Legislature(2003 - 2004)
05/14/2003 01:41 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE BILL NO. 267 "An Act relating to the Alaska Railroad; authorizing the Alaska Railroad Corporation to provide financing for the acquisition, construction, improvement, maintenance, equipping, or operation of facilities for the transportation of natural gas resources within and outside the state by others; authorizing the Alaska Railroad Corporation to issue bonds to finance those facilities; and providing for an effective date." REPRESENTATIVE VIC KOHRING, SPONSOR, provided information about the bill. He observed that the legislation would allow revenues to be raised in order to build a natural gas pipeline. He explained that the bill authorizes the Alaska Railroad Board to generate tax-exempt bonds to raise low interest rate funds. Bonds would be issued and proceeds would be lent to potential constructors of the gas line. There would be no net effect to the State. Bonding authorization would be available to assist the building of the pipeline. The debt is non-recourse, which means that the debt would be the responsibility of the project sponsor. The builders would be responsible for their debt. The debtor could not lien any assets of the Railroad, state of Alaska, or the Permanent Fund. Financing would be issued for acquisition, construction, improvement, maintenance, equipping, and operation of facilities associated with transportation of natural gas. Up to $17 billion would be authorized, which would provide the majority of proceeds needed for building a $20 - $25 billion pipeline. The Alaska Railroad would issue the bonds, but neither the Railroad nor the state of Alaska would be liable for the debt. The bill requires that prior to issuing bonds, proof of ability to repay must be demonstrated. Representative Kohring noted that there was a history in other states of railroads helping to finance pipeline projects. He also pointed out the mission of the Railroad to facilitate economic development. Representative Kohring referred to a letter by George K Baum & Company, which indicated the feasibility of issuing bonds. He stressed that the current low interest rates would allow the capital to be raised. He noted that the bonds were tax exempt. The Railroad's ability to issue tax-exempt bonds was initiated when purchased by the federal government. He concluded that the bill presented an important facet toward completion of the pipeline. Co-Chair Harris asked for an update of discussions with North Slope producers. PAUL FUHS, YUKON PACIFIC, stated that the Administration might have more information on specific negotiations. In response to a question by Co-Chair Harris, Mr. Fuhs stated that the intent is to get tax-exempt bonding through the Railroad. He observed that the Alaska Railroad Corporation does not have the authority in its organic act. The state of Alaska must give it the authority. TAPE HFC 03 - 93, Side B In response to a question by Representative Hawker, Mr. Fuhs noted that a similar bill was in the last legislative session: HB 423, which was rolled into HB 519. Representative Whitaker referred to the difference between tax exempt and taxable bonds. Mr. Fuhs encouraged the Committee to read the letter from George K. Baum and Company, which has sold $2 billion in bonds in the state. Representative Whitaker asked who was the holder of the bonds in Valdez. Mr. Fuhs observed that they are municipal bonds. Mr. Fuhs pointed out that George K Baum and Company was asked to verify Yukon Pacific's numbers look at the difference in tax-exempt bonds and estimate if the bonds could be sold. The letter concludes that the project could be financed in the bond market if the railroad vehicle is available. He pointed out that this pertains to either project: Trans Canada or all Alaskan. He referred to the spreadsheet attached to the letter, indicating that the rate difference between non-taxable and taxable was two full points (copy on file.) He added that they indicated that there were sufficient revenues under the Alaska Natural Gas Development Act. He observed that estimated revenues for a private project would be $350 - $400 million to the state of Alaska and $50 - $100 for municipalities. A public model shows up to a billion dollar return to the state of Alaska. Mr. Fuhs observed that the George K Baum and Company has as much experience in selling bonds as anyone in Alaska. Representative Kohring referred to his experience with the company while on the Alaska Railroad Board. Representative Whitaker expressed hid support of the bill. Mr. Fuhs discussed changes proposed in an amendment by Co- Chair Harris (Amendment 1), which would confirm the authority of the Railroad to what is actually stated in the authorization. Representative Hawker observed that there was no information in the packet from the Department of Revenue, and pointed out that the Department had bond experience. Mr. Fuhs stated that the Department of Revenue had responded in other committee meetings. Representative Whitaker pointed out that he had testimony by former Department of Revenue Commission Wilson Condon. BILL O'LEARY, VICE PRESIDENT, FINANCE, ALASKA RAILROAD CORPORATION testified via teleconference in support of the bill. Representative Hawker observed that the investment community's view of Alaskan bonds might not be the same as it was a year ago. He asked if Committee should obtain a more current view of the bond rating before proceeding. Mr. O'Leary stated that he had viewed the information from the state financial advisor, and pointed out that the model being used would not affect the State's bond ratings; only the project would be affected. Representative Whitaker stressed that there is no inherent liability for the state of Alaska or the Alaska Railroad Corporation. The liability lies with the feasibility of the project. Representative Hawker expressed concern about the extent of the bonds ($17 billion), and asked if the Department of Revenue had reviewed the project. LARRY PERSILY, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE noted that the idea had been discussed the previous year, in regards to how the state could help bring about a natural gas project to commercialize stranded gas in the North Slope. He noted that it was discovered that under federal legislation the Alaska Railroad Corporation has the ability to issue tax-exempt bonds. There is no explicit provision requiring the bonds to be used to support railroad function. Discussions with bond counselors indicated that if there is enabling legislation the Alaska Railroad Corporation would be in a position to issue financing bonds. The payment of the bonds would not be the responsibility of the state of Alaska or the Corporation. Investors would have to demonstrate sufficient revenue from the project to repay the bonds. A determination was made that [the investors] could realize a savings of $1 billion by issuing tax-exempt bonds. He noted the argument that the federal regulations were unclear, and might dissuade investors. This would be resolved by an IRS opinion or further legal research prior to the bond purchases. Representative Hawker concurred that the funding seemed viable, but observed that the bill had not been a high priority previously. Mr. Persily clarified that a change in [state] statute is needed to give the Railroad the authority to issue the bonds. He concluded that tax-exempt bonding could be a viable funding source. Mr. Fuhs stressed that this bonding authority was specifically intended for the gas pipeline, and speculated that this was the reason for the delay. Representative Hawker noted the correlation with Proposition 3 in the last election. Mr. Fuhs speculated that the legislation does not discriminate against potential sponsors. Representative Berkowitz pointed out that this authority could be used for other purposes such as a portion of the capital budget. Co-Chair Harris noted that the bill is project and site neutral. He referred to Amendment 1, which conforms the powers granted to ARRC in Sec. 2 of the bill with the specific provisions in the legislative authorization and approval section. It clarifies that the act is intended to facilitate a natural gas pipeline form the North Slope of Alaska. Mr. Persily agreed that the amendment made it explicit that [the bonds are intended] for a natural gas pipeline in the North Slope, replacing a more broad authority, which could have been used for other projects. He noted that this applied to commercializing and transporting gas from the North Slope. In response to a question by Co-Chair Harris, Mr. Persily acknowledged that if amendment would assist North Slope gas development. He observed that using the authority for other purposes might risk its ability to be used for [the natural gas pipeline] if problems were encountered before it was needed for the project. He pointed out that a potential sponsor could be anyone who can show sufficient revenue to cover the bonds. Representative Whitaker expressed his support of the bill. Vice-Chair Meyer also expressed his support of the bill, and asked if the State was ultimately responsible. Mr. Persily noted that the bonds were revenue bonds, based on the belief in sufficient repayment revenue. The state of Alaska would not be responsible. Mr. Fuhs referred to the letter by George K. Baum and observed that the bonds would be non-recourse conduit bonds. The minimum debt service ratios are calculated at fifty percent higher revenues than needed to make the payments, in order for the market to have confidence in purchasing the bonds. Representative Hawker referred to a letter from Conoco Phillips, stating: "while it is too early to select financing vehicles, HB 267 will add a potentially valuable option". He asked why the bill was proposed in the current year. He suggested that there were still hurdles to overcome to truly view the viability of the funding. He asked why a specific amount ($17 billion) was selected and why the legislation should be passed now. Mr. Persily noted the specific financing vehicle depends on who builds the project. The specific amount was necessary to attract pipeline sponsors, and if the statute was not on the books, it might delay negotiations. He maintained that there was no harm in having the statute. Mr. Fuhs maintained that federal factors in the negotiations would become clear this year. Representative Hawker asked the Department of Revenue's position. Mr. Persily stated that he believed the Department of Revenue was supportive of the bill, since they had worked on various aspects of the legislation over the years. Representative Kerttula referred to the importance of the legislation to potential buyers. Mr. Persily confirmed that it was also important to show good faith to the federal government and demonstrate that [the state of Alaska] is moving forward. In response to a question by Representative Whitaker, Mr. Persily responded that the most current estimates of funding needs were reflected in the $17 billion figure. Co-Chair Harris MOVED Amendment #1. There being NO OBJECTION, it was so ordered. Representative Berkowitz MOVED to ADOPT Amendment #2 a title amendment: delete "relating to the Alaska Railroad". There being NO OBJECTION, it was so ordered. Representative Foster MOVED to report CSHB 267 (FIN) out of Committee with individual recommendation and the accompanying fiscal note. There being NO OBJECTIONS, it was so ordered. CS HB 267 was REPORTED out of Committee with a "do pass" recommendation and one fiscal impact note: #1 from Department of Community and Economic Development.