Legislature(2003 - 2004)
03/17/2003 01:50 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 Authority. 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.