SENATE FINANCE COMMITTEE January 27, 2023 9:00 a.m. 9:00:54 AM CALL TO ORDER Co-Chair Hoffman called the Senate Finance Committee meeting to order at 9:00 a.m. MEMBERS PRESENT Senator Lyman Hoffman, Co-Chair Senator Donny Olson, Co-Chair Senator Bert Stedman, Co-Chair Senator Click Bishop Senator Jesse Kiehl Senator Kelly Merrick Senator David Wilson MEMBERS ABSENT None ALSO PRESENT Neil Steininger, Director, Office of Management and Budget, Office of the Governor; Jason Sakalaskas, Director, Facilities Services, Department of Transportation and Public Facilities; Chad Hutchison, Director of State Relations, University of Alaska. PRESENT VIA TELECONFERENCE Alesia Kruckenberg, Director of Strategy, Planning and Budget, University of Alaska. SUMMARY PRESENTATION: DEFFERRED MAINTENANCE - OFFICE OF MANAGEMENT and BUDGET, DEPARTMENT OF TRANSPORTATION, UNIVERSITY OF ALASKA Co-Chair Hoffman discussed the agenda. ^PRESENTATION: DEFFERRED MAINTENANCE - OFFICE OF MANAGEMENT and BUDGET, DEPARTMENT OF TRANSPORTATION, UNIVERSITY OF ALASKA 9:01:32 AM NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, introduced himself. JASON SAKALASKAS, DIRECTOR, FACILITES SERVICES, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, introduced himself. Mr. Steininger discussed a presentation entitled "Deferred Maintenance, Senate Finance committee, January 27, 2023," (copy on file). 9:02:18 AM Mr. Steininger turned to slide looked at slide 2, "Deferred Maintenance Overview": Deferred maintenance is maintenance or repair projects that have been delayed or postponed due to lack of funds within an entity's normal operating budget cycle. State of Alaska property portfolio: • 2,400+ facilities (includes University) • 20 million square feet of space • 15 State Agencies • Type varies by Agency 9:03:38 AM Mr. Steininger spoke to slide 3, "Funding Recommendations and Targets": There is no one definitive rule on the level of preventive maintenance necessary to avoid deferred maintenance, but a 2012 National Research Council publication references a range of 2-4% of replacement cost value. FY2021 replacement cost value (excluding University): $7,678,370.1 1% = $76.8 million 2% = $153.6 million 4% = $307.1 million 9:05:02 AM Mr. Steininger referenced slide 4, "Governor's Budget Maintenance Funding," which showed a table of FY 24 Governor's budget maintenance funding totaling approximately $13 million. FY2024 Capital Bill  Corrections Statewide Security Doors and Windows DM  $1,000.0 UGF Courts DM  $3,050.0 Alaska Capital Income Fund Fish and Game Sport Fish Hatcheries DM  $1,000.0 UGF Fish and Game Vessel and Aircraft DM  $500.0 Alaska Capital Income Fund Statewide DM  $29,283.6 Alaska Capital Income Fund FY2024 Capital Total  $34,833.6 FY2024 Operating  Maintenance and Operations All Agencies  $77,783.2 Various FY2024 Operating Total  $77,783.2 Capital and Operating Total  $112,616.8  9:06:45 AM Mr. Steininger turned to slide 5, "Statewide DM Appropriation by Agency," which showed a table that was a historical lookback of deferred maintenance appropriations by agencies for the previous six years. He explained that the reason the total was so low in FY 21 was because of the Covid-19 Pandemic. In that year the legislature adjourned early and there had not been a full capital budget. The following year made up the difference for the lack of funding in FY 21. He highlighted that DOC received a large amount each year due to its complex facilities. He pointed to significant amounts also went to the University. He mentioned large amounts for family and Community Services, which maintained Pioneer Homes and Juvenile Justice Facilities. 9:08:36 AM Mr. Steininger considered slide 6, " Backlog $703,493.1 (excluding University)," which showed a bar graph illustrating the backlog of deferred maintenance. He cited that there were backlogs in approximately $7 million. The number excluded the University, which would provide an update later in the meeting. He highlighted that DOT&PF had the largest backlog, with DOC following second. He noted that DNR had a lot of remote field sites that required maintenance. 9:09:39 AM Mr. Steininger relayed that he would turn the presentation over to Mr. Sakalaskas. 9:09:55 AM Mr. Sakalaskas informed that he would cover the approach used by DOT to identify and prioritize deferred maintenance projects and needs. He displayed slide 7, "Statewide Funding Approach": Allocation process • OMB facilitates the collection of agency deferred maintenance lists • State Facilities Council reviews and prioritizes deferred maintenance projects across executive branch agencies • Facilities Council deferred maintenance workshops anticipated February through June, with goal of Statewide prioritized list to OMB June 2023 • Projects to be prioritized based on combination of significant factors including facility importance, building system, and urgency to create a *Project Index Value (PIV). 9:11:38 AM Co-Chair Olson asked to go back to slide 6 and referenced the two columns for DOT. He asked Mr. Sakalaskas to explain the differences between the two columns. Mr. Sakalaskas explained that the first column reflected DOT assigned buildings. The second column represented the DOT Public Building fund and was part of a separate investment. Co-Chair Olson found it concerning that DOT had such a deferred maintenance backlog, considering it was responsible for airports and aviation in rural Alaska. He cautioned that airports in rural areas falling into disrepair was a safety issue. Mr. Sakalaskas explained that aviation facilities in rural areas were included in the backlog. Co-Chair Olson was concerned with maintaining rural airports which received heavy snow and ice formation, which made it difficult to stop an airplane. He mentioned less- than-pristine road graters, and asked whether equipment needs in rural locations were included in the DM backlog for DOT&PF. Mr. Sakalaskas stated that the facilities needs were included but not equipment. 9:14:05 AM Mr. Sakalaskas highlighted slide 8, "Project Ranking Formula": • Project prioritization a combination of the below to create a Project Index Value (PIV): PIV = (MAI) x (System Factor) x (Need) • MAI - Mission Alignment Index, alignment of facility to an Agency's mission • System Factor - Scale related to various building systems and their impact on building • Need - The urgency and criticality for replacement • If known, other attributes are also considered such as anticipated return on investments, any matching funds, or eligibility as a financed energy savings performance project 9:15:15 AM Mr. Sakalaskas looked at slide 9, "Mission Alignment Index": • Mission Alignment Index (MAI) identifies the relative importance of a facility in relation to an agency's primary mission. Besides how critical the facility is to the agency mission it considers: • How capable is it to deliver services • How utilized is it, how many people, citizens or state services does it impact • Availability of other facility options at that location • The most critical facilities of an agency are directly aligned with the agency's purpose to exist • Amongst multiple critical facilities within in an agency, there are still varying degrees • Allows better risk management to programs, and guides investment and divestiture decisions • Determined by the agency. Periodically revisited. 9:16:42 AM Senator Bishop asked where, under the three categories of the project formula, one would find life-safety and health. Mr. Sakalaskas relayed that life-safety would be placed in the system factor and would be a critical component. 9:17:25 AM Mr. Sakalaskas addressed slide 10, "Mission Alignment Index Examples": Critical: • The Agency cannot meet its mission without this facility. There are no viable workarounds Index Scale 0.75-0.9 Facility: Key Maintenance Station, Correctional Center, Hangar, School, etc. Important: • Would impact the Agency's mission if unavailable. Possible workarounds Index Scale 0.5-0.74 Facility: Cartain Office Buildings Supportive: • Would possibly impact the Agency's mission if unavailable, but other options available Index Scale 0.25.0.49 Other / Non Mission Critical: • Would not have an effect on the Agency's mission if unavailable Index Scale 0.0-0.24 Facility: Certain Warehouses or Storage Buildings 9:18:22 AM Mr. Sakalaskas advanced to slide 11, "Systems & Needs Examples Life, Health, Safety, Structure • Sprinkler, Fire Alarm, Structural, • Including Life, Health, Safety issues caused by envelope, mechanical, electrical, or other system failures System Factor - 0.75-1.0 Envelope and Shell  • Roof, Exterior Walls and Windows System Factor 0.5-0.74 Mechanical, Electrical, Conveying, Process  HVAC, Plumbing, Power, Lighting, Elevators, Escalators, industry specific systems System Factor 0.5-0.74 Interior, exterior grounds, other  • Interior Doors, Walls, Floors, Finishes System Factor 0.25-0.49 Need  5 Critical  -Corrects critical life safety or code hazard -Imminent failure, requires immediate action to return facility to normal operations 4 Important, not yet critical  -Requires action within next 5 years to stop intermittent interruptions -Corrects deterioration or potential safety hazards 3 Necessary  -Require appropriate attention to preclude deterioration or potential downtime 9:20:20 AM Senator Kiehl asked how DOT balanced between and among the different missions of different agencies. Mr. Sakalaskas stated that the formula was designed with the intention of striking the balance. He said that the MAI was the tool used within agencies to identify priority projects. 9:22:08 AM Mr. Sakalaskas looked at slide 12, "Examples From Last Prioritization Cycle: • Mission Alignment Index Determined by the owning department. In this example, each is a critical building essential to serving the mission of the respective department. • System Factor Average of the inputs from each member of the Facilities Council • Need Average of the inputs from each member of the Facilities Council • Project Index Value Calculated and ranked for over 100 projects from the last ranking cycle Final prioritized list was reviewed and approved by Facilities Council, then shared with OMB to inform the recommended deferred maintenance allocation. 9:23:17 AM Mr. Sakalaskas showed slide 13, "Deferred Maintenance Project Implementations": General Processes  • Typical project efforts may include planning, design and construction phases with varying durations depending on scope and intensity • Projects offer opportunities for local and statewide design professionals and contractors through the State's procurement processes • Typical project cost impacts may include economic markets of contracting, commodity prices, scope increases due to unknown conditions or hazardous materials. o Projects can come in both under or above estimates. In some cases the state has seen bids exceeding estimates by ranges of 65-113% o These challenges are shared within Facilities Council forums and used to help inform future projects 9:25:05 AM Senator Wilson asked Mr. Sakalaskas to discuss possible supply chain issues. Mr. Sakalaskas affirmed that the department had seen supply chain issues, and there were "long lead" items under discussion within the Facilities Council. The Facilities Council was trying to take critical items into account early in the process as to not hold up project delivery. Senator Wilson asked about Infrastructure Investment and Jobs Act (IIJA) funds and asked whether any of the funds could be used for the deferred maintenance backlog. Mr. Sakalaskas responded that he was not familiar with the topic. Mr. Steininger interjected that most of the IIJA funds were used for new projects and not necessarily for deferred maintenance of existing facilities. Senator Wilson noted there were new infrastructure projects listed on the DOT list. He wondered whether any of the projects were eligible for IIJA funds. Mr. Steininger agreed to look at specific projects and summarized that the federal dollars were for energy projects or surface transportation programs. He said that opportunities to use the federal funds for DM would be explored. 9:28:49 AM Co-Chair Olson asked what measures had been taken to ensure that the estimates for projects were realistic. Mr. Sakalaskas explained that much of the cost pricing data was based upon historic cost pricing with projects and delivery. He commented that contractor prices were coming in high, and trends were being examined. Co-Chair Olson thought that project budget projections that were wildly different from the real bottom line were irresponsible and a sign of incompetence. 9:30:28 AM Senator Kiehl mentioned that he had not seen consideration of a project's impact on operating maintenance costs going forward. He asked whether there was a prioritization process that examined the savings of one project over another. Mr. Sakalaskas said that the facilities Council had discussed the matter. He said that high priority needs were being considered with the limited available funding. Senator Kiehl referenced the slide title "Statewide Funding Approach," and pondered that the $35 million for FY24 would get to the 1 percent to 4 percent range. He asked what the statewide funding approach was and suggested that the administration's proposal should align with the presentation. Mr. Steininger explained that the funding that was available for deferred maintenance was clearly "pretty constrained," which was a result of the states fiscal situation. He posited that there were no available funds to address every need that came to OMB. He mentioned the Alaska Capital Income Fund, which was the state's primary mechanism for funding deferred maintenance. The fund was populated by a ring-fenced portion of the Permanent Fund. He noted that an earlier slide showed a couple of projects outside the CIF funding, which the administration had felt were necessary. 9:34:21 AM Senator Kiehl thought it was incumbent upon the Senate Finance Committee to find resources to avoid disaster. He noted that there was about $34 million in spending from the CIF on slide 4. He asked Mr. Steininger to address the fund source for the fund. Mr. Steininger explained that the amount in the CIF varied from year to year and was appropriated from an estimate. He said that when crafting the budget, the amount appropriated from the CIF was equal to the estimated amount projected by the APFC. 9:35:49 AM Senator Kiehl asked whether the fund was going to a negative balance in the current fiscal year or the following fiscal year. Mr. Steininger relayed that if less than the estimated funds were in the CIF then there would be less funds available for bills. He explained that there were mechanisms in place to assure the state didnt bounce any checks. 9:36:58 AM Mr. Steininger showed slide 14, "Appendix." Mr. Steininger turned to slide 15, " State-Owned Facilities Count by Agency," which showed a bar graph. 9:37:31 AM Mr. Steininger considered slide 16, "State-Owned Facility Space by Agency," which was a bar graph that showed square footage of facility space for each agency. He commented that the University had the most total square feet in assets over all other agencies. 9:38:01 AM Mr. Steininger displayed slide 17, "State-Owned Disposed Assets": • Department of Health and Social Services Ketchikan Youth Center returned to the City • Department of Health and Social Services Nome Youth Facility in-progress • Department of Natural Resources sold facility associated with the Agriculture Revolving Loan Fund • Department of Military and Veterans Affairs divested 15 Army National Guard facilities with 50 others planned or in progress • Department of Transportation and Public Facilities transferred the Telephone Hill property to the City • Department of Transportation and Public Facilities sold two facilities from Kulis Anchorage • University of Alaska reduced space through property sales, elimination of leases, and demolition 9:38:26 AM Senator Wilson asked Mr. Steininger to provide a list of facilities that had been sold over the last 3 years. Mr. Steininger replied in the affirmative. Senator Bishop asked how long Mr. Sakalaskas had been in his current job. Mr. Sakalaskas relayed he had been in the position since the beginning of December 2022. Senator Bishop assumed that Mr. Sakalaskas was prepared to conduct a systemwide review to assess efficiency and effectiveness of department practices. Mr. Sakalaskas affirmed that such a review was a top priority. Senator Bishop asked for the number of unfilled positions in the agency. He also asked about a building that had collapsed due to snow load and asked whether precautions were being taken to avoid such an accident in the future. Mr. Sakalaskas agreed to provide a vacant position count for his division. He said that snow loads were being monitored throughout the division. 9:40:36 AM Senator Wilson asked about the computer management system for facilities. Mr. Sakalaskas relayed that the division was working to go live with several components and had extended delivery in certain components. He said that other components of the system were being developed. 9:42:44 AM AT EASE 9:44:49 AM RECONVENED CHAD HUTCHISON, DIRECTOR OF STATE RELATIONS, UNIVERSITY OF ALASKA, addressed a presentation entitled "University of Alaska - Empower Alaska," (copy on file). He referenced two documents including a priority list of deferred maintenance prepared by UA Director Pat Pitney (copy on file), and UA Red Book. Mr. Hutchison relayed that the presentation would address the DM priority list for the University. 9:46:33 AM Mr. Hutchison looked at slide 2, "UA Facilities," and relayed that the University had traditionally had a large backlog of deferred maintenance: A reliable funding source is required to maintain UA's facilities and infrastructure across the state. Due to many years of unfunded deferral of critical projects, there is an increasing risk and evidence of building closures, and a deferred maintenance/renewal & repurposing (DM/R&R) backlog that has grown to over $1.5 billion. UA Facility Profile • Serve academic, research, and community service mission • Facility type varies from residential housing, general offices, and classrooms to complex laboratories • 394 facilities, spanning 7.9 million square feet, average age is 35 years • $4.9 billion inflation-adjusted value and $1.5 billion backlog of deferred maintenance and renewal projects UA Facility Stewardship • Leverage shrinking maintenance operations budgets to lengthen the service life of buildings beyond the typical age for major renewal, focusing on renovation and renewal where viable • Decrease overall footprint, through efforts to move from leased to owned facilities and sell or demolish underutilized facilities UA Facility Funding • Due to the lack of sufficient maintenance funding UA's backlog of projects continues to grow • There have been numerous unplanned closures causing significant hardship on student learning and research activities, as well as the associated lost productivity of university students, faculty/researchers, and staff • Within a couple of years, UA can plan and execute $35-$50 million a year on deferred maintenance, renewal and repurposing projects 9:50:21 AM Co-Chair Hoffman asked about the new power plant at UA. Mr. Hutchison responded that the power plant was providing good value for the University. 9:50:49 AM Mr. Hutchison spoke to slide 3, " Capital Budget DM/R&R Funding History Unrestricted General Funds & Backlog," which showed a bar graph illustrating a direct correlation between funding and the DM backlog. He noted that the green line was the UA minimum request. The red line represented deferred maintenance and the R and R backlog. He observed that over time, when the state appropriation was lower, the backlog increased. He noted that the backlog was $1.5 billion. 9:52:31 AM Mr. Hutchison referenced slide 4, "FY24 Capital Budget Summary": o #1 Deferred Maintenance/Renewal & Repurposing (DM/R&R) - $17.5 million UAA heating, mechanical, and electrical system improvements o #1 Facility Modernization - $2 million space renovation for WWAMI expansion o Other important requests - $54.8 million DM/R&R, UAA COH workforce demand and learning commons, UAF student affairs center, and UAS lab consolidation Mr. Hutchison referenced the FY 24 Priority Deferred Maintenance document and discussed the requests highlighted on slide 4. 9:54:32 AM Mr. Hutchison showed slide 5, "UA Highest Priority Capital Projects,": $17.5 million UAA heating, mechanical and electrical system improvements - including the Professional Studies Building (PSB), the Wendy Williamson Auditorium (WWA), the Social Sciences Building (SSB), and the Consortium Library to prevent critical failures and provide energy savings through increased efficiency. PSB and WWA are connected facilities, and they share some of the infrastructure scheduled for replacement as part of this project. All four facilities were constructed in the early 1970s and the infrastructure is beyond its useful life with a high risk of failure. $2 million UAA COH WAMMI Facility Renovation at Sally Monserud Hall- renovated to expand the College of Health's ability to educate more students to fill high-demand workforce needs. This renovation supports the WWAMI program expansion. $6 million grant Alaska Leaders Archive Renovation at UAA/APU Consortium Library renovation to create an expanded archive, enhanced academic and conference space, and a public-facing museum for the Alaska Leaders documents. The Alaska Leaders' Archive will preserve and promote the legacy of public service and leadership in Alaska. $2.5 million grant potential UAF University Park - renovated to support an Early Childhood Development Center, expanding childcare options for employees and student parents. Mr. Hutchinson stressed that the last two items were receipt authority. Mr. Hutchison considered slide 6, "UA Deferred Maintenance Projects,": Due to many years of unfunded deferral of critical capital projects, there is increasing risk and evidence of building closures. There have been numerous unplanned closures causing significant hardship on student learning and research activities, as well as the associated lost productivity of university faculty/researchers, and staff. Priority projects at the universities include: $3.6 million UAS's roof repair/replacement - including Technical Education Center (Juneau), Southeast Alaska Maritime Training Center (Ketchikan), and Sitka Hangar (Sitka) which have roofs that are leaking or experiencing other function issues requiring replacement or significant repair. $11.3 million UAF's top projects address student safety across campus - providing a safe and compliant campus for everyone is the top priority, yet the aging campus requires large upgrades to reduce risk and prevent injury. Safety and regulatory compliance projects provide updates to building features meant to protect the occupants and reduce risk to students, staff, and faculty. Work includes updating ventilation to ensure sufficient fresh air is supplied to active laboratories, replacing fire alarm systems, correcting emergency egress paths, and creating accessible buildings which include replacing elevators. 9:57:45 AM Mr. Hutchison displayed slide 7, "UA Facility Modernization": UA continues to look for ways to make the best use of existing space. Several facilities, in need of complete modernization, have been included for consideration in the FY24 capital budget. $8 million UAA Health Workforce Diversity Expansion and Library Learning Commons - renovate Sally Monserud Hall for critical health workforce training and relocates the learning commons into the UAA/APU Consortium Library. $12.5 million UAF Lola Tilly - modernized to create a more welcoming, centralized area for student affairs and public-facing functions. $1 million UAS Natural Sciences - relocate laboratory programs from the Natural Science Research Lab building to the Anderson Building, bringing all of our Natural Sciences students, faculty, and staff into one area for better continuity, economy, and synergy. 9:59:03 AM Mr. Hutchison showed slide 8, "Appendix." Mr. Hutchison looked at slide 9, " UA FY24 Capital Budget," which showed a table of the Board of Regents request versus what was included in the Governors proposed budget. 9:59:41 AM Mr. Hutchison showed slide 10, "FY24 Priority DM/R&R Projects," and noted that the following slides showed the same information as the document authored by President Pitney. Senator Merrick recalled that the legislature had appropriated funds for drones the previous year and asked if the funds had been expended. Mr. Hutchison replied that the funds were in the process of being expended. He relayed that exact total spend amounts would be made available. 10:01:40 AM Senator Wilson was concerned that some of the backlog listed was for buildings that were not very old. He asked for a list of yearly maintenance activities spending. Mr. Hutchison expressed that Senator Wilson's point was well taken. He relayed that the Leadership Archive had high value as it related to the preservation of history. He noted that the president recognized that there were maintenance issues in many buildings and had prioritized the list by the highest need. 10:03:48 AM Senator Wilson thought it seemed that there was no funding for ongoing operational issues and costs. He expressed concern about the way the UA maintenance budget had been applied over the years. Mr. Hutchison pointed out that the Leadership Archives project was paid for with federal funds. 10:04:49 AM Senator Bishop asked whether the Board of Regents had a deferred maintenance committee that vetted projects for prioritization. Mr. Hutchison relayed that there was a vetting process that occurred through which the proposed items were discussed. The ultimate list was compiled by President Pitney. Senator Bishop referenced slide 3 and asked for the total outstanding bonded debt. Mr. Hutchison deferred to Director Kruckenberg. 10:06:15 AM ALESIA KRUCKENBERG, DIRECTOR OF STRATEGY, PLANNING AND BUDGET, UNIVERSITY OF ALASKA (via teleconference), estimated that it could be fully paid for but was not sure. She agreed to provide the information to the committee later. 10:06:45 AM Co-Chair Olson asked whether the UA system had too many facilities and whether some should be sold or liquidated. Mr. Hutchison relayed that there were some items, some laboratories, and some research environments that required specific square footage. He said that divestment from assets was always under discussion. He discussed enrollment declines, which had been significant over the previous ten years. Co-Chair Olson was concerned about information on slide 2 when Mr. Hutchison indicated that the University was moving away from leasing and towards ownership of buildings. He asked about the rocket launch facility in Kodiak, and asked how many other Universities in the nation were involved in similar projects. Mr. Hutchison agreed to provide the information. Co-Chair Olson thought that the project had not lived up to its projected potential. Mr. Hutchison agreed to provide an update on the project. 10:10:29 AM Senator Kiehl followed up on Co-Chair Olson's comments about facilities that had been divested compared to facilities that were purchased. Mr. Hutchison did not have the information at hand but agreed to provide the information. Co-Chair Hoffman discussed housekeeping. ADJOURNMENT 10:11:54 AM The meeting was adjourned at 10:11 a.m.