HOUSE BILL NO. 183 "An Act extending the requirements of preliminary evaluation, notice, and prior legislative approval of certain lease-purchase agreements to include proposed improvements to real property; and providing for an effective date." Co-Chair Hanley, sponsor of HB 183, gave a brief overview of the legislation. He referred to problems past legislatures have experienced with certificates of participation. He emphasized that past legislatures have enacted laws to restrict financing and require legislative approval for acquisition by issuance of certificates of participation. Co-Chair Hanley noted plans by the Alaska Psychiatric Institute (API) to use certificates of participation to finance a $63.0 million dollar facility. The Legislature approved funding for the constriction of a $28.0 million dollar facility in the FY 95 operating budget. He observed that current statutes address "acquisition" of facilities not "building" of facilities. The legal argument is that certificates of participation do not represent general obligation debt to the State. Debt on certificates of participation is secured by the asset. He noted that if a new API building is expanded, beyond the $28.0 million dollars authorized by the legislature, an asset could be claimed in which the State has invested. He emphasized that there is no limit on spending if certificate of participation financing is used. Co-Chair Hanley explained that the legislation will address the problem by adding "or improvement" to the property to prevent improvement through lease-purchase of real property. Representative Brown queried if the addition of "improvement" would address the intent to prevent construction of new facilities without legislative authorization. Representative Parnell agreed that the addition of "construct" would further modify the legislation and alleviate confusion. He concluded that the legislation as written would address the problem. He explained that the 2 underlying land is real property. The legislation requires legislative authorization for improvement of real property. Any building on real property would constitute improvement of the property. Representative Martin provided members with Amendment 1 (Attachment 1). The amendment would limit the authority of the Alaska Housing Finance Corporation (AHFC) to use money or another asset of the corporation to acquire, construct, improve, or repair a building for the corporation's use and occupancy. Representative Martin observed that AHFC approached the Legislative Budget and Audit Committee with the concept of constructing a new building. He observed that the Legislative Budget and Audit Committee does not have the authority to approve total appropriations for long range contracts. He pointed out that a majority of the Legislature does not currently approve of this budget item. He observed that AHFC has contracted out for an architecture design of a new building. Land has not yet been purchased. Representative Martin accentuated that all Requests For Proposal's for lease or purchase of office space are subject to annual appropriation by the legislature. He emphasized that the amendment would close another loop hole and send a message to AHFC. Representative Brown agreed with Representative Martin's concerns, but pointed out the broad nature of the amendment. She questioned if AHFC's ability to repair existing facilities should be restricted. She asked if an appropriation through the budget process would be an authorization. Representative Martin argued in favor of retaining "repair". He noted that a repair could be a major face lift. Representative Therriault asked for further clarification of the last sentence on line 11 of the amendment: "For purposes of this subsection, an appropriation for the proposed acquisition, construction, improvement, or repair does not constitute approval of the project." RANDY WELKER, LEGISLATIVE AUDITOR, LEGISLATIVE AUDIT DIVISION explained that the language was drafted by the Division of Legal Services. He noted that the amendment was drafted with the intention of implementing the strictest standard requiring legislative approval. He observed that in the leasing section of the procurement code, for the purpose of a lease, an appropriation does constitute approval. In the lease financing section of existing statute an appropriation does not constitute approval. Separate legislative approval 3 is required by law. MIKE GREANY, DIRECTOR, LEGISLATIVE FINANCE DIVISION pointed out that language contained in the front section of the operating budget provides that all funding received by AHFC is appropriated to AHFC for whatever purpose their statutes allow. Mr. Greany clarified that any project exceeding $25.0 thousand dollars which continues beyond a year is considered a capital project. Mr. Welker noted that the amendment is very restrictive. The Alaska Housing Finance Corporation's ability to make repairs on their existing facility would be limited. He observed that elimination of "repair" would allow an appropriation to constitute approval for a repair. Representative Navarre spoke in support of allowing repairs without legislative approval. He acknowledged that AHFC should be required to obtain legislative approval for new construction. Representative Therriault questioned if two pieces of legislation would be needed to allow new construction by AHFC if HB 183 is enacted. Mr. Welker stated that appropriation legislation would not be enough. Authorizing legislation would be needed. Representative Therriault queried if authorizing legislation would suffice without a separate appropriation. Representative Brown did not think that appropriation legislation would be needed separate from authorizing legislation. She pointed out that the legislation will not be adopted in time to prevent construction of the project currently being proposed by AHFC. Representative Martin asserted that two bills would be necessary. Co-Chair Hanley pointed out that lease-purchases are handled differently than actual construction. New building construction does not require authorization other than in an appropriation bill. Representative Navarre agreed that absent specific statutory prohibition against construction an appropriation is sufficient. Co-Chair Hanley asked if an appropriation from the legislature is necessary for any of the AHFC's functions. He concluded that if statutes require an appropriation from the legislature for any of AHFC's functions then an authorization law and appropriation would be required. 4 Mr. Welker pointed out that AHFC can use its general bonding authority to generate bond proceeds which are not subject to an appropriation in order to raise capital. The amendment clarifies that AHFC cannot use their general bonding authority to acquire facilities. Representative Navarre observed that another housing market down-turn could result in AHFC's control of houses needing repair before resale. Representative Martin referred to the purchase of the Department of Environmental Conservation building. Co-Chair Hanley reiterated the need to close loop holes in the statutes. Representative Therriault concluded that AHFC would not need a separate line item appropriation in addition to authorizing legislation. Co-Chair Hanley agreed with his conclusion. Representative Parnell pointed out that an improvement to property is a repair. He asked if there are other public agencies or quasi public corporations like AHFC that have similar bonding authority which should be addressed. Mr. Welker noted that the legal definition of "improve" includes "to increase the value or good qualities of, mend, repair". Representative Brown suggested that the Alaska Industrial Development and Export Authority (AIDEA) and the Alaska Railroad Corporation may be in similar situations. Mr. Welker added that certain aspects of the University of Alaska's operations are not subject to the Executive Budget Act. Representative Brown observed AHFC's duties and powers are the subject of HB 189: "An Act requiring that, in addition to its operating budget, all activities of the Alaska Housing Finance Corporation are subject to the Executive Budget Act." She suggested that the amendment be addressed in HB 189. Representative Martin acknowledged that HB 189 is more inclusive and resolves the long range problem. He noted that if AHFC pursues the construction project an increase in the FY 96 or FY 97 AHFC budget will be needed. Representative Brown observed that the amendment is not retroactive. Representative Martin emphasized that the amendment would send a message to AHFC. Co-Chair Hanley suggested that the Legislative Budget and Audit Committee made the Legislature's position clear. 5 Representative Kohring pointed out that AHFC has received the message that there is concern about proceeding with the construction. He assured members that AHFC will look hard at putting the breaks on the project if the Legislature disapproves. He noted that AHFC is currently determining the ramifications of cancelling the contracts. Representative Martin asserted that AHFC did not provide the legislature with all the available facts. He reiterated the need to close a loop hole regarding lease-purchases. Representative Kohring asked for a list of other state agencies which are not subject to the Executive Budget Act in regards to bonding authority. (Tape Change, HFC 95-24, Side 1) Representative Kohring stressed that AHFC felt that they could save the State money. He emphasized that AHFC's intent was good. Representative Navarre referred to the 5 percent housing loan program initiated by AHFC. Amendment 1 was held. HB 183 was HELD in Committee for further discussion.