Legislature(2007 - 2008)HOUSE FINANCE 519

03/27/2008 01:30 PM House FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 50 CHILD PLACEMENT COMPACT TELECONFERENCED
Moved CSHB 50(JUD) Out of Committee
+ HB 314 G.O. BONDS FOR TRANSPORTATION PROJECTS TELECONFERENCED
<Bill Hearing Postponed>
+ HJR 37 CONST AM: SEC. OF STATE REFERENCES TELECONFERENCED
Moved CSHJR 37(JUD) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 419 STATE LEASE-PURCHASE AGREEMENTS TELECONFERENCED
Heard & Held
+= HB 367 SALE OF RAW MILK PRODUCTS TELECONFERENCED
<Bill Hearing Postponed>
+= HB 400 MITIGATING FACTOR: CARE FOR DRUG OVERDOSE TELECONFERENCED
Moved Out of Committee
<Bill Held Over from 3/26/08>
HOUSE BILL NO. 419                                                                                                            
                                                                                                                                
     An Act prohibiting certain state leases and lease-                                                                         
     purchase agreements for equipment and other personal                                                                       
     property; and providing for an effective date.                                                                             
                                                                                                                                
Co-Chair  Chenault MOVED  to  ADOPT work  draft  25-LS1567\K,                                                                   
Cook,  3/26/08,  as  the  version  of  the  bill  before  the                                                                   
Committee.  There being NO OBJECTION, it was adopted.                                                                           
                                                                                                                                
1:50:46 PM                                                                                                                    
                                                                                                                                
TOM WRIGHT,  STAFF, REPRESENTATIVE  MIKE CHENAULT,  explained                                                                   
that the work  draft proposes a "kinder and  gentler" version                                                                   
of the  original bill.   He  stated that  HB 419 places  into                                                                   
statute,  authorization  for   State  departments  and  other                                                                   
agencies such as the Supreme Court,  the Board of Regents for                                                                   
the  University  of Alaska  and  the Legislative  Council  to                                                                   
enter into lease-purchase  contracts for equipment  and other                                                                   
properties that are not considered real property.                                                                               
                                                                                                                                
In  the past,  there were  no limitations  on a  department's                                                                   
ability to enter  into lease purchases for  non-real property                                                                   
purchases.    The  Administration   interpreted  an  Attorney                                                                   
General's opinion  from 1987 to give them the  power to enter                                                                   
into  the  agreements.    The  new  section  of  HB  419,  AS                                                                   
36.30.086,   provides   the    explicit   authorization   for                                                                   
departments  to  enter  into  lease-purchase  agreements  for                                                                   
equipment to  perform the duties  and statutory  functions of                                                                   
the department.                                                                                                                 
                                                                                                                                
Mr.  Wright  continued,  the legislation  requires  that  any                                                                   
agency  that  enters  into  a  lease-purchase  contract  that                                                                   
exceeds $100 thousand dollars,  provide written notice to the                                                                   
House  and   Senate  presiding   officers  and  the   Finance                                                                   
Committee  chairs.   It  also  requires  that the  Office  of                                                                   
Management and  Budget (OMB) submit a report  containing each                                                                   
lease-purchase  agreement entered  into by  an agency  during                                                                   
the preceding fiscal  year.  The report will  need to include                                                                   
the  purchase  price,  term  payments,  the  amount  of  each                                                                   
payment  and the  amount  of  interest or  financing  charges                                                                   
paid.                                                                                                                           
                                                                                                                                
He identified changes made to the bill:                                                                                         
                                                                                                                                
   ·    Section 1 designates in AS 36.30.085 as pertaining                                                                      
        to only real property.  Previously, there were no                                                                       
        provisions addressing the legal definition of                                                                           
        personal property.                                                                                                      
   ·    AS 36.30.086, lease-purchase of personal property,                                                                      
        provides all departments ability to enter into                                                                          
        lease-purchase agreements.                                                                                              
   ·    Additional   reporting    requirement   was    added,                                                                   
                                 th                                                                                             
        indicating by January 15 of each year, all lease-                                                                       
        purchase agreements must be reported to the                                                                             
        Legislature.                                                                                                            
                                                                                                                                
1:53:29 PM                                                                                                                    
                                                                                                                                
Co-Chair  Meyer  pointed  out the  testifiers  available  for                                                                   
comment on the  bill.  Mr. Wright indicated  his gratitude to                                                                   
the many  agencies that  had assisted  in preparation  of the                                                                   
bill.   He  understood that  OMB has  indicated concern  with                                                                   
some reporting  requirements for  the lease-purchase  items &                                                                   
that  the  Department  of  Administration   might  also  have                                                                   
concerns.    He maintained,  it  is  prudent for  all  lease-                                                                   
purchase agreements to be reported.                                                                                             
                                                                                                                                
1:54:36 PM                                                                                                                    
                                                                                                                                
Representative Hawker  inquired if there was  a definition of                                                                   
lease-purchase  agreement in  Statute.   Mr.  Wright did  not                                                                   
believe there  was but  noted there is  a definition  of real                                                                   
property and non real property.                                                                                                 
                                                                                                                                
Representative  Hawker  questioned   if  the  intent  was  to                                                                   
provide an agreement  at the end of the lease  purchase title                                                                   
to the State  of Alaska and  if that would be  limited scope.                                                                   
He  wondered if  a loophole  was  there, escaping  reporting.                                                                   
Mr. Wright deferred  to the department.  He  pointed out that                                                                   
AS  36.30.085 discusses  lease-purchase  agreements and  does                                                                   
relate to  real property  agreements and provides  guidelines                                                                   
to lease-purchase agreement concerns.                                                                                           
                                                                                                                                
Representative  Kelly asked  if  the bill  would increase  or                                                                   
decrease the  amount of lease-purchasing  done by  the State.                                                                   
Mr. Wright did not think it would  be affecting it one way or                                                                   
the  other and  that  the sponsor  did not  want  to see  the                                                                   
system abused in the future.                                                                                                    
                                                                                                                                
1:57:45 PM                                                                                                                    
                                                                                                                                
Co-Chair Chenault interjected,  the intent is to determine if                                                                   
there are abuses  occurring in the programs.   Presently, the                                                                   
process indicates  there are no  abuses but certainly,  large                                                                   
amounts  of money  have gone out.   It  is the  Legislature's                                                                   
authorization to  know how the  departments are  spending the                                                                   
money and  how loans  are paid  back.   He wanted to  present                                                                   
legislation that provides a report  and the details as to how                                                                   
the  funds  will  be  used.    He  reiterated  the  issue  of                                                                   
appropriation  power  and  tracking  of  money  spent  across                                                                   
department lines.                                                                                                               
                                                                                                                                
1:59:30 PM                                                                                                                    
                                                                                                                                
VERN  JONES,   CHIEF  PROCUREMENT   OFFICER,  DEPARTMENT   OF                                                                   
ADMINISTRATION,   responded    to   a   previous   query   by                                                                   
Representative  Hawker  regarding  the difference  between  a                                                                   
lease and a  lease purchase, noting no  statutory definition.                                                                   
The difference  is that at the  end of a lease-purchase,  the                                                                   
State would  own the  asset and  at the end  of a lease,  the                                                                   
asset is returned to the party that it was leased from.                                                                         
                                                                                                                                
Representative  Hawker questioned  the  terminology of  those                                                                   
concepts.  He  pointed out the principle regarding  the title                                                                   
transfer  lessee; in  other cases  where  the lease  involves                                                                   
substantial value  of the asset,  while it does  not transfer                                                                   
title,  it   is  still  required   to  be  recognized   as  a                                                                   
capitalized asset.  He believed  that it would be possible to                                                                   
circumvent the  intent of  the Statute by  terms of  a lease-                                                                   
purchase agreement, which could  actually be a transfer title                                                                   
risk of ownership.   At the end of the lease  term, the title                                                                   
could  remain   with  the  leaser   and  would   not  require                                                                   
disclosure.   Mr. Jones agreed  that if the State  intends to                                                                   
simply  lease  a  piece  of  equipment   with  no  option  of                                                                   
ownership, the bill does not apply.                                                                                             
                                                                                                                                
Representative Hawker  requested working with the  Sponsor to                                                                   
correct the loophole.                                                                                                           
                                                                                                                                
2:02:37 PM                                                                                                                    
                                                                                                                                
Representative   Crawford  remembered   that  the   bill  had                                                                   
initially  been   submitted  in  conjunction   with  Governor                                                                   
Murkowski's  jet purchase  and asked  if it  was intended  to                                                                   
deter future  actions such  as that.   Mr. Jones said  if the                                                                   
bill been in  place, the Department would have  been required                                                                   
to make the transaction and report  it to the Legislature and                                                                   
would have shown up in the January report.                                                                                      
                                                                                                                                
2:03:52 PM                                                                                                                    
                                                                                                                                
Representative   Thomas  remembered   that   the  press   had                                                                   
indicated  that  the  Legislature  allowed  the  Governor  to                                                                   
purchase the jet because of certain  language in Statute.  He                                                                   
wanted to  be guaranteed  that would not  happen again.   Mr.                                                                   
Wright  said that  the sponsors  did  discuss caps;  however,                                                                   
created complications  in cases  where the Legislature  wants                                                                   
to authorize or  approve a lease-purchase by  adding unwanted                                                                   
steps.   That  option  has created  stumbling  blocks by  not                                                                   
limiting the Legislature's ability to authorize.                                                                                
                                                                                                                                
Representative Joule  inquired if it  could be an  option for                                                                   
the  Legislative   Budget  and  Audit  (LBA)   Committee  for                                                                   
consideration  of adding a  cap exceeding  the request.   Mr.                                                                   
Wright  advised  that LBA  can  not authorize  exceeding  the                                                                   
caps; they do not have that approval authority.                                                                                 
                                                                                                                                
2:05:59 PM                                                                                                                    
                                                                                                                                
Representative  Hawker  observed  that  the  work  draft  was                                                                   
intended to be the "nicer" version  of the bill; he suggested                                                                   
consideration  of  the  original  version.    Co-Chair  Meyer                                                                   
proposed  the bill  be  held so  that  Co-Chair Chenault  and                                                                   
Representative  Hawker  could  discuss  the version  to  move                                                                   
forward.                                                                                                                        
                                                                                                                                
2:06:41 PM                                                                                                                    
                                                                                                                                
HB 419 was HELD in Committee for further consideration.                                                                         
                                                                                                                                

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