Legislature(1999 - 2000)

05/11/1999 03:30 PM Senate STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
            SENATE STATE AFFAIRS COMMITTEE                                                                                      
                     May 11, 1999                                                                                               
                      3:30 p.m.                                                                                                 
                                                                                                                                
MEMBERS PRESENT                                                                                                                 
                                                                                                                                
Senator Jerry Ward, Chairman                                                                                                    
Senator Lyda Green                                                                                                              
Senator Gary Wilken                                                                                                             
Senator Randy Phillips                                                                                                          
Senator Kim Elton                                                                                                               
                                                                                                                                
MEMBERS ABSENT                                                                                                                  
                                                                                                                                
None                                                                                                                            
                                                                                                                                
COMMITTEE CALENDAR                                                                                                              
                                                                                                                                
HOUSE BILL NO. 112                                                                                                              
"An Act establishing the Alaska public building fund; and providing                                                             
for an effective date."                                                                                                         
     -MOVED HB 112 OUT OF COMMITTEE                                                                                             
                                                                                                                                
PREVIOUS SENATE COMMITTEE ACTION                                                                                                
                                                                                                                                
HB 112 - No previous Senate action.                                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                                
                                                                                                                                
Representative Jeanette James                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Sponsor of HB 112                                                                                          
                                                                                                                                
Deputy Commissioner Alison Elgee                                                                                                
Department of Administration                                                                                                    
PO Box 110200                                                                                                                   
Juneau, AK  99801-0200                                                                                                          
POSITION STATEMENT:  Supports HB 112                                                                                            
                                                                                                                                
Keith Gerken                                                                                                                    
Division of General Services                                                                                                    
Department of Administration                                                                                                    
PO Box 110210                                                                                                                   
Juneau, AK  99801-0210                                                                                                          
POSITION STATEMENT:  Answered questions about HB 112                                                                            
                                                                                                                                
ACTION NARRATIVE                                                                                                                
                                                                                                                                
TAPE 99-15, SIDE A                                                                                                              
Number 001                                                                                                                      
                                                                                                                                
CHAIRMAN WARD called the Senate State Affairs Committee to order at                                                             
3:30 p.m.  Present were Senators Wilken, Green, Ward, and Elton.                                                                
The first order of business to come before the committee was HB
112.                                                                                                                            
                                                                                                                                
          HB 112-ESTABLISH ALASKA PUBLIC BUILDING FUND                                                                          
                                                                                                                                
REPRESENTATIVE JEANETTE JAMES, sponsor of HB 112, explained the                                                                 
legislation will establish the Alaska Public Building Fund as a                                                                 
special account in the general fund and create an agreement whereby                                                             
occupants of state owned buildings pay rent into this fund.  The                                                                
collected rent money will be held in the fund and appropriated by                                                               
the Legislature to pay management, operation, maintenance and                                                                   
depreciation costs.  One advantage to this approach, aside from                                                                 
depositing money needed for expenses into a special account, is                                                                 
that higher rents could be charged to federal agency occupants.                                                                 
Currently, federal funds cannot be collected for space costs unless                                                             
all building occupants are charged a rent program.  A second                                                                    
advantage is that some agencies may choose to use less space for                                                                
the sake of efficiency.  No additional allocation of funds should                                                               
occur should HB 112 be enacted.                                                                                                 
                                                                                                                                
CHAIRMAN WARD announced the arrival of Senator Phillips.                                                                        
                                                                                                                                
Number 53                                                                                                                       
                                                                                                                                
SENATOR ELTON noted the legislation does not mandate the                                                                        
Legislature to appropriate the collected funds for maintenance and                                                              
operation costs.  He asked whether the funds are dedicated to a                                                                 
special purpose.                                                                                                                
                                                                                                                                
REPRESENTATIVE JAMES stated the funds can only be dedicated if a                                                                
constitutional amendment is adopted, therefore the money will be                                                                
used at the discretion of the Legislature.  She added the advantage                                                             
of creating the fund is that money can be held in it from one year                                                              
to the next so that enough can accumulate to cover expensive                                                                    
repairs that do not occur annually.                                                                                             
                                                                                                                                
SENATOR ELTON said the bill walks a fine line because depositing                                                                
money into the fund is a discretionary action, however once the                                                                 
money has been deposited, the fund is basically dedicated if the                                                                
money can only be used for a specific purpose.                                                                                  
                                                                                                                                
CHAIRMAN WARD indicated similar funds have been created.                                                                        
                                                                                                                                
Number 93                                                                                                                       
                                                                                                                                
SENATOR WILKEN commended Representative James for bringing this                                                                 
legislation forward, and as Chair of the Department of                                                                          
Administration Finance Subcommittee, he noted he had discussions                                                                
with the Administration about this approach and supports it.                                                                    
                                                                                                                                
ALISON ELGEE, Deputy Commissioner of the Department of                                                                          
Administration (DOA), stated support for HB 112 for the reasons                                                                 
stated by the sponsor.  She noted the internal service concept                                                                  
provides DOA the ability to retain money from year to year,                                                                     
therefore it provides an incentive, from a budgetary standpoint, to                                                             
collect and retain the depreciation charge as a funding source for                                                              
renewal and replacement of buildings.  The failure to provide                                                                   
adequate renewal and replacement funds for major building                                                                       
components, such as roofs, through capital appropriations has                                                                   
created the deferred maintenance backlog.  While HB 112 will not                                                                
correct that backlog, it will allow the State to stay on an even                                                                
keel.  DOA also believes that putting the cost of maintenance and                                                               
operations at the program level will force program managers to look                                                             
at space as a monetary commodity and to make decisions based on                                                                 
efficiency.                                                                                                                     
                                                                                                                                
DEPUTY COMMISSIONER ELGEE explained, in response to Senator Elton's                                                             
question, that an internal service fund is not a dedicated fund in                                                              
that the Legislature could choose to appropriate the entire balance                                                             
from the fund into the general fund for any purpose.  If it were to                                                             
do so, however, the State would be required to repay the federal                                                                
government the portion of the monies deposited into the fund from                                                               
federally funded programs, because the money was not used for its                                                               
intended purpose.  During the budget process, the Legislature would                                                             
look at the space requirements of every program. Each program will                                                              
cover its own costs from its own funding source.  The rent money                                                                
collected will be deposited into the internal service fund and                                                                  
appropriated based on the Legislature's identification of building                                                              
maintenance costs and capital project costs.                                                                                    
                                                                                                                                
Number 148                                                                                                                      
                                                                                                                                
SENATOR ELTON asked if money could be deposited into this fund from                                                             
other sources.                                                                                                                  
                                                                                                                                
DEPUTY COMMISSIONER ELGEE indicated the same question came up in                                                                
the House Finance Committee.  She said Legislative Finance looked                                                               
at total spending this year and removed expenses that are                                                                       
duplicated.  Those expenses are interagency receipts, which are the                                                             
internal service fund operations, because the Legislature is                                                                    
essentially appropriating that money twice.  In developing the                                                                  
total budget picture, Legislative Finance removed those expenses so                                                             
that they do not get double counted when looking at the big                                                                     
picture.                                                                                                                        
                                                                                                                                
Number 164                                                                                                                      
                                                                                                                                
SENATOR WILKEN asked if the depreciation cost is set aside in a                                                                 
sinking fund.                                                                                                                   
                                                                                                                                
DEPUTY COMMISSIONER ELGEE explained the depreciation cost is a                                                                  
component of the actual per square foot rent rate.  When the rates                                                              
are developed, the federal government reviews and approves them.                                                                
The depreciation component is based on the useful life of each                                                                  
facility.  DOA has quite a bit of discretion in setting that rate;                                                              
it has already set depreciation schedules for most state buildings                                                              
at between 30 and 50 years.  As monies accrue in the internal                                                                   
service fund, DOA will determine the annual operating and                                                                       
maintenance costs and allow a differential to accrue to provide for                                                             
capital projects which do not occur every year.  The federal                                                                    
government does not require that a one-to-one correlation exist                                                                 
between where the depreciation dollar was generated and spent, in                                                               
recognition of the fact that capital project costs are not annual                                                               
and that the fund revolves to eventually repair all projects.  She                                                              
added that a majority of the states throughout the nation use this                                                              
approach to address building maintenance and operating costs.                                                                   
                                                                                                                                
Number 200                                                                                                                      
                                                                                                                                
SENATOR GREEN asked if DOA could charge a depreciation fee in its                                                               
leases without this type of legislation.                                                                                        
                                                                                                                                
DEPUTY COMMISSIONER ELGEE replied that at present, DOA charges a                                                                
fee to occupying agencies that are other funded.  The fees are                                                                  
represented in DOA's leasing budget as interagency receipts.  The                                                               
fees are directly billed to the federal government for federal                                                                  
programs.  However, in state owned buildings, the operating and                                                                 
maintenance costs are paid by the Department of Transportation and                                                              
Public Facilities (DOTPF) with general funds.  DOA could design a                                                               
rate structure for state owned buildings without an internal                                                                    
service fund in place, but it could not retain the depreciation                                                                 
amount for more than one year to pay for capital projects, and the                                                              
fund would never contain enough money in any one year to cover the                                                              
major building replacement needs.                                                                                               
                                                                                                                                
SENATOR GREEN asked why HB 112 would make that possible.                                                                        
                                                                                                                                
DEPUTY COMMISSIONER ELGEE said the funds can be held over from one                                                              
year to the next in the fund established in HB 112.  She explained                                                              
the internal service fund allows DOA to have a revolving fund in                                                                
which funds, not appropriated by the Legislature for other                                                                      
purposes, could be retained and allowed to accumulate.  Under                                                                   
federal rules,  funds can accumulate for a specific period of time.                                                             
If the funds are not used for their intended purpose within that                                                                
time period, the federal government would expect to be repaid.  If                                                              
an ongoing maintenance program exists so that the federal                                                                       
government is assured that the money is being used for maintenance                                                              
and operations of all buildings, it would not expect repayment.  If                                                             
DOA allowed the fund to build up over five years and did not                                                                    
appropriate any of the funds for capital purposes, the federal                                                                  
government might question the retention of those funds.                                                                         
                                                                                                                                
SENATOR GREEN asked if the federal government is involved because                                                               
its agencies are tenants.                                                                                                       
                                                                                                                                
DEPUTY COMMISSIONER ELGEE said that is correct.  She noted two                                                                  
other internal service funds currently exist:  the Highway Working                                                              
Capital Fund and the Information Technology Fund.  Both funds work                                                              
in a manner similar to the fund proposed in HB 112.                                                                             
                                                                                                                                
Number 246                                                                                                                      
                                                                                                                                
SENATOR ELTON asked if DOA has a working agreement with DOTPF                                                                   
regarding the responsibilities of each department in relation to                                                                
leasing state owned buildings and the internal service fund.                                                                    
                                                                                                                                
DEPUTY COMMISSIONER ELGEE replied DOTPF is very interested in                                                                   
working with DOA on HB 112.  DOTPF helped develop the proposal and                                                              
Commissioner Perkins would like nothing better than to have more of                                                             
the building responsibilities shifted to DOA.  DOA anticipates                                                                  
signing a memorandum of understanding with DOTPF, so that money                                                                 
from the fund would be appropriated directly to DOTPF to cover its                                                              
maintenance and operating costs to the degree that those expenses                                                               
remain with DOTPF.  DOA sees merit in consolidating building                                                                    
management functions of leased or state owned buildings under one                                                               
roof.                                                                                                                           
                                                                                                                                
SENATOR ELTON asked Deputy Commissioner Elgee if she envisions both                                                             
DOA and DOTPF making deposits into the internal service fund and                                                                
both being able to withdraw money from the fund for maintenance and                                                             
operating costs.                                                                                                                
                                                                                                                                
DEPUTY COMMISSIONER ELGEE said that is correct although any                                                                     
withdrawals would be based on a legislative appropriation; DOA and                                                              
DOTPF could not directly access the fund to withdraw money.                                                                     
                                                                                                                                
Number 281                                                                                                                      
                                                                                                                                
SENATOR GREEN asked whether DOA has projected the amount of money                                                               
deposited into the fund each year.                                                                                              
                                                                                                                                
DEPUTY COMMISSIONER ELGEE told committee members that DOA has                                                                   
looked at the largest office buildings throughout the state: the                                                                
State Office Building, the Alaska Office Building, and the Court                                                                
Plaza in Juneau; the Bank of America Building in Anchorage; and the                                                             
Fairbanks Regional Office Building in Fairbanks.  DOA developed per                                                             
square foot costs for useable space and it worked with the federal                                                              
government on rate approval.  DOA could present in the FY 01 budget                                                             
this kind of rental approach for these office buildings if HB 112                                                               
is enacted.  DOA's per square foot costs are reasonable compared to                                                             
the retail market rate.  While the fund will not meet 100 percent                                                               
of the building maintenance and operating costs, it will improve                                                                
the State's current position.  Lease costs for the Fairbanks                                                                    
Regional Office Building are estimated at $1.51 per square foot                                                                 
(with depreciation); the State Office Building rate would be 89                                                                 
cents per square foot.  She noted the Juneau retail space market                                                                
rate is $2 per square foot; the Fairbanks market rate for retail                                                                
space is over $2 per square foot.                                                                                               
                                                                                                                                
CHAIRMAN WARD asked what the total square footage is, statewide.                                                                
                                                                                                                                
DEPUTY COMMISSIONER ELGEE replied she does not know the total                                                                   
square foot amount, however the Bank of America building, Fairbanks                                                             
Regional Office Building, State and Alaska Office Buildings, Public                                                             
Safety Building and Fish and Game Building in Juneau contain                                                                    
575,289 useable square feet.                                                                                                    
                                                                                                                                
SENATOR ELTON asked how these rates compare to the rate charged by                                                              
the previous owners of the Bank of America building.                                                                            
                                                                                                                                
Number 343                                                                                                                      
                                                                                                                                
KEITH GERKEN, Department of Administration, said the average lease                                                              
cost is just under $2 per square foot.                                                                                          
                                                                                                                                
SENATOR ELTON asked how much of that amount is for building and                                                                 
depreciation costs.                                                                                                             
                                                                                                                                
MR. GERKEN replied the State inherited the leases when it bought                                                                
the building.  Those leases were originally based on whatever the                                                               
market could bare.  He stated the rents are collected by AHFC and                                                               
deposited into a fund to maintain the building, therefore DOA has                                                               
no direct breakdown of how the funds are spent.  He estimated                                                                   
maintenance costs to be about 75 cents per square foot.                                                                         
                                                                                                                                
CHAIRMAN WARD questioned whether the building, now under state                                                                  
ownership, is property tax exempt, and whether that affected the                                                                
price of current leases.                                                                                                        
                                                                                                                                
MR. GERKEN answered the statute that authorized DOA to purchase the                                                             
building requires the State to pay property taxes to the                                                                        
municipality in proportion to the private tenant occupancy of the                                                               
building.  As the private tenant occupancy decreases, so will                                                                   
property taxes.                                                                                                                 
                                                                                                                                
CHAIRMAN WARD asked what amount of the assumed leases is applied                                                                
toward maintenance costs.                                                                                                       
                                                                                                                                
MR. GERKEN said all rent checks are deposited into AHFC's bank                                                                  
account.  DOA can draw upon those funds for maintenance costs.  He                                                              
repeated that the total maintenance costs for the building are                                                                  
about 75 cents per square foot.  He added that the number of                                                                    
private tenants has been reduced by about one-half over the past 20                                                             
months of state ownership.                                                                                                      
                                                                                                                                
CHAIRMAN WARD asked Mr. Gerken if he could provide the total square                                                             
footage of state owned buildings.                                                                                               
                                                                                                                                
MR. GERKEN could not but thought DOTPF office space statewide                                                                   
equals about 1+ million square feet.                                                                                            
                                                                                                                                
Number 385                                                                                                                      
                                                                                                                                
SENATOR GREEN asked Mr. Gerken his definition of maintenance costs,                                                             
given the 75 cent per square foot estimate.                                                                                     
                                                                                                                                
MR. GERKEN said the 75 cents includes maintenance and operating                                                                 
costs, such as utilities, janitorial services, snowplowing, and                                                                 
window washing.  He added the maintenance costs comprise less than                                                              
one-half of the 75 cents.                                                                                                       
                                                                                                                                
CHAIRMAN WARD said in all of the leases he is aware of, a                                                                       
percentage is set aside for capital improvements.                                                                               
                                                                                                                                
MR. GERKEN agreed with Chairman Ward and said most leases account                                                               
for a sinking fund for depreciation of inevitable costs.  He felt                                                               
that is one of the missing ingredients in state management of its                                                               
buildings.  He noted HB 112 would correct that.                                                                                 
                                                                                                                                
SENATOR PHILLIPS questioned whether any problems have occurred in                                                               
the transition to state ownership of the Bank of America building.                                                              
                                                                                                                                
MR. GERKEN said DOA is getting there and has learned a lot.                                                                     
                                                                                                                                
Number 418                                                                                                                      
                                                                                                                                
SENATOR GREEN asked if this proposal implies there will be an                                                                   
additional fee charged to tenants, or whether the same rent will be                                                             
charged but part of it will be designated for the internal service                                                              
fund.                                                                                                                           
                                                                                                                                
MR. GERKEN said HB 112 has nothing to do with numbers, it simply                                                                
establishes a fund so that in a future budget, DOA can come forward                                                             
with a rental proposal.  DOA intends to put all rents into the fund                                                             
to pay for operational and maintenance costs and minor capital                                                                  
improvements.                                                                                                                   
                                                                                                                                
SENATOR GREEN asked what the difference is between the scenario                                                                 
described by Mr. Gerken and current practice.                                                                                   
                                                                                                                                
MR. GERKEN said right now DOA must request money in the capital                                                                 
budget for building repairs.  Those projects do not compete well                                                                
with projects of an emergency nature and there is no systematic way                                                             
to deal with building repair expenses.                                                                                          
                                                                                                                                
Number 434                                                                                                                      
                                                                                                                                
SENATOR GREEN asked where the current rent money is deposited.                                                                  
                                                                                                                                
DEPUTY COMMISSIONER ELGEE replied right now the Legislature                                                                     
directly appropriates money to DOTPF in a lump sum for building                                                                 
maintenance.  That budget has suffered cuts like all budgets, which                                                             
has increased the deferred maintenance backlog.  She explained that                                                             
if HB 112 passes, DOA would look at the general fund cost for                                                                   
individual state agencies or federal cost for federal programs, and                                                             
each program would get a bill for rent.  Those agencies currently                                                               
occupy the space at no cost and depend on whatever DOTPF can                                                                    
provide for operation and maintenance.                                                                                          
                                                                                                                                
There being no further questions, SENATOR WILKEN moved HB 112 from                                                              
committee with individual recommendations and its accompanying                                                                  
fiscal note.  There being no objection, the motion carried.                                                                     
                                                                                                                                
There being no further business to come before the committee,                                                                   
CHAIRMAN WARD adjourned the meeting at 4:04 p.m.                                                                                

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