HOUSE BILL NO. 312 An Act giving notice of and approving the entry into and the issuance of certificates of participation for a lease-purchase agreement for a seafood and food safety laboratory facility; relating to the use of certain investment income for certain construction costs; and providing for an effective date. Co-Chair Harris MOVED to ADOPT work draft version #23- GH1134\I, Bannister, 5/15/03, as the version of the legislation before the Committee. There being NO OBJECTION, it was adopted. Co-Chair Williams explained that the bill would conform with the version coming from the Senate side. ERNESTA BALLARD, COMMISSIONER, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, commented that the Department was responsible for protecting the environment and human health. She testified to the importance of the lab. The seafood and food safety lab analyzes raw, finished and value-added food products for bacteria, chemicals, and toxic contaminants, maintaining the capabilities and Food and Drug Administration (FDA) certifications that private labs cannot. The Department operates on schedules that are not available from private labs and assumes greater liability needed to perform analysis for paralytic shellfish poisoning. The Department cooperates with emerging industry, such as the growing dive fisheries to guarantee time-critical water and raw product analysis are available and market commitments are met. Commissioner Ballard continued, the Department is qualified to train and certify private labs so that they can operate in established and high-demand testing markets. The Department of Environmental Conservation leased a facility in Palmer for 34 years. The new facility will not be available until after 2006. The current facility is overcrowded, not fully compliant with safety codes and laboratory design standards. That facility was originally placed in Palmer when the principal lab business was agriculture and dairy. The emerging value added seafood industries in coastal Alaska have added significant and time-sensitive testing demands for the Department's service. The proposed new lab will be in Anchorage where valuable hours could be saved between sample collection and testing for raw and live seafood products. Commissioner Ballard continued, the laboratory functions are essential to protect the health of all Alaskans. The Governor, past legislatures, and the commissioners of the Department of Revenue, Department of Transportation & Public Facilities, and Department of Environmental Conservation have reviewed the design specifications, equipment requirements and expense. Alternative locations were considered and financing mechanisms for a modern facility sized and equipped for long-term service to the State. Careful consideration was given to the possibility of locating in remodeled Alaska Seafood International (ASI) facility space in Anchorage. Requirements would occupy approximately 5% of that space. The process of acquiring a new seafood and food safety lab began seven years ago with a feasibility study. The Department received an appropriation of $150,000, to obtain an independent evaluation of both build and lease options. The analysis showed that the most economical choice would be a State owned laboratory financed with lease/purchase bonds known as Certificates of Participation. The Legislature agreed and in 2001 appropriated $1,300,000 dollars to design the facility, a conservative and cost conscious proposal. She emphasized that the building design, specifications, space allocations, and the financing plan were all conservative. The building contains only laboratory and lab support space. Meeting and classroom facilities will be available in the adjacent public health lab. The building materials were selected for low and simple maintenance. The design and materials are similar to those used in constructing the public health lab, built several years ago on schedule and within budget. Laboratory fee charges for services are being reviewed. They compare well to fees used in other states. Representative Stoltze interjected that the project and building facility was too large and asked about other alternatives. JOHN MACKINNON, DEPUTY COMMISSIONER, DEPARTMENT OF TRANSPORTATION & PUBLIC FACILITIES, responded that consideration had been discussed regarding the facility in the ASI building. He noted that the building was too large and that another building could actually fit inside it. The space requirements for the lab would consume around 5% of the total area in ASI and that there would be "serious compromises" made by doing it, limiting the ability of that building to be used for anything else. When considering the overall cost, there would be little savings made. The API building was designed as a stand-alone structure. The redesign costs would be well over $900,000 and it would require complete separate mechanical system & electrical. Mr. MacKinnon acknowledged that initially, it appeared to be a good idea; however, with all the information gathered, there would not be a tremendous amount of savings to be made if it were located in that space. He added that this design process has been on going for many years and attempting to accommodate these needs. Representative Stoltze inquired how many employees would the facility employ. Commissioner Ballard responded that there are 11 employees. Co-Chair Harris understood what the Department considers this to be a vital need to move the lab to Anchorage and having closer access to the airport. He asked if there had been any attempt to address the City of Palmer's concern with the possible move. Commissioner Ballard pointed out that there are approximately 23 employees in the Valley area and that only 11 would be moved. The reason for adding additional staff would be particularly for the drinking water certification. Those needs are growing as the State's population expands. All employees would remain in the Palmer area except the ones working in the laboratory. Co-Chair Harris questioned why such a large facility was needed. Commissioner Ballard explained that the utilization of the space would be about 50/50. The portion used for the labatory testing activities versus equipment space, requires a certain amount of isolation. Using half the space for isolation is important to protect the integrity of that work. Co-Chair Harris asked for more information on the certificate of participation bonding and/or funding for the project. TOM BOUTIN, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE, explained that lease financing was a mechanism of financing building that the State issues. The State uses that mechanism, as do all other states and municipalities. The debt service is subject to annual appropriation and for that reason, the credit is normally rated much below the general obligation (GO) rate of the issuer. Co-Chair Harris asked who would own the building. Mr. Boutin responded that a feature of a lease-financing or capital lease is that at the end of the lease term, the lessee owns the building. In a capital lease as opposed to an operating lease, the lessee becomes the owner. During the lease term, there is a trustee who has an obligation on behalf of the bondholder to enter and take over the facility on behalf of the best interest of the bondholders. Representative Hawker asked why the State was in this type business, noting that it appeared to be "out sourcing of services", which should be left in the private sector. Commissioner Ballard advised that whenever they can, the State gets out of the "testing" business. The State no longer does testing of drinking water. The only testing that the States currently does are those that are not available through private lavatories. If a private lab sought the certification, then the State would not compete with them. She pointed out that it is unlikely that private labs would perform this type testing as there is generally not enough volume and it needs to be done on a 24/7. Representative Hawker inquired why the private industry has not expressed interest in undertaking this activity. Commissioner Ballard advised that the fees that would need to be charged, the schedule of maintaining the equipment and the rigorous certification requirements would simply preclude the investment of working capital for private enterprise for performing these tests. The lab certification requirements certify the facility and technicians. The technicians must be certified to operate the new facility and that they have to be available. There is not a large enough market in Alaska and that market expects turn-around on its schedule. The State provides the service at the same cost that the industry would find in other states. Representative Hawker argued that the State could not do it cheaper. Commissioner Ballard disagreed. She reminded members that the general fund subsidizes the service in the way that it subsidizes other public services, considered to be in the interest of the State's citizens. Co-Chair Harris asked again what the general "feeling" was currently in the Palmer area regarding moving the facility. Representative Stoltze observed that it was viewed as a "slap in the face" to the agriculture industry. He pointed out that he does not represent that entire "physical area", however, does represent the entire valley. He repeated that there is not a good feeling around the proposed change. Co-Chair Williams remembered that three years ago, a similar bill passed from Committee to undertake basic design work and that this concern had been discussed during the last two legislative sessions. Representative Kerttula noted her appreciation that the Department has considered what is happening in Juneau with closure of the lab. She hoped that would make it easier for the employees and the University. ROGER PAINTER, ALASKA SHELLFISH GROWERS ASSOCIATION, JUNEAU, testified in support of the bill. He commented that the lab needs a new facility. There has been interest in S.E. Alaska but there is not enough commerce related to the lab to locate it in the Southeast area. He acknowledged that an Anchorage location would make the most sense. Mr. Painter responded to queries regarding private sector testing, pointing out that it is easier to go to Seattle than to get samples to Palmer. There are no private labs that can test marine samples and no private labs anywhere in the United States that can check for paralytic shellfish poisoning or other harmful problems. Assuming that the private sector will step up to contract for these services is not an option. He added that in support of comments made by Commissioner Ballard regarding fees, the costs are below what would be paid to a private lab. Representative Hawker noted that he was supportive of the State's mari-culture activities. He asked if there were any alternative facilities for that type of testing. Mr. Painter replied that there is not for either the growing water certification or for paralytic shellfish poisoning. He noted that Washington State is the largest producer of oysters and clams and that he had contacted all labs in Seattle, finding no testers. Representative Hawker asked if this type testing was unique to Alaska. Mr. Painter replied that these are federal requirements and that the State must comply with those laws in order to participate in interstate commerce. Providing public health protection is an important service. Representative Hawker asked if there were federal regulations in place in the Pacific Northwest, then why were the services not available. Mr. Painter explained that the State of Washington does provide testing services and has a somewhat different testing program in that they certify large areas, which is more cost effective than working on the issues in Alaska where everything is remote and the farms are separated. The Department of Environmental Conservation is working in those areas where there is a concentration of farms in order to certify larger areas. KRISTIN RILIN, DIRECTOR, DIVISION OF ENVIRONMENTAL HEALTH, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, added that the Federal Drug Administration (FDA) certifies laboratories to perform the testing. Paralytic shellfish poison is a dangerous toxin and is heavily regulated. Because of that, private lavatories are not interested in the liability. Representative Foster asked how the costs were being determined. Ms. Rilin replied that the costs were not based on the costs of running the tests. She added that the fees would need to change to meet the operating costs associated with the laboratory. HB 312 was HELD in Committee for further consideration. TAPE HFC 03 - 97, Side B