Legislature(2003 - 2004)

02/12/2003 01:30 PM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
              SB  51-BONDS OF BOND BANK AUTHORITY                                                                           
DEVEN  MITCHELL, Executive  Director Alaska  Municipal Bond  Bank                                                               
Authority  (MBBA), testified  via teleconference  to explain  the                                                               
bill requests a  twofold increase in the  statutory lending limit                                                               
for the bond bank. First is  a request to increase the cumulative                                                               
limit  on  borrowing from  $300  million  to $500  million.  This                                                               
request is  in anticipation  of reaching  the $300  million limit                                                               
this fiscal  year and exceeding  the limit next fiscal  year. The                                                               
second request is  to increase the annual limit  from $50 million                                                               
to $75 million.                                                                                                                 
The MBBA is  a public corporation of the State  of Alaska created                                                               
in  1975 whose  purpose  is to  reduce the  cost  of capital  for                                                               
Alaskan municipalities. This in turn  reduces the cost of capital                                                               
for the  state since  the state  participates in  local borrowing                                                               
through  the school  debt reimbursement  and other  reimbursement                                                               
programs. The requested  increase does not have a  direct cost to                                                               
the  general fund  because the  MBBA has  sufficient reserves  in                                                               
place  to  continue the  program  using  the same  structure  for                                                               
future borrowers.                                                                                                               
The MBBA  saves money  for communities by  issuing MBBA  bonds on                                                               
the open  market. They  are secured by  the underlying  credit of                                                               
the municipality applying for the  loan, the ability to intercept                                                               
certain state  revenues that might  flow to a community  if there                                                               
were a  default, and a  moral obligation  pledge by the  State of                                                               
Alaska. The  combination of credit  features results in  a strong                                                               
investment grade rating  for the bonds and correlates  to a lower                                                               
cost  of  capital for  projects.  Also  in  the equation  is  how                                                               
frequent the bond bank is in  the market, name recognition in the                                                               
market place, and project efficiency.                                                                                           
The request  for quick  action stems from  the fact  that current                                                               
applications exceed the annual limit on revenue bond issuance.                                                                  
To date  Juneau revenue  bonds have  been approved  and Ketchikan                                                               
Public  Utilities has  issued  a revenue  bond.  The $19  million                                                               
revenue bond  application from the  City of Valdez would  put the                                                               
annual total above  the $50 million cap. If  the authorization is                                                               
not  in place  in a  timely manner,  either two  series of  bonds                                                               
would be  required or Valdez  would have  to fund the  project in                                                               
another way. Either option would increase costs to the city.                                                                    
SENATOR ELTON asked  for verification that neither  the change to                                                               
the annual  cap nor the  change to  the ultimate cap  affects the                                                               
bond ratings.                                                                                                                   
MR.  MITCHELL verified  there  would  be no  impact  to the  bond                                                               
ratings. The way MBBA borrows  and secures money would remain the                                                               
same for future borrowings.                                                                                                     
SENATOR  LINCOLN  asked  when  the   $50  million  cap  was  last                                                               
MR.  MITCHELL  didn't believe  it  had  ever been  adjusted.  The                                                               
revenue program of  the bond bank came into  existence much later                                                               
than  the general  obligation program.  Revenue bonds  were first                                                               
issued through the bond bank in  the early 1980s and that cap was                                                               
put in  place in  1983 as  part of  the legislation  that allowed                                                               
revenue  bond issuance.  He opined  the  caps were  put in  place                                                               
because the bond bank issues  bonds that are moral obligations of                                                               
the  State of  Alaska meaning  there is  a reserve  fund that  is                                                               
pledged to  the bonds and  if a community  fails to pay  the debt                                                               
service then the  state would pay whomever bought  the bonds. The                                                               
reserve  fund would  be used  to pay  the debt  service and  MBBA                                                               
would subsequently ask the legislature  to replenish the reserve.                                                               
That has never  happened in the history of the  bond bank, but it                                                               
is  worthy  of  consideration  and  why  limits  were  placed  in                                                               
There were no further questions for Mr. Mitchell.                                                                               
DAVE DENGEL,  Valdez City  Manager, testified  via teleconference                                                               
in support  of SB 51. If  the annual limit is  not increased, the                                                               
city will be required to issue a  $14 million bond in March and a                                                               
$5 million bond after July 1.   Issuing two bonds rather than one                                                               
would cost  the city  an additional $9  thousand, which  is money                                                               
that could be more productively spent elsewhere.                                                                                
There was no further testimony.                                                                                                 
CHAIR  WAGONER  called  for  a  motion  to  move  the  bill  from                                                               
committee with unanimous consent.                                                                                               
SENATOR LINCOLN made  a motion to move SB 51  from committee with                                                               
individual recommendations.                                                                                                     
There being no objection it was so ordered.                                                                                     

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