Legislature(1999 - 2000)
05/11/1999 03:30 PM Senate STA
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* first hearing in first committee of referral
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SENATE STATE AFFAIRS COMMITTEE
May 11, 1999
3:30 p.m.
MEMBERS PRESENT
Senator Jerry Ward, Chairman
Senator Lyda Green
Senator Gary Wilken
Senator Randy Phillips
Senator Kim Elton
MEMBERS ABSENT
None
COMMITTEE CALENDAR
HOUSE BILL NO. 112
"An Act establishing the Alaska public building fund; and providing
for an effective date."
-MOVED HB 112 OUT OF COMMITTEE
PREVIOUS SENATE COMMITTEE ACTION
HB 112 - No previous Senate action.
WITNESS REGISTER
Representative Jeanette James
Alaska State Legislature
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of HB 112
Deputy Commissioner Alison Elgee
Department of Administration
PO Box 110200
Juneau, AK 99801-0200
POSITION STATEMENT: Supports HB 112
Keith Gerken
Division of General Services
Department of Administration
PO Box 110210
Juneau, AK 99801-0210
POSITION STATEMENT: Answered questions about HB 112
ACTION NARRATIVE
TAPE 99-15, SIDE A
Number 001
CHAIRMAN WARD called the Senate State Affairs Committee to order at
3:30 p.m. Present were Senators Wilken, Green, Ward, and Elton.
The first order of business to come before the committee was HB
112.
HB 112-ESTABLISH ALASKA PUBLIC BUILDING FUND
REPRESENTATIVE JEANETTE JAMES, sponsor of HB 112, explained the
legislation will establish the Alaska Public Building Fund as a
special account in the general fund and create an agreement whereby
occupants of state owned buildings pay rent into this fund. The
collected rent money will be held in the fund and appropriated by
the Legislature to pay management, operation, maintenance and
depreciation costs. One advantage to this approach, aside from
depositing money needed for expenses into a special account, is
that higher rents could be charged to federal agency occupants.
Currently, federal funds cannot be collected for space costs unless
all building occupants are charged a rent program. A second
advantage is that some agencies may choose to use less space for
the sake of efficiency. No additional allocation of funds should
occur should HB 112 be enacted.
CHAIRMAN WARD announced the arrival of Senator Phillips.
Number 53
SENATOR ELTON noted the legislation does not mandate the
Legislature to appropriate the collected funds for maintenance and
operation costs. He asked whether the funds are dedicated to a
special purpose.
REPRESENTATIVE JAMES stated the funds can only be dedicated if a
constitutional amendment is adopted, therefore the money will be
used at the discretion of the Legislature. She added the advantage
of creating the fund is that money can be held in it from one year
to the next so that enough can accumulate to cover expensive
repairs that do not occur annually.
SENATOR ELTON said the bill walks a fine line because depositing
money into the fund is a discretionary action, however once the
money has been deposited, the fund is basically dedicated if the
money can only be used for a specific purpose.
CHAIRMAN WARD indicated similar funds have been created.
Number 93
SENATOR WILKEN commended Representative James for bringing this
legislation forward, and as Chair of the Department of
Administration Finance Subcommittee, he noted he had discussions
with the Administration about this approach and supports it.
ALISON ELGEE, Deputy Commissioner of the Department of
Administration (DOA), stated support for HB 112 for the reasons
stated by the sponsor. She noted the internal service concept
provides DOA the ability to retain money from year to year,
therefore it provides an incentive, from a budgetary standpoint, to
collect and retain the depreciation charge as a funding source for
renewal and replacement of buildings. The failure to provide
adequate renewal and replacement funds for major building
components, such as roofs, through capital appropriations has
created the deferred maintenance backlog. While HB 112 will not
correct that backlog, it will allow the State to stay on an even
keel. DOA also believes that putting the cost of maintenance and
operations at the program level will force program managers to look
at space as a monetary commodity and to make decisions based on
efficiency.
DEPUTY COMMISSIONER ELGEE explained, in response to Senator Elton's
question, that an internal service fund is not a dedicated fund in
that the Legislature could choose to appropriate the entire balance
from the fund into the general fund for any purpose. If it were to
do so, however, the State would be required to repay the federal
government the portion of the monies deposited into the fund from
federally funded programs, because the money was not used for its
intended purpose. During the budget process, the Legislature would
look at the space requirements of every program. Each program will
cover its own costs from its own funding source. The rent money
collected will be deposited into the internal service fund and
appropriated based on the Legislature's identification of building
maintenance costs and capital project costs.
Number 148
SENATOR ELTON asked if money could be deposited into this fund from
other sources.
DEPUTY COMMISSIONER ELGEE indicated the same question came up in
the House Finance Committee. She said Legislative Finance looked
at total spending this year and removed expenses that are
duplicated. Those expenses are interagency receipts, which are the
internal service fund operations, because the Legislature is
essentially appropriating that money twice. In developing the
total budget picture, Legislative Finance removed those expenses so
that they do not get double counted when looking at the big
picture.
Number 164
SENATOR WILKEN asked if the depreciation cost is set aside in a
sinking fund.
DEPUTY COMMISSIONER ELGEE explained the depreciation cost is a
component of the actual per square foot rent rate. When the rates
are developed, the federal government reviews and approves them.
The depreciation component is based on the useful life of each
facility. DOA has quite a bit of discretion in setting that rate;
it has already set depreciation schedules for most state buildings
at between 30 and 50 years. As monies accrue in the internal
service fund, DOA will determine the annual operating and
maintenance costs and allow a differential to accrue to provide for
capital projects which do not occur every year. The federal
government does not require that a one-to-one correlation exist
between where the depreciation dollar was generated and spent, in
recognition of the fact that capital project costs are not annual
and that the fund revolves to eventually repair all projects. She
added that a majority of the states throughout the nation use this
approach to address building maintenance and operating costs.
Number 200
SENATOR GREEN asked if DOA could charge a depreciation fee in its
leases without this type of legislation.
DEPUTY COMMISSIONER ELGEE replied that at present, DOA charges a
fee to occupying agencies that are other funded. The fees are
represented in DOA's leasing budget as interagency receipts. The
fees are directly billed to the federal government for federal
programs. However, in state owned buildings, the operating and
maintenance costs are paid by the Department of Transportation and
Public Facilities (DOTPF) with general funds. DOA could design a
rate structure for state owned buildings without an internal
service fund in place, but it could not retain the depreciation
amount for more than one year to pay for capital projects, and the
fund would never contain enough money in any one year to cover the
major building replacement needs.
SENATOR GREEN asked why HB 112 would make that possible.
DEPUTY COMMISSIONER ELGEE said the funds can be held over from one
year to the next in the fund established in HB 112. She explained
the internal service fund allows DOA to have a revolving fund in
which funds, not appropriated by the Legislature for other
purposes, could be retained and allowed to accumulate. Under
federal rules, funds can accumulate for a specific period of time.
If the funds are not used for their intended purpose within that
time period, the federal government would expect to be repaid. If
an ongoing maintenance program exists so that the federal
government is assured that the money is being used for maintenance
and operations of all buildings, it would not expect repayment. If
DOA allowed the fund to build up over five years and did not
appropriate any of the funds for capital purposes, the federal
government might question the retention of those funds.
SENATOR GREEN asked if the federal government is involved because
its agencies are tenants.
DEPUTY COMMISSIONER ELGEE said that is correct. She noted two
other internal service funds currently exist: the Highway Working
Capital Fund and the Information Technology Fund. Both funds work
in a manner similar to the fund proposed in HB 112.
Number 246
SENATOR ELTON asked if DOA has a working agreement with DOTPF
regarding the responsibilities of each department in relation to
leasing state owned buildings and the internal service fund.
DEPUTY COMMISSIONER ELGEE replied DOTPF is very interested in
working with DOA on HB 112. DOTPF helped develop the proposal and
Commissioner Perkins would like nothing better than to have more of
the building responsibilities shifted to DOA. DOA anticipates
signing a memorandum of understanding with DOTPF, so that money
from the fund would be appropriated directly to DOTPF to cover its
maintenance and operating costs to the degree that those expenses
remain with DOTPF. DOA sees merit in consolidating building
management functions of leased or state owned buildings under one
roof.
SENATOR ELTON asked Deputy Commissioner Elgee if she envisions both
DOA and DOTPF making deposits into the internal service fund and
both being able to withdraw money from the fund for maintenance and
operating costs.
DEPUTY COMMISSIONER ELGEE said that is correct although any
withdrawals would be based on a legislative appropriation; DOA and
DOTPF could not directly access the fund to withdraw money.
Number 281
SENATOR GREEN asked whether DOA has projected the amount of money
deposited into the fund each year.
DEPUTY COMMISSIONER ELGEE told committee members that DOA has
looked at the largest office buildings throughout the state: the
State Office Building, the Alaska Office Building, and the Court
Plaza in Juneau; the Bank of America Building in Anchorage; and the
Fairbanks Regional Office Building in Fairbanks. DOA developed per
square foot costs for useable space and it worked with the federal
government on rate approval. DOA could present in the FY 01 budget
this kind of rental approach for these office buildings if HB 112
is enacted. DOA's per square foot costs are reasonable compared to
the retail market rate. While the fund will not meet 100 percent
of the building maintenance and operating costs, it will improve
the State's current position. Lease costs for the Fairbanks
Regional Office Building are estimated at $1.51 per square foot
(with depreciation); the State Office Building rate would be 89
cents per square foot. She noted the Juneau retail space market
rate is $2 per square foot; the Fairbanks market rate for retail
space is over $2 per square foot.
CHAIRMAN WARD asked what the total square footage is, statewide.
DEPUTY COMMISSIONER ELGEE replied she does not know the total
square foot amount, however the Bank of America building, Fairbanks
Regional Office Building, State and Alaska Office Buildings, Public
Safety Building and Fish and Game Building in Juneau contain
575,289 useable square feet.
SENATOR ELTON asked how these rates compare to the rate charged by
the previous owners of the Bank of America building.
Number 343
KEITH GERKEN, Department of Administration, said the average lease
cost is just under $2 per square foot.
SENATOR ELTON asked how much of that amount is for building and
depreciation costs.
MR. GERKEN replied the State inherited the leases when it bought
the building. Those leases were originally based on whatever the
market could bare. He stated the rents are collected by AHFC and
deposited into a fund to maintain the building, therefore DOA has
no direct breakdown of how the funds are spent. He estimated
maintenance costs to be about 75 cents per square foot.
CHAIRMAN WARD questioned whether the building, now under state
ownership, is property tax exempt, and whether that affected the
price of current leases.
MR. GERKEN answered the statute that authorized DOA to purchase the
building requires the State to pay property taxes to the
municipality in proportion to the private tenant occupancy of the
building. As the private tenant occupancy decreases, so will
property taxes.
CHAIRMAN WARD asked what amount of the assumed leases is applied
toward maintenance costs.
MR. GERKEN said all rent checks are deposited into AHFC's bank
account. DOA can draw upon those funds for maintenance costs. He
repeated that the total maintenance costs for the building are
about 75 cents per square foot. He added that the number of
private tenants has been reduced by about one-half over the past 20
months of state ownership.
CHAIRMAN WARD asked Mr. Gerken if he could provide the total square
footage of state owned buildings.
MR. GERKEN could not but thought DOTPF office space statewide
equals about 1+ million square feet.
Number 385
SENATOR GREEN asked Mr. Gerken his definition of maintenance costs,
given the 75 cent per square foot estimate.
MR. GERKEN said the 75 cents includes maintenance and operating
costs, such as utilities, janitorial services, snowplowing, and
window washing. He added the maintenance costs comprise less than
one-half of the 75 cents.
CHAIRMAN WARD said in all of the leases he is aware of, a
percentage is set aside for capital improvements.
MR. GERKEN agreed with Chairman Ward and said most leases account
for a sinking fund for depreciation of inevitable costs. He felt
that is one of the missing ingredients in state management of its
buildings. He noted HB 112 would correct that.
SENATOR PHILLIPS questioned whether any problems have occurred in
the transition to state ownership of the Bank of America building.
MR. GERKEN said DOA is getting there and has learned a lot.
Number 418
SENATOR GREEN asked if this proposal implies there will be an
additional fee charged to tenants, or whether the same rent will be
charged but part of it will be designated for the internal service
fund.
MR. GERKEN said HB 112 has nothing to do with numbers, it simply
establishes a fund so that in a future budget, DOA can come forward
with a rental proposal. DOA intends to put all rents into the fund
to pay for operational and maintenance costs and minor capital
improvements.
SENATOR GREEN asked what the difference is between the scenario
described by Mr. Gerken and current practice.
MR. GERKEN said right now DOA must request money in the capital
budget for building repairs. Those projects do not compete well
with projects of an emergency nature and there is no systematic way
to deal with building repair expenses.
Number 434
SENATOR GREEN asked where the current rent money is deposited.
DEPUTY COMMISSIONER ELGEE replied right now the Legislature
directly appropriates money to DOTPF in a lump sum for building
maintenance. That budget has suffered cuts like all budgets, which
has increased the deferred maintenance backlog. She explained that
if HB 112 passes, DOA would look at the general fund cost for
individual state agencies or federal cost for federal programs, and
each program would get a bill for rent. Those agencies currently
occupy the space at no cost and depend on whatever DOTPF can
provide for operation and maintenance.
There being no further questions, SENATOR WILKEN moved HB 112 from
committee with individual recommendations and its accompanying
fiscal note. There being no objection, the motion carried.
There being no further business to come before the committee,
CHAIRMAN WARD adjourned the meeting at 4:04 p.m.
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