Legislature(2009 - 2010)

04/13/2010 09:46 AM FIN


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HOUSE BILL NO. 426                                                                                                            
                                                                                                                                
     "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; and providing for an effective date."                                                                          
                                                                                                                                
2:24:27 PM                                                                                                                    
                                                                                                                                
JOSEPH MASTERS,  COMMISSIONER,  DEPARTMENT OF PUBLIC  SAFETY,                                                                   
explained what  the crime lab  does and urged passage  of the                                                                   
legislation. He  elaborated that HB 426  provides $75,750,000                                                                   
in funding  for a  new state  crime lab.  The existing  crime                                                                   
lab  is outdated  and inefficient.  A  crime lab  replacement                                                                   
would provide  state of  the art  scientific analysis  of the                                                                   
evidence in  a timelier manner  that could result  in swifter                                                                   
arrests and  convictions; enhancing protection  for Alaskans.                                                                   
He added  that  a new crime  lab is  a key  component in  the                                                                   
Governor's sexual  assault and domestic violence  initiative.                                                                   
Sexual  assault and  domestic  violence  cases contribute  to                                                                   
half of the workload  of the crime lab. The new  lab is vital                                                                   
to  the initiative's  goals;  to prosecute  perpetrators  and                                                                   
prevention.  He furthered  that a  new lab  will protect  the                                                                   
innocent  from false  accusations with  timely processing  of                                                                   
evidence and exonerates the wrongly convicted.                                                                                  
Commissioner Masters  stated that the  new crime lab  has the                                                                   
capacity  and technology  to  meet  the existing  and  future                                                                   
crime analysis  needs of  the state.  The current  inadequate                                                                   
crime lab is  the main reason crime evidence  analysis cannot                                                                   
be processed  in a  timely manner or  cannot be processed  at                                                                   
the facility  at all which  creates backlogs and  delays. The                                                                   
crime  lab has  become "reactive"  to major  crimes only.  He                                                                   
reported  that a  new crime  lab would  enable a  "proactive"                                                                   
and preventive approach  to combating all types  of crime. He                                                                   
pointed  out   that  an  expected   increase  in   the  state                                                                   
population  of 140,000  by 2013  will significantly  increase                                                                   
demand for the crime lab services.                                                                                              
                                                                                                                                
Commissioner  Masters  reported   that  previous  legislative                                                                   
approval   for  leasing   a  twelve   acre   site  from   the                                                                   
municipality  of Anchorage for  one dollar  per year  for the                                                                   
next  fifty  years  with  an   additional  twenty  five  year                                                                   
extension,  $8,000,000 for  design work,  and $8,800,000  for                                                                   
site preparation  demonstrates  past legislative support  for                                                                   
the  project.  He   added  that  the  project   team  trimmed                                                                   
$20,000,000  from the  initial  estimated cost.  Construction                                                                   
of the crime  lab is expected  to create 250 jobs  and employ                                                                   
fifteen subcontractors.                                                                                                         
                                                                                                                                
2:30:55 PM                                                                                                                    
                                                                                                                                
Commissioner Masters  emphasized the difficulty  of putting a                                                                   
price  tag on the  value of  public safety  and security  for                                                                   
Alaskans.                                                                                                                       
                                                                                                                                
Representative Austerman  asked if the total cost  of the lab                                                                   
is   approximately   $92.5  million.   Commissioner   Masters                                                                   
affirmed.  He  clarified  that HB  426  provides  $75,750,000                                                                   
along  with  the  previous  appropriations  invested  in  the                                                                   
replacement lab that totals $16.8 million.                                                                                      
                                                                                                                                
Representative  Foster   asked  whether  future   needs  were                                                                   
considered in  the design. Commissioner Masters  replied that                                                                   
the  lab design  meets  current  and future  needs  up to  20                                                                   
years.                                                                                                                          
                                                                                                                                
Representative  Kelly   referred  to  the   earlier  proposed                                                                   
project,  high cost of  the lab,  and legislative  directives                                                                   
to  scale back  the  project and  costs.  He  noted that  was                                                                   
successful and wondered  whether the facility would  still be                                                                   
adequate.  Commissioner Masters  noted that nineteen  percent                                                                   
of  the  footprint  is  shelved space  to  allow  for  future                                                                   
expansion  and with  the flexibility  to  add new  technology                                                                   
and techniques as they are developed.                                                                                           
                                                                                                                                
2:35:35 PM                                                                                                                    
                                                                                                                                
Vice-Chair Thomas  referred to  the high crime  statistics in                                                                   
Alaska and queried why the new lab would make a difference.                                                                     
                                                                                                                                
Commissioner  Masters  responded   that  there  would  be  an                                                                   
immediate   increase  in   efficiency   of  twenty   percent,                                                                   
directly related  to adequate use of space  and equipment for                                                                   
all types work processes and analysis in the lab.                                                                               
                                                                                                                                
ORIN  DYM,   MANAGER,  FORENSIC  LABORATORY,   DEPARTMENT  OF                                                                   
PUBLIC  SAFETY,  reported  that   sexual  assault  cases  are                                                                   
backed up  to 2007 and often  property crime evidence  is not                                                                   
submitted  in consideration  of  the backlog.  He  emphasized                                                                   
that the crime  analysis situation in the state  "is so bad".                                                                   
He stated that, "we are the clog in the pipes of justice."                                                                      
                                                                                                                                
Vice-Chair Thomas  asked if the lab would increase  cold case                                                                   
capabilities.  Commissioner Masters  informed  that the  cold                                                                   
case  homicide   unit  is  an   investigative  unit   in  the                                                                   
operations  department.  All  of  their  work  that  requires                                                                   
scientific analysis is sent to the state crime lab.                                                                             
                                                                                                                                
Representative Salmon  asked if autopsies would  be performed                                                                   
at the crime lab.                                                                                                               
                                                                                                                                
2:39:29 PM                                                                                                                    
                                                                                                                                
Commissioner  Masters reported  that autopsies are  performed                                                                   
at the  Department of Health  and Social Services  lab, which                                                                   
works closely  with the  Department of  Public Safety  lab as                                                                   
needed on criminal cases.                                                                                                       
                                                                                                                                
Representative Foster  asked if equipment is included  in the                                                                   
total cost of the lab.                                                                                                          
                                                                                                                                
Mr. Dym affirmed.                                                                                                               
                                                                                                                                
Co-Chair Hawker opened public testimony.                                                                                        
                                                                                                                                
Co-Chair Hawker Closed public testimony.                                                                                        
                                                                                                                                
Co-Chair  Hawker requested  discussion  of  the fiscal  notes                                                                   
and  the  proposed  funding  mechanism;  the  certificate  of                                                                   
participation concept.                                                                                                          
                                                                                                                                
DEVEN  MITCHELL, EXECUTIVE  DIRECTOR,  ALASKA MUNICIPAL  BOND                                                                   
BANK AUTHORITY,  DEPARTMENT OF REVENUE, stated  that the bill                                                                   
authorizes  issuance  of  $750,000,000   in  certificates  of                                                                   
participation to  fund the crime lab. The amount  of $750,000                                                                   
is  associated  with  costs  to  sell  the  certificates.  He                                                                   
explained   how  the   certificates   of  participation   are                                                                   
secured.  The state enters  into a  subject to  appropriation                                                                   
lease  with  a  trustee.  The  trustee  is  granted  a  title                                                                   
position in  the facility. The  lease is fractionalized  into                                                                   
$5,000 certificates  that  are similar  to bonds but  legally                                                                   
distinct from  them. The  certificates are  sold in  the same                                                                   
way as any  bond issue; by  a combination of serial  bonds or                                                                   
term bonds that  would follow a yield curve from  year one to                                                                   
twenty years  with various interest  rates for  the different                                                                   
maturities.   The  various   rates   would   blend  into   an                                                                   
aggregated  rate  estimated  at   4.2%.  He  added  that  the                                                                   
project  would participate  in the  federal stimulus  program                                                                   
[The American  Recovery and  Reinvestment Act](ARRA)  via the                                                                   
Build  America   Bond  Program  that  would   provide  direct                                                                   
subsidies  by reduction  in the  annual debt  service in  the                                                                   
amount of  $300,000 - $400,000  per annum. The  program would                                                                   
allow for  the sale of a  combination of tax exempt  bonds at                                                                   
the short  end of the  yield curve and  taxable bonds  at the                                                                   
long end  of the  yield curve  and receive  a direct  subsidy                                                                   
from the  federal government  of thirty  five percent  of the                                                                   
interest expense.                                                                                                               
                                                                                                                                
2:45:58 PM                                                                                                                    
                                                                                                                                
Co-Chair Hawker  asked if  market conditions are  appropriate                                                                   
for the  state to  enter into this  type of transaction.  Mr.                                                                   
Mitchell  affirmed. He  believed that  the financial  markets                                                                   
have stabilized  and the  conditions are  favorable for  long                                                                   
term debt.                                                                                                                      
                                                                                                                                
Vice-Chair  Thomas if  there is  a cap on  how much  stimulus                                                                   
money  can be used.  Mr. Mitchell  replied  that there  is no                                                                   
limit on the ability to use the bond program.                                                                                   
                                                                                                                                
Representative   Fairclough  queried   if  the  building   is                                                                   
designed to energy efficient standards.                                                                                         
                                                                                                                                
MATT  TANAKA,  CRIME  LAB  PROJECT   MANAGER,  DEPARTMENT  OF                                                                   
TRANSPORTATION  AND  PUBLIC  FACILITIES,   offered  that  the                                                                   
building   design  is   complex  but   energy  efficient   as                                                                   
possible.  Representative Fairclough  stated  that she  heard                                                                   
the answer  as no. Mr. Tanaka  countered that the  answer was                                                                   
yes. Many design  elements employed energy  efficient systems                                                                   
but due  to the  complex nature  of the  design, it  does not                                                                   
meet  a specific  energy  efficiency standard.  Energy  costs                                                                   
were  modeled  in  during the  development  of  the  project.                                                                   
Representative  Fairclough  asked  if heated  sidewalks  were                                                                   
part of the design. Mr. Tanaka negated.                                                                                         
                                                                                                                                
2:51:19 PM                                                                                                                    
                                                                                                                                
Representative  Doogan asked  for clarification  of the  term                                                                   
of the certificate.                                                                                                             
                                                                                                                                
Mr. Mitchell explained  that the term is for 20  years with a                                                                   
level debt  service and interest  payment due in FY  2011. He                                                                   
furthered that  interest would be  paid within six  months of                                                                   
issuance  with  subsequent  interest paid  on  a  semi-annual                                                                   
basis. A principle payment would be paid in August, 2012.                                                                       
                                                                                                                                
Representative Doogan cited the legislation on page 2,                                                                          
lines 21-24,                                                                                                                    
                                                                                                                                
     "The estimated annual amount of rental obligations                                                                         
     under the lease-purchase agreement is $5,600,000. The                                                                      
     estimated total of lease payments for the full term of                                                                     
     the lease-purchase agreement is $112,000,000."                                                                             
                                                                                                                                
Representative   Doogan  asked   if   $112,000,000  was   the                                                                   
repayment amount  over twenty  years. Mr. Mitchell  affirmed.                                                                   
He clarified  that amount  is an  estimate. He restated  that                                                                   
with  participation   in  The  Build  America   Bond  Program                                                                   
reduction  in  the  annual  debt service  in  the  amount  of                                                                   
$300,000 - $400,000 per year below the $5.600, 000.                                                                             
                                                                                                                                
Representative  Doogan  asked   if  there  is  a  substantial                                                                   
market for  the certificates and if  it is a safe  course for                                                                   
the state  to take.  Mr. Mitchell  remarked  that this  is an                                                                   
extremely common  form of financing and is  called a "subject                                                                   
to appropriation  concept"  in financial  markets. The  state                                                                   
has  used  the   mechanism  successfully  in   the  past.  An                                                                   
investor is  compelled to  purchase the certificates  because                                                                   
non-payment   by   a   state  has   legal   negative   credit                                                                   
ramifications and  prohibitions to access capital  for future                                                                   
projects. Representative  Doogan wondered what  the advantage                                                                   
is of certificates  of participation over  general obligation                                                                   
bonds.   Mr.  Mitchell   reiterated   that  certificates   of                                                                   
participation are  a very common  means for public  financing                                                                   
for a  single project.  All of  the other  labs in  the state                                                                   
were financed  by this  mechanism. He  stated that  the state                                                                   
gets a  lower interest  rate with  general obligation  bonds.                                                                   
However,  general  obligation  bonds  are  usually  used  for                                                                   
funding  multiple  projects  and   the  project  cannot  move                                                                   
forward  until  an  election  is held.  He  added  that  ARRA                                                                   
expires at  the end of 2010.  AARA is expected to  extend but                                                                   
at a lower reimbursement  rate of 33% so the  risk in waiting                                                                   
is  that you  would give  up nearly  half  of your  advantage                                                                   
with general  obligation  bonds. Also,  the state would  take                                                                   
on interest  rate risk because  of waiting longer to  sell at                                                                   
the  end of  the  year instead  of  now in  favorable  market                                                                   
conditions.                                                                                                                     
                                                                                                                                
2:58:11 PM                                                                                                                    
                                                                                                                                
Representative  Doogan  asked if  there  is a  premium  being                                                                   
paid  to  use   certificates  of  participation   instead  of                                                                   
general  obligation  bonds.  Mr.  Mitchell  replied  that  it                                                                   
would be an  estimated $45,000 per year or  $900,000 over the                                                                   
life of the loan.                                                                                                               
                                                                                                                                
Representative  Foster  wondered what  the  rationale was  to                                                                   
use  certificates   of  participation   instead  of   general                                                                   
obligation   bonds.  Mr.   Mitchell  stated   he  would   not                                                                   
characterize  increased interest  payments as  a premium.  He                                                                   
felt   that   the   rationale    to   use   certificates   of                                                                   
participation  was  the time  sensitive  nature  of the  ARRA                                                                   
expiration.  Also, if  GEO bonds  are used  and time is  lost                                                                   
waiting for  voter approval  the risk  is that the  financial                                                                   
markets can  become supply heavy  at the end of  the calendar                                                                   
year  with  the result  of  paying  higher yields.  In  using                                                                   
certificates the  state might be  giving up the  potential to                                                                   
have  their best  credit  and lower  interest  rate with  geo                                                                   
bonds but  somewhat offset by  selling into a  more favorable                                                                   
market  now  with  certificates   and  the  ability  for  the                                                                   
project to move forward as soon as the bill becomes law.                                                                        
                                                                                                                                
3:02:19 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Thomas MOVED to  report HB  426 out of  Committee                                                                   
with individual  recommendations and the  accompanying fiscal                                                                   
note. There being NO OBJECTION, it was so ordered.                                                                              
                                                                                                                                
HB  426  was REPORTED  out  of  Committee  with a  "do  pass"                                                                   
recommendation   and  with  a   new  fiscal  note   from  the                                                                   
Department of Revenue.                                                                                                          
                                                                                                                                

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