Legislature(2015 - 2016)

2016-01-20 House Journal

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2016-01-20                     House Journal                      Page 1467
HB 268                                                                                                                        
HOUSE BILL NO. 268 by the House Rules Committee by request of                                                                   
the Governor, entitled:                                                                                                         
     "An Act relating to the dividends from the Alaska Industrial                                                               
     Development and Export Authority; relating to the meaning of                                                               
     'mark-to-market fair value,' 'net income,' 'project or development,'                                                       
     and 'unrestricted net income' for purposes of the Alaska Industrial                                                        
     Development and Export Authority; and providing for an effective                                                           
was read the first time and referred to the Labor & Commerce and                                                                
Finance Committees.                                                                                                             
The following fiscal note(s) apply:                                                                                             
1.  Indeterminate, Dept. of Commerce, Community, & Economic                                                                     
The Governor's transmittal letter dated January 18, 2016, follows:                                                              
"Dear Speaker Chenault:                                                                                                         
Under the authority of Article III, Section 18 of the Alaska                                                                    
Constitution, I am transmitting a bill relating to the dividends the                                                            
Alaska Industrial Development and Export Authority (AIDEA) pays to                                                              
the State each year. The bill is intended to clarify or modify                                                                  
accounting matters that affect the calculation of AIDEA's dividends.                                                            
The overall intent of the bill is to have AIDEA's dividends better                                                              
reflect the cash-based realized net income of the funds from which                                                              
AIDEA's dividends are paid.                                                                                                     
Under AS 44.88.088, AIDEA is required to pay a dividend each year                                                               
of between 25 and 50 percent of the "net income" of each of its                                                                 
statutorily created funds, but not more than the total "unrestricted net                                                        
income" of each fund. The terms "net income: and "unrestricted net                                                              
income" are defined in AS 44.88.088 as meaning the change in net                                                                

2016-01-20                     House Journal                      Page 1468
position of each fund as reported in AIDEA's audited financial                                                                  
statements each year, excluding consideration of certain designated                                                             
items. The bill would modify the excluded items that are not to be                                                              
considered in determining the change in the net position of each of                                                             
AIDEA's funds.                                                                                                                  
Specifically, the bill proposes to eliminate from consideration in                                                              
calculating AIDEA's dividends (1) impairment losses on a project or                                                             
development to the extent financed with state or federal grants or                                                              
appropriations; (2) any current or future mark-to-market fair value                                                             
based accounting requirements imposed by the Government                                                                         
Accounting Standards Board (GASB) such as those in Statements No.                                                               
31 and No. 72; and (3) non-cash accounting entries related to                                                                   
retirement obligations such as those required under GASB Statement                                                              
No. 68.                                                                                                                         
The proposed change in language on losses is meant to remove the                                                                
restriction that the loss must occur with respect to a development                                                              
project under AS 44.88.172. Under current law, AIDEA may finance                                                                
different types of projects and developments, not just development                                                              
projects under AS 44.88.172. It is not logical to restrict the exclusion                                                        
to just development projects under AS 44.88.172. Instead, the bill's                                                            
amended language on excluding consideration of losses proposes to tie                                                           
the losses to the use of State or federal grants or appropriations to                                                           
finance a project or development. The amended language in the bill                                                              
means that, when an investment in a project or development is made                                                              
with State or federal grants or appropriations, a loss as to that                                                               
investment will not be compounded by having AIDEA's dividend to                                                                 
the State reduced because of it. At the same time, however, a loss on a                                                         
project or development funded by AIDEA's own cash will be reflected                                                             
in the calculation of the dividend.                                                                                             
The bill's amendments directed at GASB Statements No. 31, No. 72,                                                               
and No. 68 are meant to exclude unrealized "paper" gains or losses                                                              
AIDEA must record in its financial statements from impacting                                                                    
AIDEA's dividends. Under GASB Statements No. 31 and No. 72,                                                                     
AIDEA must make accounting entries based on the mark-to-market                                                                  
values of its investments at the close of its fiscal year each year. Given                                                      
the vagaries of the market, these values can and likely will fluctuate                                                          
significantly from year to year. Under GASB Statement No. 68,                                                                   

2016-01-20                     House Journal                      Page 1469
AIDEA must make accounting entries for fluctuating actuarial                                                                    
computations on pension obligations. The accounting entries AIDEA                                                               
must make to comply with these GASB statements do not reflect the                                                               
actual results of AIDEA's operations, which should be the basis for its                                                         
dividend to the State. The accounting required by these GASB                                                                    
statements may cause great fluctuations from year to year in the net                                                            
income of AIDEA's funds. Removing these accounting adjustments                                                                  
from the dividend calculation would stabilize AIDEA's dividend                                                                  
payment to the state and improve predictability as to the amount of the                                                         
annual dividends.                                                                                                               
I urge your prompt and favorable action on this measure.                                                                        
Bill Walker