04/18/2002 08:02 AM House STA

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ALASKA STATE LEGISLATURE HOUSE STATE AFFAIRS STANDING COMMITTEE April 18, 2002 8:02 a.m. MEMBERS PRESENT Representative John Coghill, Chair Representative Jeannette James Representative Hugh Fate Representative Gary Stevens Representative Peggy Wilson Representative Harry Crawford Representative Joe Hayes MEMBERS ABSENT All members present COMMITTEE CALENDAR HOUSE BILL NO. 364 "An Act relating to capital projects for deferred maintenance, replacement, modification, and expansion of state facilities; relating to leases to secure financing for those projects; relating to the issuance of certificates of participation to finance those projects for certain capital facilities owned by the state; giving notice of and approving the entry into, and the issuance of certificates of participation in, lease- financing agreements for those projects; and providing for an effective date." - MOVED CSHB 364(STA) OUT OF COMMITTEE SENATE JOINT RESOLUTION NO. 38 Proposing amendments to the Constitution of the State of Alaska relating to information regarding proposed expenditures. - HEARD AND HELD PREVIOUS ACTION BILL: HB 364 SHORT TITLE:STATE FACILITIES SPONSOR(S): RLS BY REQUEST OF THE GOVERNOR Jrn-Date Jrn-Page Action 01/30/02 2095 (H) READ THE FIRST TIME - REFERRALS

01/30/02 2095 (H) STA, FIN

01/30/02 2095 (H) FN1: (REV)

01/30/02 2095 (H) Recessed to Thurs. 4/18/02 -- BILL: SJR SHORT TITLE:CONST AM: PRIORITY OF EXPENDITURES SPONSOR(S): SENATOR(S) KELLY Jrn-Date Jrn-Page Action REFERRALS PHILLIPS; THERRIAULT; 532 WARD, LEMAN; OLSON, WILKEN 203 Y14 N3 E3 CALENDAR CALENDAR RECONSIDERATION READING REFERRALS Recessed to Thurs. 4/18/02 -- WITNESS REGISTER JACK KREINHEDER, Chief Analyst Office of the Director Office of Management & Budget Office of the Governor PO Box 110020 Juneau, Alaska 99811-0001 POSITION STATEMENT: Testified and answered questions on and SJR 38. NANCY SLAGLE, Director Division of Administrative Services Department of Transportation & Public Facilities Juneau, Alaska 99801-7898 POSITION STATEMENT: Testified and answered questions on DEVEN MITCHELL, Debt Manager Treasury Division Department of Revenue PO Box 110405 Juneau, Alaska 99811-0405 POSITION STATEMENT: Answered questions on SJR 38. ACTION NARRATIVE TAPE 02-42, SIDE A Number 0001 CHAIR JOHN COGHILL reconvened the House State Affairs Standing Committee meeting at 8:02 a.m. [This meeting was recessed on April 16, 2002.] Representatives Coghill, James, Fate, Stevens, and Wilson were present at the call to order. Representatives Crawford and Hayes arrived as the meeting was in progress. HB [Contains discussion pertaining to HB rents collected are adequate to properly maintain the buildings, but don't cover "catching up" on the past. pipes can be fixed for the buildings in the public building fund, then they can be kept up, and the state won't be faced with this in the future. Number 1800 REPRESENTATIVE WILSON expressed concern about a flat-roofed building being built in Fairbanks. She said she understood that flat-roofed buildings leaked and had problems, but she was told there was new technology and that wasn't a problem anymore. Number 1889 REPRESENTATIVE STEVENS asked why the Capitol Building, which was built over 50 years ago, is in much better shape than the courthouse built in Kodiak more recently. MR. KREINHEDER replied that it was a very sturdy building built soundly with brick and concrete, but it is one of the buildings in the state that has been adequately maintained. By virtue of housing the governor and the legislature, it hasn't been subjected to the cuts to the degree that other buildings have been. REPRESENTATIVE JAMES mentioned that she also has heard that there is new technology for a flat roof, and there are some advantages to a flat roof. She pointed out that the funding for the Capitol Building is in the legislature's budget and "we take care of our own, ... yet we don't seem to have the necessary 'guts' ... to take care of all these other things." REPRESENTATIVE FATE explained to the committee that the technology involved in the flat-roof building at the University of Alaska Fairbanks had been studied scientifically. He agreed that some of the new design technology can alleviate some of the problems and extend the life of buildings, but that's not to say that they don't have to be maintained. He agreed that there is a huge problem in deferred maintenance, but the design and the methods of construction contribute to the problem. Number 2122 CHAIR COGHILL made a motion to adopt the proposed committee substitute (CS) for HB 364. services could be picked up by other nearby maintenance stations. Number 2627 REPRESENTATIVE JAMES asked if the numbers would change if the funding for veterans' housing were used for a veterans' facility as opposed to a combined facility for veterans and pioneers. MR. KREINHEDER answered that this money is flexible and could be used either for a separate wing for the veterans on an existing pioneers' home, so the food service facilities could be shared to make it less expensive, or for a complete stand-alone home. The costs might vary. The $4 million, combined with matching federal money, would get this project well on the way. Number 2752 REPRESENTATIVE FATE commented that something needs to be done about deferred maintenance on the maintenance station between Fairbanks and Big Delta for the missile defense facility. REPRESENTATIVE STEVENS commented that it seemed the wrong time to close the Kodiak maintenance station to the Kodiak rocket launch, which also will be used for missile defense. MR. KREINHEDER said he certainly empathized with the two members' concerns about the particular maintenance stations, and noted that it points out the difficult decision of reducing millions of dollars from DOT&PF's budget. The closures are going to be in one legislator's district or another's, and that legislator, of course, is not going to be happy about it, he said. Number 2886 REPRESENTATIVE JAMES asked who makes the decision about which maintenance stations will be closed. Number 2900 MS. SLAGLE replied that the commissioner makes the decision with information he's been provided by the maintenance staff. REPRESENTATIVE JAMES said she doesn't think this has to do with [stations] being in any legislator's district; the one Representative Fate is concerned about is not in his district. She said they're not complaining about the district issue. they're talking about the functional issue of statewide concerns. MS. SLAGLE added that there are other cuts to DOT&PF in addition to maintenance station closures. Positions are being deleted all over the state, including giving up maintenance on "category three" roads in Southeast Alaska. TAPE 02-42, SIDE B Number 2979 MS. SLAGLE said when the costs can't be cut enough to live within the proposed budget, some fixed costs have to be identified and given up, and that explains those maintenance station closures. REPRESENTATIVE JAMES commented that when those decisions are made, she hopes that the concerns mentioned today are considered. Number 2923 MR. KREINHEDER reiterated that with the amendments, there is about $157 million in total for 560 or 565 projects. The financing mechanism proposed for this deferred maintenance package would use certificates of participation [COPs], which is a form of debt financing widely used by most states. It is well tested, and Alaska has used it before. MR. KREINHEDER said there is some concern from some legislators about the COP approach. They prefer a general obligation [GO] bond placed on the ballot. The GO approach was considered, but there are three main reasons why the COP was chosen. The first reason is timing. These are critical projects and the damage gets worse every year. Even waiting one construction season can result in hundreds of thousands of dollars of additional damage. With the GO approach, the projects wouldn't be on the ballot until the fall; the 2002 construction season would be over, and many of the projects wouldn't be done until the summer of 2003. If the COP approach was passed by the legislature this session, these projects could get going, and the more critical ones, hopefully, could be completed this summer. MR. KREINHEDER said the second reason is that the longer the wait, the more expensive it gets. He said the state can pay now or pay later. These projects do need to get done. The third reason is the concern of "overloading" the ballot with the GO bond. Experience has shown in municipal elections that the larger the bond issue, the less likely it is to pass; the smaller it is, the more likely it is to pass. If schools and other projects are placed on the GO bond, it could reduce the chance of the package passing. Number 2652 REPRESENTATIVE JAMES added that she believes deferred maintenance is primarily a legislative responsibility. She supported the COP methodology rather than GO bonds. There should be a list of projects by severity and need, and that kind of list is not necessarily done for GO bonds. Number 2543 REPRESENTATIVE HAYES referred to the $1.7 billion figure and the $156 million for the COP and wondered what happens to the difference. He also asked, with all the maintenance that is being proposed, whether the economy would be "superheated" on the construction side. He expressed concern about losing jobs to out-of-state workers. MR. KREINHEDER referred to the first question and said the $1.7 billion figure was the grand total, which included ferries and highways in addition to the buildings. To keep this package realistic, this amount was settled on to balance the competing needs. This amount would cover the most critical needs for the buildings in the public building fund. Additional funding probably will be needed in the future, either through the capital budget or a bond issue. This won't solve the problem, but it will be a major improvement. MR. KREINHEDER commented that the question about the amount of construction has been heard before. There is a lot of construction going on in the Railbelt area and Anchorage, but one thing in favor of these projects is that a lot of them are relatively small projects. They would be put out to bid in many smaller contracts, so a lot of smaller Alaskan contractors would be able to bid. He said he thought out-of-state contractors would be less likely to bid on the smaller contracts. MR. KREINHEDER reiterated that the most urgent work needs to be started quickly. The bulk of the money probably would be spent over a two-year period, and the balance maybe over the third year. If this bill is passed in May, there won't be a slew of contracts all going out in June. Some of them may have some design work involved, so it would be spread over the 2002-to- Number 2308 REPRESENTATIVE FATE agreed that the COP is the right method, but noted that the facility is the collateral. He asked if there was an accelerated depreciation schedule with the COP method that takes into consideration the life expectancy of the buildings in the various regions around the state, where it differs. MR. KREINHEDER thanked Representative Fate for bringing up the security issue. Since only $157 million is needed for security, not all the buildings need to be used for security. A few of the larger ones with the most value would be picked because they would add up to the security needed. The risk of any default would be extremely low. MR. KREINHEDER said if the package stayed at $157 million, the annual debt service would be about $15 million a year based on pointed out that the interest rate is another good reason to do this now. MR. KREINHEDER referred to concern about whether the state could spend $15 million a year. He indicated that that amount or more would be spent in emergency repairs or closing some of the buildings and leasing space, which would cost more over the long run. CHAIR COGHILL asked what the annual debt service is. Number 2090 DEVEN MITCHELL, Debt Manager, Treasury Division, Department of Revenue, replied that the annual debt service is about $70 million. REPRESENTATIVE FATE asked if the 4.9 percent interest rate was fixed and if there would be the opportunity to fix that at the time of the deal. MR. MITCHELL answered yes, it was fixed, but there would be an opportunity to potentially reduce that rate over time. He explained that since this would be a 15-year term, there would be a 10-year call, so there would be the potential to refund the bonds. While 4.9 percent is the rate stated in there, the actual rate, if bonds were issued today, would be slightly less. REPRESENTATIVE JAMES said if the legislature isn't going to go this way, she supports the idea of selling the buildings and leasing them back and letting the private sector get involved. She asked about the arbitrage on the bonds that are sold for a longer period of time and how that money is treated. MR. MITCHELL said that arbitrage refers to the reinvestment of bond proceeds either in a construction fund or a reserve fund on a bond issuance. In the COPs for the State of Alaska there no longer are reserve funds, so it would just be in a construction fund. The bill was drafted so that the earnings on these projects could be used on the projects. The best way to approach this is to realize that the projects are going to "trail out" cash over a period of years, and that money will not sit there idly; the money will be reinvested and will enhance what can be done with this money. Number 1804 ANDREA DOLL, President, Friends of Alaska State Museum ("Friends"), came forward to testify on the land acquisition and expansion for the state museum. She told the committee that the temporary buildings behind the museum are not in good shape, and the museum needs to expand. She reported that the museum is the number-one place that tourists are encouraged to visit in Juneau. She stated that the museum is very important. MS. DOLL informed the members that the Friends put an option on some land behind the museum and are working very hard to acquire it. The option expires soon, so there is a limited amount of time. She noted that the Friends have a great desire to secure the land. Once the land is secured, she imagines it as a state project whereby the people raise the money to put a building there. She encouraged the committee to support the bill. REPRESENTATIVE FATE asked her if there are any strings attached to the purchase of the land, such as state requirements because it's a state museum. MS. DOLL said there are no real strings attached to it, but inside the option, there is a promise that if there are any difficulties in terms of the land and cleanup due to the oil pipe that used to run across it, those will be taken on by the original owners. REPRESENTATIVE FATE asked what the total purchase price was. MS. DOLL answered that it was $1.5 [million] for the property, with an additional $400,000 to $500,000 for design of the building. Number 1420 REPRESENTATIVE JAMES asked if the construction plan included other things besides the museum and wondered if the entire plan had been presented to the legislature. She said she thought they needed to see the entire plan in order to make this commitment. Number 1353 CLARK GRUENING, Lobbyist for Alaska Historical Society, Alaska Museums, and Friends of the Alaska State Museum, came forward to answer questions. He acknowledged that this would involve other agencies. The archive building has a deferred maintenance problem, and that is why it's tied into this bill. Money could continue to be spent to try to fix the roof and reattach the utilities that are being separated as the building moves, but the archive building itself is inadequate. It makes sense to have a combined facility for the archives and museum which need similar climate controls and apparatus to protect the priceless articles. He noted that another potential user is the historical library. MR. GRUENING told the members that it would be a multipurpose building that would not only enhance the present use, but reduce future maintenance costs. He had worked with the company to get the option, and he confirmed that the option on the land was good until July 15. REPRESENTATIVE JAMES expressed her support for museums. She said that the responsibility of the people to maintain the credibility of their history is very important. It saddens her that some of these things that are so important for future generations seem to take a back seat to some of the critical issues today. REPRESENTATIVE FATE asked for an estimate of the total project without considering the land. MR. GRUENING said there is an estimate, but it depends on which of the three elements are in it. The present building is about expansion would be another 70,000 square feet, and the cost would be between $22 million and $27 million. MR. GRUENING informed the committee that the original museum building was built with sales tax that the City and Borough of Juneau dedicated to that building and a centennial grant of federal money secured in 1967; it is now 34 years old. Number 1004 REPRESENTATIVE FATE expressed support for the efforts on behalf of the museums. MR. MITCHELL responded to Chair Coghill that this is the first time pooling the buildings for security has been done in Alaska, but other states have done it. Consultation with the financial advisors and legal counsel indicated that there is no adverse impact on the state's ability to do this as far as a credit or legal structure goes, and it would actually enhance what normally would be a "leased-back" security. CHAIR COGHILL wondered how the bonds would be protected in a case of mismanagement. MR. MITCHELL answered that there is security in how the bonds will be spent. In a COP, there's title interest in the facilities that might be selected as collateral to a trustee. That trustee can intervene if there is a failure to make payment on behalf of bondholders and do something else with that facility to try to make the bondholders whole. In the event that the state failed to pay, that action would be taken. In response to the question regarding misuse of funds, that same trustee is responsible for ensuring that any funds spent are spent for an allowed purpose. Money couldn't be spent on a program that wasn't identified in the indenture. MR. KREINHEDER explained that pooling hadn't been done before, not because there are problems with pooling, but because prior COPs, such as the Fairbanks courthouse, have been building- specific. This is the first time multi-building financing has been done. Number 0560 REPRESENTATIVE WILSON asked what the difference is between COPs and GO bonds. MR. MITCHELL replied that a GO bond has to get voter approval and then the state gives a full-faith credit pledge that says it will do whatever it has to, within what it can do, to repay this obligation. It is the strongest pledge. For the State of Alaska that is a AA-2 credit. The COP is a "lease backer," subject to an annual appropriation debt, so it's a step down from that and is an A-1 rated transaction. While the COP is still state-supported, it doesn't have the same strength of pledge behind it. If there were a failure to appropriate, there would still be severe credit ramifications to the State of Alaska, but it wouldn't be required to pay other than the buildings that were involved (indisc.). MR. MITCHELL answered Representative Wilson and said that there is a limitation to the extent that the state can borrow funds. Historically, it has tried to maintain the current credit rating, which was last revised in 1998. If Alaska borrowed too much, the credit rating could possibly be downgraded. Obviously, when the analysts look at the State of Alaska and Alaska says it has a fiscal gap, they are able to see on the balance sheet that there is in fact a fairly large sum of money available to the state one way or another, and they take that into consideration. REPRESENTATIVE WILSON asked if the state was close to having that rating jeopardized. MR. MITCHELL responded that he didn't believe so. Number 0132 REPRESENTATIVE JAMES moved to report CSHB Affairs Standing Committee. SJR Number 0043 CHAIR COGHILL announced that the last order of business would be SENATE JOINT RESOLUTION NO. 38, Proposing amendments to the Constitution of the State of Alaska relating to information regarding proposed expenditures. WENDY HALL, Staff to Senator Pete Kelly, Alaska State Legislature, presented SJR 38 Out of Committee 02/26/02 (S) MINUTE(STA) 02/27/02 2318 (S) STA RPT 3DP 1NR 02/27/02 2318 (S) DP: THERRIAULT, HALFORD, 02/27/02 2318 (S) NR: STEVENS 02/27/02 2318 (S) FN1: (GOV) 03/18/02 (S) JUD AT 1:30 PM BELTZ 211 03/18/02 (S) Moved Out of Committee 03/18/02 (S) MINUTE(JUD) 03/20/02 2472 (S) JUD RPT 3DP 1NR 03/20/02 2472 (S) DP: TAYLOR, COWDERY, 03/20/02 2472 (S) NR: ELLIS 03/20/02 2472 (S) FN1: (GOV) 03/22/02 (S) FIN AT 9:00 AM SENATE FINANCE 03/22/02 (S) Moved Out of Committee 03/22/02 (S) MINUTE(FIN) 03/22/02 2501 (S) COSPONSOR(S): DONLEY, LEMAN 03/22/02 2496 (S) FIN RPT 5DP 4NR 03/22/02 2496 (S) DP: DONLEY, KELLY, GREEN, 03/22/02 2496 (S) NR: AUSTERMAN, HOFFMAN, 03/22/02 2496 (S) FN1: (GOV) 03/26/02 (S) RLS AT 11:00 AM FAHRENKAMP 03/26/02 (S) MINUTE(RLS) 03/28/02 2559 (S) ADVANCED TO THIRD READING FLD 03/28/02 2556 (S) RULES TO CALENDAR 1OR 3/28/02 03/28/02 2559 (S) READ THE SECOND TIME 03/28/02 2560 (S) ADVANCED TO THIRD READING 4/2 04/02/02 2592 (S) READ THE THIRD TIME SJR 38 04/02/02 2592 (S) HELD IN THIRD READING TO 4/8 04/08/02 2664 (S) ELTON NOTICE OF 04/08/02 2663 (S) BEFORE THE SENATE IN THIRD 04/08/02 2664 (S) PASSED Y14 N5 E1 04/09/02 2692 (S) RECONSIDERATION NOT TAKEN UP 04/09/02 2693 (S) TRANSMITTED TO (H) 04/09/02 2693 (S) VERSION: SJR 38 04/10/02 2861 (H) READ THE FIRST TIME - 04/10/02 2861 (H) STA, JUD, FIN 04/16/02 (H) STA AT 8:00 AM CAPITOL 102 04/16/02 (H) Scheduled But Not Heard -- 04/18/02 (H) STA AT 8:00 AM CAPITOL 102 HB 364 3132 Channel Drive HB 364. href='/basis/Bill/Detail/22?Root=HB364'>HB 364. 12175 Glacier Highway, A204 href='/basis/Bill/Detail/22?Root=HB364'>HB 364. 217 Second Street, Number 204 href='/basis/Bill/Detail/22?Root=HB364'>HB 364. Detail/22?Root=SJR38'>SJR 38 on behalf of sponsor. 364 - STATE FACILITIES ll/Detail/22?Root=HB365'>HB 365]. 444, Alaska Public Building Fund, and explained that the If the roofs and ?Root=HB364'>HB 364, version 22-GH2007\C, Bannister, href='/basis/Bill/Detail/22?Root=HB364'>HB 364 but asked ?Root=HB365'>HB 365, directly corresponded with "the A Detail/22?Root=HB365'>HB 365 was referred directly to The ones that HB 364 would close are in areas where 2003 construction season, with some projects completed in 2004. 15-year financing and an interest rate of about 4.9 percent. He 34,000 square feet. If all three elements were included, the href='/basis/Bill/Detail/22?Root=HB364'>CSHB 364, version 22- 364(STA) was reported out of the House State 38 - CONST AM: PRIORITY OF EXPENDITURES 22?Root=SJR38'>SJR 38 on behalf of Senator Kelly, /22?Root=SJR38'>SJR 38 will amend the constitution to HB 349. SJR 38 rises ?Root=HB349'>HB 349]. When she came to the legislature ail/22?Root=SJR38'>SJR 38 will be held over. "> id="docLink">Open document in new windowX ht:100%;min-height:600px" id="docFrame"> width="105" height="107" alt="The Seal of the State of Alaska"> g.gov/basis/btmf_login.asp?session=33">track bills, locate and contact your legislators, and access committee information. Questions? Try our help wizard or call 907-465-4648.

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04/18/2002 08:02 AM House STA

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