Legislature(2013 - 2014)HOUSE FINANCE 519
03/17/2014 05:00 PM House LEGISLATIVE COUNCIL
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| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MARCH 17, 2014
5:00 PM
MEMBERS PRESENT
Representative Mike Hawker, Chair
Senator Peter Micciche, Vice Chair
Representative Mike Chenault
Representative Max Gruenberg
Representative Craig Johnson
Representative Lance Pruitt
Representative Bill Stoltze
Representative Peggy Wilson
Senator John Coghill
Senator Dennis Egan
Senator Charlie Huggins
Senator Kevin Meyer
Senator Gary Stevens
MEMBERS ABSENT
Senator Mike Dunleavy
OTHER MEMBERS PRESENT
Representative Alan Austerman, alternate member
Representative Doug Isaacson
Representative Les Gara
AGENDA
APPROVAL OF MINUTES
RATIFICATION OF CHARITY EVENTS
OTHER COMMITTEE BUSINESS
SPEAKER REGISTER
Wayne Jensen, Jensen Yorba Lott, Inc. and Project Architect on
the Capitol Building Restoration
Mike Buller, Deputy Director, Alaska Housing Finance Corporation
Juli Lucky, Staff to Representative Mike Hawker and Committee
Aide to Legislative Council
5:06:04 PM
I. CHAIR MIKE HAWKER called the Legislative Council meeting to
order at 5:05 p.m. in room 519 of the State Capitol. Present
at the call were Representatives Hawker, Chenault, Johnson,
Pruitt, Stoltze, and P. Wilson; Senators Micciche, Coghill,
Egan, Huggins, Meyer, and Stevens. Representative Gruenberg
joined the meeting at 5:14 p.m., during the discussion of the
Alaska State Capitol Seismic Retrofit and Exterior Renovation.
CHAIR HAWKER noted for the record that Representative
Austerman, Legislative Council alternate member for the House,
was present, as well as Representatives Isaacson and Gara.
II. APPROVAL OF MINUTES
5:08:22 PM
VICE CHAIR MICCICHE moved that the minutes from Legislative
Council meeting of February 27, 2014 be approved as presented.
The motion passed with no objections.
III. RATIFICATION OF CHARITABLE EVENTS
CHAIR HAWKER stated that his office confirmed that the
following charity events are held on behalf of 501(c)(3)
organizations in good standing and that, as allowed under
statute, he has previously sanctioned these events and they are
now before Council to be ratified.
5:09:27 PM
VICE CHAIR MICCICHE moved that Legislative Council ratify the
following charity events, which were previously sanctioned by
the Legislative Council Chair in accordance with AS
24.60.080(a)(2)(b):
a-c. Kenai River Classic, Kenai River Jr. Classic, and Kenai
River Women's Classic all benefitting the Kenai River
Sportfishing Association;
d. Beyond the Stacks benefitting the Friends of the Library;
e. Legislative Skits benefitting Big Brothers Big Sisters;
The Association for the Education of Young Children,
Southeast Alaska Chapter; and AWARE;
f. JACC Wine Tasting benefitting the Juneau Arts and Culture
Center; and
g. Midnight Sun Charity Shoot benefitting the Outdoor
Heritage Foundation of Alaska.
The motion passed with no objections.
IV. OTHER BUSINESS
a. Alaska State Capitol Seismic Retrofit and Exterior
Renovation
CHAIR HAWKER stated that there were two items of very
significant business before the Council tonight. Both items are
some of the most significant decisions faced during the entire
legislative session. The first is the Capitol Seismic Retrofit
and Exterior Renovation. As discussed at the last meeting in
executive session, he said he would do his best to put some
parameters on the record. He said his approach to this meeting
is to discuss both of these projects, the Capitol Envelope and
the Anchorage LIO, and then Council may take up motions should
the committee choose to do so after that discussion.
In executive session, it was discussed that the Capitol Seismic
Retrofit and Exterior Renovation project involves a complete
removal of the exterior of the Capitol and replacement with
modern materials. As everyone knows, this building is
crumbling. The previous Legislative Council had a restoration
architect engaged who did a complete study distributed to the
Council in early 2013 documenting the degree of deterioration
and that this building is literally at risk of, in a seismic
event, having the fascia, the sides, collapse. Employees have
witnessed large chunks of the parapets lying on the ground in
the morning when they come to work. Many have heard the
anecdote of Senator Stedman's staff coming to work last year
and having a rather large chunk of concrete drop in front of
him. The Capitol is 80 years old; it's made of sandstone, which
absorbs a lot of moisture and it's literally crumbling around
us. The question is: What do we do with our Capitol Building?
This Council previously approved work on the portico; the money
that had been appropriated was used to stabilize that last
summer. Everything, including the steps, was removed.
5:13:45 PM
The engineers and construction crews found that the supporting
structure had deteriorated to the point that the steps were
just balanced and tippy. They excavated underneath the Capitol
itself and discovered approximately 120 floor joists in the
building were crumbling. The next step was to go out for bid
for a construction manager/general manager to work with the
architect and engineer to put together a final cost estimate to
do the seismic retrofit and exterior renovation of the Capitol
Building. Both the architect that was hired out of Seattle a
year ago and the current architect doing preliminary cost
estimates had estimated it to be about a $23 million project.
Wayne Jensen and Gary Hovdy, project manager with Dawson
Construction Inc., who were engaged by a vote of Council to put
together the cost estimate on doing the whole project, are
present today. Chair Hawker stated that, about two days before
the last Legislative Council meeting, he learned, much to his
trouble, that the estimate was not $23 million but closer to
$33 million. This was presented during executive session at the
last meeting.
Council directed Mr. Jensen to take some time to develop
proposals on what options it might have. Chair Hawker invited
Mr. Jensen to speak to the committee with regard to that task.
REPRESENTATIVE STOLTZE reminded members that, at a previous
meeting, he proposed and Council passed an amendment that would
focus the improvements on life, safety, and structure. He said
much of those issues were discussed in executive session. He
thinks it would help the public record if this issue were
further delineated. There were past renovation efforts that
were less than life, safety and structural. He said he wanted
to amplify or clarify that the intent of Legislative Council is
that these improvements were things that were really important
for life, safety, and structure. He asked if it was a fair
characterization that these have been the criteria of all these
improvements.
CHAIR HAWKER said he thinks it's a very significant part of
this. He knows for a fact that we are in a situation where we
are aware of the problems with this building. He has heard from
other counsel as well as our own that the Legislature would be
highly exposed to liability claims if we don't do something
about the building's exterior.
REPRESENTATIVE STOLTZE said he was trying to amplify that this
is not a "bells and whistles" type of project. Everything he's
seen from Mr. Jensen has been things that were life, safety and
structural issues. There have been criticisms in the past about
some of the attempts to do more of the aesthetics and this is
far from that.
CHAIR HAWKER said he would very much agree with that
characterization. There was agreement that anyone interested
could look at the historical record of the motions passed by
Council with regard to this project. He then asked Mr. Jensen
to give a recap of where we're at with this project.
WAYNE JENSEN, with the architectural firm of Jensen Yorba Lott,
Inc. in Juneau, said that the Chair's characterization of the
project was very accurate. In response to Representative
Stoltze, the structural work is the driving force behind this
project.
CHAIR HAWKER interrupted to ask that Mr. Jensen flesh out the
point that Representative Stoltze brought up, specifically to
talk about the columns out front and the structural work that
was necessary there.
MR. JENSEN said that the work done last summer on the portico
was primarily to stabilize that portion of the building. That
was targeted because that was the area that they felt was in
the worst condition and was in the most vulnerable location,
being the front door to the Capitol. The stone was
deteriorating and that was where the piece of stone fell in
front of Senator Stedman's staff. What we had on the portico
was a series of stone blocks that were stacked on top of each
other. They weren't adequately attached to each other so that,
in the case of a seismic event, there was a high probability of
displacement of those components. The columns in front had
three sections, each about seven to eight feet high and about
four and a half feet in diameter that absolutely weigh tons.
They were only held together by a small ring that was in their
center. It was just gravity that was holding them there. In an
earthquake, gravity is actually one of the worst fears because
as things start to shake laterally, heavy things tend to fall
over. Those columns are some of the heaviest things in the
building. Besides restoring the crawl space work and fixing
some of the joists, we drilled a hole down through the middle
of all of those columns and anchored them to the foundation
with a reinforcing bar; so they are no longer just sitting on
top of each other, they're actually tied into the foundation.
To couple that, we poured concrete beams from the top of the
columns, between the columns, back over to the building and
then new concrete down the side of the building; and reinforced
the foundation, so everything is now tied together in a loop
from the foundations all the way up to the roof and down
through the column. That's kind of the same approach that we're
looking at for the rest of the building in that the building is
a concrete frame.
He said even though all you see on the outside is brick and
stone, the actual structure of the building is concrete -
concrete columns, concrete beams, and concrete floors. The
columns are connected to the beams in sort of a post-and-beam
configuration; but because they didn't understand how to resist
lateral forces 80 years ago, they aren't connected well enough
to resist the lateral forces that are imposed on a building by
earthquakes. To ameliorate that problem, we're planning on
putting concrete shear walls between the columns and between
the floors to stiffen the building and spread those lateral
forces across the entire face of the building rather than
concentrating them at the connections between the columns and
the beams, which is the weak point in that type of
construction. In order to do the structural work in the walls,
we need to remove the brick facing and the windows to get back
to the concrete structure. It just happens that the brick is
old and in bad shape anyway and so, in doing this concrete
work, we're able to restore the exterior of the building -
replacing the windows, replacing the brick and, because we
don't need all that brick anymore (currently four layers of
masonry thick when we only need one), we can replace that with
concrete shear walls and some more insulation so that not only
do we strengthen the building structurally, we add some energy
efficiency as well.
CHAIR HAWKER said he wasn't here to sell this project, but
anyone that wants to see the problems with the brickwork should
go down the hall and look out the window just past his office
on the left toward the Senate Finance Chamber and one can see
where this brick is literally exploding out of the walls from
the moisture that's been absorbed into it. He said this was
brought to his attention a year ago as he took over this
committee, he has watched that wall go from about two bricks
that were kind of peeking through to a wall right now that is
just covered with exploded bricks. It's been a profound
experience, watching that happen.
MR. JENSEN said the deterioration of the brick and the stone
throughout the building is certainly getting worse and the
possibility of some of that material falling off increases as
the years go by.
CHAIR HAWKER asked Mr. Jensen to segue into the original cost
estimate and the revised cost estimate.
MR. JENSEN said the original cost estimate was in the $23 - $24
million range. We selected a construction manager/ general
contractor several months ago and their goal was to look at the
sequencing - how we could best approach this project from a
sequencing standpoint stretched over three years - but also to
verify the actual cost; the first one was an estimate, the
second one, that we're working on now, is actual costs. We're
actually going out into the market, getting bids from suppliers
and subcontractors to do the work; and we're getting two,
three, four bids in the marketplace to do the work. The CM/GC
process limits the amount of work that the CM/GC can do with
their own work so that 70-80 percent of the work will be
awarded to subcontractors or suppliers. In doing that, that's
their construction manager role in the process - to find out
what the actual cost is and then to manage that process
throughout the construction.
CHAIR HAWKER said that the award of those costs had to come
back before Council, which is what we are gathered for here
tonight.
MR. JENSEN said that at the last meeting it was made clear that
the cost was going to be significantly higher. He said they've
identified several value engineering or cost-saving
opportunities but in order to determine those are feasible, we
need to do some more exploration. He said we're coming back to
you now with a proposal to reduce the amount of work that's
being done in the first construction year from what was
originally intended, and to concentrate more on exploration in
the building to see whether there's opportunities that we can
explore to save money and still achieve the same purpose. The
underlying purpose is the seismic retrofit - there's no
question that there's no compromise to that - and to restore
the exterior of the building to essentially its 1931 appearance
and quality.
CHAIR HAWKER noted that it rains fairly frequently here and
when it does, his office gets a puddle in the floor due to the
quality of the windows throughout the building.
MR. JENSEN said the first priority is to get the structural
work completed. Associated with that is increasing the
insulation and repairing the envelope of the building;
replacing the heating system, which has 80-year old pipes that
are very corroded; increasing the controls of those systems so
that it is easier to maintain climate control in the rooms; and
then refurbishing the exterior of the building. These are all
associated, but the driving force is the seismic work.
CHAIR HAWKER said that Mr. Jensen's three page formal
recommendation is included in everyone's packet. He said
Council has a choice here and it's truly a committee
determination. If we choose to go forward with the project, the
scope has been reduced and there is a $5.8 million work plan
for this immediate summer. He asked Mr. Jensen to discuss the
limited scope, what he hopes to do if the $5.8 million is
awarded, and to describe the long range plan.
MR. JENSEN said the original proposal was, in the first summer,
to do the demolition and structural work on the Main Street
side of the building, the back of the building and go into the
courtyard. In the second year, they would have continued the
demolition and structural work on the east wing as well as the
finish work on the west wing (Main Street). That was a fairly
significant amount of work for that season. In order to allow
more exploration time, instead of committing to all that work
in the first season, they would concentrate on just the Main
Street/west side of the building - demolition, structural and
exploration - and structural work on the two in-fill areas on
the courtyard side of the building to create new space. By
reducing the scope of work and concentrating on the
opportunities for cost-saving in future years, the intent is to
come back to Legislative Council later in 2014 with the
findings of the investigation and revised costs for the rest of
the project - the next three years. He reiterated the time
frame remains the same and that the project will be complete in
2016. It will mean a little more work to be done in 2015 and
2016, but by doing the work now proposed for 2014, they think
they can potentially eliminate a few bottlenecks in that work
and increase efficiency. The total cost for this new proposal
is $5.8 million and that will do the structural work on the
west side of the building. In 2015, the finish work on the west
side will occur and then continue on around the building,
completing the south side/front of the building in 2016.
CHAIR HAWKER said the completion schedule for that work beyond
2014 will depend on the availability of funding and that will
also contribute to driving the schedule and determine whether
it is a two, three or four year project. That's something that
the finance committees have the ultimate authority over.
MR. JENSEN, in response to a question from Vice Chair Micciche
about the significant deterioration of the floor joists in the
Capitol, said that floor joists in the crawl space were
repaired in 2013. There are still some beams and foundation
work to be done, a good deal of which will be done in
conjunction with the seismic work on the exterior walls. The
reason that the joists in the crawl space were deteriorated was
due to the moistness of the area; because it was wet all the
time, the reinforcing steel started to corrode and when it
corrodes, it pops the concrete out. He said they haven't seen
that anywhere else in the building because it was dry, and they
are sure it was a situation unique to the crawl space. The 120
joists mentioned by Chair Hawker were repaired; there are still
some beams that need to be repaired, perhaps 15-16, but for the
most part those are not as significant as the joists. There are
a couple that are very significant and those will be
repaired/replaced this summer, but not as extensive as the work
last year.
VICE CHAIR MICCICHE followed up to ask if, of the joists and
beams being replaced, there would still be carbon steel as a
component.
MR. JENSEN confirmed that was the case. He said the reinforcing
found in the joists was, for the most part, able to be salvaged
and maintained. There were a few reinforcing bars that were
corroded beyond a certain percentage. A new reinforcing bar was
spliced in and then covered with concrete. They cleaned the
reinforcing bar, cleaned the rust, installed a rust-inhibitor
and then sprayed concrete over the reinforcing bar to protect
it into the future. They also provided drainage, after
excavating much of the wet material in the crawl space, so the
space will stay dry. That addressed one of the problems that
existed in the crawl space. There is still some work to be done
with some additional shear walls in that area and some work on
the exterior of the crawl space associated with the structural
work above.
CHAIR HAWKER said he was reminded of a presentation done by Mr.
Jensen that discussed the stability of the whole building. Core
drillings were done all around this building and it was his
understanding that the building foundation is very sound,
sitting almost on bedrock.
MR. JENSEN confirmed that a change was made in the original
construction, based on what was found at the time, to extend
the foundation down 12-15 feet to a very, very hard layer of
glacial till. The glacial till is essentially like natural
concrete and is compacted over thousands of years. It's very
dense and the building foundations extend down to that layer.
If the original builders hadn't had the foresight to do that,
the original building probably wouldn't have been around for
more than 10 years.
CHAIR HAWKER said he brought that up for two points. One is
that he is convinced the building is worth making an investment
in because it is on solid footings. Secondly, he included an
article in each member's packet about the Wyoming State Capitol
Building. In many ways, if one replaced Wyoming with Alaska,
there are many similarities except that the state of Wyoming,
just this year, appropriated $259 million to halt the decay of
their Capitol Building. Frankly, when he is looking at a $35
million spend on this one, he struggles with it, but doesn't
feel quite so bad. In Wyoming, the building is literally
cracking and there are major interior structural issues that
Alaska's Capitol doesn't experience. It's not an apples-to-
apples by any means as Wyoming is also doing major interior
renovations not being contemplated here. It is an interesting
perspective. In discussion with Pam Varni, noting her
interaction with her counterparts in other states, aging
Capitols in America are endemic. Receiving confirmation from
Ms. Varni that his understanding was correct, restoration
maintenance work that is currently underway or needed is in the
billions of dollars across the country. He said he offered that
anecdotally that Alaska is a small part of that, but it's nice
to know we're not alone in this.
MR. JENSEN said that by doing the seismic work now, Alaska is
being proactive. In the case of Washington State, they were
reactive. An earthquake actually damaged their Capitol
Building, forcing them to do millions of dollars' worth of
reinforcing and retrofit work. Utah was able to do their
seismic retrofit ahead of time which prevented damage to their
building. Nebraska, Wisconsin, Wyoming and California, in
addition to other states, have undergone significant
renovations over the last 10-20 years as they are all getting
very old.
Mr. Jensen, in response to a question by Senator Stevens about
the status of the heating system, said that is one of the
advantages of an associated project. Because they are going to
be tearing out the walls and reinforcing the building
structurally, they will be able to replace the heating piping,
which is 80 years old, black steel and is undoubtedly corroded
as well as the cast iron radiators. When they rebuild the
walls, the heating system will be replaced with a modern system
and controls so that each suite will have its own controls and
be able to do a better job of maintaining the environmental
conditions inside the building. A few years ago, the boilers
were replaced. Right now, they still provide steam to the
existing system. As the building is renovated and the heating
system is replaced, the system will be converted to hot water.
At the end of the project, the boilers will be converted to hot
water. Hot water is an easier system to manage and control.
That wasn't a driver for the project but it almost has to be
done because the piping will be torn out in order to do the
structural work.
CHAIR HAWKER, noting that there were no further questions,
thanked Mr. Jensen for his time and moved to address the
Anchorage LIO.
b. Anchorage LIO
CHAIR HAWKER said he was going to take the floor to walk
Council through the timeline of the Anchorage LIO facility,
describing how we got to where we are, where we are and what is
today being brought forward by Alaska Housing Finance
Corporation. A hard copy was distributed in each member's
packet and appears below. He further noted that he would bring
up all motions at the end of the discussion.
Anchorage LIO Facility Timeline
Prepared by Rep. Mike Hawker's Office
March 17, 2014
Prior to January 2013:
Current lease, signed in 2004, had an initial term of five
years with five optional one-year renewals.
The following procurement efforts, undertaken while the
Anchorage LIO was located at the current location, either
resulted in staying at this location or were ultimately
unsuccessful:
· Five Requests for Information (RFIs) on alternative leasing
options.
· Two Requests for Proposal (RFPs).
· Proposed partnerships with other public entities to build new
facilities, including the Court System, Department of
Administration, Mental Health Trust, and Anchorage Community
Development Authority.
· Most recent effort was to purchase and renovate the old Unocal
building.
Status in January 2013, when Representative Hawker elected
Chair of Legislative Council (LEC):
· LIO lease has one, one-year renewal option remaining, expiring
on May 31, 2014.
· No resolution, or proposal for resolution, for Anchorage LIO
facilities beyond the current lease either active or in
process.
February 2013:
· Chair appoints LEC subcommittee to explore LIO options.
May 2013:
· Last one-year renewal option exercised.
· Public RFI issued looking for leasing options-two responses
were received, both were determined by LAA to be inadequate to
fulfill LIO requirements.
· Landlord presents formal proposal to renovate building and
extend lease.
June 2013:
· LEC authorizes negotiation and conclusion of lease extension
on current facility, with renovations proposed by Landlord.
August 2013:
· Lease extension details presented to LEC in executive session
prior to execution of lease modification and extension.
· LEC authorizes chair to commence attempt to negotiate purchase
option in addition to lease extension.
September 2013:
· Lease modification and extension completed on terms presented
to LEC on August 23, 2013.
October - December 2013:
· Inconclusive discussions held with landlord regarding property
purchase.
· Landlord unwilling to take income tax penalty associated with
property sale.
January 2014:
· Chair approaches landlord with conceptual proposal for
purchase of partial interest in building "ownership entity" as
opposed to outright purchase of entire property; landlord
accepts in concept and negotiations commence.
· LEC counsel, AHFC, AHFC consultants, and Landlord's counsel
recommend the following clear demarcation of physical
ownership interests:
o State owns LIO building.
o Landlord retains ground and parking facility ownership.
o Long-term ground lease with state holding renewal and
purchase options at Fair Market Value.
February 2014:
· Non-binding MOU signed and presented to LEC.
o AHFC to purchase LIO building.
ŠPrice to be negotiated, but will be for cost of
improvements only.
ŠPrice will be below AHFC estimate of actual building
value.
o AHFC to take long-term ground and parking facility lease,
with renewal and purchase options.
o LAA will sub-lease building, ground, and parking facility
from AHFC at cost of ground and parking facility lease,
plus any directly related obligations retained by AHFC.
o Subject to authorizing legislation and funding.
March 17, 2014:
· Final building purchase proposal presented to LEC for
approval.
Details of Building Purchase Proposal:
· Landlord retains sole responsibility and risk for completing
the building renovation and obligation to deliver premises at
a fixed, below market cost.
· AHFC owns 100% of building and tenant improvements.
· AHFC enters into a 40-year ground and parking facility lease
with one 20-year renewal option (60 years total):
o AHFC option to purchase the ground and parking facility at
fair market value after 20 years and each 5 years
thereafter.
o If purchase option not exercised, lease rate to be re-
determined at fair market value at year 21 of lease.
Benefits of Purchase Proposal:
· AHFC assumes 100% ownership of building for $28,250,000.
· Total annual occupancy cost reduced from current lease of
approximately $4,000,000 to approximately $1,625,000 per year,
$135,000 per month, resulting in a cost reduction
conservatively estimated at $2.4 million per year for first 20
years. The new occupancy cost is in the same range as the
anticipated cost would have been to renew the old building and
parking facility 'where is, as is' with no improvements.
· Long-term solution resolving major LIO facility issues.
· No ongoing procurement or renegotiation required.
· Landlord obligated to fixed terms on ground and parking
facility with no provision or ability to escalate cost for 20
years.
· Landlord obligated to sell land and parking facility to AHFC
at fair market value on a fixed schedule.
Chair Hawker noted that this new occupancy cost is actually in
the same range as what he estimated the cost would have been to
renew the old facility without any improvements under current
market conditions, which would have been about $75,000+ for the
building itself and, as he has become painfully aware of the cost
of parking in downtown Anchorage - $600 per month for a reserved
dedicated spot currently - $60,000 for just the parking facility
at fair market value which is a prime parking location. If we're
willing to buy the building, the ongoing carry is about what it
would have cost to renew a lease for the where-is, as-is
facility.
With a mention that Legislative Council member Senator Meyer has
always been concerned about preserving the Anchorage property tax
base, Chair Hawker said that by the landlord retaining the
parking facility and ground, we estimate that the municipality
will actually have an increase in property taxes over what the
entire property is paying currently because everything is
remodeled to ensure the parking facility is secure and safe for
employees. It's a win for everybody. Truly, this is a situation
that involves resolution of major facility issues; future
Legislators will not have to deal with future long-term
procurement and renegotiation in the immediate future; the
landlord is obligated to fixed terms on the ground and parking
facility with no provision or ability to escalate the cost for 20
years; and we've got a fixed obligation to sell the land and
parking facility to AHFC at fair market value on a fixed
schedule.
Chair Hawker asked Mr. Buller to join the ongoing conversation in
order to answer any questions members may have.
6:11:31 PM
MIKE BULLER, Deputy Director of Alaska Housing and Finance
Corporation, put himself on record.
Chair Hawker thanked him for his counsel and ongoing help through
this process.
VICE CHAIR MICCICHE asked if the $1,625,000 per year for the
ground lease fee is essentially $100,000 per month for the ground
and $35,000 for operating, it sounds like. At $1,625,000 plus the
purchase price, we own the building and operate for 20 years for
$60,750,000. Mr. Buller said, with the inclusion of the purchase
price, that was correct.
Vice Chair Micciche followed up to say that had we simply leased
the building at $4 million per year, it would have cost
approximately $80 million for that same period. Mr. Buller said
that was correct. Vice Chair Micciche said so owning the building
saves us $20 million over 20 years or $1 million per year, and
asked for confirmation. Mr. Buller agreed.
CHAIR HAWKER interrupted to say that he does a different
calculation on that. He said the gross cost reduction is really
about $2.4 million per year for those 20 years, which is a $48
million reduction.
MR. BULLER agreed with the Chair and went on to say that was
actually a very conservative number which assumes that after the
10-year lease that we're currently under, that there is no
increase in the lease. Realistically, when the lease runs out, he
thinks the landlord will try to negotiate a higher rate than
that.
VICE CHAIR MICCICHE said that, so nominally, we've just got a $1
million on the purchase and the basic lease fee. He asked for an
explanation for the difference between $1.6 and $2.4 million
being cited as gross cost savings.
CHAIR HAWKER interrupted Mr. Buller's response to his staff to
distribute a data point sheet to go over.
VICE CHAIR MICCICHE asked the Chair to walk Council through the
data point sheet.
CHAIR HAWKER said the sheet, which he personally prepared,
including the footnotes, and which Mr. Buller and many others
have looked at, shows the building purchase price proposal of
$28,250,000, which is the cost of improvements. We get the whole
building for just the cost of improvements and those numbers will
be audited by AHFC's project auditor and the landlord's interim
construction financing banker. The next category is the occupancy
costs, which we are obligated to pay under the lease that was
executed in September 2013, the one that prompted us to pursue a
purchase option. He reemphasized there was really no legal option
available other than to pursue a lease renewal until now as we
sit in session. The original budgeted annual lease was $3,379,000
- $281,000 a month on the schedule. The original estimated annual
operating costs of $645,344 was based in part by considering the
banker's estimates, the developer's estimates and AHFC's
contracted appraisal people looking at it - this number is what
we ended up with in our operating budget and is a little bit at
variance with the appraiser's estimates. It was what was in our
current operating budget in order to come up with a round number
of $4 million in the budget. This is what we were truly looking
at having to pay under the original operating lease and was the
thing that was unacceptable to all of us.
If we choose to purchase the building, we have a ground and
parking facility lease - a long-term 40 year lease with a 20 year
extension - of $1,200,000 that is a fixed, non-escalating cost;
the estimated annual operating cost at a high estimate of
operating the building, soup-to-nuts, including managing the
parking facility, of $425,000, for a total of $1,625,000. The
difference between those two numbers is the $2.4 million annual
cost reduction. He said he would be the first to tell everybody
these numbers are approximated to the best of a lot of smart
people's ability to determine them; they're done to be
conservative where we don't know them to be exact, which is where
we're getting to a conservative estimated annual cost reduction
of $2.4 million a year. Back-checking that $2.4 million, what's
driving it is a $2.1 million elimination of those third party
costs of the debt service that's inherent in the current
landlord's financing transaction; a $300,000 mid-range estimate
of what we will not be paying in property taxes; and the four
numbers at the bottom of the sheet. These include the gross
dollar reductions over 20 years of $48 million; cash-on-cash
return in years on it, basically $2.4 million a year returns our
$28 million in a little under 12 years; and, perhaps the most
relevant number in this dialogue, is the ~$30 million, which is
the present value of that $2.4 million in savings over 20 years
at basically the current commercial financing rates of five
percent, which is another way of triangulating where we're at on
our purchase price. We're looking at the present value of the
cost-avoidance that even exceeds the purchase price today. We've
got a positive NPV on making this investment. The last number is
anecdotal - the $1.6 million is a back-of-the-envelope estimate
of where the landlords will be if we did just a straight-up
renewal of the existing lease looking at what the market value of
the core was and then a hell of a fight over the value of that
parking facility, which they know what that's worth. The parking
facility alone is worth as much as we were paying for the whole
building at the end of our last lease. That is turning into
tabular form the numbers being discussed on the other page. He
asked if that helped Senator Micciche with his question. Vice
Chair Micciche said it helped a lot.
CHAIR HAWKER said that what the next question gets into, and it's
a dialogue we've got to have at this Council meeting, is funding.
That's the big issue. He said he has put in a lot of time and
effort looking at our legislative budget, spent a lot of time
working with the good folks at LAA, who have dutifully been
putting aside capital money for legislative facilities.
Admittedly, it's largely been anticipated for the exterior of the
Capitol, but we do have facilities requirements across the state,
including the opportunity to make this purchase. We have, using
round numbers, sitting over at the LAA today, about $23 million
of capital; we're looking at a lapse coming out of the current
fiscal year 2014 of $10 million; if our finance chairs work with
us and allow that lapse to be used for facilities, we've got
enough money to do either the Capitol exterior or the Anchorage
LIO, but not quite both. If our finance chairs would give us
another $10 million this year and work with us into the future to
basically maintain a level of lapse, provided we carefully manage
our funds and don't end up with one of those years that are the
reason we keep that cushion in our legislative budget - we all
remember the years we had three special sessions back-to-back, we
spent $5 million on consultants - if that doesn't happen, we can
do the $35 million high-end Capitol renovation and buy and
furnish the LIO completely without asking for any further
appropriations. Again, that would require, however, a $10 million
appropriation in this year's budget and maintenance of our
ability to continue lapsing funds into the future until we get
both projects done. The Chair noted for the record that the money
is in the legislative budget every year because we don't know
what we're going to encounter in any given year - we can have
three back-to-back special sessions and those things can run
$1.5-2 million apiece if they get expensive. We've seen years
where we've spent $5 million in consulting fees to support those
kinds of special sessions. He said there is a pretty good chance
we could manage our way through both projects with the single $10
million appropriation this year. So, if the Council wants to
pursue the $28,250,000 for the Anchorage LIO in addition to
accepting the CM/GM's $5.8 million proposal to make the next step
on the exterior of the Capitol Building, he would ask for your
blessing to take the gravitas of this committee and go to the
finance committees, who at the end of the day will ultimately be
able to say "yea" or "nay" to whether to do this project. All we
can do is ask the finance chairs; we cannot tell them what to do.
The other thing that we will need to do to make the LIO project
happen, is Mr. Buller can't buy that building until he has
statutory authority, so we would also be asking tonight for your
approval to have the Rules Chairs introduce, by request,
legislation authorizing AHFC's purchase of the Anchorage LIO in
that amount not to exceed $28,250,000 subject to funds being made
available. This gets us full circle to all the questions on the
table.
SENATE PRESIDENT HUGGINS said he was from Meadow Lake, that
little red-neck area between Big Lake and Wasilla, and said we
own this building here and there have been a lot of people come
through here based on the history. He said the two projects are
completely different: this (Capitol) is an anchor here, to use a
local term, and the variables involved are different. The Chair
broke out, and he celebrates the choice to "phase" this and Wayne
Jensen described what that meant, which gives some parameters.
He said the LIO is a different critter. When the Chair mentioned
purchasing it, he was supportive of doing that because it's an
alternative. He said he has read some news accounts that have
characterized it as "your LIO" (Hawker's LIO), this is "our LIO"
and he takes full responsibility for what we've done or haven't
done over time because it was "we" not "you." On the other hand,
because, as the process was described of money and then
legislation in the Senate, he sees six Senators sitting here,
which is a minority amongst the Senate majority. In the LIO's
case, he would like seven working days, for the Chair and the
Vice Chair, who is also a Senator, to be able to educate our
Senators on what's involved in the LIO. In his estimation, the
Chair would have an answer back not later than March 26 from the
Senate, which would allow roughly a month to be able to do
legislation which is well within the capability of both the
bodies if we choose that course of action. This is not a
critique; what is being proposed is within the state of the
doable and our motivation. He said he wants to make sure that
when he and others here in the Senate obligate their fellow
Senators saying you're going to see a process whereby you're
going to cough up money for the LIO and, oh by the way, we want
you to support legislation or entertain it, he would rather take
that seven working days and make sure it is much more valid
rather than the minority of the Senate sitting here saying we
think that would be okay.
CHAIR HAWKER said he was very happy to accommodate that request
as he has talked to any number of the Senate members but there
have also been other members of the Senate who have been rather
busy and occupied on other things the last week.
With that, he said he is not going to bring anything to a vote at
this time and we will put together a meeting in about a week.
Chair Hawker said there was one more item of business and asked
Ms. Lucky of his staff to come forward. He said the Vice Chair
wanted an update on the furniture procurement under the existing
process as we're doing. He asked Ms. Lucky to speak to this
issue.
JULI LUCKY, staff to Legislative Council and Representative Mike
Hawker from District 27, said she wanted to put on the record
where we were with the RFP process for the furniture integration
proposal and also the concurrent survey of existing furnishings
in the Anchorage LIO and answer any questions people might have
about the process.
She said, as you know, the Legislative Council did take a vote on
the proposal in our November 2013 meeting. In January, we did
sign an agreement with KPB Architects to provide the furniture
integration services for an amount of $76,242, which was under
the not-to-exceed amount of $100,000 approved by the Council. KPB
Architects has been working with our LAA staff to come up with a
Request for Proposals (RFP) that will allow Council to choose how
much furniture they buy at the time the RFP will be presented.
The furniture integration portion is the architects designing how
the furniture goes into the building, putting out specifications
for the furniture; that will be given to LAA to then put out an
actual RFP that we will be getting bids back. Concurrently, she
is working with LAA Supply to come up with a very comprehensive
list of what we currently have in Anchorage storage and also what
is being used in the temporary facilities; the dimensions of that
furniture, what of that furniture can be re-used, and the
condition of that furniture. The plan is to present both of those
documents to Council at the May meeting so that Council can then
make an informed decision should they wish to purchase. We won't
necessarily be coming up with an RFP that has a certain dollar
amount for a certain amount of furniture. What they are asking
for is basically a breakdown per piece depending on what we would
buy, and how many pieces so we're not on the hook through the RFP
for buying anything or 100% or 50%, the intent is that both
documents - the survey of current furniture and the condition and
also the RFP showing how much new furniture would cost per piece
- would be brought to Council at the same time so that an order
could be made should Council wish to order new furniture at that
time.
CHAIR HAWKER said he would like to correct something he has seen
grossly misstated in the media that in some way the landlords
were involved in this furniture procurement. The answer is no,
not in the least. This was work with the architect firm and had
nothing to do with our landlords. What they are doing in working
for us is putting together this RFP that will go completely open
to the public. It will be a very open RFP, there is nothing
specified as far as specific products, names or otherwise. We are
looking to define the requirements so that it can be a completely
open response from any vendor anywhere in the universe that wants
to reply.
VICE CHAIR MICCICHE said the $76,242 is essentially a design
contract for understanding the quantity of space we're likely
going to be furnishing as well. Just to help the public
understand, we're talking about roughly how many offices?
MS. LUCKY said she believes that with the redistricting there are
26 Anchorage Legislators. We also house the Ethics office; we
house Information Services offices that service basically every
office outside of Juneau; and obviously the Anchorage LIO staff
themselves. Chair Hawker added we also house other people from
around the state and various regions who desire space in this
facility for both staff and for themselves - there are quite a
number of rural Legislators who believe they need Anchorage
office space. Ms. Lucky added that it is a furniture design and
integration proposal; the architects are also working with
technology group here at LAA and technology folks in Anchorage to
make sure that the wiring is correct for what we need - video
teleconferencing, teleconferencing - all of that technology is
also included; it's not just furniture integration.
CHAIR HAWKER said he would also like to debunk another comment
that was made recently. Office space is standardized in the new
facility proposal. There are two standard size offices and the
difference has been dictated by the structure within the
building. The larger offices, which is half the building, will be
23.8% larger than the smaller offices; well within the 30% that
was argued publicly, with the exception of leadership suites of
which there are four, and are larger to accommodate the needs of
leadership members. The building is being designed without
amenities. The only amenity that he can think of is a shower and
changing room in the basement, because we've been working to
encourage healthy lifestyles and people that want to get out
either on their way into work or during their lunch hour, that is
truly a minimal cost item. We specifically denied requests to
include kitchenettes, any kind of lifestyle amenities, no
cafeterias, no dishwasher, nothing that is normally part of a
contemporary office building today. Quite frankly, the public
does not want public employees to have those things and we don't
have those things in this building. We are going to be looking at
eliminating every Legislator having a "sleeping couch" in their
office. There will be tables and chairs to work; offices are not
for sleeping, they're for working. Leadership can do what they
want, but the rest of the members will have a desk, a table and
four chairs. The design focus is utilitarian, durable, functional
and as low maintenance as possible without frills and amenities.
VICE CHAIR MICCICHE said his goal was to inform the public. This
is a large project. When you're running a household or small
business and you hear the cost of this design and integration
study, it sounds high, but we're talking about a major office
building and hundreds of pieces of furniture; it's a major
undertaking. His goal was to help folks understand the immensity
of the project and hopefully we'll keep with these status reports
when we understand the specs and what a purchase order might look
like, just to keep folks involved. The scale is difficult for
folks to appreciate and he thinks it is the job of Legislative
Council to help them understand that scale.
SPEAKER CHENAULT said that, as we have watched this process
develop over the summer and last number of years, we as
Legislative Council need to take some of the hit for our actions.
It's been unfortunate that the Chairman of the committee has
taken the full brunt of not only the public's voice, but also of
our news folks that get that information out. The majority of us,
as he looks around the room, have been the same members that have
sat on this Council; and we have done Alaskans a disservice by
not addressing the issues and continuing to put them off over the
last eight years that he can think of. So, we get into a point
where we are boxed in, the Chairman does, at our bidding, what
we've chosen him to do and now he's come back with what the
Speaker believes may be an answer to the question. All of us have
different issues. Senator Meyer would rather the building be on
the tax rolls and the State of Alaska paying the City of
Anchorage for the taxes. Personally, he would rather see the
State of Alaska buy the building. When we make a purchase like
this, of this magnitude or any other project, he thinks that we
ought to own the building. He said he has a hard time thinking
we're going to pay rent for something, that we're going to pay
rent forever, when we can own it, and at the end of the day, at a
lesser cost than what it would cost over time without owning it.
He said the House would do the same as Senator Huggins and have
those conversations with his members over the next week to
determine if there is support to move either one of these
projects forward. He said that if we're going to continue to be
in the Capitol, we need to have a safe building, whatever that
cost happens to be. If we don't think this building's safe, then
we need to make the decision to build another one. Addressing
Senator Egan specifically, he said he doesn't mean outside of
Juneau. The same in Anchorage: if we're going to have an LIO that
meets the needs of not only the Legislators that live there but
those that come through there, and also the public, then we need
to have a building that does all those things. He said he
supported the Chair and that he would take the hit for anything
that we've done here and he isn't bashful about it.
REPRESENTATIVE STOLTZE said he appreciated the delay, appreciated
Senator Huggins bringing it up and as amplified by the Speaker.
The reference of the co-chairs, we're a part of the decision
making process, but the two operating budget chairs who
organizationally lead the operating side of the budget where the
lapse would need to occur need to be consulted. He said he wasn't
very comfortable with Senator Kelly and Representative Austerman
not being here for the final decision. That is a big budgetary
decision; part of the budget reduction is not lapsing and it
changes other dynamics. There are a lot of big decisions and,
while he doesn't know where he falls down at the end, he is a lot
more comfortable having the seven working days that Senator
Huggins suggested for the coffee to cool on the saucer a little
bit on this one; and for members to be a lot better informed and
to give the public a greater participation in this process as
they help guide us as well. Some of the things we may be boxed in
on, but he appreciates not having to make a decision tonight. He
thanked the Chair for the executive decision of agreeing to
Senator Huggins request.
REPRESENTATIVE GRUENBERG thanked the Chair and the Senate
President for the way they are doing this. On behalf of the
minority, it's important for him to take everybody's temperature
and for people to really understand what's going on and to be
able to participate in this. This is an extremely important
decision and he very much appreciates the additional time.
CHAIR HAWKER said this wasn't something that ended with the
original lease; that was really just the beginning of this
negotiation that has brought us to this point.
VICE CHAIR MICCICHE thanked the Chair's staff for bringing that
forward. Again, this is the working home of half the legislature
for nine months out of the year and it's a big project. He said
that on the Capitol, those that have been in private industry for
a while know the cost of deferred maintenance is an exponential
increase, it's not linear. This is our Capitol. We've got a lot
of choices in this building, but prudently managing structural
integrity and the life, safety, he certainly hopes the decision
is to get this building back to original structural condition in
the future.
REPRESENTATIVE JOHNSON said it would be a harder sell for him to
convince his constituents that we need to spend $33 million to
put new bricks on the building basically and upgrade the heat
without doing any modifications to the interior, without doing
any of the upgrades, so $33 million for sticking new bricks on
it. At the end of the day, it's going to look just like it did.
He thinks that's an issue that he supports wholeheartedly, that
this is our Capitol and we should keep it safe, but he is not
sure that what we're getting for the $28 million doesn't outpace
what we're paying for the $33 million we're getting for the
Capitol and his constituents wouldn't mind having a Capitol in
their district. Addressing Senator Egan, he said he's going to
fight to keep it here and maybe go against some of the wishes of
the citizens of Anchorage.
CHAIR HAWKER said before he hits the final gavel here today, he
noted that the "smart people" - Pam Varni, Wayne Jensen, Gary
Hovdy, and Mike Buller - are available to talk to any member in
addition to the time we will be spending together over the next
seven days expediting a dialogue amongst our peers, and bringing
this back for a final vote in time to resolve it as session winds
down.
VICE CHAIR MICCICHE said that, respectfully, that there is a
letter to go out that we promised last meeting and he was happy
to help craft the letter that would be going to the demonstrators
from April of 2013. The Chair asked Ms. Lucky to return to the
table to speak to this issue.
MS. LUCKY apologized that she had not yet distributed the letter.
It did go to Senator Dunleavy's office so that he could take a
look through the text of the letter and the attachments to ensure
it met with his approval prior to distributing it. We will be
getting out the letter to committee members as soon as she
receives confirmation from Senator Dunleavy that the letter is
adequate for his purposes. The Vice Chair was satisfied.
There being no further business before the committee, the
Legislative Council meeting was adjourned at 6:50 p.m.
6:50:03 PM
| Document Name | Date/Time | Subjects |
|---|---|---|
| Agenda REVISED 3-17-14.pdf |
JLEC 3/17/2014 5:00:00 PM |
|
| III. Charitable Events - REVISED.pdf |
JLEC 3/17/2014 5:00:00 PM |
|
| IVa. Capitol Retrofit and Renovation.pdf |
JLEC 3/17/2014 5:00:00 PM |
|
| IVa. Capitol - Backup - Wyoming Capitol Article.pdf |
JLEC 3/17/2014 5:00:00 PM |
|
| IVb. Anchorage LIO Backup - REVISED.pdf |
JLEC 3/17/2014 5:00:00 PM |
|
| IVb. Anchorage LIO Bill.pdf |
JLEC 3/17/2014 5:00:00 PM |
|
| IVb. Anchorage LIO Financial Data Points.pdf |
JLEC 3/17/2014 5:00:00 PM |