Legislature(1995 - 1996)
03/28/1995 09:15 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 121
"An Act making an appropriation for deferred
maintenance for the University of Alaska; and providing
for an effective date."
Co-chair Halford stated that SB 121 would appropriate $135
million from AHFC after the Board transferred it to the
general fund to the university for major maintenance. He
referred to the resolutions and the statement by the
university regarding major maintenance.
Senator Phillips asked how much money was being removed from
AHFC.
Co-chair Halford responded that the capital budget utilizes
$70 million of AHFC money. The governor's proposal on major
maintenance uses another $30 million, which requires AHFC to
sell bonds and carry the debt service on the bonds. In the
governor's cash flow projection, it is showing $450 million
from the constitutional budget reserve and $70 million from
AHFC. He stated that deferred maintenance has to be
addressed.
Wendy Redman, University of Alaska, stated the need for the
maintenance. She pointed out that nearly 80% of the
buildings are 30 years or older, and that the university is
contained in 50% of the buildings owned by the state. This
puts a hardship on the state, with an investment of
thousands of dollars in buildings that are beginning to fall
apart. Ms. Redman spoke to the concern of the mismanagement
over the years to allow the buildings to deteriorate. She
stated that this is not true. There was no money moved from
maintenance accounts into administration or academics. In
1986 when there was a 20% budget reduction, there was $1
million at the Fairbanks campus that was taken from
maintenance to keep programs going. The money was replaced
that fall, into the maintenance account, which has been
audited. The problem has developed over time because there
hasn't been enough money appropriated to fix the buildings.
She stated that last year the university received zero
capital dollars. She stated that this has been a 10-year
accumulation which has accelerated. It continues to be the
Board's highest priority. There are major health and safety
issues that the campuses are facing with deteriorating
facilities that are dangerous for students to be occupying.
The Anchorage campus will cost $40 million in deferred
maintenance, with Fairbanks needing even more attention.
Senator Rieger asked who determines the needs of the various
campuses? Ms. Redman responded that the Board of Regents
and the university use a formula system of prioritizing
deferred maintenance programs, which is also used by DOT.
The formula is updated several times a year as needed. The
Office of Management and Budget (OM&B) has the complete
backup list of all the projects, starting with the most
need. OM&B is not involved in making individual project
decisions. The university makes the decisions.
Senator Donley stated that in his opinion the maintenance
should not be a capital item, but rather an operational item
in the budget. Ms. Redman said she agreed with this logic.
Three years ago, the Board of Regents did mandate that the
university would not be dependent on "hoping that the
legislature funded the operating maintenance requests". In
building new buildings there has been requests for operating
maintenance to go along with those facilities. It is rarely,
if ever, funded. The university's general fund operating
budget is exactly where it was 10 years ago. There has been
an increasing enrollment of 22% over the past 10 years, but
the general fund has remained flat. The tuition money has
been utilized to meet the need in student growth. The Board
of Regents agree with what you are indicating. The Board
has said to the university, "don't expect any money from the
state to build up the operating deficit in maintenance"
which is at this time guessed to be $11 million. The Board
has reallocated existing resources over a 3-year period of
time to bring the maintenance budgets up to where they need
to be, based on a formula. The Fairbanks campus will have
to reallocate from current funds this year $4 million.
Senator Donley asked about future maintenance issues. Ms.
Redman responded that it is the Board's intention to have
the maintenance costs rolled into the operating budget. The
campuses have to cut programs, restrict enrollments, and
essentially do whatever they have to do, to bring the
maintenance budgets up.
Pat Pourchot, Legislative Director for Governor Knowles,
stated the administration's concerns with the direct draw
against the reserves. In this case, $35 million versus
putting a number into the on-going annual capital projects
of the AHFC. AHFC would issue and be responsible for
servicing bonds. That is the case in the governor's bill
for the $30 million allocated from the governor's bill for
student housing maintenance. The allocation is limited to
student housing maintenance which the governor feels is more
in line with the on-going work and purposes and mission of
AHFC. This bill does not distinguish between major, or
deferred, maintenance for housing as opposed to other items.
The governor's approach is to address the other key non-
housing maintenance needs in the capital budget. There is
about $7 million in the capital budget that the governor has
submitted for non-housing goals. The difference within
AHFC, due to its special tax situation, is its ability to
borrow money at low interest rates. In turn, AHFC can
invest its reserves at higher interest rates. By having
AHFC servicing their bonds over a length of time, the real
cost of that money is significantly reduced. So, there are
very real and clear reasons for having AHFC finance and
amortize the costs of the bonds, opposed to a straight draw
in cash off the reserves. The reserves work for AHFC in its
on-going projects and missions, one of which, can be
legitimate student housing maintenance.
Co-chair Halford stated he has the same goals, expressing
concern with last years approach to revenue bonding or
borrowing. He emphasized that with the huge maintenance
backlog, this method borrowed into the future to pay for the
mistake of the past. He supports allocating the funds to
where they are needed, to catch up from real dollars,
instead of borrowing from the future. AHFC internally does
not gain or loose very much from the difference.
Mr. Pourchot stated that in terms of revenue bonds and
university or housing maintenance, there is no cash flow
going towards those bonds. Ideally, capital budget cash
would be the best way of addressing the problem. He stated
that now, the state is faced with an incredible backlog of
maintenance and even with a 5-year plan, it would be a
stretch for capital dollars. That is what has led to the
governor's proposal. The disadvantage again of the straight
draw off the reserves is that by keeping the reserves of
AHFC, it can provide valuable programs into the future with
the ability to make money or at least narrow the real rate
of borrowing within their own agency to minimal levels.
Co-chair Halford asked what the governor's approach is for
next year when the answer this year is $30.0 for housing?
If it means borrowing continuously for each and every step,
then what is created is a passing debt. Mr. Pourchot said
that is why the "back stop" legislation was introduced. It
was granting the university authority to issue its' own
revenue bonds that would be repaid through a general fund
budget category, if the administration and legislature did
not act on some other plan prior to June, 1. Co-chair
Halford stated that it does not apply to maintenance. It
would work on a new dormitory with new receipts, but asked
how that works on past maintenance on a common building.
Mr. Pourchot stated that it work only in the sense that
there is no revenue stream to repay the bonds. The
repayment comes into the front section of the budget along
with $10-$11 million. It's just another operating budget
item for debt service. The reason for that was to meet
pressing needs. The development that Co-Chair Halford was
referring to is the project in the next several months, in
the development of the whole budgeting process for next
year. There is no concrete plan for the mechanism of
addressing the balance of the backlog of maintenance. The
governor's pledge is to work on this and develop a plan. No
options have been selected beyond this year. Co-chair
Halford stated his concerned that if revenue bonds are
passed, and becomes a state appropriation, it is in
violation of the state constitution. When using a revenue
bond to build a dormitory, with new receipts, it is
different than using a revenue bond to pay for major
maintenance held over from the past. Mr. Pourchot stated
that it was authorized under law. Co-chair Halford
recognized that it would never be found illegal in Alaska
because it was first done by the Court System to build the
court building in Juneau. Other buildings were subsequently
built for the court system.
Co-chair Frank moved for passage of SB 121 with individual
recommendations. Senator Phillips OBJECTED without having a
plan for the full-scale funding. Co-chair Halford stated the
question is not decided regarding AHFC. He said that SB 121
is legitimate start, tho it will probably sit in the Rules
Committee, while other parts are discussed. He recommended
moving it. Senator Phillips withdrew his objection. With
no further objection, SB 121 REPORTED OUT of committee with
"other recommendations" by Senators Rieger, Phillips, Donley
and Zharoff. Co-chair Halford and Frank and Senator Sharp
recommended "do pass".
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