Legislature(2001 - 2002)
04/23/2001 01:50 PM House FIN
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HOUSE BILL NO. 51
"An Act giving notice of and approving the entry into,
and the issuance of certificates of participation for,
a lease-purchase agreement for a seafood and food
safety laboratory facility; and providing for an
effective date."
JANICE ADAIR, DIRECTOR, DIVISION OF ENVIRONMENTAL HEALTH,
DEPARTMENT OF ENVIRONMENTAL CONSERVATION testified in
support of HB 51. She noted that the legislation would
authorize certificates of participation to replace the
Palmer seafood and food safety laboratory with a new
facility in Anchorage. She responded to questions raised
during the previous committee hearing (see memorandum dated
4/3/01, copy on file). She explained that she was unable to
obtain a letter from the current building owner indicating
that they were not interested in a 15 percent lease
reduction, which would allow the laboratory to remain in the
current location. However, the landowner did communicate
this information verbally to Ms. Adair. The landowner
indicated that a 15 percent reduction would be below the
cost she would be willing to rent the building. She provided
members with a copy of an email from the Federal Drug
Administration (FDA) explaining that they no longer certify
private laboratories to test for paralytic shellfish
poisoning. She answered the questioned of why the department
could not use the building that currently houses the Alaska
Seafood International Seafood (ASI) processing center in
Anchorage. She contacted Bob Poe, Executive Director, Alaska
Industrial Development and Export Authority (AIDEA), who
confirmed that the facility is not available. The ASI
facility is expected to be in full production by the summer.
She was asked why a RFP was not issued to see if the private
sector could build a facility cheaper. General Services
advised her that they could not go out for a RFP unless
there is an intent to issue a contract. The estimated
development cost for a RFP would be just over $1 million
dollars. Since there was no funding available for the RFP
development and no way to solicit bids a private consultant
was hired to provide professional judgment on the cost
differences between building and leasing. The consultant
concluded that leasing would be far more expensive than
building a state owned laboratory. The per square cost of
the entire 20 year bond repayment term would be $4.87
dollars a square foot. The building would be paid for after
the 20-year term. The state chemistry laboratory located in
Juneau and managed by the Department of Environmental
Conservation costs $4.26 dollars a square foot and is
expected to increase. Laboratories are sized according to
the type of analysis that takes place and the type of
equipment needed. Air handling systems must be located
internally. Laboratories require counter tops, space hoods,
fuel hoods, walk-in coolers and freezers and other big
pieces of equipment that take up room. She compared the
20,500 square foot proposed laboratory to the existing
laboratory. She noted that of 20,500 square feet only 11,890
would be available for use by employees. There would be over
9,000 square feet for ventilation, mechanicals, walls and
hallways. She addressed the question of what part of the
proposed laboratory could be deleted if the bond package was
reduced. She noted that reduced administrative space was
identified for a savings reduction of $200 thousand dollars
[840 square feet]. A conference room and one office would be
eliminated, and the waiting area would be reduced. The non-
bondable costs would be covered by general funds because it
is not qualified for federal funds and Alaska Housing
Finance Corporation (AHFC) funds were already obligated. If
the legislation is not passed, the laboratory can only stay
in their current location as on emergency extension basis.
There is an obligation not to go into emergency procurement.
They would be asked by General Services to go out with a RFP
this summer for a lease facility to have a facility on-line
before their current lease expires. The estimated cost to
develop a RFP exceeds a million dollars. The increased
rental costs would have to come out of their operating
budget. The department does not have funds for either item
and would be "in a world of hurt if the bill doesn't pass."
Representative Harris referred to a memorandum by
Representative Ogan, dated 3/23/01 (copy on file.) He noted
that the memorandum stated that the department was willing
to work toward achieving three goals: move the seafood
testing portion of the laboratory closer to tidewater, leave
functions other than seafood in the valley [Matanuska] and
find a way to obtain a more affordable reasonable sized
facility with a acceptable square foot cost in Anchorage.
Ms. Adair noted that she met with staff from Representative
Ogan's office and responded to questions in a memorandum
dated 4/11/01 (copy on file.) She noted that the laboratory
does about 85 percent seafood work. She reviewed other
activities of the laboratory. The same staff and
laboratories are used to do other activities such as dairy
product testing. She explained that it would not be cost
affective to split functions and only move seafood
activities. The state would have to build two laboratories
in order to leave the other activities in the valley. There
would not be enough work to operate a valley laboratory full
time and hire a full time microbiologist. Functions that
have a historical connection to the valley will remain
there, such as the pesticide program. The dairy sanitarian
(the person that inspects the dairy farms and processors)
and the state veterinarian will remain.
Representative Harris noted that he is concerned with the
removal of the facility from the valley without consultation
with the district's members.
In response to a question by Representative Hudson, Ms.
Adiar noted that seafood samples come from all over the
state. There are federal requirements for smoked fish. A
certain amount of each lot of smoked fish must be tested.
Shellfish and other seafood are also tested. A greater focus
is being given to after testing the processed product.
Smoked fish samples from Southeast [and other areas of the
state] are shipped to Palmar for testing. Shellfish cannot
be sold until they have been tested. The shellfish and
growing waters are tested. The growing waters must be tested
within 30 hours from the time the sample was taken.
Representative Lancaster stressed that the issue is whether
the laboratory is moved. He stated that it would make sense
to move the laboratory to Anchorage and emphasized the time
sensitivity of the lease. He acknowledged that there are
still questions that need to be answered.
Representative Hudson asked if Ms. Adair had made
arrangements to meet with Representative Ogan to look at the
possibility of retaining some aspects in Palmer.
Ms. Adair reiterated that it does not make sense to split
the laboratory. Splitting the function would not reduce the
seafood aspect of the laboratory. Splitting the aspects
would create an additional need in Palmer for the non-
seafood aspect. She stressed that the impact to Palmer would
be minimal. She noted that informal conversations have
indicated that the Palmer employees plan to commute into
Anchorage.
In response to a question by Co-Chair Williams, Ms. Adair
acknowledged the necessarily of reducing the project's cost.
Some equipment purchases could be deferred until the
laboratory is ready to open and purchased in the capital
budget. She estimated that this could reduce the price by $1
million dollars to $11.2 -$11.6 million dollars.
Representative Carl Moses stressed the importance of serving
the needs of the industry and pointed out that the time
delay in shipping can be critical.
Representative Harris questioned how long it would take to
build the facility.
DEVON MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND
BANK AUTHORITY, DEPARTMENT OF REVENUE explained that there
are restrictions on the time of the bond issuance. There has
to be a reasonable expectation that proceeds would be
expended within 3 years. The Department of Transportation
and Public Facilities has done an initial analysis on the
project that showed a final 5 percent of the piece occurring
in year four. This would have to be shifted into year three.
He acknowledged that reasonable expectations do not always
play out in reality.
Co-Chair Williams questioned options for reducing financing
costs. Mr. Devon observed that net funding could be used to
decrease the bond size. Assumptions on cash flow and
investment earnings are made during the construction period
to reduce the bond sizing.
HB 51 was heard and HELD in Committee for further
consideration.
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