SENATE BILL NO. 178 "An Act giving notice of and approving a lease-purchase agreement by the Department of Administration for an office building in Anchorage; relating to the financing of the lease-purchase agreement; and providing for an effective date." Co-chair Sharp introduced SB 178. Dugan Petty, Director, General Services, Department of Administration was invited to join the committee. He explained the purchase agreement and said that it was subject to legislative approval. He also noted the analysis attached to the fiscal note. He explained the status of the negotiations for the Bank of American building and also the status of the Frontier Building. There was no alternative to compete with current lease space. Mr. Richard Thaler, Esq., Seattle, Washington was invited to join the committee. He said that based on his experience the Bank of America building would be the perfect purchase and that it was a win/win transaction for both parties included. There was a $25,955 million cash agreement and he explained what the purchase would include. He estimated the life of the building at 50 - 60 years. In response to a question from Senator Phillips regarding the parking spaces Mr. Petty responded that there were a total of 646 spaces, which included across the street plus underground. He said that 79 parking spaces were underground. Senator Phillips asked about parking at the Frontier Building. Mr. Petty said they were entitled to 467 spaces but there were over 1,000 spaces available. It was, however, not their policy to obtain parking for each employee. He gave a short current analysis of the parking situation. Senator Donley asked about the appraisal for the Frontier building and Mr. Thaler said that it had been appraised at patterns for the two buildings and asked for a comparison regarding the comfort for the public. Mr. Petty compared the traffic patterns for the two buildings. He also noted the value of the Bank of America building at $55 million and said it was a good bargain for the State in terms of purchase price. Mr. Ken E. Kincaid, Real Estate Consultant, Anchorage, Alaska was invited to join the committee. He explained his experience and background for the committee and said that he was a source authority in the office space market. He referred to a booklet handed out only to SFC members and noted that it was developed by Hunt Trust. He noted the high quality of the Bank of America building and the ample parking. He said the Department of Revenue, Department of Natural Resources and Human Services were already in the building. With reference to a graph in the booklet he said the lower line meant lower cost as far as expenses to the State. Timing was most critical to real estate and he explained the risk rate. (Tape #123 switch to side 2.) He explained the access traffic patterns and said they mostly ran east to west. The downtown would therefore remain stable. In his opinion the Frontier Building would be impacted for traffic due to Wal-Mart, Eagle Hardware, Home Depot and Marriott Hotel going in downtown. The private sector viewed the purchase of the Bank of America building as a superb deal. Mr. Petty referred to page 16 attached to the fiscal note. A lease saving for the year 2000 was reflected at $602,604 thousand. There was miscellaneous discussion between Mr. Kincaid and other SFC members as to commute time. Senator Phillips said he felt it was difficult to get downtown for 8:00 a.m. Mr. Petty said they have met the standard for parking they were looking for as show on the aerial map in Mr. Kincaid's report. Senator Torgerson asked what the Governor's position was regarding purchase of the Bank of America building and Mr. Petty said the Governor had not taken a position. Senator Parnell raised a concern of his constituents regarding the competitive process. He said there were three options available and wanted to know if the State was getting a good deal in all that was available or only on the building. Mr. Petty said according to procurement law the purchase of the building made good economic sense. He felt this deal was too good to pass up. The oil companies may have space available but they were unable to get their arms around anything. Senator Phillips asked how they would take care of tenants currently in the building. Mr. Petty said that not everyone has to leave the building. Mr. Thaler further noted that the State will honor the existing leases. A minor amount of the leases will expire in the year 2000. The State already occupies 60,000 feet in the building. He noted the following reasons for buying out all remaining leases: 1. to occupy the building completely; and 2. to qualify for tax exemptions. Senator Phillips asked if they had spoken to everyone leasing in the building. He said this was a business decision and not a political one. Mr. Thaler viewed it improper to speak with the tenants prior to receiving approval to purchase the building. Mr. Petty acknowledged that they had requested Bank of America to notify the tenants of the possible purchase. Co-chair Sharp asked for an explanation regarding the lease/purchase agreement. Mr. Forrest Browne, Department of Revenue was invited to join the committee. He explained the advantage of the particular lease/purchase agreement structure. There were semi-annual payments made to the trustees. (Tape changed to #124.) Senator Donley commented regarding the parking situation. He feared with legislative approval to purchase the building the Department of Administration would cut parking in order to reduce their budget. Mr. Petty said the Department felt good government access was important. Randy Welker, Legislative Auditor, Division of Legislative Audit was invited to join the committee. He referred to a memorandum dated 23 April 1997 and said the deal was clearly in the State's interest. The analysis was fair and if anything were to go wrong it would be the timing. There was not a significant cost factor. Co-chair Pearce set aside SB 178.