Legislature(2009 - 2010)HOUSE FINANCE 519

04/14/2010 08:30 AM House FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Continued at 8:00 pm Today --
Heard & Held
Moved Out of Committee
Moved Out of Committee
Moved HCS SB 235(FIN) Out of Committee
Moved Out of Committee
Heard & Held
Moved CSHB 69(FIN) Out of Committee
Moved CSHB 317(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved Out of Committee
CS FOR SENATE BILL NO. 269(FIN)                                                                                               
     "An Act relating to the waiver of volume cap of                                                                            
     recovery zone economic development bonds authorized by                                                                     
     26 U.S.C. 1400U-2 and reallocation by the Alaska                                                                           
     Municipal Bond Bank Authority of the waived volume                                                                         
     cap; relating to the waiver of volume cap of recovery                                                                      
     zone facility bonds authorized by 26 U.S.C. 1400U-3                                                                        
     and reallocation by the Alaska Industrial Development                                                                      
     and Export Authority of the waived volume cap;                                                                             
     increasing the total amount of bonds and notes that                                                                        
     the Alaska Municipal Bond Bank Authority may have                                                                          
     outstanding; relating to revenue bonds and to                                                                              
     obligations secured by lease that are issued by the                                                                        
     Alaska Municipal Bond Bank Authority; relating to                                                                          
     allocations of tax credit and bonding limits imposed                                                                       
     by the federal government; and providing for an                                                                            
     effective date."                                                                                                           
9:26:00 AM                                                                                                                    
DEVIN  MITCHELL, EXECUTIVE  DIRECTOR, ALASKA  MUNICIPAL BOND                                                                    
BANK,  DEPARTMENT  OF  REVENUE, reported  that  the  primary                                                                    
portion  of  the  bill  would  use  federal  allocations  to                                                                    
finance  certain recovery  zone bonds  and other  tax credit                                                                    
structures. There are also  aspects that relate specifically                                                                    
to the  bond bank,  including an  increase in  the borrowing                                                                    
level of the bank from $750  million to $1 billion. He added                                                                    
that the  bond bank  issues obligation  bonds to  the state.                                                                    
The cap has  been increased several times over  the past six                                                                    
years.  The  revolving  balance is  currently  approximately                                                                    
$120 million.                                                                                                                   
Mr. Mitchell explained that the  increase is being requested                                                                    
in light of  historical community need as  well as projected                                                                    
need and  opportunities. Other changes  related to  the bond                                                                    
bank  are in  the  revenue bond  allowances. Currently,  the                                                                    
bond  bank is  not allowed  to participate  in hydroelectric                                                                    
project  loans; SB  269  would  eliminate that  restriction.                                                                    
Restrictions against loaning to  the state and participating                                                                    
in revenue  bond loans buying existing  buildings would also                                                                    
be  eliminated.  He thought  the  restrictions  were put  in                                                                    
place  when revenue  bond statutes  of the  corporation were                                                                    
created  and were  outdated. The  ability of  communities to                                                                    
borrow money would be improved.                                                                                                 
Mr.  Mitchell spoke  to American  Recovery and  Reinvestment                                                                    
Act (ARRA) allocations  made to the Department  of Labor and                                                                    
Workforce  Development  (DLWD)   for  labor  statistics.  He                                                                    
explained the Build America Bond  Program, which provided an                                                                    
opportunity  for the  issuer of  tax-exempt debt  to benefit                                                                    
through a direct subsidy from  the U.S. Treasury rather than                                                                    
selling the  tax exempt debt  to an investor and  having the                                                                    
investor  benefit.  The  rate  on the  bond  program  is  35                                                                    
percent. Billions  of dollars have  been issued in  2009 and                                                                    
2010. He  explained the structure  as a combination  of tax-                                                                    
exempt and  taxable bonds; there  is a yield curve  in every                                                                    
market that  typically starts with lower  interest rates and                                                                    
climbs  to  higher rates  later  in  the maturity  schedule.                                                                    
There has  been a break-over  point between years  eight and                                                                    
twelve of  the maturity  schedule; switching over  the Build                                                                    
America  Bond Program  during that  time is  beneficial. The                                                                    
investor  has to  pay taxes,  but the  department gets  a 35                                                                    
percent subsidy. The  benefit has been as much  as 2 percent                                                                    
in  interest  rate  reduction. The  recovery  zone  economic                                                                    
development  bond  allocation  provides  for  a  45  percent                                                                    
subsidy rather than 35 percent.                                                                                                 
Mr. Mitchell related that the  bill would provide ability to                                                                    
use the  allocations. The final  portion of the bill  is the                                                                    
allocation of other tax credit  structures through the state                                                                    
bond  committee,  including  qualified  school  construction                                                                    
bonds  and energy  credit bonds.  There is  a $28.9  million                                                                    
allocation for the school  construction bond program without                                                                    
a  means  to allocate  the  money  to communities,  who  are                                                                    
eligible for 100 percent reimbursement on interest expense.                                                                     
9:34:48 AM                                                                                                                    
Representative  Fairclough asked  when  municipal bank  bond                                                                    
authority was  last raised. Mr.  Mitchel1 replied two  and a                                                                    
half years ago.                                                                                                                 
MARK DAVIS, ECONOMIC  DEVELOPMENT OFFICER, ALASKA INDUSTRIAL                                                                    
DEVELOPMENT  AND  EXPORT  AUTHORITY (AIDEA),  DEPARTMENT  OF                                                                    
COMMERCE,  COMMUNITY AND  ECONOMIC  DEVELOPMENT, added  that                                                                    
AIDEA  would undertake  the  reallocation  of recovery  zone                                                                    
facility  bonds. He  detailed  that the  bonds are  tax-free                                                                    
bonds  that could  cover private  activity  bonds. He  noted                                                                    
that the problem with the  allocation is that some cannot be                                                                    
used and some are too small.  He provided the example of the                                                                    
Aleutians East  Borough receiving a zero  allocation because                                                                    
of  unemployment,  while  the  Aleutians  West  census  area                                                                    
received a $7  million allocation that cannot be  used as it                                                                    
is  not a  governmental entity.  In addition,  the City  and                                                                    
Borough of Yakutat received an  allocation of only $148,000,                                                                    
which  is too  small to  use.  Senate Bill  269 would  allow                                                                    
AIDEA  to  reallocate  funds  to  boroughs  that  could  not                                                                    
otherwise use them.                                                                                                             
Mr. Davis  stressed that  timing is  important as  the bonds                                                                    
will expire January 1, 2011;  the facility bonds will not be                                                                    
used without SB  269. He noted that the  facility bonds that                                                                    
AIDEA would  acquire are  tax exempt and  could be  used for                                                                    
any industrial,  commercial, retail, or office  use (country                                                                    
clubs and massage parlors are  excluded). The bonds would be                                                                    
used  as  private activity  conduit  bonds  as AIDEA's  bond                                                                    
authority has sunset. Regulations  would be issued; AIDEA is                                                                    
directed  on page  7 to  use regulations  that would  try to                                                                    
reallocate  the bonds  back  to the  areas  from which  they                                                                    
Representative Doogan  requested more information  about the                                                                    
building segment  in Section 4. Mr.  Mitchell explained that                                                                    
the typical issue  with the language is the  partnering of a                                                                    
community  with   a  state  agency.  For   example,  when  a                                                                    
department rents  office space from a  municipality the bond                                                                    
bank is  not allowed  to provide  lower-cost capital  to the                                                                    
community for the project.                                                                                                      
9:39:38 AM                                                                                                                    
Representative  Doogan   wanted  a  specific   example.  Mr.                                                                    
Mitchell  relayed being  approached  by  Bethel regarding  a                                                                    
building  that  would  have accommodated  a  combination  of                                                                    
state  agencies and  city agencies;  the bond  bank was  not                                                                    
able to help.                                                                                                                   
Representative Doogan queried the  issue with equipment. Mr.                                                                    
Mitchell  responded that  the intent  of  the amendment  was                                                                    
that there is no need  to exclude equipment. Certificates of                                                                    
participation can theoretically be  issued for equipment, or                                                                    
a lease  for equipment can  be entered into. The  ability to                                                                    
help with lower-cost capital for equipment is limited.                                                                          
Representative  Doogan pointed  to two  possible definitions                                                                    
of "equipment."  The first is  buying a fire  truck; another                                                                    
is  equipment  to finish  buildings.  He  asked whether  the                                                                    
legislation was  looking for  a way to  bond fire  trucks or                                                                    
assist  in  the expensive  process  of  equipment to  get  a                                                                    
project  up  and running.  Mr.  Mitchell  believed the  fire                                                                    
truck example was more fitting.  He alluded to safely checks                                                                    
that  limit  the  ability  to   fund  anything  through  the                                                                    
program.  For example,  there is  a  credit review  process.                                                                    
There must  be an ability  to repay. Secondly,  when issuing                                                                    
tax-exempt debt,  an entity  is limited  in various  ways by                                                                    
the  necessity of  having an  obligation in  compliance with                                                                    
Internal Revenue  Service (IRS) rules. For  example, what is                                                                    
financed  must  be durable;  the  life  of the  debt  cannot                                                                    
exceed the life of the assets.  He did not think the program                                                                    
would be used to replace  other means of financing equipment                                                                    
like computers.                                                                                                                 
9:43:48 AM                                                                                                                    
Representative Austerman asked for  a clearer explanation of                                                                    
what  the legislation  would do.  Mr. Mitchell  replied that                                                                    
the $750  million borrowing limit  could be  exceeded, based                                                                    
on the historical use of  the program by communities and the                                                                    
projected  need around  the state.  He  emphasized that  the                                                                    
bond bank  is a moral  obligation of  the state; there  is a                                                                    
statutory requirement for a reserve  fund that is pledged to                                                                    
the  bond issue  and about  one  year of  debt service.  The                                                                    
pooled reserve is  larger than any one bond  issue. The bond                                                                    
bank is  required to  ask the  state for  replenishment when                                                                    
there is a draw on the  reserve due to borrower default. The                                                                    
statutory framework creates a  moral obligation or intent to                                                                    
replenish.  He noted  that there  has never  been a  need to                                                                    
Representative  Gara  remarked  that  the  federal  proposal                                                                    
seemed useful.  He asked whether  there was interest  in the                                                                    
bond projects.  Mr. Mitchell  believed that  the allocations                                                                    
would  be utilized,  particularly  the economic  development                                                                    
bonds. He  noted that there  are boroughs that  have already                                                                    
used the  bonds: Ketchikan Gateway Borough  had a $3,744,000                                                                    
allocation and  Juneau has  a $7,586,000  allocation planned                                                                    
for May. Ketchikan was able to  get cost of capital on a 30-                                                                    
year  note at  3.35 percent,  for example.  He detailed  the                                                                    
financing  strategy  to  get   the  greatest  benefit  where                                                                    
interest rates  would be highest. He  believed any community                                                                    
issuing debt would welcome the opportunity.                                                                                     
9:48:24 AM                                                                                                                    
Representative Foster  summarized that the bill  would raise                                                                    
the cap  so that local  governments could take  advantage of                                                                    
lower  interest  rate   economic  development  and  facility                                                                    
bonds.  He queried  the risk  of increasing  the cap  on the                                                                    
maximum authority  of the bond bank.  Mr. Mitchell responded                                                                    
that  there were  layers of  credit in  between the  state's                                                                    
general fund and the particular  obligation. He believed the                                                                    
risk was not significant.                                                                                                       
Mr. Davis added  that AIDEA's bonds would  be conduit bonds;                                                                    
there would  be no  risk to AIDEA.  The bond  obligations go                                                                    
from the bond holder to the  bond issuer; AIDEA steps out of                                                                    
the process.                                                                                                                    
Representative  Austerman spoke  of the  debt in  California                                                                    
and  wondered  how  high Alaska's  guarantee  of  the  bonds                                                                    
should go.  Mr. Mitchell replied  that the $750  million cap                                                                    
has  developed over  40 years.  Borrowers  have become  more                                                                    
self-reliant  in recent  years  as  obtaining capital  funds                                                                    
from the  state has  become more  difficult. He  stated that                                                                    
his comfort  level was high  compared with  the alternatives                                                                    
because  communities  would  be   paying  more  without  the                                                                    
program. For  example, the  bond bank  worked with  the City                                                                    
and  Borough  of  Juneau  to  fund  the  Bartlett  [Regional                                                                    
Hospital] expansion; the revenue bond  on its own would have                                                                    
paid about  $10 million  more in interest  over the  life of                                                                    
the  bond without  the bond  bank. The  projects would  have                                                                    
been accomplished  but at higher  cost to the  state through                                                                    
higher interest  rates. He emphasized  that the  program has                                                                    
already  been successful  and is  an alternative  that would                                                                    
help communities save money.                                                                                                    
Co-Chair Stoltze closed public testimony.                                                                                       
9:53:22 AM                                                                                                                    
Representative  Doogan   pointed  to  the  density   of  the                                                                    
language in the first line of the fiscal note.                                                                                  
Co-Chair Hawker explained that  the fiscal note acknowledges                                                                    
that a  legal framework and  advisory costs would  be needed                                                                    
in order  to accommodate the  reallocation of the  funds. He                                                                    
thought the $80,000  was a fair price and that  it was worth                                                                    
the investment to help communities.                                                                                             
Vice-Chair  Thomas  MOVED to  report  CSSB  269(FIN) out  of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes. There  being NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
CSSB  269(FIN)  was  REPORTED  out   of  Committee  with  no                                                                    
recommendation and  previously published fiscal notes:  FN 1                                                                    
(CED), FN2 (REV).                                                                                                               
9:55:35 AM          AT EASE                                                                                                   
10:00:14 AM         RECONVENED                                                                                                

Document Name Date/Time Subjects
HB 69 CS WORKDRAFT 26 LS0281 W.pdf HFIN 4/14/2010 8:30:00 AM
HB 69
HB 317 CS WORKDRAFT 26-1378 P.pdf HFIN 4/14/2010 8:30:00 AM
HB 317
2009 SB 144 sponsor stmt & sectional.doc HFIN 4/14/2010 8:30:00 AM
SB 144
2009 SB 144 Musk Ox poster.pdf HFIN 4/14/2010 8:30:00 AM
SB 144
SB230 SpreadSheet.pdf HFIN 4/14/2010 8:30:00 AM
SB 230
00 Sponsor Statement CSSB219.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
05 Sectional Analysis.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
06 Alaska Data Graphs.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
07 TBI Scorecard and Dashboard 032009.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
08 Medicaid BrainInjury Program Costs.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
09 StateofAlaska_Services_Congenital_Degenerative_BrainInjury.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
10 Acquired Brain Injury Definition.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
SB305 sponsor statement.docx HFIN 4/14/2010 8:30:00 AM
SB 305
11 Letters of Support.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
HCS CSSB305(RES)(title am)-REV-TAX-04-13-10 decoupling.pdf HFIN 4/14/2010 8:30:00 AM
SB 305
2010 03 02 D Wood Calculations FY2008_09.pdf HFIN 4/14/2010 8:30:00 AM
SB 305
HB 317 Amendment #2 Gara.pdf HFIN 4/14/2010 8:30:00 AM
HB 317
SB 235 - Sponsor Statement.PDF HFIN 4/14/2010 8:30:00 AM
SB 235
SB 235 - Sectional Analysis.PDF HFIN 4/14/2010 8:30:00 AM
SB 235
HB338_SB269 Supporting Documents - AIDEA (2) (2)[1].pdf HFIN 4/14/2010 8:30:00 AM
HB 338
SB 269
SB269 Supporting Documents Letter FNSB EDC Resolution.pdf HFIN 4/14/2010 8:30:00 AM
SB 269
Sponsor Statement HB 69(EDC).pdf HFIN 4/14/2010 8:30:00 AM
HB 69
SB235 CS WORKDRAFT 26-LS1256 E VERSION.pdf HFIN 4/14/2010 8:30:00 AM
SB 235
Sectional HB 69(EDC).pdf HFIN 4/14/2010 8:30:00 AM
HB 69
Changes from HB 69 to HB 69(EDC).pdf HFIN 4/14/2010 8:30:00 AM
HB 69
HB069-EED-TLS-3-23-10.pdf HFIN 4/14/2010 8:30:00 AM
HB 69
Sectional HB 69(EDC).pdf HFIN 4/14/2010 8:30:00 AM
HB 69
Sectional CS HB 69 Version W.pdf HFIN 4/14/2010 8:30:00 AM
HB 69
HB 69(EDC) Fiscal Note Summary.pdf HFIN 4/14/2010 8:30:00 AM
HB 69
HB 69 Support Letters.pdf HFIN 4/14/2010 8:30:00 AM
HB 69
HB 69(EDC) FIN Background.pdf HFIN 4/14/2010 8:30:00 AM
HB 69
HB 317 Conceptual Amendment Stoltze Hawker.pdf HFIN 4/14/2010 8:30:00 AM
HB 317
Logsdon&Associates SB305 HsFin 041410.pptx HFIN 4/14/2010 8:30:00 AM
SB 305
CSHB069(FIN)-EED-TLS-4-14-2010.pdf HFIN 4/14/2010 8:30:00 AM
HB 69
HB421-LEG-LEG-4-14-10.pdf HFIN 4/14/2010 8:30:00 AM
HB 421
SB 220 Amendment #5 Gara.pdf HFIN 4/14/2010 8:30:00 AM
SB 220