Legislature(1999 - 2000)
02/01/2000 09:04 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
February 1, 2000
9:04 AM
TAPES
SFC-00 # 17, Side A and Side B
CALL TO ORDER
Co-Chair John Torgerson convened the meeting at
approximately 9:04 AM.
PRESENT Co-Chair John Torgerson, Co-Chair Sean Parnell,
Senator Al Adams, Senator Lyda Green, Senator Randy
Phillips and Senator Gary Wilken.
Also Attending:
Senator ROBIN TAYLOR; ANNALEE MCCONNELL, Director, Office
of Management and Budget; JACK KREINHEDER, Senior Policy
Analyst, Office of Management and Budget; ALISON ELGEE,
Deputy Commissioner, Department of Administration; KEITH
GERKEN, Architect, Facilities Section, Division of General
Services, Department of Administration; BARBARA COTTING,
Legislative Aide to Representative Jeannette James.
SUMMARY INFORMATION
SJR 29-DURATION OF REGULAR LEGISLATIVE SESSION
This bill was scheduled but not heard.
SB 165-LTD PARTNERSHIPS AND LTD. LIAB. COMPANIES
The Committee heard testimony from the sponsor. The bill
was reported out of Committee with no objection.
HB 112-ESTABLISH ALASKA PUBLIC BUILDING FUND
The Committee heard testimony from the sponsor, the Office
of Management and Budget and the Department of
Administration. The bill was held.
SENATE BILL NO. 165
"An Act relating to the remedies available to judgment
creditors against limited liability company members
and their assignees and against limited partnership
general and limited partners and their assignees; and
providing for an effective date."
Senator ROBIN TAYLOR referred to the sponsor statement
saying that he would not read it into the record.
Senator Taylor told the Committee of two differing court
decisions addressing how a creditor would receive judgement
taken against a member of a limited partnership. In the
Florida case it was ruled that the creditor had the right
to go after the limited partnership to obtain only that
member's interest in the partnership to satisfy the debt.
The other case was held in Connecticut. The court in this
case allowed the judgement's creditor to foreclose upon the
partnership's assets, which essentially destroyed the
partnership. Senator Taylor asserted that the ruling made
in the Connecticut case allows actions to be taken against
a limited partnership that are beyond the control of the
other members not involved in the judgement. If one member
is sued then the entire partnership could be ruined, he
stated. This bill relieves members of a limited partnership
from that liability while still allowing the creditor of a
specific member to receive that member's distribution from
the partnership.
Co-Chair Torgerson commented that this bill is strait
forward.
Co-Chair Parnell offered a motion to move SB 165, 1-
LS0919\A from Committee with accompanying zero fiscal note
from the Department of Law and individual recommendations.
There was no objection.
HOUSE BILL NO. 112
"An Act establishing the Alaska public building fund;
and providing for an effective date."
BARBARA COTTING, staff to Representative Jeannette James
apologized that the Representative could not be present and
read the sponsor statement into the record.
Alaska has an enormous problem with maintenance of its
public facilities. Funds are not allocated for on-
going maintenance, so we are forced to continually
repair and replace our existing facilities at great
expense.
House Bill 112 would establish the Alaska public
building fund as a special account in the general
fund. It would also create an agreement whereby the
occupants of state-owned buildings would pay "rent"
into this fund. The money collected could be
appropriated by the Legislature to pay use,
management, operation, maintenance, and depreciation
costs.
Ms. Cotting noted the bill passed the House of
Representatives with no objection.
Ms. Cotting directed the Committee's attention to the
effective date, which will need to be updated from last
year's date.
Senator Phillips noted the vote tally in the House was 33
to five. Ms. Cotting pointed out that there were five
excused absences and two other absences on that day and
that the bill did not receive any "no" votes.
ALISON ELGEE, Deputy Commissioner, Department of
Administration testified that this legislation provides a
tool that better enables the state to manage its buildings.
She stated that the bill creates an internal service fund
that will enable the Department of Administration, as rent
is collected, to collect a portion of that rent for the
capital portion of building repair and replacement. She
noted that the internal service fund will "pool" until
there is sufficient funding for major part replacements,
such as heating, ventilation and air conditioning. She
added the department would be collecting money for
maintenance and operations and the administration of the
internal service fund program.
Ms. Elgee explained that the federal government allows the
state to establish a rent structure that provides for these
major projects through depreciation of the building. She
elaborated saying that as long as the state charges rent on
a uniform basis to all programs, additional federal funds
can be used to pay for the housing of some of the programs
the federal government financially supports.
By establishing this rent pool, Ms. Elgee told the
Committee the state will also be able to leverage other
fund sources within state government, such as the Division
of Retirement and Benefits. Currently this self-supporting
division occupies space in the Juneau State Office Building
at no charge. Under this legislation, she explained, funds
collected to administer the retirement and benefits program
can be used to pay into the internal service fund program.
Ms. Elgee assured the Committee that this program would
just redistribute existing funds and not require additional
funds. She said, "We are distributing the monies that are
currently existing within the budget to the respective
programs but expanding the available pool of dollars by the
ability to capture those other funds."
According to Ms. Elgee, the department's intent is to start
the process with a few select buildings rather than all
state-owned facilities. In determining which buildings will
be included in the first phase, she said the department
would look at those facilities with the greatest leverage
for outside funds.
Co-Chair Parnell pointed out language on page 1 lines 8 and
9 of the bill, ".by a public or private occupant of the
building." and asked who were some of the private occupants
that would be paying into this account. Ms. Elgee gave
examples of the Court Plaza Building in Juneau and the
Atwood Building in Anchorage, which currently have some
private tenants. She noted that this bill allows the state
to charge those private tenants depreciation expenses on
the same basis and pool those revenues as well.
Co-Chair Parnell next referred to depreciation costs shown
on page 2 line 1 of the bill. He wanted to know how funds
are currently appropriated to cover those costs. Ms. Elgee
replied that it is part of the "approved cost allocation
methodology" used by the federal government. Instead of
trying to anticipate an allotment in the rental structure
for repairs and replacement, she explained, the state is
allowed to depreciate the building. She said a depreciation
schedule is determined using the purchase price of the
building, the remaining useful life and other factors. The
depreciation allotment is then added into the rent
structure and charged based on square footage.
Co-Chair Parnell then asked why the bill is structured so
the appropriations don't lapse after one year like most
appropriations do. Ms. Elgee responded that absence of the
one-year lapse allows the department to continue to collect
the money in the fund, which needs to accrue in order to
reach an adequate amount for large capital projects. She
added that once enough money is collected, the department
would come before the legislature to request appropriations
for certain capital projects.
Co-Chair Torgerson questioned how the payments made will
not be shown as an annual expense and whether the payments
don't need to be accounted for in the program's individual
budgets. Ms. Elgee answered that the rental cost would show
up in each program and appropriated annually. Once that
money is appropriated for that program, she explained, it
is paid into the fund, the fund accrues a balance and the
legislature appropriates the fund for maintenance and
operation.
Co-Chair Torgerson said he could understand collecting rent
for operation expenses. However, with the $400 million in
state assets and considering that many buildings have a
limited life, he predicted a huge amount of money will be
needed to fund the depreciation. He suggested this program
is a back door attempt to get revenue bonds for deferred
maintenance projects.
ANNALEE MCCONNELL, Director, Office of Management and
Budget stressed that the state has a huge deferred
maintenance problem. She noted that when the state leases
space from the private sector, part of the rent paid is set
aside by the owner to use to keep the building in good
condition. She stated that other governments, particularly
in Canada, have realized if a government only operates on a
year to year basis, with no consideration for future need,
the government finds itself with a large deferred
maintenance problem. She stated that in addition to
addressing the existing deferred maintenance problem, the
Administration wants to prevent future situations where a
needed repair cannot be funded. She pointed out that
establishing a rent structure is a long-standing practice
in the private sector and in many forward-thinking
governments. She assured the Committee the intent of this
legislation is not to build up enormous amounts of unused
money, but to keep building conditions up to standards. She
added that there would be continuous pressure to plan
wisely and not over-fund the future needs of existing
buildings.
Co-Chair Torgerson appreciated the forward thinking but
argued that this is already done. He stressed that he needs
to know the impact of this legislation on each program's
individual budget. He believed it would have a large impact
and unless the legislature decides to increase those
individual operating budgets, those budgets will have to be
cut in order to set aside money for depreciation.
Ms. McConnell responded that in considering this plan, the
Administration looked at the ability to capture non-general
fund dollars, such as federal reimbursement programs that
are not capped and some state programs that are supposed to
be self-supporting but in fact receive free rent. This will
allow the state to capture some of that money and put it
toward the overall resolution of the issue, she stressed.
She pointed out that this program would add $1.5 million
revenue from non-general fund sources to the FY 01 budget.
Co-Chair Parnell requested a fiscal note that shows all the
federal and other funds included for comparison, rather
than having each budget subcommittee try to figure out the
costs for each program.
Ms. McConnell replied that the information was being
prepared. She restated Ms. Elgee's comments that no
additional general funds are requested for this year to
fund this program. She spoke of the ability of charging the
Division of Retirement and Benefits.
Senator Leman said he thought the rent would be established
at the market rate. However, it seemed to him that the rent
principles seem to be calculated differently in the bill.
He also noted that the program is to charge all tenants the
same rate. He asked if space rented at the Atwood Building
is rented at an established market rate for downtown
Anchorage.
Ms. McConnell responded that when this bill was prepared
the fact that private agencies still occupy some state-
owned buildings was not considered. She stressed that the
state is not looking at making a profit, but looking to
break even for both the operation costs and future deferred
maintenance.
Senator Leman wanted to make sure the rent calculation
method does not violate generally recognized accounting
principals. Ms. McConnell assured him it does not. She did
note that the private tenant contracts would reflect their
rental agreements.
Senator Green requested a side-by-side printout showing the
current situation and the proposed plan. She wanted to know
where the money for future repairs is currently going. Ms.
McConnell said she would provide some information but noted
that there currently is no money set-aside for future
repairs. She stated this is the problem with the existing
system.
Co-Chair Torgerson agreed that a "side-by-side" would be
helpful, and requested a breakdown by maintenance and
depreciation per building and per tenant.
Senator Wilken clarified that this legislation applies only
to buildings owned by the State Of Alaska and located
within the state. Ms. McConnell affirmed but pointed out
that in the future, it could apply to any state-owned
buildings located outside of the state.
Senator Wilken asked if the rent is calculated on the
square footage occupancy of each agency. Ms. Elgee
affirmed.
Senator Wilken asked if there was any correlation between
the amount of space an agency occupies and the cost of
their building operation. Ms. McConnell said there is not,
which is part of the current problem because there is no
incentive for an agency to reduce the amount of space it
uses when the need goes down. She stated this legislation
would help with overall space management.
Senator Wilken then asked if contributions to the fund are
specified for the particular building from where the rent
was charged.
KEITH GERKEN, Architect, Facilities Section, Division of
General Services, Department of Administration replied that
the department will account for the revenues and
expenditures by building.
Senator Wilken noted the substantial amount of money
involved and was surprised at the zero fiscal note. He
asked where the program's administrative costs would
appear. Ms. Elgee responded that this program establishes a
fund within the general fund and costs will be reflected
through "access programming". The costs are for actual
implementation of the program not for establishment of the
fund, according to Ms. Elgee. She said the distribution of
funds and the administration of the program will be
reflected in the budget.
Co-Chair Torgerson wanted to know when discussions would
begin to address establishing a separate agency for
facilities and moving it out of the Department of
Transportation and Public Facilities. Ms. McConnell replied
that because the issue was so large it was decided to take
it one step at a time and this bill was a first step.
Co-Chair Torgerson asked if the report will show how much
each agency currently spends for such services as
janitorial versus what the plan intends to charge. Ms.
McConnell pointed out that janitorial service is currently
shown as part of the Department of Transportation and
Public Facilities' maintenance budget. However, she said
the report will show the actual expense of these services.
Co-Chair Torgerson was still concerned this program will
require more funds than are currently set aside. He
believed that the charge for these services and the fund
would be more than currently charged and he needed to see
all the information for comparison. However, he did not
disagree with the direction the legislation was taking.
Ms. McConnell again stated that there would be no change to
the general fund for the FY01 budget. The only additional
money involved, she explained, is what could be gained from
other funding sources of different agencies.
Co-Chair Torgerson asked when the department would start
charging for depreciation. He understood that the
Administration was requesting the bill be passed now but
does not intend to implement the plan for a couple years.
Ms. Elgee responded that lots of work goes into the process
of establishing the building value and setting an
appropriate rate structure that reflects what is actually
being spent on a building-by-building basis. She stressed
that the federal government requires the state to do this.
She listed eight buildings that have been identified as
having the highest leverage of non-general funds. These
buildings include the Alaska Office Building in Juneau that
houses the Department of Health and Social Services; the
Atwood Building, the Court Plaza Building, The Douglas
Island Building that houses the Department of
Transportation and Public Facilities, the Department of
Corrections and the Department of Fish and Game, the
Fairbanks Regional Office Building, The Juneau Community
Building that formally housed the Department of Community
and Regional Affairs, the Juneau Public Safety Building and
the Juneau State Office Building. She pointed out that
these buildings represent about a third of all state-owned
office space. Eventually, the program would expand to cover
all state-owned office buildings, she said.
Co-Chair Torgerson stressed the point is that the bill
contains items that the department is currently not
charging for, yet claiming that without changing the
general fund impact, more federal funds would be brought
in. He stated that the witnesses were testifying that
although depreciation costs are not currently being set
aside, they would be soon. He wanted to know what the
depreciation and management fee costs will be, regardless
of whether or not they are included in the FY 01 budget.
Ms. McConnell responded saying in order to implement this
program, federal rules governing how much rent is charged
have to be followed. As part of that process, the state
must establish up-front, the depreciation amounts and also
establishes an overall rent structure. We will bill all
agencies for the full amount of the direct expenses for
that year of plus the depreciation amount. She then stated,
"In the case of agencies that are purely general fund
supported, we understand that full bill may not be
collected. But if we're going to request reimbursement from
the federal government or from other entities, we have to
be sure that we are including all of those costs and
treating everybody identically so that the federal
government is not being charged for depreciation but the
Retirement and Benefits folks are not. We can't have that
kind of pick and chose."
Co-Chair Torgerson stressed "that it is even more confusing
now where you say you are going to set a policy but you
don't care if the departments give you the money."
Ms. McConnell responded that this is a situation where
building maintenance has been under-funded due to economic
conditions. She stressed that this program will begin to
address the problems.
Co-Chair Torgerson argued that this method of addressing
the situation doesn't make sense but said he would look at
the new fiscal note when provided.
Senator Green asked what two or three projects the
department intends to use this money to fund. Ms. Elgee
replied this bill would set up an internal service fund
that will allow the department to balance of money from
year to year, which can't be done now.
Senator Green then asked what traditional money could be
accrued that can't be accrued currently. Ms. Elgee gave
examples of the Division of Child Support Enforcement,
which is heavily funded by the federal government. The
federal government will allow the state to charge for rent,
she said.
Senator Green wanted an explanation of why the costs cannot
currently be collected. Ms. Elgee replied that the federal
government will not allow the state to charge them for
costs not charged to state agencies or other tenants.
Ms. Elgee answered another of Senator Green's questions
saying that the department anticipates receiving an
additional $1.5 million in federal funds.
Co-Chair Torgerson predicted that in some cases, these
would only be a reclassification of federal funds that will
be deducted from other functions. He not think there would
be a net increase to general funds.
Ms. McConnell responded that was taken into account in the
proposal and the decision was make to not reallocate from
those programs that have limited funding. This program will
only go after the programs where the rent is simply
reimbursed and not those that receive no federal rental
reimbursement, she promised. "We are not, in our proposal
at this point, disadvantaging if you will, the programs
where the federal dollars are limited. Now there is
obviously a policy choice that could be made in the future
if we want to do that, but we're not taking that step at
this point. We're simply going after the federal funds that
are out there for the asking but that we simply haven't had
the mechanism to [receive them]."
Co-Chair Torgerson asked if all of the $1.5 million would
all be new federal dollars. Ms. McConnell clarified that
some of those funds would come from other sources, such as
administration fees for the retirements and benefits
programs. She elaborated on the appropriateness of the
Division of Retirement and Benefits paying rent costs.
Co-Chair Torgerson conceded that he stood corrected on his
earlier comments about redistribution of existing funds.
Senator Wilken noted that the Department of Administration
Budget Subcommittee spent time on this matter last year. He
appreciated the other members' questions because he felt it
is important to understand this issue since it is a bold
move. He spoke of the public asking why the state is not
run more like a business and he views this bill as an
attempt to run government like a business. He signed on as
a co-sponsor because he thought the bill has great merit
for accountability.
Co-Chair Torgerson commented that this bill has broad
language and doesn't only address the eight buildings
currently proposed for inclusion in the program. Ms.
McConnell replied that more buildings could be added later
and that is the intent of the program. This simply creates
the funding mechanism, she said.
Co-Chair Torgerson stressed that this legislation is much
broader and could have larger impact than it appears. He
compared the program to data processing, where each
department is charged for the services but has no control
in the matter.
Tape: SFC - 00 #17, Side B 9:51 AM
Co-Chair Torgerson ordered the bill HELD in Committee to
await new fiscal notes.
ADJOURNED
Senator Torgerson adjourned the meeting at 9:52 AM.
SFC-00 (12) 02/01/00
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