Legislature(2001 - 2002)
05/09/2002 08:07 AM House STA
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
May 9, 2002
8:07 a.m.
MEMBERS PRESENT
Representative John Coghill, Chair
Representative Jeannette James
Representative Hugh Fate
Representative Gary Stevens
Representative Peggy Wilson
Representative Harry Crawford
MEMBERS ABSENT
Representative Joe Hayes
COMMITTEE CALENDAR
HOUSE BILL NO. 533
"An Act relating to public building projects of the Alaska
Housing Finance Corporation, authorizing the financing by the
Alaska Housing Finance Corporation of a building in Anchorage
for office space for state, federal, and municipal agencies and
subdivisions; and providing for an effective date."
- MOVED HB 533 OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 533
SHORT TITLE:AHFC FINANCING OF GOVERNMENT OFFICE BLDG
SPONSOR(S): RLS
Jrn-Date Jrn-Page Action
05/08/02 3446 (H) READ THE FIRST TIME -
REFERRALS
05/08/02 3446 (H) STA, FIN
05/09/02 (H) STA AT 8:00 AM CAPITOL 102
WITNESS REGISTER
REPRESENTATIVE JOE GREEN
Alaska State Legislature
Capitol Building, Room 403
Juneau, Alaska 99801
POSITION STATEMENT: Presented HB 533 as sponsor.
PAUL FUHS
World Trade Center Alaska
(No address provided)
POSITION STATEMENT: Testified in support of HB 533.
JOHN BITNEY, Legislative Liaison
Alaska Housing Finance Corporation (AHFC)
Department of Revenue
PO Box 101020
Anchorage, Alaska 99510-1020
POSITION STATEMENT: Described what the bill does and what it is
based on and explained the role of AHFC in the financing of
HB 533.
ACTION NARRATIVE
TAPE 02-55, SIDE A
Number 0001
CHAIR JOHN COGHILL called the House State Affairs Standing
Committee meeting to order at 8:07 a.m. Representatives
Coghill, Fate, Stevens, Wilson, and Crawford were present at the
call to order. Representative James arrived as the meeting was
in progress.
HB 533 - AHFC FINANCING OF GOVERNMENT OFFICE BLDG
Number 0092
REPRESENTATIVE JOE GREEN, Alaska State Legislature, sponsor,
presented HB 533. He told the committee that while there are
offices available in Anchorage, there are really none available
to handle large groups of people, such as the Legislative
Information Office (LIO). Not too long ago the Bank of America
building was purchased, and it houses several different groups
from the agencies, but it's full now. He told the committee
that the lease for the LIO will expire next May. Space has been
looked for, but the current rent is going to double, and the
facilities are not actually as good as they might be.
Number 0195
REPRESENTATIVE GREEN noted that he has been trying to find
places to house the LIO and hasn't really come up with much, and
it's probably going to take a new building. He suggested that
here is an opportunity to house the LIO, as well as bring in
several state and federal agencies. It will allow for more
efficiency and save the state money. He told Chair Coghill that
he thought this bill came about from a subcommittee of the
Legislative Council, which has been working on office space for
the past 2.5 months.
Number 0330
PAUL FUHS, World Trade Center Alaska, told the committee that he
has been working on this for about 15 years, since he was mayor
of Dutch Harbor. There is a lot of support from fishery
agencies in Western Alaska for a $50 million project in
Anchorage that can be the service center for the fisheries in
Alaska rather than in Seattle. He acknowledged that is
significant. For Alaska fisheries to be effective overall,
there needs to be a clear focus, and people need to work
together. The research needs to tie together with the
management and the business development, and co-locating a
building like this is a way to do that.
Number 0439
MR. FUHS indicated that the best example of this is the Ronald
Reagan World Trade Center in Washington, D.C. It houses the
U.S. Department of Commerce and all the international trade
offices in Washington, D.C. in about a 1.3 million square foot
building. The model is this public/private partnership of a
building with a mission for a purpose. Some of the state and
federal fisheries agencies should be coordinating more closely,
such as the National Marine Fisheries Service and the Alaska
Department of Fish & Game, he said. Many of them have shared
overlapping jurisdictions over fisheries, and a lot of the
research isn't even done in Alaska; the Alaska Fisheries Science
Center is in Seattle. It has about 300 employees that should be
located in Alaska who do research for the North Pacific Fishery
Management Council and all the allocations for the Bering Sea.
Number 0526
MR. FUHS noted that this building would encourage program
efficiencies, but it would also be a cost savings. If the state
owns the building, it saves money. Alaska Housing Finance
Corporation (AHFC) has financed other buildings, and actually
AHFC owns the state office buildings in Juneau and Fairbanks and
some other buildings under the old ASHA (Alaska State Housing
Authority).
Number 0573
MR. FUHS said almost every one of these agencies wouldn't be
taken out of a private building. The permitting agencies could
be located together - the Army Corps of Engineers is out on the
base and people almost can't get there anymore because of
increased security at the base. The North Pacific Fishery
Management Council is in the old federal building, and the
federal GSA [General Services Administration] wants more space
in the federal building in Anchorage for the court system and
would like to move some people out. The National Marine
Fisheries Service, NOAA [National Oceanic and Atmospheric
Administration], and some of these other agencies are in the
federal building, so it looks like a pretty good fit to bring
them together into one facility that could provide a clear
focus, he said.
MR. FUHS emphasized that this would not take a single person
from those offices in Juneau or Kodiak. He told the committee
that the U.S. congressional delegation is very supportive of
this concept. He indicated that the genesis of this was the
fisheries agencies, but in talking with people about the
frustration with the LIO space, it was discussed that it could
be designed to include the LIO and save the state some money in
the long term.
Number 0729
MR. FUHS assured the committee that this is not some kind of a
capital move in disguise. This legislative space is needed in
Anchorage anyway, regardless of anything else that happens.
This building should be built for security, and that needs to be
thought about now. From his experience as an explosives expert,
he told the committee that many of the facilities occupied by
the State are extremely vulnerable to that type of attack.
MR. FUHS explained that the $50 million comes from building a
facility that would have about 200,000 square feet, which is the
estimate for the agencies that would occupy the building. It
would include about 25,000 square feet for the legislature and
maybe another 30,000 square feet for fish and game or some other
state agencies, and the rest would be federal agencies. The
AHFC owns about two blocks around the Atwood Building which is
one possible site. Other sites looked at include Ship Creek and
the McKay Building, but the site near the Atwood Building offers
coordination with the agencies there.
Number 0860
MR. FUHS referred to the maintenance issue. He noted that in
the Atwood Building, a certain amount of the rent is
specifically set aside for long-term maintenance, and that is in
the contract for the rent. There is also a private property
manager that looks out for the building and is accountable.
Number 0941
JOHN BITNEY, Legislative Liaison, Alaska Housing Finance
Corporation (AHFC), Department of Revenue, told the committee
that AHFC doesn't have any position either for or against
HB 533; he just wanted to describe what the bill does and what
it is based on. The bill authorizes AHFC to enter into
agreements in order to lease facilities to the state, federal,
or municipal entities, he explained. This is an old ASHA
statute from the old public building finance Act. It has been
used by the state numerous times over the years to use the state
housing authority as a financing agent for leaseback finances.
A financing vehicle is being generated to take advantage of
various tax provisions and tax advantages as a governmental
entity in order to achieve some savings and get a building that
the state owns.
Number 1050
MR. BITNEY noted that there is nothing in the bill that would
harm AHFC. The bill authorizes the corporation to do this
project. The authority in the bill is fairly broad. He had
prepared a zero fiscal note for the bill. He indicated that in
any type of agreement like this, AHFC wouldn't be putting money
in; it would be providing the technical expertise of putting the
financing together. If the legislature and the governor are
willing with this piece of legislation, the AHFC would proceed
with negotiations with the developer and with the entities.
There would be a board approval process at AHFC in order for
this deal to go forward.
MR. BITNEY referred to the stack of documents and explained that
they are just an example of the kinds of documents needed to do
something like this. Included are an official statement on the
bond on the Atwood purchase, the lease agreements, tax rules,
and the kinds of issues it would go into with the rating
agencies. He said he wanted the committee to know that there is
a tremendous amount of work that goes into deals such as these
before any kind of purchase or new construction is pursued. The
estimates he provided with the sheet attached to the fiscal note
are just various financing rough assumptions using basic tax-
exempt rates conservatively of about 6 percent over a 20-year
term. By looking at the spreadsheet, the committee can estimate
some of the estimated debt service costs in various square foot
sizes. He told the committee that over the life of a building
over 50 years, there would be savings to the State for using
this kind of financing.
Number 1275
CHAIR COGHILL asked how the municipality feels about the state
ownership of the Atwood Building.
Number 1330
REPRESENTATIVE GREEN referred to a letter of support from
[Anchorage] Mayor Wuerch [included in the committee packet].
MR. FUHS clarified that the letter from Mayor Wuerch was when
they were talking about the World Trade Center building, and
this would be a privately developed world trade center. It
would be closely co-located, but it would be privately financed.
Even though the municipality supports the overall concept, it
does have some issues with taxes; it would prefer that every
building be taxable in the community, he said. Mr. Fuhs stated
his belief that the private portions in the Atwood Building are
taxable. In this case, any world trade center private
functions, fishing groups, and foreign consulates would all be
taxable. [Building] this isn't done to try to get out of
property taxes; that's a minimal advantage. The real advantage
is the tax-exempt financing that saves money.
CHAIR COGHILL expressed concern about the broadness of the bill
and wondered if all municipalities would have the possibility of
having a greater government structure building.
Number 1497
MR. BITNEY replied that the authority would be there per the
amendment by the legislation, but each project under that
statute does require an authorization by law of the legislature.
CHAIR COGHILL said one of his concerns for Alaska is the ever
growing governmental entity, the nonprofit entity, the
diminishing private entities, and the economy being structured
by that dynamic.
REPRESENTATIVE GREEN commented that this bill would free up the
space being occupied by these agencies for tax returns for the
city.
Number 1557
REPRESENTATIVE WILSON asked if there was a possibility that a
private group could build and own the building, and the state
could rent it.
MR. FUHS replied that that could be done, but the state wouldn't
be able to take advantage of the tax-exempt bonds, and the real
savings are when the state owns its own buildings rather than
leases them.
REPRESENTATIVE GREEN said that is one of the problems in trying
to find space for the LIO. There are buildings being built, but
the unfortunate part is they don't have the benefit of tax-
exempt bonds, so their costs are higher; therefore, the rents
are higher.
Number 1622
REPRESENTATIVE WILSON emphasized the importance of having a
policy for the maintenance costs. She wondered what would
happen if there weren't enough renters to cover the costs.
MR. FUHS explained that HB 533 authorizes AHFC to talk to people
about that, along with the developers and the world trade
center. All the agencies are interested in it. It allows AHFC
to ask the agencies how long of a term of contract it can sign.
Nothing goes forward until the AHFC board says this is a sound
business deal, and the board votes on it. Right now there are a
lot of interested people, but they will be able to make a
commitment once there is the financing behind it. He said that
the problem is it has been so theoretical, but without a
specific project and authorization, how does it become real.
That's what this does. It is very critical for the fisheries to
be efficient and work together with all the research,
management, and business development.
Number 1790
MR. BITNEY confirmed that the maintenance would be included in
the contractual leasing.
REPRESENTATIVE WILSON commented that since the terrorist
attacks, insurance for government buildings is horrendous, and
there is no way to estimate that cost. If someone else owned
the building, it would be his/her responsibility to have those
insurance costs. She said it sounds really good but wants to be
sure all the negatives have been explored, so the state isn't
left holding the bag.
Number 1853
REPRESENTATIVE GREEN commented that one of the problems now is
to try to secure the LIO, and it cannot be done unless
additional space it doesn't need is purchased and the security
is put in at the entrance. This bill would allow for a
completely secure building, which would reduce the amount of
cost. He commented that if those costs are going to be incurred
by some other owner, they will be passed on [to] the renters.
MR. FUHS clarified that the documents provided by AHFC include
maintenance and operation costs, and the money will be set aside
for maintenance. It's based on the formula used at the Atwood
Building, which is about 85 cents per square foot per year.
About $1.8 million a year is generated for maintenance in the
Atwood Building.
Number 1984
REPRESENTATIVE FATE asked if this is going to make or break the
World Trade Center or vice versa. He said it seems to him that
two different concepts of use are being talked about.
MR. FUHS indicated that the exact purpose is to combine the
government research and regulatory agencies with the business
development side. He explained that the world trade center
holds the license and is a franchise. There are 350 world trade
centers all over the world. It's not going to make or break the
world trade center financially. What is does make or break is
pulling the fisheries and natural resources together with
business development to make it work. The problem is a program
efficiency issue of coordination between agencies. It's also an
issue when people come in from out-of-town and everything is
scattered all over. The Denali Commission is looking at putting
money into this project, because people in rural Alaska need a
central focus for resources and fisheries. The commission sees
it as a bridge between urban and rural Alaska.
Number 2072
REPRESENTATIVE FATE asked if this will be a world trade center
that houses different parts of government.
MR. FUHS replied that it can be named anything the legislature
wants. The idea is to put together a campus. This bill allows
AHFC to own all or a portion of the building. It could be made
into zero lot lines or condominiums, where people owned certain
floors. It might even be possible there would be a federal
appropriation to have some federal bill paid for as capital up
front, and that part wouldn't be financed. This allows AHFC the
flexibility to put together those pieces that make it work
financially.
Number 2138
REPRESENTATIVE FATE asked if private organizations will find
cheaper rent housed in structures that have had this tax
advantage in construction through the bonding mechanism than
they would find in the private market.
MR. FUHS answered no. The private portions of this will be
privately financed; they would just be co-located in the
facility. He explained that tax-exempt bonds cannot be used for
private development.
Number 2170
REPRESENTATIVE STEVENS asked about the capital move issue and
the timeline on the building.
REPRESENTATIVE GREEN said no one is being brought in who isn't
already there except the people in Seattle. As Mr. Fuhs
indicated earlier, people are not being commandeered from the
Bush or Juneau. Representative Green agreed that it is true
that this won't be done in time to satisfy the concerns
regarding the LIO, which would require an extension of the
existing lease - and that opportunity is available - but the LIO
would rather have a year-to-year lease until this building was
finished rather than another decade lease.
REPRESENTATIVE STEVENS asked if this is a subterfuge to move the
capital.
REPRESENTATIVE GREEN emphasized that it is not intended to be.
He reiterated that no one is being brought in who isn't already
in Anchorage other than the people from Seattle. As far as he
knows, this is in no way tied to trying to move the capital. He
said he personally does not want the capital moved. He said he
thinks that is a mistake.
Number 2300
MR. FUHS referred to the question about the timing and told the
committee that the best-case scenario would be a building
completed in two years, but three years is more realistic.
Number 2331
REPRESENTATIVE JAMES expressed support of this proposal even
though she didn't hear all the testimony. She commented:
I think this is the kind of development that we can
grow. I spent some time in Calgary, Alberta, and the
mentality that's going into this process is exactly
what they did to build themselves. If you hadn't been
there 20 years [ago] and now, you'll see the tall,
high buildings, and almost all of the oil industry is
located in Alberta. That's not because that's where
all the oil is, it's just because that's where they
are because they were invited in ... [and] given
really good opportunities to come.
Number 2379
REPRESENTATIVE JAMES mentioned that the airport in Calgary is
the reason she filed a piece of legislation to have the airports
in Anchorage, Fairbanks, and Cold Bay in a port authority which
would be combined on one balance sheet and run as a business, as
opposed to a state-operated facility, simply because she said
she believes that Alaska should start competing with outside
Alaska instead of within Alaska for these uses. She wasn't able
to sell that to the Fairbanks folks, because they still don't
trust Anchorage very much. Over time people have to understand
that they live in a state, so, therefore, they need to
cooperate. She asserted that Anchorage needs to be the economic
center of Alaska because it is the only place it will work, but
Fairbanks does have a role. If there can be a better
relationship between the people in Anchorage and Fairbanks not
to be parochial about the issues but to be supportive of what is
good for the state as a whole, they can get there.
Number 2429
REPRESENTATIVE JAMES emphasized that she is not willing to
purchase or construct a state-operated facility without having
the provision of maintenance.
Number 2606
MR. FUHS said one additional twist on the private space in the
Atwood Building is that there is enough in there now that it
doesn't qualify for the full tax advantage it could. If some of
the private tenants could be put into the World Trade Center,
there would be a substantial tax break on the Atwood Building.
REPRESENTATIVE WILSON asked how many legislators are in the
building with the LIO.
REPRESENTATIVE GREEN answered there are 17 representatives and 9
Senators that have access to that building.
REPRESENTATIVE WILSON commented that she wasn't sure it was wise
to have legislators in the same building as a world trade
center, in terms of security.
Number 2700
REPRESENTATIVE FATE asked what strain, if any, does this place
on the bonding capacity of AHFC.
Number 2715
MR. BITNEY replied that there are a number of different
structures that the financing could take. Generally, Standard
and Poor looks at the lease and the subjectivity of the
appropriation. The AHFC's idea is to structure the financing so
it gets the rate down as low as possible, realizing there has to
be some risk of appropriation. The only fiscal note on this
bill is the zero fiscal note from AHFC. However, if public
agencies are going to come into the building, they would have
fiscal notes for their lease payments, which would be used for
the debt service payments, and those would have to show up in
the budget somewhere down the road. Until the financing
structure is established, he doesn't have a good answer to the
question. He is just relaying some of the types of
considerations. Whether or not there would be additional
general obligation capacity for AHFC to put towards this
project, he doesn't know right now. That would be the ultimate
in trying to drive down the cost of funds for this project.
Number 2832
MR. BITNEY noted that if it were structured to be just simply
tied to the leases on the building and the appropriation risk of
the legislature, that would not take as much "bonding capacity"
or eat into their credit; however, the question would be to what
extent not having that in there may increase a few basis points
on the deal. Those are the judgment calls the corporation gets
into when trying to figure out what's the best way to capture
the lowest cost of funds.
REPRESENTATIVE FATE asked what this will do to the short-term
bottom line of AHFC.
Number 2901
MR. BITNEY replied that he didn't believe it would hurt AHFC in
the short-term because AHFC doesn't envision anything other than
staff resources for putting the deal together. The only impact
to the bottom line - because this is a separate function than
the mortgage operations - would just be the diversion of the
attention of staff from doing other things for some period of
time. He added it was done successfully with the Atwood
Building purchase. He commented that AHFC doesn't envision
putting any of its own resources into this; it doesn't envision
making any money. It's looking at the same kind of structure as
the Atwood Building, where AHFC gained nothing from that
financing, other than it was a service to the state.
MR. BITNEY responded to a question that the only affect to AHFC
would be somewhere down the road if there was a default on the
part of the lessors. He mentioned that payments had always been
made on time in other projects.
TAPE 02-55, SIDE B
Number 3006
REPRESENTATIVE JAMES responded to the concerns about security.
She commented that she has a bigger fear of earthquakes rather
than terroristic activities. She assumes that this building
would be built in a way to protect it from earthquakes as best
as it can.
REPRESENTATIVE JAMES supported putting a world trade center in
Anchorage. She commented that it is very important to focus the
world trade negotiations and the marketing into one area of
growth, as opposed to competing amongst each other [or]
competing outside Alaska's borders. She said that Alaska has a
lot to sell and would have a lot of buyers if it shows a united
front.
Number 2908
REPRESENTATIVE STEVENS asked about the parking issue.
MR. FUHS said there have been preliminary discussions with
Anchorage about that. The parking authority in Anchorage has
paid off all its debts and could finance additional parking.
That is another detail that needs to be worked through, he
noted. He suggested a mass transit center that could facilitate
carpooling should be looked at, and transportation planning
around that area should be done.
Number 2858
REPRESENTATIVE FATE moved to report HB 533 out of committee with
individual recommendations and the accompanying zero fiscal
notes. There being no objection, HB 533 was reported out of the
House State Affairs Standing Committee.
ADJOURNMENT
Number 2823
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at
8:57 a.m.
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