Legislature(1997 - 1998)

03/25/1997 09:03 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
       SB 34  DOT MAINTENANCE FACILITY AT SOLDOTNA                             
       SENATOR TORGERSON,  Sponsor, testified on behalf  of SB
       34.  Testimony  was also heard from NANCY SLAGLE, MAYOR                 
       Amendment  #1.   Without  objection,  Amendment #1  was                 
       ADOPTED.    SB 34,  as  amended, was  HELD  for further                 
  SENATE BILL NO. 126                                                          
  "An Act  relating to  the retirement  incentive program  for                 
  state employees; and providing for an effective date."                       
  SENATOR   TORGERSON,  Sponsor,   explained  SB   34  was   a                 
  straightforward  lease-purchase agreement  with the  City of                 
  Soldotna   to   finance  and   construct  a   Department  of                 
  Transportation and Public  Facilities maintenance  facility.                 
  The current facility would be moved off the present location                 
  on the Kenai River.  It has been a top priority for the city                 
  for a number of years.  The bill originally started out with                 
  $6 million for  the cost of the facility.  Amendments in the                 
  Transportation Committee  reduced the amount to $4.5 million                 
  with the lease payment obligation at $620 thousand per year.                 
  SENATOR ADAMS inquired  where the project  was on the  DOTPF                 
  capital budget priority list.                                                
  NANCY  SLAGLE,  Director,  Administrative  Services,  DOTPF,                 
  testified  in  support of  SB 34.    She explained  that the                 
  department had requested direct funding for the facility for                 
  the  past 2-3 years.   Some appropriations were provided for                 
  remediation, design and preliminary work.  It was felt SB 34                 
  was  the  most  appropriate  method  to obtain  funding  for                 
  construction of the facility at this  time.  The project, as                 
  well  as  the removal  and  clean-up  of the  old  site, was                 
  supported  by  the  governor, but  there  was  limited money                 
  available because  of budget  constraints.   She noted  that                 
  representatives from the Department  of Revenue were present                 
  to explain that they  have been assured by the  state's bond                 
  counsel that  the clean-up  portion can  be included in  the                 
  financing package,    as  long as  there  is a  tie  to  the                 
  exchange of the new land expected from the borough.                          
  SENATOR TORGERSON  elaborated on the  land issue.   In 1964,                 
  when the borough was created, they selected a piece of DOTPF                 
  land  for the borough  building.  It  has been on  the books                 
  since then, to be traded  back to DOTPF when requested.   It                 
  surfaced as part  of the  agreement to move  the site.   The                 
  borough  has  made land  available  to  the  state  for  the                 
  facility just outside Soldotna and  are prepared to deed the                 
  land over  to the  state.   There had  been some  discussion                 
  about whether or  not to include approximately  $1.5 million                 
  for clean-up of the contaminated maintenance yard site.  The                 
  City of Soldotna has indicated they would go either way, but                 
  preferred not to sell revenue bonds to finance the clean-up.                 
  MAYOR  KEN  LANCASTER,  City  of  Soldotna,   testified  via                 
  teleconference.   He  stated  that it  has  been the  city's                 
  number one priority  to move the  facility off the banks  of                 
  the Kenai River.   They are prepared to go to  bond to build                 
  the  new facility.   It  had been their  prior understanding                 
  that the clean-up would be a separate item but they could go                 
  either  way.    They   just  want  the  facility   moved  as                 
  expeditiously as possible to protect the river.                              
  SENATOR  TORGERSON brought  up  a previous  appropriation of                 
  $600 thousand for clean-up, $400  thousand of which has been                 
  spent.    He  noted  it was  an  ongoing  process.   It  was                 
  difficult  to  tell how  much  it  would cost  and  what the                 
  definition of clean was.  He stated the department estimated                 
  a lower figure of $250 thousand, but no upper limit had been                 
  established.  It was dependent on what they might find.   He                 
  was uncertain if  the clean-up should be  included, possibly                 
  clouding the title,  particularly with the City  of Soldotna                 
  being the  lead agency.   He  referred to  a budgetary  item                 
  included by the governor last  year of $1 million, one-fifth                 
  of the project, and it was traded off for $600 thousand  for                 
  additional clean-up.                                                         
  MAYOR  LANCASTER added  that  it seemed  strange  to try  to                 
  inflate the cost of a new facility by  $1.5 million, when it                 
  (the  clean-up) was actually occurring on  another site.  So                 
  instead  of the facility only costing $4.5 million, it makes                 
  it worth $6 million.  It did not make economic sense to him.                 
  COCHAIR  SHARP invited Mr.  Browne to discuss  the nature of                 
  the fiscal note and proposed lease.                                          
  FORREST BROWNE,  Investment Officer, Department  of Revenue,                 
  addressed  the committee.   The administration had suggested                 
  several technical  changes to the proposed  legislation that                 
  would minimize the  cost of issuance  of the financing.   It                 
  would also give  more flexibility  in terms of  refinancing.                 
  Their experience has  been that typically, over  the term of                 
  the  lease,  it  gets  refinanced two  to  three  times when                 
  interest  rates  dip.   So  they  have  aggressively pursued                 
  refinancing  any  time  they can  save  money  on  the lease                 
  payments.  They had recommendations in three areas.                          
  The  first area would clarify that  the state bond committee                 
  would coordinate the financing.   It is state debt,  it will                 
  affect the state debt capacity, it  will be rated as a state                 
  debt by the  national bond rating  services and it would  be                 
  appropriate  to  be  involved  in that  process.    A second                 
  suggestion was to eliminate the requirement that the City of                 
  Soldotna be  the nominal  issuer of the  debt.  If  there is                 
  flexibility in that regard, it could be structured that way,                 
  but in the event it could be combined with another financing                 
  coming  along at the same time,  they might wish to do that.                 
  As written, the  bill specifies  they must use  the City  of                 
  Soldotna, and  having the  flexibility could  save over  the                 
  long term.   The third suggestion  was to clarify that  both                 
  the facility and land will be owned by the state at  the end                 
  of the lease term.  It  was suggested in discussion earlier,                 
  however the  bill speaks only  to the facility  being owned.                 
  They  had found  in  previous situations  that  it became  a                 
  controversy as to who actually owns  the land.  Summarizing,                 
  MR.  BROWNE believed the changes would  minimize the cost of                 
  issuance  by  eliminating duplicate  costs  at the  city and                 
  state  level  for  things such  as  bond  counsel, financial                 
  consultants and advisors, etc.   The changes will also allow                 
  the state flexibility to package the debt  issuance with any                 
  others they might have.  The financial markets respond  well                 
  to the larger  packages, enabling more competitive  bids and                 
  lower  interest rates.   The  changes would  also allow  the                 
  state to  expeditiously refinance  when interest  rates dip.                 
  He  cited  a  $1.5  million  potential interest  savings  on                 
  refinancing of the Spring Creek Correctional facility.                       
  SENATOR PHILLIPS inquired if the three  suggestions outlined                 
  were  made  in  the Transportation  Committee.    MR. BROWNE                 
  responded that  they had discussed them but  the feeling was                 
  that because they  were financially oriented, they  would be                 
  best discussed in the Finance Committee.                                     
  SENATOR ADAMS noted that lines 11-12 stated the  state would                 
  own the facility  and questioned Mr. Browne's concern.   MR.                 
  BROWNE explained that his suggestion was to insert the words                 
  "and the land" after "facility."   He added, "There has been                 
  confusion in lease-purchase transactions in the future where                 
  a city has claimed  ownership of the land at the  end of the                 
  term and then the state has to either buy it or  renegotiate                 
  a lease."  He believed it was the intent of the sponsor that                 
  the state would own the land when the debt was paid off.                     
  SENATOR  TORGERSON  had  no  problem  with the  proposal  to                 
  include  land.  He had  additional comments about the clean-                 
  up.  The land  transfer that the borough owes  the DOTPF for                 
  the  borough building land  is supposed  to be  an appraisal                 
  saying they owe  x number of dollars, then divide  it by the                 
  assessed valuation  of other acreage.   What the  borough is                 
  proposing  for the  clean-up is  to increase  the amount  of                 
  acreage on the  trade to give  the bond counsel the  feeling                 
  that they will secure the additional money with the land and                 
  tie it all into one facility.  It went from early discussion                 
  of  about  fifteen acres  for  a DOTPF  site  to forty-eight                 
  acres.  When  the appraised  value and number  of acres  are                 
  divided out by $6 million, "it doesn't pencil anywhere."  He                 
  believed that was what the mayor was referring to.                           
  With respect to  the state  bond counsel, SENATOR  TORGERSON                 
  stated that every purchase agreement  he'd been involved in,                 
  the cities have always wanted to have this authority and not                 
  turn it  over to the state.   He referred  to Palmer, Seward                 
  and Kenai as lead agencies.  He objected to adding the state                 
  bond counsel and removing the city as the lead agency.                       
  SENATOR ADAMS MOVED Amendment #1, to insert "and land" after                 
  "facility" on page 1,  line 11.  SENATOR PARNELL  stated for                 
  clarification that by adopting the amendment the state would                 
  take  responsibility for  environmental  clean-up.   SENATOR                 
  TORGERSON had no  objection to adding the language,  but was                 
  uncertain what the amount  of acreage would be.   He opposed                 
  adding the clean-up to the bond proposition because it was a                 
  state responsibility  and  may end  up as  a super  clean-up                 
  site.  To request  the city to bond  for clean-up is  "above                 
  and beyond the call of duty of this municipality."                           
  SENATOR PHILLIPS asked if the state  was refusing to pay for                 
  the clean-up.   SENATOR TORGERSON  said they  didn't know  a                 
  number either, it  just happened to  be a convenient way  to                 
  finance the entire thing.                                                    
  COCHAIR SHARP asked if the city  had the capability to issue                 
  tax-exempt bonds, or would the state's bonds qualify as tax-                 
  exempt.    MR.  BROWNE responded  that  they  both  have the                 
  ability.   The city would not  be on the debt,  their credit                 
  would not carry the debt.   It is clearly state debt,  which                 
  was why  they  recommended  the  state be  involved  in  the                 
  COCHAIR SHARP asked if there  was any objection to Amendment                 
  COCHAIR SHARP stated his intention to  hold SB 34 along with                 
  the Public Health  Lab bill (SB  51), see where the  capital                 
  budget figure was in  a couple weeks and what  options would                 
  be available at that time.   And so, SB 34, as amended,  was                 
  HELD for further consideration.                                              

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