Legislature(1995 - 1996)

02/29/1996 03:26 PM HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 HB 515 - USE OF YOUTH SERVICES GRANTS                                       
 Number 1760                                                                   
 REPRESENTATIVE BILL WILLIAMS, Sponsor of HB 515, read the following           
 sponsor statement:  "House Bill 515 allows the recipient of an                
 operating grant for residential services to use grant money to pay            
 for the purchase of a building.  Residential services are defined             
 in statute as `24-hour care and supervision of minors in                      
 residential child care facilities that are commonly known as group            
 homes or institutions' (AS 47.40.091).                                        
 "Currently recipients of these grants may not use grant money to              
 pay the principal of a mortgage loan.  They may, however, use the             
 money for rent and least payments.  Today recipients pay rent/lease           
 payments year after year with no chance of building equity.  The              
 residential youth home in Ketchikan has spent over $200,000 in rent           
 over the last six years.  They could own their facility today had             
 it not been for the present statute.                                          
 "By changing this statute these residential centers can, in many              
 cases, lower monthly payments and eventually own their own                    
 facility.  In the long run this will lessen their dependency on the           
 state and allow more money for the programs that help our troubled            
 "During these times of fiscal responsibility, we need to get the              
 most out of every dollar the state spends.  I believe this                    
 legislation will give these homes flexibility toward bettering                
 their programs.  I urge you to support this legislation."                     
 CO-CHAIR BUNDE asked what prompted Representative Williams to                 
 introduce this legislation?                                                   
 REPRESENTATIVE WILLIAMS said individuals who are in charge of the             
 homes in Ketchikan brought it to his attention.  He also thought it           
 was something that needed to be looked at, especially when an                 
 agency spends that kind of money for lease/rent over a six year               
 CO-CHAIR BUNDE asked if Representative Williams knew why the                  
 statute was written as it currently exists?                                   
 REPRESENTATIVE WILLIAMS said he didn't know, but perhaps someone              
 from the Department of Health & Social Services could respond to              
 that question.                                                                
 REPRESENTATIVE ROBINSON said this bill focuses on residential                 
 services for certain minors and asked Representative Williams if he           
 had given any thought to including adult treatment programs,                  
 battered women's shelters and other programs available for adults.            
 It was her belief that any nonprofit organization receiving state             
 grants should be able to use the money to actually purchase the               
 facility, if they could show good cause.                                      
 Number 2017                                                                   
 REPRESENTATIVE BRICE asked where the assets would go if one of                
 these homes had been in existence for 20 years, the state had paid            
 off the mortgage on the facility, and the facility closed down                
 after the mortgage is paid off.                                               
 TAPE 96-19, SIDE A                                                            
 Number 039                                                                    
 TOM LANE, Juneau Facilities Manager, Division of Administrative               
 Services, Department of Health & Social Services, referred to                 
 Representative Brice's question and said in any of their capital              
 grants, normally the department would have a deed of trust or some            
 other covenants or restrictions for a 20-year period.  The                    
 department normally assumes a 20-year period as the depreciation              
 period.  After that, the property would revert to the grantee.                
 Number 120                                                                    
 CO-CHAIR BUNDE asked about a situation where the grantee closes               
 down the program after 25 years.                                              
 MR. LANE responded the 20-year period is somewhat arbitrary, but it           
 is based on federal guidelines the department uses for                        
 depreciation.  During the 20-year period, it is the assumption that           
 the state does have some interest in the building and it is put in            
 the deed of trust or covenants and restrictions, so the purpose is            
 specifically granted for a public purpose after negotiation.                  
 CO-CHAIR BUNDE asked who owns that building if the nonprofit agency           
 that has used it for 25 years goes out of business for some reason            
 and the state no longer has the covenant.                                     
 MR. LANE replied the nonprofit agency legally would own that                  
 building after 20 years.  The assumption is the building has                  
 essentially depreciated and the state no longer has any right to              
 that building.  Prior to the end of that 20-year period, the normal           
 practice is that the state would have some right to the building.             
 CO-CHAIR BUNDE asked if the maintenance was paid by the nonprofit             
 or by the state?                                                              
 MR. LANE responded it was paid by the grantee.                                
 REPRESENTATIVE DAVIS pointed out the grantee could also utilize               
 grant monies or state dollars for maintenance and upkeep, so in a             
 sense the state would continually be upgrading to keep the value of           
 the asset, so at the end of the 20 years it was possible the state            
 still could have an asset.                                                    
 Number 220                                                                    
 JACKIE DAMON, Social Service Program Officer, Division of Family &            
 Youth Services, Department of Health & Social Services, said she              
 was the grants administrator for the residential facilities.  She             
 said it is true that in the grant process money is allocated to               
 cover expenses for the building, but one of the provisions of all             
 the grants is that at the end of a grant period, when the grantee             
 is no longer a grantee of the department, any of the assets                   
 purchased during that time need to be distributed to another                  
 grantee providing like services or at least another social service            
 type facility.  Ms. Damon commented that she is aware of one or two           
 buildings that had been purchased with state money over a period of           
 20 years or longer, and are no longer providing services to the               
 Division of Family & Youth Services, but they are being used to               
 provide social services to a group that is also served by the                 
 MS. DAMON pointed out this particular statute speaks only to the              
 residential child care grants, but department grants speak to all             
 of the grantees.  Grant money is allowed to be used for the                   
 purchase of a building under the department grants, but it is not             
 allowed under the residential grants.  The residential grants take            
 precedent, if there is something in the department's regulations,             
 but not in the residential grant regulations, then the department             
 grant regulations take precedent.  In this case, it is only the               
 residential provider grantees who cannot purchase buildings.                  
 CO-CHAIR BUNDE summarized that the property doesn't go into limbo,            
 it remains of use to nonprofit agencies who provide social                    
 services.  In other words, the property is not going to be sold,              
 and the money will end up in someone's pocket.                                
 MS. DAMON responded no, because the grant awards specify that it              
 must be used for like services in case of no longer being funded.             
 Number 398                                                                    
 REPRESENTATIVE ROKEBERG verified these were grants to private                 
 nonprofit corporations and asked what occurred if the funding was             
 cut off after a period of years, but prior to the satisfaction of             
 the note on the deed of trust.  Where is the title vested?                    
 MR. LANE replied the state would have some right to that building.            
 He said this is a general problem that works with all the state's             
 capital grants, whatever they are.  He explained that in any                  
 facility, the state doesn't necessarily own the right for                     
 perpetuity, but they try to maintain that it has a public purpose,            
 and then if there is a problem in the future, the state would                 
 negotiate with that grantee, possibly even foreclose on the                   
 building.  He added it's rarely done, but the state does have the             
 legal right to foreclose if they have a deed of trust.                        
 REPRESENTATIVE ROKEBERG said it was his understanding there are               
 provisions in those leases that allow the state to terminate their            
 lease/own interest if funding is not approved by the legislature.             
 He commented that accounts for the lease/own interest situation,              
 but he thought it also applied to policy as to purchase (indisc.)             
 fee about what is going to occur with that asset.  If there is not            
 a future income stream to service the debt on the promissory under            
 the deed of trust, then there is going to be an automatic default             
 if the funding is cut off by the legislature.  He commented that              
 when the federal government does things of this nature, they do it            
 with cash.  He said that Representative Robinson's suggestion to              
 include adult programs sounds like a great concept, but the state             
 could have numerous obligations to other deed of trust holders or             
 beneficiaries if the funding was cut back.                                    
 Number 585                                                                    
 MR. LANG remarked the state wouldn't have any obligation.  The                
 obligation would be all on the grantee.                                       
 REPRESENTATIVE ROKEBERG said that Mr. Lang was alluding to "some              
 state of Alaska right here that (indisc.) law when you're                     
 depreciating this and then there's no reversionary interest in the            
 fee afterwards.  So, the state would pay for the physical asset and           
 at the end of the satisfaction of the promissory note, then title             
 would revert to the nonprofit organization?"                                  
 MR. LANG replied it is their general practice that the title is               
 always with the organization, but the state has a deed of trust on            
 the title; it's basically a mortgage like a bank would do.  If that           
 property is not being used correctly or is in danger of default,              
 the state could step in and foreclose on that property.                       
 CO-CHAIR BUNDE said he would like to hold HB 515 in committee so              
 Representative Rokeberg could work with the department and discuss            
 the real estate implications.                                                 
 Number 661                                                                    
 REPRESENTATIVE ROKEBERG pointed out there is a request from the               
 Department of Health & Social Services for revision in the fiscal             
 MR. LANG informed the committee that this particular statute is               
 unique.  The department has a lot of grant programs that allow the            
 department to give capital grants, but this is the only grant                 
 program that he is aware of that has any restriction.  He said this           
 is an anomalous situation and the department is going along with it           
 because it brings this program in line with the other grant                   
 Number 784                                                                    
 REPRESENTATIVE DAVIS asked these were tax exempt facilities under             
 the current system of leasing and renting?                                    
 MS. DAMON replied the nonprofits are tax exempt.  She felt this               
 issue had been raised because many of the nonprofit agencies pay              
 hundreds of thousands of dollars over a period of time to some                
 landlord for property, and this legislation would allow them to own           
 the building and the money could then be used for services.  She              
 added this particular regulation went into effect in about 1983 and           
 a lot of the nonprofits who provided residential care services to             
 children in the department's custody, were able to get their                  
 buildings through capital projects.                                           
 CO-CHAIR BUNDE said he would like to hold HB 515 over until                   
 Thursday, March 7, to allow time for the department to work with              
 the sponsor and Representative Rokeberg regarding the technical               
 MR. LANG added the department feels that rather than just limiting            
 the change to building-related, he whole clause in question should            
 be deleted.                                                                   
 CO-CHAIR BUNDE suggested the department work with the sponsor on              
 that issue.                                                                   

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