Legislature(1997 - 1998)
03/25/1997 09:03 AM Senate FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SB 34 DOT MAINTENANCE FACILITY AT SOLDOTNA
SENATOR TORGERSON, Sponsor, testified on behalf of SB
34. Testimony was also heard from NANCY SLAGLE, MAYOR
KEN LANCASTER and FORREST BROWNE. SENATOR ADAMS MOVED
Amendment #1. Without objection, Amendment #1 was
ADOPTED. SB 34, as amended, was HELD for further
consideration.
SENATE BILL NO. 126
"An Act relating to the retirement incentive program for
state employees; and providing for an effective date."
SENATOR TORGERSON, Sponsor, explained SB 34 was a
straightforward lease-purchase agreement with the City of
Soldotna to finance and construct a Department of
Transportation and Public Facilities maintenance facility.
The current facility would be moved off the present location
on the Kenai River. It has been a top priority for the city
for a number of years. The bill originally started out with
$6 million for the cost of the facility. Amendments in the
Transportation Committee reduced the amount to $4.5 million
with the lease payment obligation at $620 thousand per year.
SENATOR ADAMS inquired where the project was on the DOTPF
capital budget priority list.
NANCY SLAGLE, Director, Administrative Services, DOTPF,
testified in support of SB 34. She explained that the
department had requested direct funding for the facility for
the past 2-3 years. Some appropriations were provided for
remediation, design and preliminary work. It was felt SB 34
was the most appropriate method to obtain funding for
construction of the facility at this time. The project, as
well as the removal and clean-up of the old site, was
supported by the governor, but there was limited money
available because of budget constraints. She noted that
representatives from the Department of Revenue were present
to explain that they have been assured by the state's bond
counsel that the clean-up portion can be included in the
financing package, as long as there is a tie to the
exchange of the new land expected from the borough.
SENATOR TORGERSON elaborated on the land issue. In 1964,
when the borough was created, they selected a piece of DOTPF
land for the borough building. It has been on the books
since then, to be traded back to DOTPF when requested. It
surfaced as part of the agreement to move the site. The
borough has made land available to the state for the
facility just outside Soldotna and are prepared to deed the
land over to the state. There had been some discussion
about whether or not to include approximately $1.5 million
for clean-up of the contaminated maintenance yard site. The
City of Soldotna has indicated they would go either way, but
preferred not to sell revenue bonds to finance the clean-up.
MAYOR KEN LANCASTER, City of Soldotna, testified via
teleconference. He stated that it has been the city's
number one priority to move the facility off the banks of
the Kenai River. They are prepared to go to bond to build
the new facility. It had been their prior understanding
that the clean-up would be a separate item but they could go
either way. They just want the facility moved as
expeditiously as possible to protect the river.
SENATOR TORGERSON brought up a previous appropriation of
$600 thousand for clean-up, $400 thousand of which has been
spent. He noted it was an ongoing process. It was
difficult to tell how much it would cost and what the
definition of clean was. He stated the department estimated
a lower figure of $250 thousand, but no upper limit had been
established. It was dependent on what they might find. He
was uncertain if the clean-up should be included, possibly
clouding the title, particularly with the City of Soldotna
being the lead agency. He referred to a budgetary item
included by the governor last year of $1 million, one-fifth
of the project, and it was traded off for $600 thousand for
additional clean-up.
MAYOR LANCASTER added that it seemed strange to try to
inflate the cost of a new facility by $1.5 million, when it
(the clean-up) was actually occurring on another site. So
instead of the facility only costing $4.5 million, it makes
it worth $6 million. It did not make economic sense to him.
COCHAIR SHARP invited Mr. Browne to discuss the nature of
the fiscal note and proposed lease.
FORREST BROWNE, Investment Officer, Department of Revenue,
addressed the committee. The administration had suggested
several technical changes to the proposed legislation that
would minimize the cost of issuance of the financing. It
would also give more flexibility in terms of refinancing.
Their experience has been that typically, over the term of
the lease, it gets refinanced two to three times when
interest rates dip. So they have aggressively pursued
refinancing any time they can save money on the lease
payments. They had recommendations in three areas.
The first area would clarify that the state bond committee
would coordinate the financing. It is state debt, it will
affect the state debt capacity, it will be rated as a state
debt by the national bond rating services and it would be
appropriate to be involved in that process. A second
suggestion was to eliminate the requirement that the City of
Soldotna be the nominal issuer of the debt. If there is
flexibility in that regard, it could be structured that way,
but in the event it could be combined with another financing
coming along at the same time, they might wish to do that.
As written, the bill specifies they must use the City of
Soldotna, and having the flexibility could save over the
long term. The third suggestion was to clarify that both
the facility and land will be owned by the state at the end
of the lease term. It was suggested in discussion earlier,
however the bill speaks only to the facility being owned.
They had found in previous situations that it became a
controversy as to who actually owns the land. Summarizing,
MR. BROWNE believed the changes would minimize the cost of
issuance by eliminating duplicate costs at the city and
state level for things such as bond counsel, financial
consultants and advisors, etc. The changes will also allow
the state flexibility to package the debt issuance with any
others they might have. The financial markets respond well
to the larger packages, enabling more competitive bids and
lower interest rates. The changes would also allow the
state to expeditiously refinance when interest rates dip.
He cited a $1.5 million potential interest savings on
refinancing of the Spring Creek Correctional facility.
SENATOR PHILLIPS inquired if the three suggestions outlined
were made in the Transportation Committee. MR. BROWNE
responded that they had discussed them but the feeling was
that because they were financially oriented, they would be
best discussed in the Finance Committee.
SENATOR ADAMS noted that lines 11-12 stated the state would
own the facility and questioned Mr. Browne's concern. MR.
BROWNE explained that his suggestion was to insert the words
"and the land" after "facility." He added, "There has been
confusion in lease-purchase transactions in the future where
a city has claimed ownership of the land at the end of the
term and then the state has to either buy it or renegotiate
a lease." He believed it was the intent of the sponsor that
the state would own the land when the debt was paid off.
SENATOR TORGERSON had no problem with the proposal to
include land. He had additional comments about the clean-
up. The land transfer that the borough owes the DOTPF for
the borough building land is supposed to be an appraisal
saying they owe x number of dollars, then divide it by the
assessed valuation of other acreage. What the borough is
proposing for the clean-up is to increase the amount of
acreage on the trade to give the bond counsel the feeling
that they will secure the additional money with the land and
tie it all into one facility. It went from early discussion
of about fifteen acres for a DOTPF site to forty-eight
acres. When the appraised value and number of acres are
divided out by $6 million, "it doesn't pencil anywhere." He
believed that was what the mayor was referring to.
With respect to the state bond counsel, SENATOR TORGERSON
stated that every purchase agreement he'd been involved in,
the cities have always wanted to have this authority and not
turn it over to the state. He referred to Palmer, Seward
and Kenai as lead agencies. He objected to adding the state
bond counsel and removing the city as the lead agency.
SENATOR ADAMS MOVED Amendment #1, to insert "and land" after
"facility" on page 1, line 11. SENATOR PARNELL stated for
clarification that by adopting the amendment the state would
take responsibility for environmental clean-up. SENATOR
TORGERSON had no objection to adding the language, but was
uncertain what the amount of acreage would be. He opposed
adding the clean-up to the bond proposition because it was a
state responsibility and may end up as a super clean-up
site. To request the city to bond for clean-up is "above
and beyond the call of duty of this municipality."
SENATOR PHILLIPS asked if the state was refusing to pay for
the clean-up. SENATOR TORGERSON said they didn't know a
number either, it just happened to be a convenient way to
finance the entire thing.
COCHAIR SHARP asked if the city had the capability to issue
tax-exempt bonds, or would the state's bonds qualify as tax-
exempt. MR. BROWNE responded that they both have the
ability. The city would not be on the debt, their credit
would not carry the debt. It is clearly state debt, which
was why they recommended the state be involved in the
process.
COCHAIR SHARP asked if there was any objection to Amendment
COCHAIR SHARP stated his intention to hold SB 34 along with
the Public Health Lab bill (SB 51), see where the capital
budget figure was in a couple weeks and what options would
be available at that time. And so, SB 34, as amended, was
HELD for further consideration.
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