SENATE BILL NO. 226 "An Act providing for, relating to, and approving the issuance of certificates of participation for the construction, acquisition, and equipping of the Alaska Scientific Crime Detection Laboratory in Anchorage; providing notice of and authorizing the commissioner of the Department of Administration to enter into a lease-purchase agreement with the Department of Public Safety for the Alaska Scientific Crime Detection Laboratory; providing for, relating to, and approving the issuance of certificates of participation for the design, construction, acquisition, and equipping of the University of Alaska Fairbanks Life Sciences Building in Fairbanks; providing notice of and authorizing the commissioner of the Department of Administration to enter into a lease-purchase agreement with the University of Alaska for the University of Alaska Fairbanks Life Sciences Building; authorizing the University of Alaska to issue revenue bonds for the construction, acquisition, and equipping of the University of Alaska Fairbanks Life Sciences Building in Fairbanks; and providing for an effective date." 10:12:46 AM Co-Chair Stedman introduced the final piece of the governor's legislation authorizing Certificates of Participation for the construction of a crime lab and Life Sciences Building. DEVEN MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND BANK AUTHORITY, DEPARTMENT OF REVENUE introduced himself. Co-Chair Stedman asked for a definition of participation of certification. He asked about financial packages that could be assembled to move projects forward in the state. Mr. Mitchell delivered the sponsor statement. This legislation would authorize the Department of Revenue to issue certificates of participation for the construction, acquisition and equipping of two facilities; the Alaska Scientific Crime Detection Laboratory in Anchorage and the University of Alaska Fairbanks Life Sciences Building in Fairbanks. Bonding: It is time to finance these projects. The Department of Revenue has based the payback estimate on 20 year financing with the State's AA credit rating for appropriation based credit. In the current market, the Department of Revenue estimates that the State will be able to achieve a total interest cost of approximately 4.2 % using tax exempt securities. However, through a combination of tax exempt securities for shorter maturities and Build America Bonds or BABs (Taxable securities with a 35% federal subsidy) for the longer term maturities, the State could achieve a rate as low as 3.5%. The final structure will be designed to result in the lowest cost at the time of issuance. Authorization to participate in BAB's will close at the end of 2010. Crime Laboratory: Alaska needs a crime laboratory to prevent crime and protect Alaskans. The proposed laboratory is the right size, the right cost and it will benefit Alaskans now and long into the future. The benefits from this project include: 1) convicting the guilty before they commit other crimes; 2) protect the innocent from false accusation; 3) reduce rape; 4) reduce violent crime; 5) process evidence from home burglaries; 6) solve more cases with new techniques and faster output; and more. Building the crime lab will provide an economic boost to Anchorage by providing for 170,000 labor hours in 250 jobs for Alaskans. $12 million in Alaska wages, $20 million to materials supplied by local vendors and business for approximately 15 Alaska subcontractors. The facility will be 84,000 SF on Tudor Road in Anchorage. $16.8 million spent to date on design and site work on 15 acres leased from the Municipality of Anchorage at $1 per year for 50 years with an option to extend. The crime lab is planned to meet the state's needs for growth beyond 75 years. University Life Science Building: The UA Life Science Facility is Important to Alaska and Alaskans. This facility (approximately 97,700 square feet) will meet critical needs for modern classrooms and teaching laboratories and provide critical research space to allow for continued growth in many successful life sciences programs. The proposal includes approximately 40,000 SF of teaching space and 57,700 SF of research space in one centralized location.   The investment of $108.4 million ($87.9 m state/$20.6 m UA revenue bonds) yields long-term dividends; 1) short-term--Construction will inject new dollars into the statewide economy and provide approximately 370 jobs during construction, infusing approximately $170 million in direct and indirect economic output, including $80 million in labor income; and 2) long- term--Life Sciences research attracts 'new' money, since research revenue comes mostly from federal science agencies. Every $1 in state funds invested in UA research yields $6 in research funding from other sources.  The Governor urges your prompt and favorable action on this bill. 10:22:33 AM Co-Chair Stedman requested testimony from the Deputy Commissioner. JERRY BURNETT, DEPUTY COMMISSIONER, DIVISION OF TREASURY, DEPARTMENT OF REVENUE, offered no additional testimony. He reiterated the comments of Mr. Mitchell and the need to address the Build America Bonds (BOB). He explained that the BOB and General Obligation (GO) bond programs may not exist much longer. The proposals in congress are to reduce the subsidy from 35 to 28 percent. Other states are utilizing bonds to reduce their ongoing operating costs and to substitute for their general fund revenues. He stressed the seriousness of timing. Co-Chair Stedman asked about the option of cash payment versus shaving basis points off of the debt instrument. Mr. Burnett noted that the Office of Management and Budget (OMB) makes the budgeting decisions on the question of cash or debt. The state is currently observing interest rates which are likely to be near four percent. He opined that the state does not have an excessive amount of debt in addition to savings which allows the legislature a greater amount of flexibility in the future. 10:25:46 AM Co-Chair Hoffman recalled the potential to lose one year of construction if the Certificates of Participation are not chosen. He asked how many years the project has been under consideration for construction. Mr. Mitchell responded that he was not an expert on the project side of the proposal. He explained that the Department of Public Safety's proposal has been before the legislature in various committees in each of the last two sessions. He remarked that he was not certain about the Life Sciences Building. Co-Chair Stedman believed that the Life Sciences Building has been proposed for longer than two years. Co-Chair Hoffman agreed that the project has been under consideration for several years. 10:27:10 AM Senator Thomas asked how the quoted 35 percent pertains to the BOBs. Mr. Mitchell clarified that a bond is issued on a taxable basis so the investor receives a taxable rate of interest and the issuer receives the benefit of the tax exempt status. The 35 percent would flow back to the state's general fund as debt service was paid on a semiannual basis. Senator Thomas asked if the subaccount of the Constitutional Budget Reserve (CBR) is earning an interest rate in excess of what is estimated to be the Certificate of Participation bonding. Co-Chair Stedman clarified that the main account of the CBR is earning interest. Mr. Burnett responded that the general investment account and the main account of the CBR historically earn an interest rate higher than a cost of issuance for the state. He pointed out that the US government gives a direct payment to the state for the 35 percent subsidy of the interest. Co-Chair Stedman asked about the cash flow mechanism. 10:29:10 AM Mr. Mitchell noted that the state can pay a trustee to undertake the work for a nominal fee. The second choice is to submit paperwork with the Internal Revenue Service (IRS) upon issuance of the bonds. Notice is filed three months in advance with the United States treasury and reimbursement is received upon payment. The payment is supposed to occur the next day. Co-Chair Stedman mentioned the fiscal note from the Department of Revenue showing the initial interest payment of $2,700,000 in general funds for FY11. 10:30:40 AM MYRON DOSCH, UNIVERSITY OF ALASKA (via teleconference), explained that he oversees debt functions for the University of Alaska. He expressed concerns with the proposed financing structure for the Life Sciences Building. He proposed technical amendments to the bill, which he believed were overlooked in the initial drafting. The University intends to issue general revenue bonds to pay for a portion of the construction cost. He suggested proposed amendments for Section 5, Line 18. Currently the bill states "maximum principal amount of the bonds that the University of Alaska may issue is $20.6 million," but he proposed that it be increased to $24 million. The change provides a sufficient amount to cover the bond issuance cost, mandatory debt service reserves, and capitalized interest if necessary. The issuance costs are included in the bond and the costs are paid through debt service over the life of the debt. Leaving the principal amount capped at $20.6 million takes from funds needed for construction costs. He noted that the interest rate environment is low, making the project palatable from a financing point of view. The second proposed amendment is in Section 4, Subsection C referring to the entity with title to the building following Certificates of Participation were issued. The last technical change is proposed for Section 4, Subsection A regarding the authority to enter into a lease purchase agreement. 10:35:56 AM JAY QUAKENBUSH, PRESIDENT, FAIRBANKS BUILDING AND CONSTRUCTION TRADES (via teleconference), testified in favor of SB 226. He stated that the Life Sciences Building is necessary and would secure the University of Alaska a spot as one of the top universities in the nation regarding biological sciences. 10:38:01 AM LAKE WILLIAMS, PRESIDENT, FAIRBANKS CENTRAL LABOR COUNCIL (via teleconference), testified in support of the legislation. He noted that the proposed project will benefit Alaska in the short and long term. He opined that delay of the project would lead to additional construction costs. 10:40:09 AM JOSEPH MASTERS, COMMISSIONER, DEPARTMENT OF PUBLIC SAFETY testified on the crime lab portion of the legislation. He stressed the importance of the crime lab for the state. Currently Alaska is placed number one in national rank for sexual assault and nine in rank for violent crime. Scientific analysis and evidence is vital to providing prosecutors the information necessary to prosecute these cases. The proposed Crime Lab would be the only accredited crime lab in the state and would service agencies of the state and all police agencies for submission of evidence. The current lab is overcrowded and inadequate, which is the single largest limiter in the lab through put. The lab must therefore triage and focus on the increasing severity of cases while setting minor crimes to the side. The new crime lab would restore services previously discontinued and allow the addition of other critical services such as toxicology. Commissioner Masters continued that the crime lab has evolved over the years. He pointed out that $18 million has been appropriated by the legislature in previous years for the investment, design, review, and sight preparation. He explained that a delay will occur with the use of GO bonds leading to a delay in critical services needed today. 10:46:00 AM Co-Chair Hoffman asked about operating costs for the first year of the facility. He asked about the new positions required. Commissioner Masters responded that the initial cost involves a ten year plan. New sciences are added and with them new positions. Co-Chair Hoffman asked what the existing facility would be used for. Commissioner Masters replied that the current lab facility would require significant renovation and reconstruction to be used as a laboratory. He mentioned that it could be used as office space without the renovation. He pointed out that the Department of Public Safety currently has need of additional facility space. Co-Chair Hoffman asked the cost to mothball the facility. Mr. Masters replied that restoration of the facility would require upwards of $10-12 million. Co-Chair Stedman requested the department's expectations regarding staffing levels. 10:48:54 AM Senator Huggins pointed out that 20 percent of the building will remain unfinished. Commissioner Masters pointed out an approach in which space is shelled out initially and build in with added sciences. Senator Huggins recalled that the initial cost of the project was $100 million. Today the cost is the same, yet 20 percent of the building is unfinished. Senator Thomas commented on coordination with lab project experts and designers. He appreciated a situation where a contractor tempers the design architect's particular signatures. 10:50:46 AM DON ETHERIDGE, ALAKSA STATE AFL CIO, testified in support of the legislation as it benefits the unemployed as well as crime lab employees by allowing them to do their jobs properly. FRANK RICHARDS, DEPUTY COMMISSIONER, HIGHWAYS & PUBLIC FACILITIES, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, identified the benefits of the crime lab construction in calendar year 2010. With the current funding package, construction could likely occur this spring and summer. Initiation of the project would lead to approximately 125-150 new jobs. The cost of delaying the project by one year is an estimated 4 percent. The lab costs presented are valid. MATT TANAKA, PROJECT MANAGER, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES stressed that the project has been before the legislature for a considerable time and is "beyond shovel ready." If funded with Certificates of Participation this spring, construction will begin in May. If the project is delayed due to General Obligation bonds, the delay will give rise to $3 million worth of escalation costs, which will partially offset savings that may arise from alternative funding schemes. SB 226 was HEARD and HELD in Committee for further consideration.