Legislature(2009 - 2010)HOUSE FINANCE 519
04/11/2010 12:30 PM House FINANCE
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HOUSE BILL NO. 296 "An Act authorizing and relating to the issuance of bonds by the Alaska Housing Finance Corporation; establishing the Alaska energy efficiency revolving loan fund and relating to the fund; authorizing municipalities and the State of Alaska to borrow money from the Alaska Housing Finance Corporation for the purposes of the Alaska energy efficiency revolving loan fund; and providing for an effective date." 1:15:27 PM BRYAN BUTCHER, DIRECTOR, GOVERNMENT AFFAIRS AND PUBLIC RELATIONS, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF REVENUE, reported that HB 296 would allow Alaska Housing Finance Corporation (AHFC) to establish an energy efficiency revolving loan fund through bond sales of up to $250 million. He stated that $28.3 million was appropriated to the State Energy Program from the federal government stimulus funds [American Recovery and Reinvestment Act]. The state would use $18 million of the funds to leverage the program. The program was approved through the U.S. Department of Energy. He explained that municipalities, school districts, or state entities could take out a low interest loans from AHFC to perform energy efficiency work to public buildings, as prescribed by a mandatory energy audit. The audit would be carried out by an energy performance contractor. The loan would be repaid by the energy costs savings achieved through the energy efficiency improvements. He added that if the savings, as determined by the audit were not achieved, the contractor would be responsible for the loan payments. He pointed out that the public entity would realize budget savings by increasing energy efficiency in public buildings. Representative Austerman asked who the contractor would be. Mr. Butcher explained that established energy performance contractors would perform the audit and hire subcontractors to perform the work. The corporation estimated that approximately 2,500 jobs will be created. 1:19:16 PM Representative Gara wondered how long the loan period was. He expressed concern that a long loan repayment period i.e., twenty years could diminish any initial savings. Mr. Butcher indicated that the loan tends to extend for shorter periods since the amount of loan improvement money fronted should compare with the energy savings realized over an estimated number of years, with the possibility of early repayment, if additional energy costs savings are realized. Representative Gara asked why the bond program costs $18 million. Mr. Butcher explained that AHFC was required to have a two percent minimum debt service reserve; five million is the required minimum for $250 million. He added that the additional leveraged funds of $18 million will help reduce interest rates. He noted that the U.S. Department of Energy complemented the program for being self-sustaining ensuring the longevity of the program. 1:23:08 PM DAN FAUSKE, CEO/EXECUTIVE DIRECTOR, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF REVENUE (via teleconference), supported Mr. Butcher's testimony. Co-Chair Stoltze requested discussion on the fiscal note FN 1 (REV). Mr. Butcher relayed that the corporation submitted a zero fiscal note; no additional expenditures are anticipated. Representative Fairclough wondered if the state will set energy efficiency standards or goals. Mr. Butcher stated that AHFC was developing regulations to achieve energy efficiency standards statewide. Vice-Chair Thomas felt that AHFC had good energy efficiency standards for homes and hoped for similar standards for public buildings. Mr. Butcher agreed. He added that $2 million was set aside to work with the Alaska Energy Authority to make their energy efficiency software applicable to public buildings as well as residences. 1:27:04 PM Representative Doogan inquired further about interest rates. JOE DUBLER, DIRECTOR OF FINANCE, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF REVENUE (via teleconference), replied that the interest rate was dependent on the terms of the loan, determined by the length of the payback period and amount borrowed. He expected the rate to be low based on tax exempt debt on municipal or state buildings. Co-Chair Hawker opened and closed public testimony. Representative Austerman inquired further on interest rates. He wondered why the interest rates were variable. Mr. Dubler responded that the longer length of the loan the greater the risk. He exemplified a municipality that needs a five year loan as opposed to a municipality that needs a fifteen year loan and stated that a longer loan requires paying a higher return. 1:31:15 PM Co-Chair Hawker summarized that not all borrowers are equal. Mr. Dubler agreed and added that not all loans are equal as well. He exemplified that interest on a mortgage loan for fifteen years is half of a percent lower than a thirty year loan. It is a standard risk component built in to fixed- rate debt. Representative Fairclough wondered if the operating costs of new technologies such as, a high efficiency boiler are imbedded into the formula to determine energy cost savings. 1:33:15 PM Mr. Butcher answered that AHFC was still in the process of deciding how the program will be administered. Representative Kelly asked for more information about how the $18 million would be leveraged and how AHFC would establish interest rates for specific loans. Mr. Dubler explained the process. He stated that AHFC would evaluate each loan, use available funds from the initial $18 million and set the borrower's interest rate at what the interest rate would be if bonds had been sold. The corporation does not intend to issue bonds until program demand increases and more capital is needed. The corporation would not make a profit off the program; the purpose is only to weatherize buildings throughout the state. The interest rates would be higher for long term debt because the bond purchasers demand a higher interest rate for a longer term bond. He surmised that in the bond market AHFC would borrow nine to ten year debt to cover the eight to ten year loans they are financing. He concluded that the $250 million is the eventual estimated total to get the fund revolving and continue for many years. 1:37:19 PM Vice-Chair Thomas noted that the Regional Education Attendance Areas (REAA) in his district was struggling financially. He wondered what they would use for collateral and how it could realistically help them with skyrocketing energy costs in rural areas. Mr. Butcher acknowledged that other states do not have the challenges rural Alaska has. He pointed out that the school administrator would not have to come up with any additional funds. The energy savings would offset the loan repayments. Vice-Chair Thomas opined that the school district would rather pass savings on to their teachers or that energy prices would surge again and use up the savings, requiring state assistance to repay the loan. Vice-Chair Thomas MOVED to report CSHB 296(ENE) out of Committee with individual recommendations and the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CSHB 296(FIN) was REPORTED out of Committee with a "do pass" recommendation and with attached previously published fiscal notes: FN 1(REV), FN 2(DOT).