05/06/2005 09:00 AM Senate FINANCE

                                                                                                                                
     CS FOR SENATE BILL NO. 73(HES)                                                                                             
     "An  Act  relating  to  a  lease-purchase   agreement  for  the                                                            
     construction,  equipping,  and financing  of  a state  virology                                                            
     laboratory  in Fairbanks  to be operated  by the Department  of                                                            
     Health  and  Social  Services;  relating  to  the  issuance  of                                                            
     certificates  of participation for the laboratory;  relating to                                                            
     the use of  certain investment income for certain  construction                                                            
     and equipment  costs for the  laboratory; and providing  for an                                                            
     effective date."                                                                                                           
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Green  noted that this legislation,  which was proposed  by                                                            
Governor  Frank Murkowski,  would  further  action  on the  virology                                                            
laboratory and its related  certificates of participation. She asked                                                            
that an explanation of  the term Certificates of Participation (COP)                                                            
be provided.                                                                                                                    
                                                                                                                                
RICHARD  MANDSAGER,  M.D.,  Director,  Division  of  Public  Health,                                                            
Department of Health and  Social Services, referred the Committee to                                                            
a handout titled "Public  Health Protecting and Promoting the Health                                                            
of All Alaskans CSSB 73(HES):  Construction of a State Public Health                                                            
Virology Laboratory in  Fairbanks" [copy on file] and explained that                                                            
the term virology is defined  as the study of viruses. This proposal                                                            
would be to  construct a virology  laboratory in Fairbanks  in which                                                            
to  identify  common  things  such  as  influenza  and  measles.  In                                                            
addition,  research regarding  uncommon viruses  such as rabies  and                                                            
hepatitis would also be  conducted. The importance of having such an                                                            
"up-to-date" laboratory  would be to allow the State  to prepare for                                                            
new viruses that have been  appearing elsewhere in the world such as                                                            
the Avian  Flu, which  is also  referred  to as the  bird flu.  This                                                            
virus, which  is occurring in Southeast  Asia, is being transmitted                                                             
from birds to humans and  currently has a 70-percent mortality rate.                                                            
The  worldwide public  health  field is  concerned  that this  virus                                                            
might mutate and "become  transmissionable human to human. This is a                                                            
very   bad   disease."   The  State   must   possess   an   advanced                                                            
identification  ability  that could  be linked to  an isolation  and                                                            
quarantine  process. It would  be important  to be able to  identify                                                            
whether a person  arriving via airplane  from Southeast Asia  who is                                                            
sick has the common flu or something worse.                                                                                     
                                                                                                                                
Dr. Mandsager  noted that the aforementioned  handout also  contains                                                            
pictures of  the current Fairbanks  virology laboratory.  The people                                                            
who work there  are handling "very  bad viruses" as well  as dealing                                                            
with  such  things   as  the  release  of  "man-made   things".  The                                                            
laboratory  facility  must  meet a  basic  laboratory  three  (BSL3)                                                            
level.                                                                                                                          
                                                                                                                                
9:59:17 AM                                                                                                                    
                                                                                                                                
Dr. Mandsager noted that  there are 25 BSL3 labs, two BSL4 labs, and                                                            
one BSL 4+  lab currently operating  in the United States.  Although                                                            
the existing  laboratory in Fairbanks  operates at a level  of a BSL                                                            
3, it  does  not meet  the applicable  standards.  This legislation                                                             
would allow the State to  meet those standards and be positioned for                                                            
the needs of the future.                                                                                                        
                                                                                                                                
Dr. Mandsager  voiced that, while  Fairbanks would be the  preferred                                                            
location, as  it would allow the laboratory  to work in partnership                                                             
with  the University  and  further their  research  missions,  other                                                            
locations in the  State would be acceptable. Having  the facility in                                                            
Fairbanks  would  also  provide  a redundancy  of  services  were  a                                                            
disaster  to strike  the  Anchorage  area  which hosts  the  State's                                                            
bacteriology and chemical-toxics laboratory.                                                                                    
                                                                                                                                
JANET  CLARKE,  Assistant  Commissioner,  Division  of  Finance  and                                                            
Management  Services,  Department  of Health  and  Social  Services,                                                            
deferred to Deven  Mitchell of the Department of Revenue  to explain                                                            
the Certificates of Participation (COP).                                                                                        
                                                                                                                                
Co-Chair  Green noted  that the  majority of  the Committee  Members                                                            
were familiar  with  this legislation  due to  media reports,  other                                                            
reports, or participation  in other committee hearings  on the bill.                                                            
                                                                                                                                
Co-Chair Green asked Mr.  Mitchell to explain how the facility would                                                            
be financed.                                                                                                                    
                                                                                                                                
DEVEN MITCHELL, Debt Manager,  Department of Revenue, explained that                                                            
the  proposed financing  structure  would  entail there  being  COP,                                                            
"which would  be facilitated by a  lease that would be entered  into                                                            
between the  Department of  Administration  and a trustee bank  that                                                            
would be given  a title position".  This "would facilitate  the flow                                                            
of  money from  the State  of  Alaska to  the bond  purchasers."  In                                                            
addition,  this action  would  provide  the mechanism  allowing  for                                                            
participation   in  the  lease,  hence  the  name  Certificates   of                                                            
Participation.                                                                                                                  
                                                                                                                                
10:01:27 AM                                                                                                                   
                                                                                                                                
Mr. Mitchell  stated that  the projected  $24,200,000 expense  would                                                            
include the  cost of issuing the certificates.  Debt service,  at an                                                            
interest rate  of 4.9 percent, would amount to an  annual expense of                                                            
$2,400,000 for 15 years.                                                                                                        
                                                                                                                                
Mr. Mitchell noted that  the 4.9 percent interest rate factored into                                                            
the financing calculation  is above the current 4.2 percent interest                                                            
rate that  would be available  were the  certificates issued  today.                                                            
The sale  of the  certificates  would be  conducted  in the fall  of                                                            
2005. Construction would occur in the year 2006.                                                                                
                                                                                                                                
Mr. Mitchell addressed  the Committee's "general"  concern about how                                                            
such  financial  commitments  might  affect the  State's  AA  credit                                                            
rating.  Numerous discussions  have  occurred with  rating  analysts                                                            
about various  funding options available to the State.  Limiting the                                                            
number of general fund  obligations undertaken by the State has been                                                            
considered  in order to maintain  that credit  rating, prior  to the                                                            
adoption of  a long-term fiscal plan  by the State. While  the State                                                            
currently has  "a positive budget  position", no fiscal plan  exists                                                            
for  the  next four  or  five  year  time  period.  The $24,200,000                                                             
obligation  level has received positive  feedback in that  it "would                                                            
fall under the  radar or within the buffer zone ?  where we would be                                                            
issuing  an obligation  that  wouldn't  raise  the eyebrows  of  the                                                            
rating analysts  that track this State to the point  that they would                                                            
be considering  taking  any  credit action  against  the State."  In                                                            
conclusion, this  project would not impact the credit  rating of the                                                            
State.                                                                                                                          
                                                                                                                                
Co-Chair Wilken  asked whether the "change of location"  option that                                                            
would  permit  the  laboratory  to be  constructed  outside  of  the                                                            
University  of Alaska Fairbanks  campus is  included in the  Version                                                            
24-GS1117\F Committee Substitute.                                                                                               
                                                                                                                                
Co-Chair  Green  affirmed  that  that  option  is  included  in  the                                                            
committee substitute.  She apologized for not previously  mentioning                                                            
that component.                                                                                                                 
                                                                                                                                
Co-Chair  Wilken moved to  adopt Committee  Substitute, Version  24-                                                            
GS1117\F as the working document.                                                                                               
                                                                                                                                
There being  no objection,  Version "F" was  ADOPTED as the  working                                                            
document.                                                                                                                       
                                                                                                                                
Co-Chair Green  commented that this  bill would work in partnership                                                             
with a budget item included in the FY 06 capital budget bill.                                                                   
                                                                                                                                
10:05:25 AM                                                                                                                   
                                                                                                                                
Co-Chair  Wilken  moved  to  report the  bill  from  committee  with                                                            
individual recommendations and accompanying fiscal notes.                                                                       
                                                                                                                                
There being no objection,  CS SB 73(FIN) was REPORTED from Committee                                                            
with  $10,000  fiscal  note  #1 dated  January  19,  2005  from  the                                                            
Department  of Revenue;  an  FY 2010  fiscal  need as  reflected  in                                                            
fiscal note  #2 dated January 20,  2005 from the Division  of Public                                                            
Health, Department  of Health  and Social Services;  and a  new zero                                                            
fiscal note dated May 6,  2005 from Administrative Support Services,                                                            
Department of Health and Social Services.                                                                                       
                                                                                                                                
AT EASE 10:05:41 AM / 10:06:17 AM