03/17/2009 08:00 AM House COMMUNITY & REGIONAL AFFAIRS

HB 161-CERTIFICATES OF PARTICIPATION FOR SUBPORT                                                                              
                                                                                                                              
8:46:20 AM                                                                                                                    
                                                                                                                                
CO-CHAIR HERRON announced  that the next order  of business would                                                               
be HOUSE  BILL NO.  161, "An  Act relating  to the  Alaska Mental                                                               
Health Trust  Authority Subport Office Building;  authorizing the                                                               
issuance  of certificates  of participation  for construction  of                                                               
the building  and authorizing the  use of up to  $25,000,000 from                                                               
the mental  health trust fund  for construction of  the building;                                                               
approving  leases  of  all  or   part  of  the  building  by  the                                                               
Department  of Administration;  and  providing  for an  effective                                                               
date."                                                                                                                          
                                                                                                                                
8:46:28 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  MUNOZ, speaking  as  the sponsor  of  HB 161,  welcomed                                                               
those who are present to testify today.                                                                                         
                                                                                                                                
8:47:47 AM                                                                                                                    
                                                                                                                                
KEVIN BROOKS,  Deputy Commissioner, Department  of Administration                                                               
(DOA), pointed  out that  the committee  packet should  include a                                                               
letter and answers  to questions from Representative  Millet.  He                                                               
also  pointed  out that  attachment  3  entitled "Briefing  Paper                                                               
AMHTA  Subport   Office  Building"  addresses  many   of  the  12                                                               
questions from Representative Millet.   Mr. Brooks explained that                                                               
DOA approached  The Alaska  Mental Health  Trust ("The  Trust") a                                                               
year  or so  ago regarding  possible  space due  to the  upcoming                                                               
sunset  of  the Department  of  Labor  & Workforce  Development's                                                               
(DLWD)  lease of  the current  aging facility.   Absent  progress                                                               
with The  Trust by July 2009  a Request for Proposals  (RFP) will                                                               
have to be  put out to procure new space.   Mr. Brooks emphasized                                                               
that new  space in the amount  of 68,000 square feet  needs to be                                                               
procured and  be moved into by  July 2012.  Currently,  the state                                                               
is paying  $2.33 a square  foot for  the DLWD building,  which is                                                               
reflective of the condition of the  building.  With regard to the                                                               
backup on the  lease, DLWD has been a tenant  of the building for                                                               
27 years and the thick  files are available to anyone interested.                                                               
He mentioned  that the water  intrusions, mold, and  necessity to                                                               
move staff from  the building are a matter of  record.  Mr. Banks                                                               
acknowledged that the costs for a  new building will be more than                                                               
the  current costs  for  the existing  aging  facility.   Current                                                               
estimates  of the  market in  Juneau  for the  downtown core  are                                                               
$3.80-$4.00 range.   He noted that  The Trust has been  told that                                                               
any facility has  to be competitive with the market  and the best                                                               
deal for  the state will  be sought.   The Trust, he  opined, has                                                               
developed  a  plan  and  financing   mechanism  that  make  their                                                               
proposal competitive.   The Trust,  he further opined, is  a good                                                               
partner because it holds land  in the downtown corridor and holds                                                               
cash in the amount of $22.7 million  in its fund.  The Trust will                                                               
borrow  the remainder.   The  documents in  the committee  packet                                                               
relate various  scenarios, including repaying the  bonds after 20                                                               
years  at  which  point  there  would  be  a  fairly  significant                                                               
reduction  in  the state's  lease  obligations  because the  debt                                                               
would be  retired and the state  would deal with only  the return                                                               
on the  equity for The Trust.   He noted that  the aforementioned                                                               
isn't dissimilar  from other lease arrangements  the state holds.                                                               
He then informed  the committee that DOA's  analysis is performed                                                               
over 30  years, specifically  a 20-year initial  term with  2 10-                                                               
year renewals.   If the state  stays in the lease  and renews for                                                               
the  second  10-year  period,  the lease  would  look  even  more                                                               
favorable in terms of a cost benefit analysis.                                                                                  
                                                                                                                                
MR. BANKS  reminded the  committee that  the DLWD  building alone                                                               
wasn't  a  large  enough  project  for The  Trust  to  build  the                                                               
facility.    A  larger  footprint was  necessary,  and  thus  the                                                               
Douglas Island building that houses  the regional offices for the                                                               
Alaska Department  of Fish &  Game (ADF&G) and the  Department of                                                               
Corrections as well  as the Department of  Public Safety building                                                               
was  included.   The aforementioned  buildings are  older and  in                                                               
such  disrepair that  a fairly  significant  investment would  be                                                               
required.   The  cost analysis  includes what  DOA charges  state                                                               
agencies,  which  is  about  $1.30   per  square  foot,  and  the                                                               
currently identified deferred maintenance.   Although some of the                                                               
needs  of  these  older  buildings   are  known,  there  isn't  a                                                               
comprehensive  list of  everything that's  wrong.   For instance,                                                               
there is  knowledge that the  DPS building  needs a new  roof and                                                               
the  ADF&G  building  needs  a  new  envelope.    Therefore,  the                                                               
analysis doesn't include additional  costs that would be required                                                               
in order  to bring the buildings  up to a tenantable  position or                                                               
to replace them.   The aforementioned are  anticipated costs, but                                                               
they're  not  included   in  the  analysis  in   order  to  avoid                                                               
inappropriately padding the numbers.                                                                                            
                                                                                                                                
8:56:43 AM                                                                                                                    
                                                                                                                                
CO-CHAIR HERRON directed focus on  question number 10:  "Does the                                                               
Governor support HB 161?"                                                                                                       
                                                                                                                                
MR.  BROOKS  explained  that  the   governor's  office  has  been                                                               
provided the  same analysis as  the committee.   Ultimately, [the                                                               
governor's  office] has  expressed the  need for  the project  to                                                               
pencil out.   Therefore,  the governor  is likely  reviewing this                                                               
proposed project  in terms  of needs throughout  the state.   Mr.                                                               
Brooks  said that  any project  the  state undertakes  has to  be                                                               
fiscally sound.   He related that DOA will  continue working with                                                               
the governor's office  and hopes to return to  the committee with                                                               
a more  definitive position.   He then related  his understanding                                                               
that the  sponsor of  the legislation has  had a  discussion with                                                               
the governor  regarding this  proposal.   In further  response to                                                               
Co-Chair Herron,  Mr. Brooks confirmed  that DOA's  comfort level                                                               
is fairly good.                                                                                                                 
                                                                                                                                
CO-CHAIR MUNOZ confirmed that she  met with the governor, who she                                                               
said likes  the project.   However, the governor wants  to ensure                                                               
that the project  makes financial sense for the  state.  Co-Chair                                                               
Munoz opined that the proposed new  facility is a better deal for                                                               
the  state when  compared to  the  existing lease  costs and  the                                                               
costs  to  upgrade  existing infrastructure.    Furthermore,  The                                                               
Trust  will have  great benefit  over  the long-term  as it  will                                                               
receive  a  steady  revenue  stream   to  support  mental  health                                                               
programs.                                                                                                                       
                                                                                                                                
9:00:07 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT pointed  out  that in  the memorandum  of                                                               
agreement (MOA)  there's no  talk of  cost overruns.   Therefore,                                                               
she questioned whether the state  has planned any contingency for                                                               
cost  overruns.   She further  questioned  whether cost  overruns                                                               
would impact the lease.                                                                                                         
                                                                                                                                
MR. BROOKS remarked that the MOA  was entered into as a manner in                                                               
which to work  collaboratively toward a solution.   He noted that                                                               
there's a contingency built into  construction, which he recalled                                                               
was 20  percent of the  total construction  cost.  The  Trust, he                                                               
opined, is  bearing some  risk to  make the  project competitive,                                                               
which is reflected in The Trust's  rate of return.  He noted that                                                               
there are  some variables,  including the rate  on bonds  for the                                                               
portion being  financed.  The  responsible steps expected  with a                                                               
project   of  this   magnitude   have  been   built  in   through                                                               
contingencies and other factors.                                                                                                
                                                                                                                                
9:02:18 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT  inquired  as  to  what  occurs  if  cost                                                               
overruns are in excess of 20 percent.                                                                                           
                                                                                                                                
MR. BROOKS deferred to representatives  from The Trust.  However,                                                               
he opined  that The Trust  is taking a  risk and the  state isn't                                                               
subject  to any  cost overrun  that  would drive  the lease  rate                                                               
beyond the market rate of $3.80-$4 being discussed.                                                                             
                                                                                                                                
9:03:27 AM                                                                                                                    
                                                                                                                                
HARRY NOAH, Executive Director,  Trust Land Office, Alaska Mental                                                               
Health Trust,  related his understanding  that when the  lease is                                                               
signed, cost overruns  would be the responsibility  of The Trust.                                                               
He explained that  The Trust has estimated the project  at a high                                                               
point in  terms of cost,  with a fairly  significant contingency.                                                               
He  informed the  committee that  The Trust  has some  additional                                                               
work  that's   necessary  in  terms  of   geotechnical  work  and                                                               
information  regarding  foundation  characteristics.   The  Trust                                                               
will also perform additional work  on the design of the building.                                                               
Mr. Noah said that often  with state buildings, the [costs] reach                                                               
the  budget and  the size  of the  building is  decreased [in  an                                                               
effort to not have cost  overruns].  However, with this proposal,                                                               
The Trust will lease a specific amount of space.                                                                                
                                                                                                                                
9:05:45 AM                                                                                                                    
                                                                                                                                
MR. NOAH  related that  he is  in favor  of HB  161 as  there are                                                               
benefits to  The Trust, the  state, and  Juneau.  He  opined that                                                               
it's unusual  that the  aforementioned would  occur at  one time,                                                               
which he attributed to various  factors occurring at once.  Those                                                               
factors  include  the demolition  of  the  subport building,  The                                                               
Trust wanting to develop its  waterfront parcel, and DLWD's lease                                                               
becoming available.   He said he hoped the  committee can support                                                               
[HB 161].                                                                                                                       
                                                                                                                                
9:06:52 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER  asked  if   The  Trust  anticipates  any                                                               
problems with  regard to  zoning and variances  from the  City of                                                               
Juneau.                                                                                                                         
                                                                                                                                
MR. NOAH  related that last  night the  City & Borough  of Juneau                                                               
Assembly  unanimously  passed  the  zone  change.    However,  he                                                               
anticipated that once the process  reaches the variance stage, it                                                               
will certainly elicit comments.  In  terms of the location of the                                                               
parking, he characterized it as  a calculated move.  He explained                                                               
that  building  the  parking  garage added  $20  million  to  the                                                               
process  without any  revenue,  and therefore  that  cost to  the                                                               
state would  be too high  as part of  this agreement.   The Trust                                                               
didn't want to use  the land for parking, but did  so in order to                                                               
allow an  agreement to  be made.   The aforementioned  places the                                                               
land in  a holding position  and the intent  is for The  Trust to                                                               
take over the DPS building  and ultimately build a parking garage                                                               
on that property.   At some point, something will  come along and                                                               
allow that property  to be developed and push the  parking to the                                                               
parking garage, he said.                                                                                                        
                                                                                                                                
9:09:05 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  MUNOZ  commented  that  the location  of  the  proposed                                                               
building will  cause more use  of that portion of  the waterfront                                                               
once the building is constructed.                                                                                               
                                                                                                                                
9:09:36 AM                                                                                                                    
                                                                                                                                
MR.  NOAH,  in  response  to Representative  Millet,  offered  to                                                               
provide the committee  with a copy of The  Trust's cost estimate.                                                               
Construction  is scheduled  to begin  in  2010, he  related.   He                                                               
further  related  that eight  months  ago  The Trust  engaged  an                                                               
architectural firm  in Juneau and  has done  quite a bit  of work                                                               
including  cost  estimates of  the  building.   Furthermore,  The                                                               
Trust has already  started the process of  obtaining a Department                                                               
of Transportation  & Public  Facilities (DOT&PF)  project manager                                                               
and  is in  the  process  of developing  a  design-build type  of                                                               
contract in case this legislation  passes.  He offered to provide                                                               
the committee with the work that has been done to date.                                                                         
                                                                                                                                
9:11:49 AM                                                                                                                    
                                                                                                                                
MR. BROOKS, in response to  Representative Millet, clarified that                                                               
the  DLWD  building is  a  leased  facility whereas  the  Douglas                                                               
Island building  that houses ADF&G and  Department of Corrections                                                               
and the Department  of Public Safety (DPS) building  are owned by                                                               
the state.   The DPS building  is potentially a site  of a future                                                               
parking garage.  He noted that  at a minimum those two facilities                                                               
would be  moth-balled or be  used in  another fashion.   Once the                                                               
proposed facility  seems to  be moving  forward, the  state would                                                               
earnestly try  to determine an  alternate use for  the buildings.                                                               
In the most extreme case, the buildings could be leveled.                                                                       
                                                                                                                                
9:13:54 AM                                                                                                                    
                                                                                                                                
CO-CHAIR HERRON, upon determining no  one else wished to testify,                                                               
closed public testimony.                                                                                                        
                                                                                                                                
9:14:12 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  MUNOZ moved  to report  CSHB 161,  Version 26-LS0605\T,                                                               
Cook, 3/11/09,  out of committee with  individual recommendations                                                               
and the  accompanying fiscal  notes.   There being  no objection,                                                               
CSHB 161(CRA) was reported from  the House Community and Regional                                                               
Affairs Standing Committee.