Legislature(2003 - 2004)

03/17/2003 01:50 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 51                                                                                                            
     "An Act relating  to revenue bonds issued  by the Alaska                                                                   
     Municipal  Bond Bank Authority  and the total  amount of                                                                   
     bonds  and  notes  outstanding of  that  authority;  and                                                                   
     providing for an effective date."                                                                                          
DEVON  MITCHELL, EXECUTIVE  DIRECTOR,  ALASKA MUNICIPAL  BOND                                                                   
BANK AUTHORITY,  DEPARTMENT OF  REVENUE, spoke in  support of                                                                   
the  bill.   He summarized  that  the bill  accomplished  two                                                                   
things:   First, increasing  the total  borrowing cap  of the                                                                   
Alaska Municipal  Bond Bank (Bond Bank) from  $300 million to                                                                   
$500  million.   He  noted  that the  cap  had  been at  $300                                                                   
million since 1984, when it was  increased from $150 million.                                                                   
The second intension  of the bill is to increase  the ability                                                                   
to issue  revenue bonds in any  fiscal year from  $50 million                                                                   
to $75 million.                                                                                                                 
Mr. Mitchell discussed the history  of the Bond Bank, created                                                                   
in 1975  and funded  by the  legislature with  appropriations                                                                   
over  the  next  ten  years  totaling   $18.6  million.    He                                                                   
explained  that the  Bond Bank  is a  conduit borrower,  only                                                                   
borrowing funds when a community project is at hand.                                                                            
Mr. Mitchell stated that currently  $240 million in bonds are                                                                   
outstanding  for   projects  in  a  variety   of  communities                                                                   
throughout the  state. He noted that the  current application                                                                   
load is  expected to exceed  the $300  million cap in  FY 04,                                                                   
which he explained was the reason for the bill.                                                                                 
Mr.  Mitchell  also  stated  that   additional  revenue  bond                                                                   
applications  had been received  in FY  03 exceeding  the $50                                                                   
million cap.   He noted that  Valdez, last community  to come                                                                   
to the Bond Bank,  would be required to either  wait until FY                                                                   
04 or  pursue the more costly  process of issuing  two series                                                                   
of bonds.                                                                                                                       
Mr. Mitchell pointed out that  the Bond Bank provided savings                                                                   
on  financing  costs  to  communities  of  financing  capital                                                                   
projects over the  past three fiscal years of  between $3 and                                                                   
$4 million.   He also  noted that the  Bond Bank  provides an                                                                   
annual dividend to  the state of Alaska. In FY  2002, a $1.67                                                                   
million  transfer occurred,  which he  maintained was  a good                                                                   
return on the initial investment.                                                                                               
Representative   Croft  noted   the  need   to  ensure   that                                                                   
municipalities  were not  overburdened with  debt.   He asked                                                                   
how it was determined if an amount was excessive.                                                                               
Mr.  Mitchell   explained  that   an  independent   board  of                                                                   
directors  reviewed  municipal  applications,  as well  as  a                                                                   
financial advisor  who reviewed  the financial statements  of                                                                   
borrowing  municipalities.   He  noted  that  recommendations                                                                   
were then  made to the Bond  Bank who ultimately  approved or                                                                   
denied  the loan.    He pointed  out  that  a borrower  could                                                                   
increase the likelihood of approval  by getting local support                                                                   
through additional public processes.                                                                                            
In  response  to  a question  by  Representative  Croft,  Mr.                                                                   
Mitchell noted  that applications  were rarely rejected.   He                                                                   
explained that  the Bond  Bank suggested grant  opportunities                                                                   
or other  loan programs  if a  community did not  demonstrate                                                                   
sufficient  planning   on  a  project,  or   if  they  showed                                                                   
insufficient funding  to repay the loan.  He  summarized that                                                                   
this was a collaborative process  with municipalities to help                                                                   
them achieve project success.                                                                                                   
Responding  to  a  follow up  by  Representative  Croft,  Mr.                                                                   
Mitchell stated that no municipalities have defaulted.                                                                          
Co-Chair  Harris  asked  if  the  amount  [of  the  cap]  was                                                                   
adequate to meet anticipated needs.   He pointed out this was                                                                   
the first request for an increase since the 1980's.                                                                             
Mr. Mitchell  confirmed that the  cap was adequate  since the                                                                   
Bond Bank was a  mature program, with a good  portion of debt                                                                   
being repaid  each fiscal year.   He gave the example  of the                                                                   
school  debt   reimbursement   program,  whereby  the   State                                                                   
required communities  to issue at least ten-year  notes, upon                                                                   
which they received  state reimbursement of  some percentage.                                                                   
He noted  that much of  the debt was  over ten year  periods,                                                                   
yielding a gradual financial curve.                                                                                             
Mr. Mitchell suggested  that the legislature  maintain a good                                                                   
understanding of  the moral obligation  debt of the  state of                                                                   
Alaska.  He explained that "moral  obligation debt" signified                                                                   
the  obligation of  the legislature  to  replenish a  reserve                                                                   
fund  within the  Bond  Bank if  there were  a  default.   He                                                                   
proposed that the  bill was a good step to  allow for current                                                                   
borrowing   needs,  while   maintaining   control  over   the                                                                   
Representative Foster MOVED to  report SB 51 out of Committee                                                                   
with the accompanying fiscal notes.                                                                                             
There being no OBJECTION, it was so ordered.                                                                                    
SB  51  was  REPORTED  out of  Committee  with  a  "do  pass"                                                                   
recommendation  and  with  two  previously  published  fiscal                                                                   
notes:  REV #1 and DCED #2.                                                                                                     

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