HOUSE BILL NO. 315 "An Act relating to operating appropriations for annual maintenance and repair and periodic renewal and replacement of public buildings and facilities; and providing for an effective date." DENNY DEWITT, STAFF, REPRESENTATIVE MULDER noted that HB 315 is an attempt to change the way the State budgets maintenance. The legislature creates a maintenance and operations budget in addition to the program budget and the capital budget. The Task Force found that there is a difference in opinion regarding how budgetary decisions are made and cause deferred maintenance. Currently, funding for programs and building maintenance are contained in the same budget. Subcommittees discuss the balance of the two components. Program managers face situations where they must chose between operating items and deferred maintenance, such as trimming back a program or painting a building. In such a scenario a program manager would probably chose not to paint the building, while a facilities manager would probably opt to paint the building. The Task Force recommended that the two be separated. The Administration would articulate the need for deferred maintenance. The need would be debated and there would be a clear indication of the amounts for program management and operations and facility maintenance. He stressed that the legislation's intent is to focus the issue of maintenance in terms of state agencies, the Alaska Court System and the University of Alaska. Co-Chair Therriault questioned how the maintenance budget would be prevented from becoming a capital budget. Mr. DeWitt emphasized that funding is for the operation side. Co-Chair Therriault stated that "replacement" implies capital improvements. Mr. DeWitt agreed that "replacement" could probably be removed. Representative Davies questioned if major renewal and replacements would be in the capital budget. He stressed that the capital budget is not as systematic an approach as the operating budget. He asked if there would be three items in the appropriation bill: operations, maintenance, and renewal and replacement. Mr. DeWitt explained that the intent was for all three to be included as one item. Representative Martin asserted that the State should commit itself to a line item for annual maintenance of 3 to 4 percent of the facility. In response to a question by Representative Grussendorf, Co- Chair Therriault observed that the definition of "renewal" is included on page 2. Representative Davis spoke in support of separating maintenance from operational expenses. Mr. DeWitt stated that the Task Force concluded that there should be separate components in the appropriation bill for deferred maintenance and operation, as opposed to two separate appropriation bills. Co-Chair Therriault questioned if maintenance would be highlighted in a way that would show that the cost of maintenance is going up and that replacement would be expected. Mr. DeWitt stated that he expected that maintenance would be highlighted in a way that would show the increasing cost. He added that it would also show if maintenance had been under-funded. If there are significant problems with a building it could be demonstrated that the facility was under-funded or that management did not properly maintain the building. Results based budgeting would be used to identify if the deferred maintenance problem is being solved or created. Mr. DeWitt observed that the intent is to limit replacement to major, worn-out building components as opposed to the building itself. Representative Davis observed that it is a systems or component replacement as opposed to a building replacement. Representative Martin stressed the need for proper insurance programs and noted that a good deferred maintenance program would reduce insurance costs. He stressed that agencies need to be able to save for larger maintenance needs. Representative Davies observed that there is a struggle between major repairs and replacement. (Tape Change, HFC 98 - 124, Side 2) Representative Davies stated that it is generally understood that the legislation refers to smaller items that are important to be replaced on a systematic basis to prevent deferred maintenance. Representative Grussendorf observed that the use of "replacement" in the title creates a problem. JACK KREINHEDER, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR observed that the Administration supports the intent of the legislation. The Administration is concerned with how effective the legislation would be at achieving its goal. He expressed concern that agencies would lose flexibility. He stressed that funding has been shifted from operating expenses to cover maintenance. He observed that maintenance funding has been limited. He stated that renewal and replacement of agency components is an appropriate element of the operating budget. Mr. Kreinheder observed that the Director of the Office of Management and Budget put out a memorandum directing state agencies to account for facility expenditures on a building by building basis. He questioned if expenditures should be in a separate appropriation. He observed that agencies need a way to save up for major maintenance that is only needed every 10 to 15 years. Appropriations lapse every year. He recommended the Committee consider HB 463, which would establish a rental fund that would allow money to be accumulated for major maintenance. In response to a question by Representative Martin, Mr. DeWitt observed that the Task Force did not address insurance coverage. The state of Alaska is self-insured. Representative Mulder MOVED to amend the title to renewal and replacement "for components" of public buildings. Co- Chair Therriault questioned if the language should be included in the text. Representative Mulder amended his amendment to include revisions in the text. There being NO OBJECTION, it was so ordered. Representative Mulder MOVED to report CSHB 315 (FIN) out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSHB 315 (FIN) was REPORTED out of Committee with a "do pass" recommendation and with two zero fiscal notes, one by the Office of the Governor and one by the Department of Education, both dated 2/25/98.