Legislature(2003 - 2004)

02/27/2003 09:03 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                                                                                                                                
     SENATE BILL NO. 51                                                                                                         
     "An  Act  relating  to  revenue  bonds  issued  by  the  Alaska                                                            
     Municipal  Bond Bank  Authority and the  total amount  of bonds                                                            
     and notes  outstanding of that authority; and  providing for an                                                            
     effective date."                                                                                                           
                                                                                                                                
                                                                                                                                
Co-Chair Wilken gave a  brief overview of the legislation, sponsored                                                            
by  the Senate  Rules  Committee  by  request  of the  Governor,  as                                                            
follows.                                                                                                                        
                                                                                                                                
     SB  51  increases  the  Alaska  Municipal   Bond  Bank's  total                                                            
     borrowing   limit  from  $300  million  to  $500   million.  In                                                            
     addition, the amount  of revenue bonds may be issued in any one                                                            
     fiscal year  is increased from $50 million to  $75 million. The                                                            
     current limits have not been raised since 1983 and 1984.                                                                   
                                                                                                                                
LARRY PERSILY,  Deputy Commissioner,  Department of Revenue,  gave a                                                            
history of the  Alaska Municipal Bond Bank Authority  (MBBA) created                                                            
in 1975 to  assist municipalities  in issuing debt for projects.  By                                                            
working through  the bond bank authority, he stated,  municipalities                                                            
could obtain lower interest  rates on debt and lower issuance costs.                                                            
He stressed  that the debt  is not the State's,  but rather  general                                                            
obligation bonds or revenue bonds issued by municipalities.                                                                     
                                                                                                                                
Mr. Persily listed  the first statutory borrowing  limit of the MBBA                                                            
as the $50 million annual  limit on the amount of revenue bonds that                                                            
could be issued  during any one year, which has not  increased in 20                                                            
years.   He furthered that  the second statutory  limit is  the $300                                                            
million  maximum  total general  obligation  and revenue  debt  that                                                            
could  be carried  by the MBBA  at any  one time.  This statute,  he                                                            
reminded has been in place since 1984.                                                                                          
                                                                                                                                
Mr.  Persily  assured  that  the MBBA  has  sufficient  reserves  to                                                            
continue financing  at the proposed higher levels.  He informed that                                                            
the MBBA reserves are utilized  to pay the costs of the Authority as                                                            
well as pay annual dividends to the State treasury.                                                                             
                                                                                                                                
Mr. Persily  reported that the Authority  has issued $27  million in                                                            
revenue  bonds in  FY 03  to  date with  an additional  $50  million                                                            
possible.  He remarked this  would be a record  amount, although  it                                                            
would be above the statutory annual limit of $50 million.                                                                       
                                                                                                                                
Mr. Persily  furthered that  the total debt  amount of the  MBBA was                                                            
$235  million  in   January  2003.  He  stated  that   the  possible                                                            
additional  issuances in the remainder  of FY 03, plus issuances  in                                                            
FY  04, would  increase  the total  debt and  the  $300 limit  would                                                            
almost be reached.                                                                                                              
                                                                                                                                
Mr. Persily  listed the  proposed projects  for which revenue  bonds                                                            
have been issued in FY 03 as follows.                                                                                           
                                                                                                                                
    Juneau hospital expansion                      $25 million                                                                  
     Juneau port improvements                        5.6 million                                                                
     Valdez hospital replacement                     19 million                                                                 
     Lake Peninsula Borough dock project              1 million                                                                 
     City of Homer seawall                            1 million                                                                 
     City of Homer dock improvements                  1 million                                                                 
     Kenai Peninsula Borough solid waste project*                                                                               
     City of Fairbanks fire protection facility*                                                                                
     *amount not available                                                                                                      
                                                                                                                                
Mr. Persily  then  listed the proposed  projects  for which  general                                                            
obligation bonds have been issued in FY 03 as follows.                                                                          
                                                                                                                                
     Northwest Arctic Borough school projects*                                                                                  
     City of Petersburg refinancing existing debt         $1 million                                                            
     Aleutians East Borough school project*                                                                                     
     Kodiak Island Borough refinancing existing debt  $3 million                                                                
     *amount not provided                                                                                                       
                                                                                                                                
Co-Chair Green  asked how additional revenue would  be generated and                                                            
additional  expense incurred  yet no  changes are  reflected in  the                                                            
fiscal note, which is zero.                                                                                                     
                                                                                                                                
Mr. Persily compared  preparation of the annual budget  for the MBBA                                                            
to that  of projecting  oil prices;  it is  difficult to  accurately                                                            
estimate  the future activity.  He explained  that in years  of less                                                            
than anticipated  issuance activity,  the MBBA expends fewer  funds,                                                            
and in years  of higher activity,  a supplemental budget  request is                                                            
submitted to  cover the additional  expenses. Therefore,  he stated,                                                            
the fiscal note does not  reflect additional funds, as the intention                                                            
would be to  request supplemental  funds if activities in  FY 04 are                                                            
higher  than  anticipated.  He  exampled  that  the  FY  03  initial                                                            
appropriation  was  $522,700  and  because of  higher  activity  the                                                            
Department  has requested  $142,000  supplemental  funding to  cover                                                            
bond issuance expenses.                                                                                                         
                                                                                                                                
Co-Chair  Green  asked if  the FY  03 supplemental   request is  for                                                            
reimbursement of funds already expended.                                                                                        
                                                                                                                                
Mr. Persily  corrected  that the funds  have not  yet been  expended                                                            
although  they would be expended  by the end  of March 2003  if this                                                            
legislation were  to pass, thus allowing additional  bond issuances.                                                            
                                                                                                                                
Co-Chair Green wanted to  know the consequences if this bill did not                                                            
pass into law and the supplemental request was approved.                                                                        
                                                                                                                                
Co-Chair Wilken commented that this bill should pass.                                                                           
                                                                                                                                
Mr. Persily responded that  once $50 million limit was reached those                                                            
remaining  communities requesting  bond issuance  in FY 03  would be                                                            
instructed to reapply the following fiscal year.                                                                                
                                                                                                                                
Senator Hoffman asked the delinquency rates.                                                                                    
                                                                                                                                
Mr. Persily  assured  that no  community  has every  defaulted  on a                                                            
Municipal Bond Bank loan.                                                                                                       
                                                                                                                                
Senator Hoffman  clarified his request for the instances  of overdue                                                            
payments.                                                                                                                       
                                                                                                                                
Mr. Persily would provide this information.                                                                                     
                                                                                                                                
Senator Olson  pointed out  that the increase  from $300 million  to                                                            
$500 million would  almost double the amount of bonded  indebtedness                                                            
of  the MBBA.  He asked  the  impact  this would  have  on the  bond                                                            
rating.                                                                                                                         
                                                                                                                                
Mr.  Persily  responded  that  the  MBBA  currently  has  sufficient                                                            
reserves to  cover a $500 million  debt, and therefore the  increase                                                            
would not jeopardize  the bond rating.  He furthered that  each bond                                                            
issuance is rated  individually based upon the specific  project and                                                            
municipality involved.                                                                                                          
                                                                                                                                
Mr.  Persily  then  elaborated   on  the  decision  to  request  the                                                            
authority  for a limit  that would  be viable  for several years  to                                                            
avoid the  need to make  repeated requests  over the same period  of                                                            
time.  He also noted  that several  municipalities  are now  funding                                                            
projects rather  than obtaining funding  from the State and  federal                                                            
governments. Therefore, he expected more bonds would be issued.                                                                 
                                                                                                                                
Senator Taylor offered a motion to report SB 51 from Committee.                                                                 
                                                                                                                                
Without  objection  SB  51  moved  from  Committee  with  individual                                                            
recommendations  and  zero fiscal  note #1  from  the Department  of                                                            
Community and Economic  Development and zero fiscal note #2 from the                                                            
Department of Revenue.                                                                                                          
                                                                                                                                
                                                                                                                                
CHANGE IN LONGEVITY POLICY                                                                                                      
                                                                                                                                
                                                                                                                                
PAM  VARNEY,   Executive  Director,   Legislative  Affairs   Agency,                                                            
testified that  the Senate and House  of Representatives  employment                                                            
policy has  been in effect since 1988  "and has worked well  for the                                                            
Legislature with the exception  of longevity steps J through M." She                                                            
cited AS 39.27.022(d),  which permits a committee of the Legislature                                                            
to  determine whether  longevity  pay  increments would  be  granted                                                            
under  this  statute  to  employees  under  the  authority  of  that                                                            
committee.  She requested  the Senate  Finance  Committee not  adopt                                                            
this portion of the statute, but rather adopt a separate policy.                                                                
                                                                                                                                
Ms. Varney informed  the Members of the other committees  that voted                                                            
to not  adopt this  policy: Senate  Rules Committee  on February  3,                                                            
2003; House  Rules Committee on February  4; Legislative  Council on                                                            
February 20; Administrative  Regulation Review Committee on February                                                            
19.  She  furthered  that  the  House  Finance   Committee  and  the                                                            
Legislative  Budget and Audit Committee  have scheduled this  matter                                                            
for  consideration.  She noted  that  if  all committees  take  this                                                            
action, the  Legislature would have  a consistent policy  throughout                                                            
the Legislative Branch.                                                                                                         
                                                                                                                                
Ms. Varney specified the  difficulties with the term "continuous" as                                                            
contained  in current statute.  She explained  that some staff  work                                                            
for  different  legislators  at  various  wage  steps,  or  work  at                                                            
different  pay  ranges  during  the  legislative   session  and  the                                                            
interim.  These  employees,   she  stated,  would  not  qualify  for                                                            
scheduled   step  increases  because   the  salary  steps   are  not                                                            
continuous.                                                                                                                     
                                                                                                                                
Ms. Varney referenced proposed  language, which does not include the                                                            
word "continuous." [Copy on file.]                                                                                              
                                                                                                                                
Senator  Olson asked  the disadvantages  of adopting  the  different                                                            
policy.                                                                                                                         
                                                                                                                                
Ms. Varney  was unaware  of opposition  and could  not perceive  any                                                            
disadvantages.  She  stressed   that  staff  to  both  Majority  and                                                            
Minority legislators are  affected, as well as those in nonpolitical                                                            
positions.                                                                                                                      
                                                                                                                                
Co-Chair Green  offered a motion that  the Senate Finance  Committee                                                            
not  adopt  AS 39.27.022-Pay  increments  for  longevity  for  State                                                            
service but  instead adopt their own  plan, which better  applies to                                                            
legislative  service.  This new  policy is  before  the Members  and                                                            
would be effective January 16, 2003.                                                                                            
                                                                                                                                
There was no objection and the motion PASSED.                                                                                   
                                                                                                                                

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