Legislature(2015 - 2016)HOUSE FINANCE 519
03/22/2016 09:30 AM FINANCE
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HOUSE BILL NO. 268 "An Act relating to the dividends from the Alaska Industrial Development and Export Authority; relating to the meaning of 'mark-to-market fair value,' 'net income,' 'project or development,' and 'unrestricted net income' for purposes of the Alaska Industrial Development and Export Authority; and providing for an effective date." 9:41:38 AM GENE THERRIAULT, DEPUTY DIRECTOR, STATEWIDE ENERGY POLICY DEVELOPMENT, ALASKA ENERGY AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, briefly addressed the bill. He recounted that the legislation would remove market value adjustments and various losses or write-offs on projects that utilized sources of money from outside Alaska Industrial Development and Export Authority's (AIDEA) income stream from the calculation for the AIDEA dividend. He elaborated that the procedure would result in a more predictable dividend. The dividend normally fluctuated because the authority shared 25 to 50 percent of the annual net earnings with the state treasury. The removal of the accounting adjustments would reduce the amount of uncertainty and fluctuations on a yearly basis. He mentioned that AIDEA historically attempted to share as much net income with the state treasury as possible, with the average at 46 or 47 percent of the net earnings while keeping in mind the bond rating agencies concerns over the authority's solvency. Co-Chair Neuman pointed to page 2, lines 9 through 15 of the legislation relating to project development. He asked what was not included in the bill. Mr. Therriault explained that the accounting items were being added to the existing statutory exclusions and would be backed out from all of the accounting adjustments for all of AIDEA's funds and investment tools that produced the income that the dividend was based on. Representative Gara thought that the losses from the project were not counted when calculating the dividend. He asked for clarity. Mr. Therriault clarified that only the losses on projects utilizing an outside source of money. He explained that if the project was not developed or had limited or no value AIDEA had to account for the project as a loss to "get it off the books." He restated that only the losses that were funded from outside of the AIDEA income stream would be eliminated. Representative Gara did not see where the specific language relating to outside sources was referenced in the legislation. Mr. Therriault pointed to [page 2], line 6, the words, "state and federal grants or appropriations" that were the sources of revenue outside of the AIDEA income stream. Representative Gara understood that AIDEA would not count losses of state money when calculating the dividend and asked for verification. Mr. Therriault answered that only losses for project work that was funded through revenue outside of AIDEA's income stream. Vice-Chair Saddler asked for the balances for the Revolving Fund, Sustainable Energy Transmission and Supply Development Fund (SETS), and the Arctic Infrastructure Fund. Mr. Therriault replied that the question was asked during the previous bill hearing; AIDEA was working on a letter in response to the committee that clearly defined the balances. The accounts net amount included loans and he wanted to avoid confusion. 9:47:17 AM Representative Gattis determined that the question about the balances of the funds had two parts; what were the current amount balances and what amount did AIDEA anticipate being repaid on a yearly basis and the life of the loans. Co-Chair Neuman asked if AIDEA had ever issued any loans that had defaulted. Mr. Therriault responded that he would follow up but acknowledged that the number was very low. Co-Chair Thompson OPENED public testimony. Co-Chair Thompson CLOSED public testimony. 9:50:07 AM AT EASE 9:52:47 AM RECONVENED HB 268 was HEARD and HELD in committee for further consideration. [Note: HB 268 was taken up later in the meeting and reported out of committee. See 10:51 a.m.] HOUSE BILL NO. 268 "An Act relating to the dividends from the Alaska Industrial Development and Export Authority; relating to the meaning of 'mark-to-market fair value,' 'net income,' 'project or development,' and 'unrestricted net income' for purposes of the Alaska Industrial Development and Export Authority; and providing for an effective date." 10:51:12 AM GENE THERRIAULT, DEPUTY DIRECTOR, STATEWIDE ENERGY POLICY DEVELOPMENT, ALASKA ENERGY AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, responded to a question asked earlier during the meeting regarding the default rate on AIDEA's loan portfolio. He had obtained answers from Mr. Springsteen, John Springsteen, CEO/Executive Director, AIDEA, and AIDEA accountants. He informed the committee that the default rate on AIDEA's loan portfolio was .49 percent as of September 30, 2015 and as of February 2016 it was .41 percent. He reported that the cumulative default rate for all of Alaska's banks was 0.7 percent. Co-Chair Thompson CLOSED public testimony. Vice-Chair Saddler addressed the fiscal note. He reported that the Department of Commerce, Community and Economic Development (DCCED) fiscal note (FN 1 (CED)) was indeterminate. Representative Wilson referred to the analysis on page 2 of the fiscal note that contained a chart and asked for an explanation. Mr. Therriault replied that the chart portrayed the historic effect that the Implementation of the Governmental Accounting Standards Board (GASB) Statement 31, mark-to-market rule had overtime. The impact on the dividend was depicted in the second column which showed a reduction of almost $7 million [in 2006] and $11 million in 2013. He detailed that the mark-to-market adjustments had created volatility in AIDEA's dividend to the state and that the authority believed it should be backed out before the dividend was calculated. Representative Wilson wanted a better understanding of the fiscal note. She requested a comparison between the present accounting impacts and the accounting impacts with the GASB rule 31 items excluded. Mr. Therriault replied that the chart showed the total impact that the GASB rule 31 had on AIDEA's net income in the first column and half of that amount was the effect the rule had on the dividend depicted in the second column. He reiterated that AIDEA shared up to 50 percent of its net income with the dividend. He explained that the charts demonstrated the volatility that the GASB rule 31 accounting had on the dividend. He delineated that the rule either artificially inflated or reduced the dividend and overtime would cancel the up or down effect out. However, the rule intensified the uncertainty of the dividend each year. He furthered that new rules were coming that would add to the volatility of the dividend and deepen the seesaw effect. The provision eliminated the uncertainty in the dividend. 10:56:43 AM Co-Chair Neuman MOVED to REPORT HB 268 out of committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. HB 268 was REPORTED out of committee with a "do pass" recommendation and with one previously published indeterminate fiscal note: FN 1 (CED).