Alaska State Legislature
Deferred Maintenance Task Force

Building Alaska for the 21st Century

Report to the Governor and the Legislature

January 12, 1998

The Honorable Tony Knowles
Governor
State Capitol Building
Juneau, Alaska 99811-0001

Dear Governor Knowles:

The Deferred Maintenance Task Force has completed its assigned task. It adopted the attached report to the Governor and the Legislature on January 10, 1998. You will receive a formal printed copy when they are completed.

The Task Force worked diligently to identify state assets with deferred maintenance needs. We have a proposal for financing the needed repairs. We have recommendations to prevent a reoccurrence of the problem we were called together to help resolve.

The House and Senate Rules Committees will introduce six pieces of legislation today at the request of the Deferred Maintenance Task Force. This will begin the formal legislative discussions on addressing the deferred maintenance needs we identified.

However, the current trend in oil pricing, and its future impact on the Constitutional Budget Reserve, may dictate a less ambitious approach to solving the entire problem at this time. Fiscal prudence may require the proposal to be scaled back to the most essential elements. We expect the Legislature, over the next several months, to assess this impact as it considers the legislative package.

Sincerely,

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Senator Tim Kelly, Senate Co-Chair
Senate District K

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Representative Eldon Mulder, House Co-Chair
House District 23

Introduction

The Deferred Maintenance Task Force was established by House Concurrent Resolution No. 8. (Appendix A) It directed the Task Force to:

1. Review and evaluate publications from similar efforts in the past made by the executive branch, the legislative branch and other public and private individuals and organizations;
2. Identify and evaluate all current and deferred maintenance needs for public facilities;
3. Disseminate information and solicit public comment about its subject of consideration;
4. Submit a report of its findings and recommendations, including a funding plan, to the Governor and the Legislature by the convening of the Second Regular Session of the Twentieth Alaska State Legislature.

The Task Force first met in May 1997, in Juneau to organize and hear presentations from state agencies.

During the interim the Task Force held 14 days of public hearings in the communities of Kenai, Kotzebue, Nome, Kodiak, Wasilla, Ketchikan, Fairbanks, and Anchorage. The Task Force conducted over 60 hours of public testimony.

The Task Force also made site visits while in the various communities. It visited 20 communities and viewed:

• 18 schools,
• 3 University of Alaska campuses,
• 3 prisons,
• 1 community jail,
• 5 harbors,
• 8 airports,
• 15 other public buildings, and
• 100s of miles of roads and highways.

The Task Force, prior to every visit, notified each community of scheduled public hearings by newspaper advertisements, public service announcements and regular notice of legislative hearings. Every community had many citizens and designated officials present testimony to the Task Force. Most of the hearings exceeded the planned time, but the Task Force remained to hear from everyone who wished to testify. The Task Force also received written testimony from anyone unable to attend the several public hearings.

The Task Force presented representatives of each community with an inventory of deferred maintenance developed by the staff through its work with the state agencies. They had an opportunity to comment on its completeness and accuracy. Generally, communities found the information accurate.

During the term of the Task Force, the staff worked with state agencies to develop an inventory of deferred maintenance needs for state assets. A final compilation is included in this report with greater detail filed in the Legislative Library.

Staff also reviewed previous reports and activities in other states. The review of previous work in Alaska was marginally useful as most were catalogues of needs at a point in time. The review of other states found no particularly innovative approaches to solving this problem. There was, however, the Virginia example of the use of a financing authority the Task Force found useful in its deliberations.

After the extensive set of committee hearings, the Task Force met in Anchorage for a two day session in October focusing on financing options. The Task Force heard presentations from the Division of Legislative Finance, the Department of Revenue, the Department of Transportation and Public Facilities, the Department of Administration, The Alaska Municipal League, and bonding consultants. The committee held open discussions and gave tentative approval to recommend funding the deferred maintenance and educational replacement needs through the use of bonding. The interest earned on funds in the Build Alaska Fund will be designated corporate reciepts, a restricted fund in the state general fund. These funds and the dedicated tobacco tax will increase general fund revenues by an amount that would allow the legislature to annually appropriate funding for payment of debt service on the proposed bond. This will assure that the five year plan to close the fiscal gap is maintained.

The Task Force met again for two days in November. It reviewed the proposed funding method, established the funding as a six year plan, adopted a process for prioritizing projects and adopted recommendations to prevent the recurrence of a deferred maintenance back log. At the final meeting staff was directed to secure bond counsel and an economist to review and comment on the proposal. Both were engaged and submitted opinions to the Task Force.

The economist chosen was Scott Goldsmith of the Institute of Social and Economic Research at the University of Alaska, Anchorage. He reported that the level of spending proposed by the Task Force would not overheat the Alaskan economy. (Appendix C)

Roger Davis, of the law firm of Orrick, Herrington & Sutcliffe LLP, was chosen as bond counsel. He reviewed the Task Force proposal to determine any unintended federal tax consequences. His advice is to make minor adjustments to the originally proposed legislation. With those adjustments, he finds no concern about adverse federal tax consequences. (Appendix I)

This report reflects the findings of the Deferred Maintenance Task Force and its recommendation for Legislative and Administrative action.

Summary of Recommendations

The Deferred Maintenance Task Force adopted the following recommendations.

1. Provide Funding over a Six Year Period for $1,420,000,000 of Identified Deferred Maintenance Needs
2. Financing Plan

1. Create a Public Facilities Financing Corporation with a Build Alaska Fund
2. Appropriate $1.5 billion from the Constitutional Budget Reserve to the Build Alaska Fund
3. Make interest on the Build Alaska Fund and the dedicated tobacco tax available to the general fund to increase funds available for annual appropriation to service bonds sold to finance deferred maintenance needs.

3. Authorize a November 1998, Statewide Advisory Vote to Approve the Plan and the New Corporation
4. Require Local School District Financial Participation in School Construction

1. 2% to 35% based on AS 14.11.008

5. Require Routine and Preventive Maintenance Programs

1. Require Preventive Maintenance Programs be in place prior to receiving funding from this program
2. Require Separate operating budget appropriations for routine and preventive maintenance

6. Encourage the Use of Prototypical Designs for Schools
7. Transfer State Certain Owned Harbors to Local Governments
8. Establish a Rent Structure for State Owned Facilities
9. Request Standing Committee Review of the Following Issues

1. Increase Oversight of School Site Selection and Design
2. Use of Regional High Schools and Distance Education
3. Road Maintenance Cost Caused by Hard Metal Studs in Tires
4. Regulatory Requirements that Increase Construction Costs
5. Transferring Ownership of Certain State Roads

Spending by Year
Draft 1/6/98
(numbers in Thousands)

Letter from Bond Council

Orrick, Herrington & Sutcliffe LLP
Old Federal Reserve Bank Building · 400 Sansome Street · San Francisco, California 94111-3143
Phone: (415) 392-1122 · Fax: (415) 773-3739 · E-Mail rogerdavis@orrick.com

By Fax: (907) 465-3518

Represenative Eldon Mulder, Co-Chair
Senator Tim Kelly, Co-Chair
Deferred Maintenance Task Force
Room 501
State Capitol Building
Juneau, Alaska 99801-1182

Re: Public Facilities Financing Corporation

Dear Gentlemen:

Pursuant to our engagement to review certain aspects of proposed legislation creating the Public Facilities Financing Corporation, based on the draft presented to us, research of such matters as we deemed appropriate, and conference calls with Denny DeWitt, Eric Wohlforth and others, we believe the proposed legislation can fairly easily be revised to enable the Corporation to issue bonds (1) the interest on which would be exempt from federal income taxes (without having to restrict the yield on the Build Alaska Fund established in the legislation) and (2) that would not be invalid as state debt within the meaning of Article IX, Section 8 of the Alaska Constitution.

A memorandum setting forth the changes we recommend to accomplish this goal will follow in a few days. Of course, whether any particular bonds are tax-exempt or valid will depend on the final form of legislation enacted, how it is implemented and the specific details pertaining to those particular bonds. Therefore, this letter is not intended to be viewed (or be relied upon) as an opinion regarding the tax-exemption or validity of any bonds.

Please contact me at (415) 773-5758 or George G. Wolf (the tax partner working with me) at (415) 773-5988 if you have any questions.

Very truly yours,

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Roger L. Davis

RLD:ksg