03/15/2010 09:00 AM Senate FINANCE

SENATE BILL NO. 226                                                                                                           
                                                                                                                                
     "An Act  providing for, relating to,  and approving the                                                                    
     issuance  of  certificates  of  participation  for  the                                                                    
     construction, acquisition, and  equipping of the Alaska                                                                    
     Scientific  Crime  Detection Laboratory  in  Anchorage;                                                                    
     providing  notice of  and authorizing  the commissioner                                                                    
     of  the Department  of Administration  to enter  into a                                                                    
     lease-purchase agreement with  the Department of Public                                                                    
     Safety  for  the   Alaska  Scientific  Crime  Detection                                                                    
     Laboratory; providing  for, relating to,  and approving                                                                    
     the issuance  of certificates of participation  for the                                                                    
     design,  construction,  acquisition, and  equipping  of                                                                    
     the  University  of   Alaska  Fairbanks  Life  Sciences                                                                    
     Building   in  Fairbanks;   providing  notice   of  and                                                                    
     authorizing  the  commissioner  of  the  Department  of                                                                    
     Administration   to   enter   into   a   lease-purchase                                                                    
     agreement  with  the  University   of  Alaska  for  the                                                                    
     University of Alaska  Fairbanks Life Sciences Building;                                                                    
     authorizing the  University of Alaska to  issue revenue                                                                    
     bonds for the  construction, acquisition, and equipping                                                                    
     of  the University  of Alaska  Fairbanks Life  Sciences                                                                    
     Building in  Fairbanks; and providing for  an effective                                                                    
     date."                                                                                                                     
                                                                                                                                
10:12:46 AM                                                                                                                   
                                                                                                                                
Co-Chair  Stedman   introduced  the   final  piece   of  the                                                                    
governor's    legislation   authorizing    Certificates   of                                                                    
Participation for the  construction of a crime  lab and Life                                                                    
Sciences Building.                                                                                                              
                                                                                                                                
DEVEN MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND                                                                       
BANK AUTHORITY, DEPARTMENT OF REVENUE introduced himself.                                                                       
                                                                                                                                
Co-Chair Stedman asked for a definition of participation of                                                                     
certification. He asked about financial packages that could                                                                     
be assembled to move projects forward in the state.                                                                             
                                                                                                                                
Mr. Mitchell delivered the sponsor statement.                                                                                   
                                                                                                                                
     This  legislation  would  authorize the  Department  of                                                                    
     Revenue to issue certificates  of participation for the                                                                    
     construction,   acquisition   and  equipping   of   two                                                                    
     facilities;  the  Alaska   Scientific  Crime  Detection                                                                    
     Laboratory in  Anchorage and  the University  of Alaska                                                                    
     Fairbanks Life Sciences Building in Fairbanks.                                                                             
                                                                                                                                
     Bonding:                                                                                                                 
     It is  time to finance  these projects.  The Department                                                                    
     of Revenue  has based the  payback estimate on  20 year                                                                    
     financing  with  the  State's   AA  credit  rating  for                                                                    
     appropriation  based credit.   In  the current  market,                                                                    
     the  Department of  Revenue  estimates  that the  State                                                                    
     will  be  able to  achieve  a  total interest  cost  of                                                                    
     approximately  4.2  %   using  tax  exempt  securities.                                                                    
     However,   through   a   combination  of   tax   exempt                                                                    
     securities  for shorter  maturities  and Build  America                                                                    
     Bonds or  BABs (Taxable  securities with a  35% federal                                                                    
     subsidy)  for the  longer  term  maturities, the  State                                                                    
     could  achieve  a rate  as  low  as  3.5%.   The  final                                                                    
     structure  will be  designed to  result  in the  lowest                                                                    
     cost  at   the  time  of  issuance.   Authorization  to                                                                    
    participate in BAB's will close at the end of 2010.                                                                         
                                                                                                                                
     Crime Laboratory:                                                                                                        
     Alaska needs  a crime  laboratory to prevent  crime and                                                                    
     protect Alaskans. The proposed  laboratory is the right                                                                    
     size, the right  cost and it will  benefit Alaskans now                                                                    
     and  long  into  the  future. The  benefits  from  this                                                                    
     project include:  1) convicting the guilty  before they                                                                    
     commit  other  crimes;  2) protect  the  innocent  from                                                                    
     false  accusation; 3)  reduce rape;  4) reduce  violent                                                                    
     crime;  5) process  evidence from  home burglaries;  6)                                                                    
     solve  more  cases  with   new  techniques  and  faster                                                                    
     output; and more.                                                                                                          
                                                                                                                                
     Building the  crime lab will provide  an economic boost                                                                    
     to Anchorage  by providing for  170,000 labor  hours in                                                                    
     250  jobs for  Alaskans. $12  million in  Alaska wages,                                                                    
     $20 million to materials  supplied by local vendors and                                                                    
     business  for approximately  15 Alaska  subcontractors.                                                                    
     The  facility  will  be  84,000 SF  on  Tudor  Road  in                                                                    
     Anchorage. $16.8  million spent  to date on  design and                                                                    
     site work on  15 acres leased from  the Municipality of                                                                    
     Anchorage at  $1 per year  for 50 years with  an option                                                                    
     to  extend.  The  crime  lab is  planned  to  meet  the                                                                    
     state's needs for growth beyond 75 years.                                                                                  
                                                                                                                                
     University Life Science Building:                                                                                        
     The  UA Life  Science Facility  is Important  to Alaska                                                                    
     and  Alaskans.  This   facility  (approximately  97,700                                                                    
     square  feet)  will  meet  critical  needs  for  modern                                                                    
     classrooms  and   teaching  laboratories   and  provide                                                                    
     critical research  space to allow for  continued growth                                                                    
     in   many  successful   life  sciences   programs.  The                                                                    
     proposal includes  approximately 40,000 SF  of teaching                                                                    
     space  and   57,700  SF  of   research  space   in  one                                                                    
     centralized                                   location.                                                                    
                                                                                                                              
     The investment  of $108.4 million ($87.9  m state/$20.6                                                                    
     m  UA revenue  bonds)  yields  long-term dividends;  1)                                                                    
     short-term--Construction will  inject new  dollars into                                                                    
     the  statewide economy  and  provide approximately  370                                                                    
     jobs during  construction, infusing  approximately $170                                                                    
     million  in   direct  and  indirect   economic  output,                                                                    
     including  $80 million  in labor  income; and  2) long-                                                                    
     term--Life  Sciences  research  attracts  'new'  money,                                                                    
     since  research  revenue   comes  mostly  from  federal                                                                    
     science agencies.  Every $1 in state  funds invested in                                                                    
     UA research  yields $6 in  research funding  from other                                                                    
     sources.                                                                                                                 
                                                                                                                                
     The Governor urges your prompt  and favorable action on                                                                    
     this bill.                                                                                                                 
                                                                                                                                
10:22:33 AM                                                                                                                   
                                                                                                                                
Co-Chair Stedman requested testimony from the Deputy                                                                            
Commissioner.                                                                                                                   
                                                                                                                                
JERRY  BURNETT, DEPUTY  COMMISSIONER, DIVISION  OF TREASURY,                                                                    
DEPARTMENT OF  REVENUE, offered no additional  testimony. He                                                                    
reiterated  the comments  of Mr.  Mitchell and  the need  to                                                                    
address  the Build  America Bonds  (BOB). He  explained that                                                                    
the BOB  and General Obligation  (GO) bond programs  may not                                                                    
exist much longer.  The proposals in congress  are to reduce                                                                    
the  subsidy  from  35  to  28  percent.  Other  states  are                                                                    
utilizing bonds to reduce their  ongoing operating costs and                                                                    
to substitute  for their general fund  revenues. He stressed                                                                    
the seriousness of timing.                                                                                                      
                                                                                                                                
Co-Chair  Stedman asked  about  the option  of cash  payment                                                                    
versus shaving basis points off  of the debt instrument. Mr.                                                                    
Burnett  noted  that the  Office  of  Management and  Budget                                                                    
(OMB) makes the budgeting decisions  on the question of cash                                                                    
or  debt. The  state is  currently observing  interest rates                                                                    
which are  likely to  be near four  percent. He  opined that                                                                    
the  state does  not have  an  excessive amount  of debt  in                                                                    
addition to  savings which allows the  legislature a greater                                                                    
amount of flexibility in the future.                                                                                            
                                                                                                                                
10:25:46 AM                                                                                                                   
                                                                                                                                
Co-Chair Hoffman recalled the potential  to lose one year of                                                                    
construction if  the Certificates  of Participation  are not                                                                    
chosen. He asked  how many years the project  has been under                                                                    
consideration for construction.                                                                                                 
                                                                                                                                
Mr.  Mitchell responded  that he  was not  an expert  on the                                                                    
project  side  of  the  proposal.   He  explained  that  the                                                                    
Department of  Public Safety's proposal has  been before the                                                                    
legislature in  various committees in  each of the  last two                                                                    
sessions.  He remarked  that he  was not  certain about  the                                                                    
Life Sciences Building.                                                                                                         
                                                                                                                                
Co-Chair Stedman  believed that  the Life  Sciences Building                                                                    
has  been  proposed  for longer  than  two  years.  Co-Chair                                                                    
Hoffman   agreed   that   the   project   has   been   under                                                                    
consideration for several years.                                                                                                
                                                                                                                                
10:27:10 AM                                                                                                                   
                                                                                                                                
Senator Thomas asked  how the quoted 35  percent pertains to                                                                    
the BOBs. Mr. Mitchell clarified that  a bond is issued on a                                                                    
taxable basis  so the  investor receives  a taxable  rate of                                                                    
interest  and the  issuer receives  the benefit  of the  tax                                                                    
exempt  status.  The  35  percent would  flow  back  to  the                                                                    
state's  general  fund  as  debt   service  was  paid  on  a                                                                    
semiannual basis.                                                                                                               
                                                                                                                                
Senator   Thomas   asked   if    the   subaccount   of   the                                                                    
Constitutional Budget  Reserve (CBR) is earning  an interest                                                                    
rate in  excess of what  is estimated to be  the Certificate                                                                    
of  Participation bonding.  Co-Chair Stedman  clarified that                                                                    
the main account of the CBR is earning interest.                                                                                
                                                                                                                                
Mr. Burnett  responded that  the general  investment account                                                                    
and  the  main  account  of the  CBR  historically  earn  an                                                                    
interest rate higher than a  cost of issuance for the state.                                                                    
He  pointed  out  that  the US  government  gives  a  direct                                                                    
payment  to the  state for  the  35 percent  subsidy of  the                                                                    
interest.                                                                                                                       
                                                                                                                                
Co-Chair Stedman asked about the cash flow mechanism.                                                                           
                                                                                                                                
10:29:10 AM                                                                                                                   
                                                                                                                                
Mr.  Mitchell noted  that the  state  can pay  a trustee  to                                                                    
undertake the work  for a nominal fee. The  second choice is                                                                    
to submit paperwork with the  Internal Revenue Service (IRS)                                                                    
upon issuance of the bonds.  Notice is filed three months in                                                                    
advance with  the United  States treasury  and reimbursement                                                                    
is received upon  payment. The payment is  supposed to occur                                                                    
the next day.                                                                                                                   
                                                                                                                                
Co-Chair  Stedman   mentioned  the  fiscal  note   from  the                                                                    
Department of  Revenue showing the initial  interest payment                                                                    
of $2,700,000 in general funds for FY11.                                                                                        
                                                                                                                                
10:30:40 AM                                                                                                                   
                                                                                                                                
MYRON  DOSCH,  UNIVERSITY  OF ALASKA  (via  teleconference),                                                                    
explained   that  he   oversees  debt   functions  for   the                                                                    
University  of  Alaska.  He   expressed  concerns  with  the                                                                    
proposed   financing  structure   for   the  Life   Sciences                                                                    
Building.  He proposed  technical  amendments  to the  bill,                                                                    
which he  believed were overlooked in  the initial drafting.                                                                    
The  University intends  to issue  general revenue  bonds to                                                                    
pay for  a portion  of the  construction cost.  He suggested                                                                    
proposed amendments  for Section  5, Line 18.  Currently the                                                                    
bill states "maximum principal amount  of the bonds that the                                                                    
University of  Alaska may  issue is  $20.6 million,"  but he                                                                    
proposed that  it be  increased to  $24 million.  The change                                                                    
provides  a sufficient  amount to  cover  the bond  issuance                                                                    
cost,  mandatory  debt  service  reserves,  and  capitalized                                                                    
interest if  necessary. The issuance  costs are  included in                                                                    
the bond  and the costs  are paid through debt  service over                                                                    
the life  of the debt.  Leaving the principal  amount capped                                                                    
at $20.6  million takes from  funds needed  for construction                                                                    
costs. He noted  that the interest rate  environment is low,                                                                    
making  the  project palatable  from  a  financing point  of                                                                    
view.  The  second  proposed  amendment  is  in  Section  4,                                                                    
Subsection  C referring  to  the entity  with  title to  the                                                                    
building  following   Certificates  of   Participation  were                                                                    
issued. The  last technical change  is proposed  for Section                                                                    
4,  Subsection A  regarding the  authority to  enter into  a                                                                    
lease purchase agreement.                                                                                                       
                                                                                                                                
10:35:56 AM                                                                                                                   
                                                                                                                                
JAY   QUAKENBUSH,   PRESIDENT,    FAIRBANKS   BUILDING   AND                                                                    
CONSTRUCTION  TRADES  (via   teleconference),  testified  in                                                                    
favor of SB  226. He stated that the  Life Sciences Building                                                                    
is necessary  and would  secure the  University of  Alaska a                                                                    
spot as one of the  top universities in the nation regarding                                                                    
biological sciences.                                                                                                            
                                                                                                                                
10:38:01 AM                                                                                                                   
                                                                                                                                
LAKE  WILLIAMS, PRESIDENT,  FAIRBANKS CENTRAL  LABOR COUNCIL                                                                    
(via   teleconference),   testified   in  support   of   the                                                                    
legislation.  He  noted  that   the  proposed  project  will                                                                    
benefit Alaska  in the short  and long term. He  opined that                                                                    
delay of  the project would lead  to additional construction                                                                    
costs.                                                                                                                          
                                                                                                                                
10:40:09 AM                                                                                                                   
                                                                                                                                
JOSEPH  MASTERS, COMMISSIONER,  DEPARTMENT OF  PUBLIC SAFETY                                                                    
testified on  the crime lab  portion of the  legislation. He                                                                    
stressed  the importance  of the  crime lab  for the  state.                                                                    
Currently Alaska is  placed number one in  national rank for                                                                    
sexual  assault   and  nine  in  rank   for  violent  crime.                                                                    
Scientific  analysis  and  evidence is  vital  to  providing                                                                    
prosecutors  the information  necessary  to prosecute  these                                                                    
cases. The proposed  Crime Lab would be  the only accredited                                                                    
crime lab  in the  state and would  service agencies  of the                                                                    
state and  all police  agencies for submission  of evidence.                                                                    
The current lab is overcrowded  and inadequate, which is the                                                                    
single largest limiter in the  lab through put. The lab must                                                                    
therefore  triage and  focus on  the increasing  severity of                                                                    
cases while setting minor crimes  to the side. The new crime                                                                    
lab  would  restore  services  previously  discontinued  and                                                                    
allow  the  addition  of other  critical  services  such  as                                                                    
toxicology.                                                                                                                     
                                                                                                                                
Commissioner  Masters  continued  that  the  crime  lab  has                                                                    
evolved over the years. He  pointed out that $18 million has                                                                    
been appropriated  by the legislature in  previous years for                                                                    
the investment,  design, review,  and sight  preparation. He                                                                    
explained that a  delay will occur with the use  of GO bonds                                                                    
leading to a delay in critical services needed today.                                                                           
                                                                                                                                
10:46:00 AM                                                                                                                   
                                                                                                                                
Co-Chair Hoffman  asked about operating costs  for the first                                                                    
year  of the  facility.  He asked  about  the new  positions                                                                    
required.  Commissioner Masters  responded that  the initial                                                                    
cost involves  a ten year  plan. New sciences are  added and                                                                    
with them new positions.                                                                                                        
                                                                                                                                
Co-Chair Hoffman  asked what the existing  facility would be                                                                    
used for. Commissioner Masters replied  that the current lab                                                                    
facility   would   require    significant   renovation   and                                                                    
reconstruction  to be  used as  a  laboratory. He  mentioned                                                                    
that  it  could   be  used  as  office   space  without  the                                                                    
renovation.  He pointed  out that  the Department  of Public                                                                    
Safety currently has need of additional facility space.                                                                         
                                                                                                                                
Co-Chair Hoffman  asked the cost  to mothball  the facility.                                                                    
Mr. Masters  replied that restoration of  the facility would                                                                    
require upwards of $10-12 million.                                                                                              
                                                                                                                                
Co-Chair  Stedman  requested the  department's  expectations                                                                    
regarding staffing levels.                                                                                                      
                                                                                                                                
10:48:54 AM                                                                                                                   
                                                                                                                                
Senator Huggins pointed out that  20 percent of the building                                                                    
will remain unfinished. Commissioner  Masters pointed out an                                                                    
approach in which  space is shelled out  initially and build                                                                    
in with  added sciences.  Senator Huggins recalled  that the                                                                    
initial  cost of  the project  was $100  million. Today  the                                                                    
cost  is  the  same,  yet  20 percent  of  the  building  is                                                                    
unfinished.                                                                                                                     
                                                                                                                                
Senator Thomas  commented on  coordination with  lab project                                                                    
experts and  designers. He appreciated  a situation  where a                                                                    
contractor   tempers  the   design  architect's   particular                                                                    
signatures.                                                                                                                     
                                                                                                                                
10:50:46 AM                                                                                                                   
                                                                                                                                
DON ETHERIDGE,  ALAKSA STATE AFL  CIO, testified  in support                                                                    
of the legislation as it  benefits the unemployed as well as                                                                    
crime  lab  employees by  allowing  them  to do  their  jobs                                                                    
properly.                                                                                                                       
                                                                                                                                
FRANK  RICHARDS,  DEPUTY  COMMISSIONER,  HIGHWAYS  &  PUBLIC                                                                    
FACILITIES,   DEPARTMENT   OF  TRANSPORTATION   AND   PUBLIC                                                                    
FACILITIES,  identified  the  benefits   of  the  crime  lab                                                                    
construction  in  calendar  year   2010.  With  the  current                                                                    
funding  package,  construction   could  likely  occur  this                                                                    
spring and summer.  Initiation of the project  would lead to                                                                    
approximately  125-150 new  jobs. The  cost of  delaying the                                                                    
project  by one  year is  an  estimated 4  percent. The  lab                                                                    
costs presented are valid.                                                                                                      
                                                                                                                                
MATT TANAKA,  PROJECT MANAGER, DEPARTMENT  OF TRANSPORTATION                                                                    
AND  PUBLIC FACILITIES  stressed that  the project  has been                                                                    
before  the  legislature  for a  considerable  time  and  is                                                                    
"beyond  shovel  ready."  If  funded  with  Certificates  of                                                                    
Participation this  spring, construction will begin  in May.                                                                    
If the project  is delayed due to  General Obligation bonds,                                                                    
the delay will  give rise to $3 million  worth of escalation                                                                    
costs, which  will partially offset  savings that  may arise                                                                    
from alternative funding schemes.                                                                                               
                                                                                                                                
SB  226  was  HEARD  and   HELD  in  Committee  for  further                                                                    
consideration.