Deferred maintenance tab on state, university buildings now estimated at $2.7 billion

The accumulated deferred maintenance on University of Alaska and state facilities has increased to $2.7 billion, state officials have told legislators in a briefing.

The Office of Management and Budget, a part of the governor’s office, presented the latest estimates to the Senate Finance Committee last week.

About $1.3 billion is needed on University of Alaska buildings, many of which are large structures that are also old, particularly at University of Alaska Fairbanks. The tab on other state structures is $1.4 billion, OMB’s director, Neil Steininger, told the senators.

Basically, the problem is lack of capital funds, and lawmakers and governors have grappled with this issue for years. An initiative by Gov. Sean Parnell in 2014, when revenues were high, resulted in several hundred million dollars invested in deferred maintenance. That made a dent, but then the total began rising again.

Some emergency items for plumbing repairs and fire alarm upgrades at UAF dorms and Bethel and Dillingham community campuses are in the proposed general obligation bond bills, in Senate Bill 74 and House Bill Steininger told the committee that a rule-of-thumb for ongoing maintenance spending, developed from national research estimates, are that 2 to 4 percent of buildings’ replacement value should be reserved for maintenance. Given the $7.7 billion value of state facilities, not including the university, that is based on insured values of buildings, the state should be spending $154 million to $307 million yearly on maintenance.

OMB’s examination of the state operating budget has identified about $90 million being spent, Steininger said. About $65 million is in next year’s state budget for deferred maintenance on state facilities. The university typically allocates $50 million a year for deferred maintenance on its own buildings.

The huge maintenance backlog developed after the state and the university developed aggressive building programs in the 1980s and 1990s when the state’s population was rising and there was ample income from oil.

Some structures were built quickly, particularly at the University of Alaska Fairbanks. That contributed to maintenance problems in later years.

When periodic oil price crashes hit, as happened in 1986 and in the early and late 1990s, petroleum revenues dropped sharply. Legislators and state officials were scrambling for enough money to keep programs operating and the buildings open.

In that environment, it was easy to cut maintenance. However, when oil prices and revenues recovered after each crash the Legislature opted to spend money on other priorities, like new capital projects, rather than catch up on the work on buildings that had been skipped.

Parnell was the only governor to tackle the problem. He initiated a five-year program of catchup on deferred maintenance that brought the backlog down from about $1.8 billion estimated in 2014 to about 1.5 billion.

But in 2016 oil crashed again and a new governor, Bill Walker, struggled to find the money to keep the state afloat. Oil prices recovered very slowly through 2019 when a new governor, Mike Dunleavy, took charge.

In 2020, when the COVID-19 pandemic hit, oil again suffered huge losses, leaving a new governor struggling to pay bills. Meanwhile, the maintenance needs continue to grow.

The state and the university have had some luck in selling buildings no longer needed or fully used, such as structures suitable for office use at the University of Alaska Anchorage. Also, UAA has been able to lease out some facilities to third parties, like the University Mall building on Old Seward Highway in midtown Anchorage and the Alaska Airlines sports arena on Providence Drive on the UAA campus, which is being used as a pandemic response center.

But it’s more difficult to sell some buildings built for purpose, like dormitories that are needed now student housing.