SENATE BILL NO. 74 "An Act creating the University of Alaska building fund for the payment by the University of Alaska of the costs of use, management, operation, maintenance, and depreciation of space in buildings; and authorizing the Board of Regents of the University of Alaska to designate buildings for which the fund is to be used." 3:26:40 PM HEATHER SHATTUCK, STAFF, SENATOR PETE KELLY, related that the bill would create a University Building Fund (UBF) as a special account in the General Fund. She shared that there was currently $1 billion in backlog maintenance for the university's 7 million square feet of facilities. She stated that the university was shifting to long-term strategic planning to adequately address the ongoing maintenance issue. She stressed that the fund would be a tool that the university could use to do their share in assuring that facilities were taken care of properly, while bringing deferred maintenance costs down to a responsible and sustainable level. She relayed that the university could begin charging departments for rent, which would encourage improved space utilization and operational efficiency. She explained that before the Public Building Fund, which the UBF was based on, state departments had more space than was needed. The fund, along with charging rent, had forced department's reconsider how much space they actually needed. She said that the intent of the legislation was to help the university take advantage of the same process to ensure that it was implemented in the most effective way possible. She explained that initially the university would put buildings that were new, or under 15 years-old, into the fund; as buildings were rehabilitated they would be added to the fund in order to prevent them from falling into disrepair. 3:28:58 PM Co-Chair Kelly thought the bill would alleviate the university's deferred maintenance problem. He believed that the legislation would highlight that space costs money, which would prompt managers to give up space that was not completely necessary. He felt that significant savings would result from an aggressive space reconfiguration program. 3:30:24 PM PATRICK GAMBLE, PRESIDENT, UNIVERSITY OF ALASKA, testified in support of SB 74. He understood that the university had some catching up to do after the previous decade of funding predominately for the purpose of growth. He shared that growth began to level off in 2011, and he understood that the university needed to take responsibility for the maintenance of its infrastructure. He offered that more funding alone would not benefit the university at this time. He described the legislation as a tool that would give the university the ability to take steps toward further autonomy. He believed that the UBF would address a large account in the university budget, which was where efficiencies and savings would be found. He noted that the university was the largest real estate manager in the state. He said that the facilities managed by the university were being examined on a building-by-building basis to determine whether they would remain or be demolished, which would reveal information concerning the entire building array that had previously been unknown. He reiterated that the legislation would provide a tool for the university that had already proved to be successful when used by universities in the Lower 48. He believed that the legislation would inspire discipline in the area of space management. KIT DUKE, ASSOCIATE VICE PRESIDENT FOR FACILITIES, UNIVERSITY OF ALASKA, believed that the legislation would instill discipline in the university that would ensure the future care of all of its facilities. She expressed the desire to provide tools that could be used in times of lesser revenue to maintain buildings. She noted that new construction was sometimes necessary, but maintenance of older buildings was equally important. She thought that the bill would generate a cultural change in the way that academic administrations valued physical space and the costs associated with maintaining the space beyond first costs. 3:40:00 PM Co-Chair Kelly wondered how the legislation was useful when no funds would be distributed for 2013. He asked whether the SBF was capitalized at when it was created. Ms. Duke replied that she did not remember the capitalization amount. Co-Chair Kelly asked if the money that the university was currently spending on building maintenance and operation would shift into the UBF. Ms. Duke relied that that was the intent. 3:42:53 PM Co-Chair Kelly understood that in the future the money could be capitalized upon through donations or general fund dollars. Ms. Duke related that the funding could come from many sources and that the legislation allowed for almost any type of deposit to be made into the fund. She related that the money would still need to be appropriated by the legislature from the UBF, which was why she believed the fund would prove to be a tool for the legislature as well as the university in the long term. She stressed that it would take some time to implement the plan, which made immediate funding less of a concern. 3:44:47 PM Co-Chair Kelly wondered why the university could not currently set up a rent charging system for the different departments. Ms. Duke replied that the issue was not that rent charging could not be set up, rather, whether a system could be set up that would survive long enough to do any real good in the long term. 3:45:16 PM Senator Bishop hoped that the funds authorized by the legislature would remain in-state. President Gamble felt that there was nothing in the intent language of the bill that would prevent the funds from remaining in-state. 3:48:10 PM Co-Chair Kelly asked if the university had been in discussion with the Office of Management and Budget (OMB) concerning the shift of funds planned for 2014. President Gamble replied no. Co-Chair Kelly thought that the discussion should happen soon and that the changes should be made at the administrative level as the budget was submitted, rather than have the legislature make the changes after the fact. 3:48:36 PM President Gamble commented that extensive internal discussions had occurred at the university with the understanding that whatever the legislature budgeted for 2013 would inform the expected numbers for 2014. 3:49:09 PM Ms. Duke reiterated that the plan laid out in the bill would provide information concerning space utilization and program cost, which would cause the university to take a more business approach to investment decisions. 3:50:07 PM Co-Chair Meyer wondered if federal grant monies could be used in the UBF. Ms. Duke thought that Co-Chair Meyer could be referring to grants allotted for deferred maintenance projects. She imagined that there was a possibility that the grants could be put into the UBF. 3:51:01 PM President Gamble offered that there were many kinds of grants, some of which had very specific restrictions. He added that the university generally liked to use grant dollars for their intended purpose. 3:51:40 PM Vice-Chair Fairclough asked why language indicating that a dedicated fund was not being created was not in the bill. 3:52:28 PM President Gamble referred the question the DOL. 3:52:35 PM Vice-Chair Fairclough turned to Page 3, line 13, which contained language specifying that any money in the fund would stay in the fund unless it was allocated out by the legislature. 3:53:27 PM Vice-Chair Fairclough queried how much bonding authority the university currently had. President Gamble replied about 2 percent. He said that the goal was to stay below 5 percent encumbered with debt service. He asserted that the university was comfortable with its ability to bond further. 3:54:16 PM Vice-Chair Fairclough wondered whether the university could qualify for the Alaska Housing Finance Corporation Revolving Loan Fund to offset the deferred maintenance costs of the university's engineering buildings. She understood that $250 million had been capitalized through the fund for improvements in weatherization, and at low interest rates. She stressed the need to address the deferred maintenance issue as soon as possible. Ms. Duke replied that the university was taking advantage of some of the energy monies available through AHFC. She said that the university was looking into accessing more of those funds for deferred maintenance work. 3:56:24 PM Vice-Chair Fairclough reiterated her question concerning the university's bonding authority limit. President Gamble replied that he was not aware of the bonding authority limit. 3:57:23 PM Kit Duke interjected that additional information could be provided to the committee at a later date. 3:57:30 PM Vice-Chair Fairclough believed that the bond limit was set in stature. Co-Chair Meyer CLOSED public testimony. SB 74 was HEARD and HELD in committee for further consideration. 3:58:59 PM AT EASE 4:21:19 PM RECONVENED