SB 247 STATE LEASES & LEASE-PURCHASE FINANCING Co-chair Pearce directed that SB 247 be brought on for discussion and further directed attention to a draft committee substitute (8-LS1447\O, Chenoweth, 1/27/94). Co- chair Frank explained that the bill was introduced by the Legislative Budget and Audit Committee to require that the judicial branch bring lease-purchase arrangements before the legislature for approval. Statutes presently provide the court system the opportunity to enter lease-purchases without legislative approval if annual debt service is less than $1 million. The Co-chairman noted that the bill was previously heard and reported out of committee before it was learned that it "deauthorized the authorization to lease-purchase a new court facility in Fairbanks." That project meets the intent of the bill since the facility was previously approved by the legislature. It should not be unapproved at this time. Co-chair Pearce noted that the present draft incorporates earlier technical amendments made by committee at page 6, line 14, and page 7, line 7, were acquisition was tied to "real property." Senator Kelly asked how the bill would apply to the University's purchase of an off-campus office building. RANDY WELKER, Legislative Auditor, again came before committee. He explained that if the University has an appropriation and legal authority to pay cash for a building, the subject bill would not apply. It applies only to financing agreements that require an annual appropriation for debt service. Co-chair Pearce voiced her understanding that it would affect the University if a lease-purchase arrangement was entered for the building. Mr. Welker concurred. Senator Kerttula voiced concern over lease costs associated with rental of office space such as the Frontier Building in Anchorage. He attested to need for legislative oversight of standard lease arrangements that obligate the state to sizable annual payments. Senator Phillips suggested that since he and Senator Frank sit on the subcommittee overseeing the leasing budget within the Dept. of Administration, that the issue be reviewed within the context of that budget. Co-chair Frank concurred, noting that if the state is leasing a facility long-term, it is preferable to eventually own it. Leasing comprises a $32 million item in the Dept. of Administration budget. Senator Kerttula suggested that leases for which the annual cost is over $500.0 and the term is longer than three years should be brought before the legislature for approval. He then voiced his belief that the proposed bill might encourage long-term leasing over lease-purchase. Discussion followed regarding automobile leasing. Senator Phillips asked that Senator Kelly submit a formal, written request for audit review. Co-chair Pearce called for objections to adoption of the "O" version of CSSB 247 (2d Fin). No objection having been raised, CSSB 247 (2d Fin) was ADOPTED. Discussion followed regarding impact of the bill on the recent purchase of the Court Plaza Building in Juneau and the Anchorage Times Building in Anchorage. Randy Welker advised that it would not impact the Court Plaza. Purchase of the Times Building is presently a fluid process. The transaction has not yet closed. It is, however, more likely than not to be concluded before the effective date of the proposed bill. Co-chair Frank explained that it was not the Legislative Budget and Audit Committee's intent to deny the purchase. Further discussion of the Times Building transaction followed. Co-chair Frank noted need to tighten the title of CSSB 247 (2d Fin) to include wording limiting lease-purchase arrangements and requiring legislative approval. He then MOVED for adoption of a conceptual amendment to tighten title language. No objection having been raised, the amendment was ADOPTED. Senator Rieger noted that the bill speaks to both lease- purchase financing and standard leases. He then suggested that, in light of concerns raised by Senator Kerttula, provisions pertaining to standard leases, at page 5, be strengthened prior to transport of the bill to the floor. Senator Kelly asked why language set forth in the letter of intent was not incorporated within the bill. Co-chair Frank explained that while it was felt it would be more appropriate for DOTPF rather then DNR to hold title, manage, operate and maintain state facilities, the intent was to provide some flexibility and not fix that requirement in statute. DOA currently oversees standard leases and thus has an interest in the process as well. Co-chair Frank MOVED that CSSB 247 (2d Fin) pass from committee with individual recommendations. He then advised that he would have no problem holding the bill in committee for possible amendment of language relating to standard leases. Senator Rieger voiced need to address lease payments that are disproportionate to the value of the building. Senator Phillips said he would take on the project over the weekend and return to committee on Monday. Co-chair Frank then WITHDREW his motion for passage, and CSSB 247 (2d Fin) was HELD in committee. ADJOURNMENT Co-chair Pearce directed that the meeting be recessed pending arrival of the Commissioner of the Dept. of Community and Regional Affairs. Commissioner Blatchford was precluded from returning to Juneau on this date. The meeting was, in effect, adjourned at approximately 9:55 a.m.