SENATE BILL NO. 310 "An Act providing for and relating to the issuance of general obligation bonds for the purpose of paying the state cost of school, University of Alaska, and port and harbor capital projects; and providing for an effective date." JAMES BALDWIN, Assistant Attorney General, Department of Law, advised that he had prepared a memo as requested by Senator Torgerson regarding concerns whether certain items contained in SB 310 would qualify as capital improvements for the purpose of issuing general obligation bond debt. [Copy on File]. Mr. Baldwin cited that the Alaska Supreme Court has made two decisions relative to the concern: Wright versus City of Palmer and City of Juneau versus Hixson. The Court has not provided a specific definition of capital improvement, but rather defined it by example. Generally, it refers to permanent betterment of permanent structures. The Department has concluded that major renovations designed to preserve the permanency of a building would qualify as a capital improvement. Expenditures for property which become a legal fixture would be a capital improvement. In certain circumstances, there can be expenditures associated with capital projects that might not otherwise become a capital item. Mr. Baldwin suggested consideration of, for the record, that the nature of any doubtful project be considered in order that it may be defended against a challenge brought when the bonds are sold. Senator Phillips referenced Page 3, Line 11. He asked if the allocated $11.7 million dollars would qualify. Mr. Baldwin understood that was to be the State's 70% contribution. The municipalities are under the same constitutional administration and must use their bonds for capital improvements. He assumed that those bonds were issued for capital improvements. Senator Phillips referenced Page 4, Line 12 & 13 requested allocation in the amount of $25.1 million dollars for the University of Alaska - Fairbanks in deferred maintenance. He asked if that would qualify under the capital improvement projects (CIP). Mr. Baldwin noted that he did not know and that he did not have access to all the required information to make that determination. Senator Phillips asked further clarification of the memo. Mr. Baldwin reiterated the contents of the memo, stating that if it were to be ordinary repair and maintenance, it would not qualify under the CIP guidelines; however, a major renovation, repair or maintenance necessary to maintain the permanency of the facility, could be a CIP. He noted that the current Court conclusions have not yet gone that far. Co-Chair Torgerson asked if the proposition proposal in Anchorage passes, would Anchorage then be restricted on major maintenance projects that met the criteria submitted by the Department. Mr. Baldwin responded that the information contained in the voters pamphlets becomes a "contract" with the voters and that it can not be parted from without violating the public trust. He presumed that the ballot materials would inform the voters what the project consists of. Senator Adams questioned the distinguishment between repairs and maintenance. He asked the judgement call needed to stay in "repaired maintenance". Senator Adams suggested that perhaps there should be an expenditure limitation on the capital projects over a certain amount. Mr. Baldwin replied that the total bond issue drives the "economics" because of the cost of issuance. He believed that a major upgrade would most likely fall under "capital improvement". Co-Chair Torgerson pointed out that there had not been a completed list submitted by the University, instead, submitted by building name only. He advised that he had prepared some amendments to the proposed legislation. Senator Donley MOVED to adopt Amendment #5. [Copy on File]. Co-Chair Torgerson explained that the amendment would remove all reference to issuing bonds for port and harbor projects in SB 310 they had been incorporated into SB 311. There being NO OBJECTION, Amendment #5 was adopted. Senator Donley MOVED to adopt Amendment #6. [Copy on File]. Co-Chair Torgerson clarified that the amendment would delete the "$943,565" dollars on Page 5, Lines 13-14 and would insert "an amount equal to one percent of the principle amount of the bonds, or as much of that amount as is found necessary". Senator Adams inquired what would occur if that amount were higher than 1% of the principle. Co-Chair Torgerson explained that the agency could then come back to the Committee to request an increase. There being NO OBJECTION, Amendment #6 was adopted. Senator Phillips requested a list of the general obligation (GO) bonds. He believed that there were items that should not be included in these bonds. He objected to the proposed methodology. Senator Adams recommended that a representative from the University of Alaska speak to the submitted requests. Co-Chair Torgerson emphasized that if the requests do not meet the criteria that they should be deducted from the bill. He requested greater detail regarding all three campuses for the University requests. WENDY REDMAN, Vice President, Statewide Programs, University of Alaska-Fairbanks, stated that the language used in the past for the statewide GO bonds in the Alaska Housing Finance Corporation (AHFC) bond issue was "deferred maintenance/renewal and replacement/code compliance". That phrase provides the most flexibility to the University. She requested that if possible, that would be the preferred language. Co-Chair Torgerson asked if there was a list indicating work to be done on each building. Ms. Redman commented that the list does provide specific types of projects for each facility. She inquired the level of detail needed. Co-Chair Torgerson interjected that the Committee wants a more thorough explanation of each project. He noted that the "rule" he follows is if it extends the "life of the building". Ms. Redman commented that no "on-going" maintenance had been included in the request. She noted that it were present problems to break it down to specific details of each project. Some projects are a "best guess" until the space is taken apart, making it difficult to determine the actual costs. Co-Chair Torgerson noted that SB 310 would be HELD in Committee for further consideration.