SB 24-LEGIS APPROVAL OF SEAFOOD/FOOD SAFETY LAB    CHAIRMAN THERRIAULT asked Janice Adair if she was ready to testify via teleconference. MS JANICE ADAIR, Director of Environmental Health for the Department of Environmental Conservation (DEC), said that SB 24 allows for the sale of bonds or certificates of participation to replace the seafood and food safety lab in Palmer. The lease for the current facility expired in December 2000 and there are two one-year extensions. State law prohibits long-term extensions without a substantial reduction in the lease payments. The reductions were given during a previous extension and the owner isn't willing to give another substantial reduction and has the building on the market. The current lease amount is $1.03 per square foot and has been that since December 1998. Her letter had given an incorrect figure per square foot. She said that the lab is the only one in the state testing for paralytic shellfish poisoning (PSP) so that shellfish and crab can be sold in interstate and international commerce. DEC tests shellfish growing waters to ensure that they comply with the National Shellfish Sanitation Program. DEC also evaluates dairy products that are processed in Alaska and sold elsewhere. The lab also certifies private labs that runs drinking water analyses for public water systems and works with commercial food industries to develop safe food products, such as smoked fish and other shelf stable products. In FY99 and FY01 the legislature appropriated capital funds to the department to do planning for the replacement of the lab. DEC hired an independent contractor, Livingston Sloan, and was told that the most cost effective replacement would be a state-owned laboratory. Building the lab on state-owned land would provide additional savings. A state-owned site near the airport in Anchorage was selected to facilitate transportation to the lab of statewide test samples. Approximately 80 percent of the work done in the lab is seafood related, some of which is time sensitive. Testing must be completed before any of the food may be sold. Number 1937 The economic analysis confirms that owning is more economical than leasing. Since labs are highly individual and specialized, any lease space would require extensive remodeling prior to use. The new lab would result in an overall decrease in operating costs for shellfish growers. There are 11 approved shellfish farms in Southeast, 22 in Southcentral and nine geoduck growing areas in southeast. Since growers must ship their water and fish samples to the lab at their own expense, locating the lab near the airport would save courier costs from the Anchorage airport to the lab in Palmer. There will be no increased cost to the dairy industry because inspectors pick up samples when they visit the dairies. The lab performs most of the tests for free but there are charges for tests for foods for export and tests made at the request of food manufacturers. If the bill isn't passed this session, the lab will have no alternative but to look for lease facilities this summer or fall to ensure a place of business when the current lease extension comes to term in two years. Lease costs are expected to be high. Number 1839 CHAIRMAN THERRIAULT asked whether the Governor's capital budget submittal included a $310,000 appropriation to finance the lease along with the sale of bonds. MS. ADAIR said yes, the whole project has $13.6 million from bond sale proceeds and $310,000 from the general fund. CHAIRMAN THERRIAULT asked what was on the proposed site. MS. ADAIR said there was a gravel pad with a Department of Motor Vehicles/Department of Transportation building next door. CHAIRMAN THERRIAULT asked Julie Decker to testify next. JULIE DECKER, executive director of the Southeast Alaska Regional Dive Fisheries Association, supports SB 24. She represents divers, processors and communities of Southeast Alaska, all of whom use the seafood and food safety laboratory in Palmer. They pay for many of its services. Relocating the lab next to the airport in Anchorage would be beneficial to users in Southeast in particular due to the 30 hour time limit on water samples. The trip from the airport to Palmer has made the difference between getting the sample to the lab on time and going over the 30 hour limit. CHAIRMAN THERRIAULT called for questions. SENATOR PHILLIPS asked what percent the fisheries' industry would contribute toward the project since 80 percent of the business is seafood related. MS. ADAIR said that users pay for a portion of the maintenance and operation of the facility. SENATOR PHILLIPS said he'd like users to pay for more of the facility itself. MS. ADAIR said she wasn't sure "the way the fee statutes are structured we could even include that in a fee." CHAIRMAN THERRIAULT asked for size of the proposed lab noting that the current lab is 9,000 square feet. MS. ADAIR said the new lab would be 20,500 square feet. CHAIRMAN THERRIAULT said that was more than double the size. He then said that current costs are $115,000 per year and are anticipated to go to $1.2 million per year with the new facility. In addition, Department of Environmental Conservation will pay operational costs of $178,000 to $180,000 per year. MS. ADAIR said that was correct but it must be understood that the $115,000 figure would rise regardless of whether the new facility is built or not. Also, laboratories are highly specialized and it will be expensive to build one or to remodel a building to house a modern lab. There are specific and specialized requirements for things such as ventilation and the keeping and care of live mice used in testing. SENATOR PEARCE asked whether a survey was done of available buildings in Anchorage that would meet code and could be used as laboratories. MS. ADAIR said that was part of the analysis done by contractors Livingston/Sloan and they determined there were not any suitable buildings in the Anchorage area. CHAIRMAN THERRIAULT asked about the time gap between the two years in extensions left on the current lab and the FY2005 projected opening date of the new lab. MS ADAIR said there is a one year gap and it is a great concern. Number 1392 CHAIRMAN THERRIAULT referred to notes from a power point presentation outlining the pros and cons of owning versus leasing. He asked how flexible the interior of a lab is in terms of reconfiguration since this was listed as a reason to own rather than lease. MS. ADAIR said she would like Tom Livingston to answer the question. CHAIRMAN THERRIAULT asked for other questions for Ms Adair before Mr. Livingston answered. SENATOR PEARCE asked whether the lab might be asked to vacate the premises before the end of the lease term if the building is sold. MS. ADAIR said she didn't believe so. CHAIRMAN THERRIAULT called upon Mr. Livingston. MR. TOM LIVINGSTON with Livingston/Slone Inc. said that his firm had just designed the new public health lab in Anchorage so he is familiar with the issues discussed. It is critical that labs are design flexible because technology, equipment and safety features change fairly frequently. Things such as walk in freezers; ventilation hoods, bio-safety cabinets and equipment hoods may all have to be repositioned because of procedural changes that occur over time. Needs for water, power, steam and ventilation are all variable and this is one of the reasons labs are so specialized. A building that is able to support this kind of flexibility is complex. CHAIRMAN THERRIAULT asked Mr. Livingston to talk about the search for available buildings that would support the facility. Number 1266 MR. LIVINGSTON said his firm did a survey of buildings in South Central Alaska to determine their suitability for this type of activity. The conclusion was that there are building shells that would need extensive interior finishing but that there is nothing on the market now that could be readily used. The design criteria and bid specifications that would go out to potential landlords for such a remodel are specific and extensive enough that there would be considerable upfront cost to the state. Preparing such a package would require an extension of the lease term in order to recoup those costs. After weighing the factors, it was decided that building a custom designed facility that is state owned is the most cost effective over time. CHAIRMAN THERRIAULT asked if he took part in the decision to make the new building 20,500 square feet, which is more than twice the size of the current building. MR. LIVINGSTON said that he prepared the analysis. The current space is very inadequate and there really isn't enough space there to conduct the procedures that are being performed there now. Good science isn't being compromised but the staff has to work far harder than necessary to maintain the standards expected by industry. CHAIRMAN THERRIAULT said he knew that they were under pressure in the lab but wanted to know if the increased size comes from industry standards for specific lab space or something else. MR. LIVINGSTON said yes, they did a detailed analysis of the current lab procedures and then looked at the new labs such as the Anchorage Public Health Lab, the Seward Sea Life Center and the National Oceanic and Atmospheric (NOAA) fisheries lab in Juneau. With that data base, they came up with a figure for the square footage needed for each of the labs activities and the utilities needed to support those activities. Catering to the needs for personal safety and conducting quality science were of primary concern. Number 1035 SENATOR PHILLIPS has a problem adding between 13 and 14 million dollars to the state budget when he has a constituency that thinks more should be cut from the budget. He asked for a response to that. MR. LIVINGSTON said that the cost of the state owned facility compared to a leased facility over a twenty year term makes sense. SENATOR PHILLIPS asked how other states pay for this type of facility. MS. ADAIR said that Washington and Oregon labs are general funded. There are no fees paid by the users, it all comes from state revenue. CHAIRMAN THERRIAULT asked if there was a tax on the industry in either of those states to add money to the general fund. MS. ADAIR said she hasn't done a complete analysis. She knows that Washington has a fairly heavy processors fee but she doesn't know whether that applies to shellfish or not. SENATOR PHILLIPS said his constituency wants budget cuts and that 80 percent of the business the lab conducts involve fisheries. He thinks most of his constituents would say, "Let the users pay for the services that they're asking for." He said he'd be interested in knowing how other states pay for the structure and operation and maintenance of the facilities. CHAIRMAN THERRIAULT said that the industry pays for the tests but questioned whether they should they have to pay for the facility as well. Public health labs require payment for services but the cost of the facility itself isn't factored in. SENATOR PHILLIPS said, "public health is different. This is for one industry. Why don't we do this for the oil industry or tourism? Who is going to pay for all these things?" Number 797 SENATOR PEARCE said that we all face those questions. However, to expand and diversify the economy of Alaska, the State is going to have to provide service and it is already doing so. One death from PSP will kill the industry in the state and the state could well end up being the "deep pocket" and spend much more in legal and liability fees than the building costs. She believes that laboratories for the public health are the responsibility of the state. She has no problem asking users to pay for the tests they have run but they shouldn't be expected to pay for the costs of the building itself. To her knowledge, no other industry is asked to pay for state building costs as an add-on to the fees, licenses, permits and services they pay for. She used the oil industry as an example. SENATOR PHILLIPS said that the oil industry pays it's own way in the state. He's concerned about adding more to the budget with no plan for 10 to 15 years from now. CHAIRMAN THERRIAULT said he agrees that costs must be considered. However, this agency has been before the legislature and the finance committee in two previous years and appropriations have been made because it is known that the lab needs replacing. He does have questions of his own about the total cost and the financing mechanism. SENATOR PEARCE said this is a renewable industry and efforts should be made to "maintain it and grow it as we look to that 10 to 15 year period when Prudhoe Bay really is gone." CHAIRMAN THERRIAULT asked for questions and there were none. He asked Devin Mitchel to come forward. MR. DEVIN MITCHEL, State Debt Manager for the Department of Revenue (DOR), said that DEC would coordinate with DOT to build the facility using private contractors. "It would be the State of Alaska's credit that would be utilized directly to access the capital market. So rather than relying on the private developer to use our lease payments as a revenue stream to obtain capital, we would do that directly. So the state bond committee of the State of Alaska would issue that debt." CHAIRMAN THERRIAULT asked whom we would be making our payments to or if we would be paying the bond directly. MR. MITCHEL said that the bill gives authorization for DEC to enter into a lease with DOA. That lease would be secured to the state rather than to a private developer. DOt is involved with the design and construction of the facilities. The Department of Public Services' new public health lab was constructed using the same model. The fiscal note anticipates lease payments of $1.2 million per year but that is variable depending on the current interest rate. Number 272 CHAIRMAN THERRIAULT called Caren Robinson forward to testify. MS. CAREN ROBINSON, owner and partner in Tenass Pass Shellfish Company of Prince of Wales and owner of a shellfish distribution company in Juneau, testified in favor of SB 24. She stressed the importance of quick and accurate product testing for this growing industry. She referenced a letter in committee packets from her partner, Roger Painter, outlining the difficulties involved in getting samples from Prince of Wales to the Palmer Lab within the 30 hour time requirement. Having the lab closer to the airport in Anchorage rather than in Palmer would eliminate one leg of the journey and therefore save time. She emphasized the importance of timely tests and said that anything that could be done to help the industry would be appreciated. A lab in Anchorage is preferable to the Palmer location. Number 152 MS. ROBINSON said that they pay for the testing and the state fisheries tax even though they pay for the spat and the shipping costs and put the spat into the water themselves. They're willing to pay their way but the industry is young and struggling. CHAIRMAN THERRIAULT thanked Ms. Robinson for her testimony. There were no questions. He then asked Ms. Adair about the statement that the federal government wouldn't allow a private lab to perform testing functions. Tape 01-6, Side A MS. ADAIR said that the Federal Drug Administration (FDA) has to certify labs doing PSP and dairy testing. They certify state laboratories but there is no private lab certification process or program. CHAIRMAN THERRIAULT asked if that meant that no state has a private lab certified to do this type of testing and without testing the shellfish couldn't be sold. MS. ADAIR said that was correct, no state has private labs that are certified and Alaska statute requires following National Shellfish Sanitation Program Standards adopted by the federal government. This requires a marine toxin monitoring program. CHAIRMAN THERRIAULT said that changing the state law wouldn't change the federal requirement. You must have the testing facility or you can't have the industry. MS. ADAIR agreed. CHAIRMAN THERRIAULT asked for questions. He said there is no committee substitute and there are three fiscal notes. The shift of expense for operating would go to DEC; DOR makes the lease payments and DOA shows the savings when the current lease isn't paid any longer. SENATOR PEARCE asked whether the department had considered putting an addition of the public health lab in Anchorage rather than building a new facility. MS ADAIR said they had but funding for the public health lab was set before there were plans for the seafood/food safety lab and the property selected wasn't large enough for both facilities without resorting to a second story. Because of ventilation requirements, a second story lab is prohibited. CHAIRMAN THERRIAULT asked for questions and there were none. He said that they had discussed wording of the bill and an overview of the fiscal notes. There were no amendments. He asked for the will of the committee. SENATOR PEARCE made a motion to move SB 24 from committee with fiscal notes and individual recommendations. SENATOR PHILLIPS objected and said he wants to find out how East and West Coast states finances labs of this type before this amount of money is committed. CHAIRMAN THERRIAULT suggested that Senator Phillips indicate his objection on the committee report. He went on to advise Ms. Adair to gather that information for the finance committee. He told Senator Phillips it was his preference to move the bill and asked him whether he wanted to maintain his objection. SENATOR PHILLIPS said he would maintain his objection due to the lack of information. CHAIRMAN THERRIAULT called for a roll call. Senator Phillips voted nay and Senators Davis, Pearce and Chairman Therriault voted yea. The motion passed 3:1. The bill moved from committee.