Legislature(2009 - 2010)CAPITOL 120

04/09/2010 09:00 AM House RULES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHB 363(FIN) Out of Committee
Moved HCS SB 163(RLS) Out of Committee
Moved Out of Committee
Bills Previously Heard/Scheduled
                    HB 363-AIDEA MEMBERSHIP                                                                                 
9:05:32 AM                                                                                                                    
CHAIR  DAHLSTROM then  turned the  committee's  attention to  the                                                               
first order of business, HOUSE BILL  NO. 363, "An Act relating to                                                               
the membership  of the Alaska  Industrial Development  and Export                                                               
Authority."  [Before the committee is CSHB 363(FIN).]                                                                           
9:05:52 AM                                                                                                                    
REPRESENTATIVE OLSON moved to adopt CSHB 363, Version 26-                                                                       
LS1503\C, Cook, 4/8/10, as the working document.                                                                                
REPRESENTATIVE KERTTULA objected for discussion.                                                                                
9:06:43 AM                                                                                                                    
ROB  EARL,   Staff,  Representative  Bob  Herron,   Alaska  State                                                               
Legislature, reviewed the changes incorporated  in Version C.  He                                                               
paraphrased   from  the   following  written   remarks  [original                                                               
punctuation provided]:                                                                                                          
     The  only change  is the  addition of  Section 5  (p.2,                                                                    
     line 20).   This Section deals with  [Alaska Industrial                                                                    
     Development   &   Export    Authority]   AIDEA's   Loan                                                                    
     Participation Program.                                                                                                     
     AIDEA  is  not  a   direct  lender,  but  through  this                                                                    
     Program, AIDEA  purchases a portion  of a loan  that is                                                                    
     sponsored  and  originated  by  an  eligible  financial                                                                    
     institution.  (This  allows  AIDEA  to  offer,  on  its                                                                    
     portion  of  the loan,  a  lower  interest rate  and  a                                                                    
     longer term.)                                                                                                              
     Section   5  expands   the   definition  of   "eligible                                                                    
     financial institutions"  that are eligible  for AIDEA's                                                                    
     loan participation program as loan "originators."                                                                          
     Currently who is eligible is  not addressed in statute,                                                                    
     but  in regulation.   And currently  (1) and  (2) (p.2,                                                                    
     lines   25  &   26)  (CFAB   [Commercial  Fishing   and                                                                    
     Agriculture Bank]  and commercial banks, etc.)  - those                                                                    
     are  already  in  the  list   of  who  is  eligible  in                                                                    
     regulation, but (on p.3, line  3, subsection (3)) these                                                                    
     entities are not:                                                                                                          
        · An investment manager regulated by the [U.S.                                                                          
          Securities    and    Exchange   Commission]    SEC                                                                    
          (including managers to pensions and other                                                                             
          retirement funds)                                                                                                     
       So it would seem the salient points to consider in                                                                       
     adopting the RULES CS would be:                                                                                            
        1. Whether to elevate from regs into statute who is                                                                     
          eligible for AIDEA's loan participation program                                                                       
          (which would obviously reduce AIDEA's flexibility                                                                     
          on changing in the future who is eligible); and                                                                       
        2. Whether investment management entities described                                                                     
          in subsection (3) should be eligible at all                                                                           
9:08:58 AM                                                                                                                    
REPRESENTATIVE  KERTTULA surmised  that Version  C would  allow a                                                               
loan  to be  made to  an individual  with an  income of  $200,000                                                               
annually and  $1 million  in the  bank.  She  inquired as  to who                                                               
would be eligible for the loans.                                                                                                
MR. EARL deferred to AIDEA.                                                                                                     
9:09:30 AM                                                                                                                    
REPRESENTATIVE GARDNER  asked if  the change on  page 3,  line 3,                                                               
was discussed in committee.                                                                                                     
MR.  EARL  answered that  today  would  be  the first  time  it's                                                               
9:09:45 AM                                                                                                                    
CHAIR DAHLSTROM noted that she  had agreed to hear this amendment                                                               
in this committee.   In response to  Representative Neuman, Chair                                                               
Dahlstrom  confirmed  that Version  C  includes  an amendment  to                                                               
Version A that he had seen prior.                                                                                               
9:10:28 AM                                                                                                                    
REPRESENTATIVE   GARDNER  asked   if   the  change   establishing                                                               
eligibility  in  statute  rather  than  regulation  was  done  to                                                               
include Section 3, which expands the eligibility.                                                                               
MR. EARL answered that he believes that is correct.                                                                             
9:11:23 AM                                                                                                                    
JAN   SIEBERTS,  Director,   Real   Estate,  Washington   Capital                                                               
Management,  began by  informing  the  committee that  Washington                                                               
Capital  Management is  an investment  advisor to  pension funds.                                                               
He  further  informed the  committee  that  he  has been  in  the                                                               
finance  industry  for  42  years,   and  thus  has  considerable                                                               
knowledge of the AIDEA programs.   He clarified that although his                                                               
comments  reflect Washington  Capital Management,  the discussion                                                               
is about a  class of potential participants in  the AIDEA program                                                               
being  all  pension  funds.    The  aforementioned  could  expand                                                               
AIDEA's  capacity to  create economic  development in  the state.                                                               
Mr. Sieberts then provided the following comments:                                                                              
     Our interest  in becoming a participant  with AIDEA and                                                                    
     creating economic  development in the State  of Alaska,                                                                    
     we believe  our experience,  knowledge of  [the] Alaska                                                                    
     market  and technical  systems meet  the qualifications                                                                    
     to  become  an  AIDEA  originator.   As  an  investment                                                                    
     advisor,   we  currently   manage  approximately   $1.7                                                                    
     billion  in real  estate  investments  for our  pension                                                                    
     fund  clients.   Many of  these beneficiaries  of these                                                                    
     funds are  residents of the  State of Alaska  and we've                                                                    
     made  numerous  real   estate  investments  within  the                                                                    
     state.  Our  income fund would likely  be a participant                                                                    
     with AIDEA.  Question  Capital is an investment advisor                                                                    
     to the  fund.  Bank of  New York Mellon is  the trustee                                                                    
     of these  funds.   A mortgage income  fund is  an open-                                                                    
     ended co-mingled  fund with 40 investors,  all of which                                                                    
     are pension funds.  The  income fund is funded by cash;                                                                    
     there is  no leverage.   To my  knowledge, there  is no                                                                    
     bank headquartered in  Alaska that has this  large of a                                                                    
     capital account.  And by  nature, the banks are heavily                                                                    
     Many  of  the beneficiaries  of  our  funds are  Alaska                                                                    
     residents.   It is clear to  us that the intent  of the                                                                    
     founding  AIDEA legislation  anticipated the  inclusion                                                                    
     of pension  and retirement funds.   Under section 44.88                                                                    
     it  states:    "Stimulating commercial  and  industrial                                                                    
     growth  and expansion  by  encouraging  an increase  of                                                                    
     private   investment  by   banks,  investment   houses,                                                                    
     insurance companies, and  other financial institutions,                                                                    
     including  pension   and  retirement  funds,   to  help                                                                    
     satisfy the need for economic expansion.                                                                                   
     I do not  find any language in this  chapter that leads                                                                    
     me  to believe  there is  any intent  to limit  pension                                                                    
     fund  participation in  AIDEA programs.   On  the other                                                                    
     hand, in AIDEA  regulations financial institutions mean                                                                    
     a federally or  state chartered institutions authorized                                                                    
     to  perform  banking  functions  within  the  State  of                                                                    
     It limits  the participation in the  programs to banks.                                                                    
     This  seems  in  conflict  with the  intention  of  the                                                                    
     original law.   We would  recommend changes to  the law                                                                    
     so   that   participants    could   include   financial                                                                    
     institutions, including  pension and  retirement funds.                                                                    
     The  underwriting  expertise,  historical  performance,                                                                    
     knowledge  of  the  market  to  underwrite  loans,  and                                                                    
     license to  do business  within the  state, and  in our                                                                    
     case,  we have  an  office  in the  state.   AIDEA  has                                                                    
     become  an  important  secondary  source  of  long-term                                                                    
     financing for  businesses in Alaska.   And in  the late                                                                    
     '80s and early '90s  precipitated the economic recovery                                                                    
     from  an  era   when  half  the  banks   in  the  state                                                                    
     (indisc.).    It seems  that in these  uncertain times,                                                                    
     it would be  desirable for AIDEA to  have partners that                                                                    
     are structured differently  than the commercial banking                                                                    
     system that has struggled nationwide.                                                                                      
9:15:58 AM                                                                                                                    
MR.  SIEBERT, in  response  to  Representative Neuman,  explained                                                               
that Washington Capital  is an investment advisor,  such as those                                                               
to the permanent fund and the  state retirement system.  For many                                                               
of  its clients,  Washington Capital  pools together  real estate                                                               
investments.   The two  primary funds  of Washington  Capital are                                                               
the real  estate investment fund  and the real estate  loan fund.                                                               
The loan funds  would be the participant with AIDEA.   He pointed                                                               
out  that  Washington Capital  put  up  over $30  million,  which                                                               
facilitated  building   the  JL  Towers  in   Midtown  Anchorage.                                                               
Washington Capital is  the largest owner of that  building and is                                                               
a 90  percent owner of  St. Elias Long-term Acute  Care Hospital.                                                               
Washington Capital, he noted, has loans on numerous projects.                                                                   
9:17:17 AM                                                                                                                    
REPRESENTATIVE NEUMAN surmised then  that Washington Capital is a                                                               
broker  of   banking  opportunities.     He   questioned  whether                                                               
Washington Capital is an investment capital group.                                                                              
MR. SIEBERT  specified that  under the  US SEC  rules, Washington                                                               
Capital  is an  investment  advisor.   He  explained  that as  an                                                               
investment advisor,  Washington Capital put together  real estate                                                               
investments for pension  funds.  The assets of the  fund are held                                                               
by the Bank of New York in a trust.                                                                                             
9:18:02 AM                                                                                                                    
CHAIR  DAHLSTROM  acknowledged  that   Version  C  embodies  very                                                               
substantive changes, and therefore she  would like to continue to                                                               
hear testimony.                                                                                                                 
9:18:48 AM                                                                                                                    
REPRESENTATIVE OLSON  asked if the  amendment incorporated  in HB
363 is something he has considered for some time.                                                                               
MR. SIEBERT replied  yes, adding that he began  speaking with the                                                               
AIDEA board in 2006.                                                                                                            
REPRESENTATIVE OLSON  inquired then  why this amendment  is being                                                               
presented so late in the process  rather than at the beginning of                                                               
the process  when it  could've been vetted  by the  committees to                                                               
which the legislation was referred.                                                                                             
MR.  SIEBERT   said  that  he  hadn't   anticipated  legislation.                                                               
However,  he  related  that  when   he  talked  to  a  number  of                                                               
legislators  regarding the  problem and  trying to  get AIDEA  to                                                               
change  its regulations  to include  the participants  originally                                                               
anticipated in  the underlying legislation.   Ultimately,  it was                                                               
suggested  that an  amendment be  made to  the legislation.   Mr.                                                               
Siebert ensured the  committee that this isn't  a devious attempt                                                               
to propose this at the last moment.                                                                                             
9:19:57 AM                                                                                                                    
REPRESENTATIVE OLSON  pointed out  that first  reading of  HB 363                                                               
was March  2nd, which is over  a month ago.   Therefore, bringing                                                               
this  amendment  forward  the   day  before  the  legislation  is                                                               
scheduled for the  floor seems suspect.  He opined  that it's not                                                               
the proper way to go about this.                                                                                                
MR. SIEBERT interjected  that he isn't a lobbyist or  part of the                                                               
legislative process.   He then related that he  has been involved                                                               
in  this  process  and  stone-walled for  four  years,  and  then                                                               
members of the legislature suggested  he offer an amendment.  Mr.                                                               
Siebert  specified that  what the  amendment  proposes isn't  any                                                               
more than what was the original underlying intent of the law.                                                                   
9:21:12 AM                                                                                                                    
REPRESENTATIVE  OLSON   asked  if   Mr.  Siebert   discussed  the                                                               
amendment with the sponsor.                                                                                                     
MR. SIEBERT said he isn't sure who all the sponsors are.                                                                        
9:22:08 AM                                                                                                                    
TED LEONARD, Executive Director,  Alaska Industrial Development &                                                               
Export Authority  (AIDEA), Department  of Commerce,  Community, &                                                               
Economic Development,  expressed concern with  putting provisions                                                               
in  statute that  need the  flexibility of  being in  regulation,                                                               
[particularly]  in  light  of the  fact  that  financial  markets                                                               
change.    As  mentioned  earlier, there  are  several  different                                                               
entities   identified   in   [AS  44.88],   including   insurance                                                               
companies, investment  houses.   Mr. Leonard  opined that  all of                                                               
the aforementioned entities  should be reviewed by  ADIEA if they                                                               
approached AIDEA requesting  to be loan originators.   He further                                                               
opined that the proper vehicle  would be through regulation.  Mr.                                                               
Leonard noted that  AIDEA has met with Mr. Sieberts  and AIDEA is                                                               
willing  to discuss  this  matter.   He  further  noted that  Mr.                                                               
Sieberts  has   been  reviewing  this  matter   for  many  years.                                                               
However, AIDEA is in the  process of changing and recognizing the                                                               
investment of pension funds would be  a valuable source.  He then                                                               
highlighted that AS  44.88.010 goes throughout the  program.  Mr.                                                               
Leonard opined that he isn't  sure that loan participation is the                                                               
best  program or  whether statute  should include  a new  program                                                               
that could better address those types  of companies.  The goal of                                                               
AIDEA is to bring new investment  into the state.  In conclusion,                                                               
Mr. Leonard reiterated  that his main concern is  with placing in                                                               
statute  a provision  that would  limit AIDEA's  ability, through                                                               
regulation, to bring  in new capital.  Therefore, he  said he was                                                               
worried  that the  result of  the amended  language would  be the                                                               
opposite of what is intended.                                                                                                   
9:24:58 AM                                                                                                                    
CHAIR DAHLSTROM  remarked that  CSHB 363,  Version C,  needs more                                                               
vetting than this committee has  the authority to do.  Therefore,                                                               
she  indicated the  need  to consider  CSHB  363(FIN), which  she                                                               
requested Mr. Earl address.                                                                                                     
9:25:38 AM                                                                                                                    
MR.  EARL  explained that  CSHB  363(FIN)  merely added  language                                                               
specifying that  members of  the AIDEA board  would serve  at the                                                               
governor's pleasure in order to  ensure that the governor has the                                                               
ability to appoint and remove public members.                                                                                   
9:26:36 AM                                                                                                                    
REPRESENTATIVE GARDNER  asked if  the language  regarding serving                                                               
at  the pleasure  of the  governor is  found elsewhere  for other                                                               
authorities, commissions, or boards.                                                                                            
MR.  EARL  answered  that  the language  is  found  elsewhere  in                                                               
9:27:15 AM                                                                                                                    
REPRESENTATIVE  OLSON  withdrew his  motion  to  adopt CSHB  363,                                                               
Version  26-LS1503\C,  Cook,  4/8/10, as  the  working  document.                                                               
There being no objection, the motion was withdrawn.                                                                             
9:27:47 AM                                                                                                                    
REPRESENTATIVE  OLSON  moved  to  report  CSHB  363(FIN)  out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal  notes.   There  being  no  objection, CSHB  363(FIN)  was                                                               
reported from the House Rules Standing Committee.                                                                               
9:28:05 AM                                                                                                                    
The committee took an at-ease from 9:28 a.m. to 9:30 a.m.                                                                       

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