator Adams stated his understanding that centralizing
meant to bring all four labs into one according to last
year's discussion. He asked why the Fairbanks lab was left
out and inquired about the cost saving if it were
consolidated. Mr. Hayes testified that the bill was
modified in the Senate last year to leave Fairbanks out of
the project, and they reintroduced the same bill. He
indicated the current savings of $293,000 would increase to
approximately $800,000 by bringing Fairbanks into the
project.
Senator Adams asked what cost analysis had been done on
privatizing the labs. Mr. Hayes said some studies have been
done but there were no functions being done that would be
amenable to privatization, although they constantly look at
activities that can be performed in the private sector, and
privatize those that can, such as newborn screening and
blood lead screening.
Senator Adams clarified that the language in the bill allows
everything to be centralized. Fairbanks could be included
and the state would save $800,000 versus $293,000. Mr.
Hayes informed the committee that there was not enough
money, that the project had been cut so that instead of
their original request for a centralized lab only a
consolidated lab could be built.
Co-chair Pearce expressed support for a new consolidated
lab, but was concerned with high lease costs. She asked the
square footage of the new building. Mr. Hayes replied that
it was approximately 23,000 square feet, including the
Medical Examiner's program with coroner's responsibilities
which accounts for a big portion of the space. Co-chair
Pearce compared that to current footage of combined existing
facilities (5485 sq. ft. in Anchorage, 4460 sq. ft. in
Juneau, approximately 2000 sq. ft. for the leased Medical
Examiner space) and pointed out that the size was being
doubled. Mr. Lane explained that the existing space was
inadequate and they needed more space to bring the lab up to
a higher standard. They figured on a 70% net-to-gross
factor in computing space and that the actual comparison
would be more like 25% to 30% It was noted that training
space was also being planned.
Co-chair Pearce next inquired who came up with the $18
million figure and how it was decided how much should be
paid per square foot. Mr. Lane replied that the figure was
a compromise from last year's bill with an inflation factor
added for this year and an additional component for the
coroner functions being taken over by the Medical Examiner.
Through a study, cost estimators produced the estimate,
which includes all equipment. Co-chair Pearce noted the
cost was about $800 per square foot. She requested the cost
estimate information.
Senator Torgerson inquired about maintenance costs of the
new facility. Mr. Lane responded that costs included are
equivalent to the level of existing facilities. Long-term
maintenance estimates over the life of the building were not
made. Senator Torgerson stated a need for a DOTPF fiscal
note regarding maintenance costs.
Senator Torgerson next questioned the cost savings related
to the bond payments of $2.3 million and the correlation to
current rental payments. Mr. Lane explained that the bond
payments are higher under ten-year financing but it matches
the "Prudhoe Bay curve" relating to timing of financing.
Senator Torgerson requested a comparison of lease payments
on a thirty-year financing.
Senator Phillips confirmed the intent that personnel would
move from one location to another under the consolidation.
He asked if there was a difference between the standards and
the mission and which drove which. Mr. Hayes informed the
committee that the square footage estimates were arrived at
by the Anchorage architectural firm, Livingston Sloane. Mr.
Hayes interjected that there are national architectural
standards for laboratories.
MICHAEL PROPST, MD, Medical Examiner, Department of Health
and Social Services, further explained that the National
Association of Medical Examiners has minimal standards for
facilities that they will accredit. It was his goal to
obtain that accreditation and it was their standards that he
gave to the architectural firm to determine the square
footage needs. Responding to another query by Senator
Phillips, Mr. Propst acknowledged that his office is not
currently accredited. He had not sought accreditation
because the space is only temporary.
TIM BENINTENDI, Legislative Aide to Senator Kelly, sponsor
of SB 51, addressed the committee regarding state building
codes and federal OSHA codes. He noted that one of the
existing facilities has had violations.
Senator Phillips wanted to know how the total square footage
was arrived at. Mr. Lane offered to produce a preliminary
list of the types of spaces that would be needed, some of
which were based on national standards. Senator Phillips
recalled the Anchorage courthouse which was a fine facility
except that it didn't have a lunchroom for the jurors. He
wanted to know up front what was being proposed before he
okayed it. He expressed disbelief that DOTPF was willing to
give up their site for the maintenance shop. Mr. Lane
responded that they were willing based on finding equivalent
space for equipment parking and a storage shed.
In response to a question by Co-chair Sharp, Mr. Lane
explained that the original bill last year had a $19.2
million request that was downsized to $16.4 million, then
adjusted upward this year. Co-chair Sharp questioned why
there was less annual cost for more investment cost. Mr.
Lane explained it was because of ten-year financing instead
of eight-year financing proposed last year. It has to do
with a change in the perception of the Prudhoe Bay curve.
The total financed cost is increased but the annual payments
are lower. Co-chair Sharp voiced concern that there would
be no savings with an increase of $2.1 million per year in
operating costs from the general fund for ten years. He
also requested that the committee receive a breakdown
comparing existing square footage with what will replace it.
Co-chair Sharp referred to a previous statement about
studies that showed there were no functions that would be
amenable to privatization. He asked if the studies were
based on economics or the delicateness of the mission. Mr.
Lane responded that he would have to investigate because it
was before his time with the department.
Senator Adams asked what the present construction costs per
square foot were. Mr. Lane answered that they were
approximately $500 per square foot for the building, the
additional costs include equipment and design fees. Senator
Adams asked how that compared with a leased Anchorage office
building. Mr. Lane responded that an office building would
be considerably cheaper. Last year they analyzed costs for
comparable facilities and found they were within the
"ballpark." Special utilities, water lines, gas lines and
ventilation systems, cold rooms and warm rooms are needed
which make laboratories an expensive endeavor.
Senator Parnell asked if the difference of $300 per square
foot was for the special features the lab requires. Mr.
Hayes replied that it includes design, equipment, project
management. New equipment would be a big portion of that
amount. Senator Parnell asked if current equipment would be
used. Mr. Hayes said it would be used as much as possible,
but there would be some equipment built into the new
facility. There was additional discussion about the value
attributed to the building. Mr. Lane said their original
financial analysis done in 1994 was a consortium involving
Livingston Sloane of Anchorage and Coopers Lybrand of New
York. Senator Parnell asked for a copy of the report.
End SFC-97 #34, Side 1 (000-590)
Begin SFC-97 #34, Side 2 (590)
Mr. Lane continued by describing the three options that were
looked at: the status quo, the consolidated option being
proposed now, and the fully centralized option. He noted
the numbers have changed considerably and the analysis did
not include the Medical Examiner's lab.
Senator Torgerson inquired if part of the consideration for
the new facility had anything to do with capturing
additional federal funds, making themselves more efficient
so that they could bill the private sector, or increasing
any other receipts they might get for their operations. Mr.
Hayes responded that they get very little federal funds,
some for the TB and STD programs, but none for construction
purposes.
Senator Donley asked if there were any local government
health labs in the state. Mr. Hayes replied that there were
some laboratory activities at the Municipality of Anchorage
and they work closely with them, but they don't do much lab
work.
Co-chair Sharp brought attention to a fiscal note that shows
a flat projection of the lease costs and asked if there was
no anticipation of CPI adjustments to the lease costs. He
noted they adjusted for CPI on the savings but not on the
expenses. He then asked if no services would be required in
the ten year lease period.
FORREST BROWNE, Debt Manager, Treasury Division, Department
of Revenue, addressed the committee on this issue. He
stated that the department was looking at it as a financing
lease rather than an operating lease. The state would
borrow the money for construction and the lease would be
subject to annual appropriations. The financing is
structured as a lease, but in reality it is a form of state
debt. They felt they would get a fixed-rate interest for
the ten year term and used current rates in one of the
schedules. In another, he added 75 basis points, figuring
that interest rates could fluctuate within the year, before
funding is approved.
Co-chair Sharp asked who would own the building during the
ten year lease period. Mr. Browne explained that a trustee
would own the facility and hold it as a security interest
for the bondholders. The trustee distributes the principal
and interest payments to them. The state assumes ownership
of the building at the end of ten years, free of
obligations. Because it is a financing lease, it does not
have any cost of living adjustments, it is fixed-rate for
the term negotiated. Co-chair Sharp had concerns about
maintenance and operation costs for the first ten years.
Senator Torgerson asked how many other state projects are
funded this way. Mr. Browne replied there were a half-dozen
including a couple courthouse facilities.
Co-chair Sharp asked if the leases on the existing labs were
amenable to termination synchronistic with a new lab. Mr.
Lane answered that the leases were year by year, and one was
on a monthly basis. Co-chair Sharp asked if this project
was included in the governor's capital budget.
ELMER LINDSTROM, Special Assistant, Office of the
Commissioner, Department of Health and Social Services,
explained to the committee that no FY98 capital funds were
contemplated at this point. There would be no repayment on
the bonds until FY99. The legislation would be the
authorization that allowed issuance of the debt. In FY99,
it would appear in the front section of the operating budget
along with other projects in debt service.
Co-chair Sharp reiterated his opinion that this would be a
major capital item that obligates the state for $24 million.
Mr. Lindstrom added that the project is contemplated in the
governor's six-year capital plan which is essential for the
debt financing.
Senator Adams inquired if consideration had been given to
the Bank of America building the state is looking at for
lease purchase. He said it could be a "one-stop shop."
Mr. Lane responded that they are trying to avoid office
buildings in general because that is part of the problem
they are dealing with currently. He added that one of the
reasons they were able to go along with maintaining the
Fairbanks laboratory was because that building was built as
a laboratory.
Senator Phillips asked what fees were charged to use the lab
facilities. Mr. Hayes responded that they have fees for
services which are somewhat less than medicaid rate, plus
there are various exemptions.
Senator Parnell asked what other states have built public
health labs in the last ten years. Mr. Hayes listed Hawaii,
Tennessee, Georgia, Indiana, Texas and Florida.
Co-chair Sharp announced that he wanted to examine the
legislation to see how it fits in with the five-year fiscal
plan. He brought up a proposed amendment that would bring
the annual charges in sync with the total estimated cost and
asked if it was a proposal suggested by the agency. Mr.
Browne explained that if interest rates remain the same one
year from now, they could stay within the limits established
in the proposed bill. Their concern is with the volatility
of interest rates over the past twelve months that have seen
changes of about 75 basis points. It was his suggestion
that the committee consider setting a maximum limit on the
construction and financing amount but allow some flexibility
if interest rates go up in the next year, otherwise it would
not allow them to go forward because the payment would be
higher than what is proposed.
Co-chair Sharp called for additional questions or comments.
There being none, he adjourned the meeting. SB 51 was HELD
in committee.
ADJOURNMENT
The meeting was adjourned at approximately 10:47 A.M.
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