Legislature(1997 - 1998)
03/25/1997 09:03 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 KEN LANCASTER and FORREST BROWNE. SENATOR ADAMS MOVED Amendment #1. Without objection, Amendment #1 was ADOPTED. SB 34, as amended, was HELD for further consideration. 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 process. 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.