Legislature(2003 - 2004)

03/08/2004 09:05 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     SENATE BILL NO. 274                                                                                                        
     "An  Act relating to  the housing assistance  loan fund  in the                                                            
     Alaska  Housing  Finance  Corporation;   creating  the  housing                                                            
     assistance  loan program; repealing  loans for teacher  housing                                                            
     and  providing  for  loans  for  multi-family  housing;  making                                                            
     conforming  amendments; and providing  for an effective  date."                                                            
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair Wilken  stated this bill  "replaces the Housing  Assistance                                                            
Loan Fund with a new Housing Assistance Loan Program."                                                                          
Mr. Fauske read testimony explaining this legislation into the                                                                  
record as follows.                                                                                                              
     Senate  Bill  274  will make  two  changes  to the  rural  loan                                                            
     program.  It will  replace the  Housing  Assistance Loan  Fund,                                                            
     known as the HALF,  with a Housing Assistance Loan Program, and                                                            
     it will  replace the  Rural Teacher  Housing Loan Program  with                                                            
     the Rural Multi-Family Loan Program.                                                                                       
     Changing  the Housing  Assistance Loan  Fund (the HALF)  from a                                                            
     fund  to  a program  is  necessary  as a  result  of  liquidity                                                            
     concerns  of the Corporation.  The current revolving  nature of                                                            
     the  fund limits the  fund to being used  only to purchase  new                                                            
     loans  under this program. For  fiscal year 2003, over  a third                                                            
     of  the Corporation's  net income  was in this  fund. With  the                                                            
     Corporation  paying a  dividend of $103  million to the  State,                                                            
     the  funds paid to the  State have continued  to come  entirely                                                            
     out of  our working capital because  of the restriction  of the                                                            
     rural loan fund. This  has resulted in the liquid assets of the                                                            
     Corporation declining at an accelerated rate.                                                                              
     In  addition, the  revolving  fund hasn't  really revolved  for                                                            
     several years. The  new loans made in the program have exceeded                                                            
     the cash  available in the fund causing the Corporation  to use                                                            
     its   working  capital   to   purchase  and   hold  loans   for                                                            
     reimbursement from the fund.                                                                                               
     This legislation will  allow the program to operate in the same                                                            
     way  our other loan  programs do. Other  than this change,  the                                                            
     program will continue to operate in the same way.                                                                          
     Now,  the next  is the  Rural  Multi-Family  Loan Program.  The                                                            
     other  change SB 274 will make  is to change the Rural  Teacher                                                            
     Loan  Program  to  the Rural  Multi-Family  Loan  Program.  The                                                            
     passage of  SB 181 in 2002 changed our rural  multi-family non-                                                            
     owner  occupied  loan  program  into  the  Rural  Teacher  Loan                                                            
     Program. This change  required anyone using the program to fill                                                            
     their  duplex, four-plex,  or any other  multi-family  building                                                            
     with at  least one teacher in  every unit. As a result  of this                                                            
     restriction,  in  the year  and  a half  that the  program  has                                                            
     existed,  there has not  been a single  loan made. Before  this                                                            
     change,  the multi-family  program  made  up to  two and  three                                                            
     percent of our rural business.                                                                                             
     This bill will change the program back into a rural multi-                                                                 
     family program available  to anyone including teachers. It will                                                            
     also  allow an  owner  to occupy  one of  the unit  if they  so                                                            
     The changes that SB 274 will make will be good not only for                                                                
     the Corporation but for Alaskans, especially in our rural                                                                  
     areas and around the state.                                                                                                
Co-Chair  Wilken  asked the  link  between  SB 279  and  SB 274.  He                                                            
understood that SB 279 authorizes the sale of bonds.                                                                            
Mr.  Fauske  responded  that the  changes  proposed  in SB  274  are                                                            
necessary  to "generate the  liquidity to pay  for 279." He  relayed                                                            
that the Corporation  had proposed  to the Murkowski Administration                                                             
the concept of purchasing  $40 million State assets to generate cash                                                            
flow for the State.  He stated that this did not occur  although the                                                            
need for cash  remained and the Corporation suggested  selling debt,                                                            
taking  advantage  of  low interest  rates  and  "running  the  debt                                                            
service out  of the capital  budget." He  updated that the  decision                                                            
was made to sell  $20 million in bonds as reflected  in the proposed                                                            
Senator Bunde  recalled the need for  teacher housing was  addressed                                                            
three years  prior and expressed concern  of repealing a  program so                                                            
recently  established. He asked  if there was  no longer a  need for                                                            
teacher housing.                                                                                                                
Mr.  Fauske  replied   these  changes  would  continue   to  provide                                                            
opportunities  for teacher  housing. He explained  that the  current                                                            
provisions  exclude this  program  from individuals  constructing  a                                                            
multi family  housing unit, residing  in one unit and renting  other                                                            
units  to teachers,  if the  owner is not  a teacher.  He said  this                                                            
practice  is common  in rural  communities.  He furthered  that  the                                                            
Corporation  also   has  to  "reassert  on  an  annual   basis,  the                                                            
qualifications";  explaining that as teacher tenants  moved out of a                                                            
unit, and  non-teachers moved  in, the interest  rates on the  loans                                                            
must be reassessed  and increased.  He stated this is a hardship  on                                                            
lending  institutions.  He predicted  the proposed  changes to  this                                                            
program  would be  successful  in conjunction  with  other  existing                                                            
programs in creating housing for teachers.                                                                                      
Senator Bunde  recalled the current program requires  that a teacher                                                            
occupy one unit of a multi-family unit complex.                                                                                 
Mr. Fauske  corrected that  current requirements  stipulate  that at                                                            
least  one teacher  must occupy  every  unit. This  legislation,  he                                                            
explained would eliminate that requirement.                                                                                     
Senator Bunde  asked if different interest rates would  be available                                                            
for  the proposed  changed  program  as are  available  for  teacher                                                            
Mr. Fauske affirmed  and described the separate program  that offers                                                            
interest rates  at one percent below  the taxable rate on  the first                                                            
$250,000 of a loan.                                                                                                             
Co-Chair Wilken  clarified this legislation  maintains the  $250,000                                                            
limitation instituted in the HALF program three years prior.                                                                    
Co-Chair Wilken  asked about the replacement of regions  established                                                            
in AS 18.56 with "small communities" on page 4, line 26.                                                                        
BRIAN  BUTCHER,   Legislative   Liaison,   Alaska  Housing   Finance                                                            
Committee, Department of Revenue, deferred to Mr. Kapansky.                                                                     
PAUL KAPANSKY, Mortgage  Operations Director, Alaska Housing Finance                                                            
Corporation,  Department of  Revenue, testified  via teleconference                                                             
from an offnet  location that this  language unified the  definition                                                            
of the  population served  by the  rural program.  He defined  small                                                            
community  as having  a  population of  6,500  or fewer  and is  not                                                            
connected by road or rail to Anchorage or Fairbanks.                                                                            
Co-Chair Wilken asked the regions established in AS 18.56.                                                                      
Mr.  Kapansky   was  unsure   and  stated   he  would  provide   the                                                            
Co-Chair Wilken  next referenced Section 8 on page  5, line 7, which                                                            
repeals AS 18.56.420(b)  and 15.56.570 and asked what  these statues                                                            
pertain to and the effect of their repeal.                                                                                      
Mr. Fauske  replied that  AS 18.56.420(b) relates  to the HALF  fund                                                            
and that 15.56.570 relates to the Rural Teacher Housing Program.                                                                
Mr. Kapansky affirmed.                                                                                                          
Co-Chair  Wilken understood  that AS  18.56.420 relates  to how  the                                                            
Legislature  uses the funds  of the HALF  program to administer  the                                                            
JOE  DUBLER,  Chief   Financial  Officer,  Alaska  Housing   Finance                                                            
Corporation, Department  of Revenue, explained that  AS 18.56.420(b)                                                            
allowed  the Legislature  to  appropriate  funds for  the hiring  of                                                            
personnel to  administer the revolving  fund. He noted that  because                                                            
this legislation  would change the fund into "just  another mortgage                                                            
program"  within  the  Corporation,  it  would  be  subject  to  the                                                            
separate  statutes governing  the  entire corporation  in which  the                                                            
Legislature appropriates funds for operation.                                                                                   
Co-Chair  Wilken  asked  for further  explanation  of  the  regional                                                            
allocation referenced in AS 15.56.570.                                                                                          
Mr. Kapansky responded  that in the past, the Corporation  allocated                                                            
funds  from  the  revolving  loan  fund  according  to  regions.  He                                                            
surmised  this   occurred  because   the  Corporation  had   limited                                                            
resources.  However, he  stated that  since the  Corporation  merged                                                            
with  the rural  loan program  in  1992, additional  resources  were                                                            
available  for the  program  and the  regional allocations  were  no                                                            
longer necessary.                                                                                                               
Co-Chair  Wilken  clarified  that  the  language  change  to  "small                                                            
communities"  in Section 6 of the  bill allows for the repeal  of AS                                                            
Mr. Kapansky affirmed.                                                                                                          
Senator B. Stevens  referenced Sec. 18.56.580(b)(2)  in Section 7 on                                                            
page 5, lines 5 and 6, which reads as follows.                                                                                  
                (2) "multi-family housing" means a multi-family                                                                 
     residence containing two or more dwelling units that may be                                                                
     nonowner-occupied or owner-occupied.                                                                                       
Senator  B. Stevens  asked about  programs available  for  nonowner-                                                            
occupied housing and the definition of nonowner-occupied.                                                                       
Mr. Fauske deferred to Mr. Kapansky.                                                                                            
Mr. Kapansky  told of the history  of the program, prior  to passage                                                            
of SB 181,  in which owners could  not occupy units of multi-family                                                             
housing.  Currently,   he  was  unaware   of  any  program   of  the                                                            
Corporation  that allows  nonowner occupancy.  He defined  "nonowner                                                            
occupied"  as housing at  which the borrower  does not live  and all                                                            
the units are leased or rented.                                                                                                 
Senator B.  Stevens asked the criteria  required of the borrower  of                                                            
nonowner  occupied housing,  whether the borrower  must be  a Native                                                            
corporation, a  school district or similar entity.  He surmised this                                                            
legislation  would extend the program  to anyone, and exampled  that                                                            
he could borrow money and  build rental units in a community of less                                                            
than 6,500. He asked how broad this provision would be.                                                                         
Mr. Kapansky defined  those eligible, as "anyone or  any entity that                                                            
can enter  into a  legal contract  and qualify  otherwise, can  be a                                                            
borrower under the rural loan program."                                                                                         
Co-Chair  Wilken   furthered  that  those  eligible   could  "enjoy"                                                            
discounted interest rate for the first $250,000 of the loan.                                                                    
Mr. Kapansky affirmed.                                                                                                          
Mr. Fauske noted  that legislation adopted the previous  session, SB
25,  extended  a no  down payment  requirement  to  Rural  Education                                                            
Attendance Areas (REAA) and school districts.                                                                                   
Senator B. Stevens  understood, but questioned the  extension of the                                                            
proposed  program to  any applicants  as broadening  the intent  and                                                            
would  allow  any  party to  become  property  owners  of  nonowner-                                                            
occupied housing in small communities.                                                                                          
Co-Chair  Wilken clarified  Senator  B. Stevens's  concern with  the                                                            
inclusion of a nonowner-occupied provision in this legislation.                                                                 
SFC 04 # 33, Side B 09:55 AM                                                                                                    
Senator B.  Stevens remarked that  under the proposed provisions  he                                                            
could build  units in  a village,  such as St.  Paul and become  the                                                            
landlord utilizing  an AHFC loan.  He wanted this understood  in the                                                            
discussion on this bill.                                                                                                        
Mr. Butcher explained  that prior to passage of SB  181 in 2002, the                                                            
program was specifically a rural nonowner-occupied loan program.                                                                
Senator Hoffman  noted that  the lower interest  rate could  only be                                                            
garnered  for  the  first  $250,000  of the  loan,  which  could  be                                                            
translated into two units of a six-unit housing facility.                                                                       
Mr. Fauske affirmed.                                                                                                            
Senator Hoffman commented  that although this proposal might seem to                                                            
be extending  the program  significantly, only  a limited number  of                                                            
borrowers  could   take  advantage  of  it.  He  spoke   of  housing                                                            
difficulties  and the benefits  of encouraging  investment  in rural                                                            
Mr. Dubler clarified  that AHFC has nonowner-occupied  loan programs                                                            
for housing located in  urban areas and that this program would only                                                            
apply  to rural  areas.  He  emphasized  this  program is  the  only                                                            
funding source  that has typically  been available for rural  multi-                                                            
family housing,  and since  enactment of SB  181 no loans have  been                                                            
Senator B.  Stevens wanted to clarify  this proposal would  not only                                                            
allow  for  construction,  but  also would  provide  loans  for  the                                                            
purchase or refinance of  existing multi-family housing. He stressed                                                            
this would  provide State funding  for nonowner- occupied  ventures.                                                            
He did not oppose this, provided it was fully understood.                                                                       
Senator  Bunde  asked  if  currently  these  loans  are  limited  to                                                            
nonowner-occupied housing, unless the borrower is a teacher.                                                                    
Mr. Butcher explained that both owner-occupied and nonowner-                                                                    
occupied are allowed.                                                                                                           
Senator Bunde  asked if the intent is to amend the  program to allow                                                            
owner occupancy.                                                                                                                
Mr. Butcher replied  that the original program applied  to nonowner-                                                            
occupied housing; the changes  implemented in 2002 limited occupancy                                                            
to teachers,  whether owner-occupied  or nonowner-occupied;  and the                                                            
proposed  change  would  retain  the  owner  and  nonowner-occupied                                                             
provision although eliminate the teacher occupancy requirement.                                                                 
Senator  Bunde ascertained  this change  could  result in  increased                                                            
participation in the program.                                                                                                   
Mr. Fauske affirmed.                                                                                                            
Co-Chair  Wilken  added  that  the $250,000  limit  was  imposed  in                                                            
conjunction with the changes made in 2002.                                                                                      
Senator Olson asked if  the reason no applications were received for                                                            
the existing  program  was because  only a limited  number of  rural                                                            
residents had adequate  collateral on loans for multifamily housing.                                                            
Mr. Fauske  replied that no loans  were made under this program,  in                                                            
part because some who would  have participated were excluded because                                                            
they were not  a teacher. He stated the program placed  restrictions                                                            
on lenders  for interest rate compliance  and therefore lenders  did                                                            
not promote the program.                                                                                                        
Senator  Olson  asked  if  the  proposed  changes   would  therefore                                                            
encourage investors  to construct  multi-family residences  in rural                                                            
Mr. Fauske answered it could.                                                                                                   
Senator Bunde  expressed concern with removing the  teacher occupied                                                            
requirement, since  the original legislation was intended  to "apply                                                            
some gentle  pressure" to borrowers  that to participate,  they must                                                            
assist  in meeting  a need.  He could  understand that  it would  be                                                            
burdensome to  require every unit be teacher occupied  and suggested                                                            
a requirement that at least  one unit must be occupied by a teacher.                                                            
Co-Chair  Wilken asked if  the current provisions  stipulate  that a                                                            
teacher must occupy one unit.                                                                                                   
Mr. Fauske  corrected that  at least one  teacher must occupy  every                                                            
Mr. Fauske  predicted  that the  goal of providing  teacher  housing                                                            
would be reached.  He noted the current program offering  loans with                                                            
no down payment to school  districts and REAAs is expanding. He also                                                            
told of $4.1 million  for the teacher housing loan  program included                                                            
in the proposed  FY 05 capital budget. He further  described efforts                                                            
of the  Corporations  underwriters to  ensure the  success of  these                                                            
Mr. Fauske pointed out  the difficulties in operating a multi-family                                                            
housing facility  in which every unit  must be occupied by  at least                                                            
one teacher.  He informed  that many  teachers remain  in the  rural                                                            
community  only nine months  of the year and  the owner must  either                                                            
find temporary occupants or absorb the lost rental revenue.                                                                     
Co-Chair  Wilken  recalled  discussion  prompted  by a  Division  of                                                            
Legislative Audit report  of three to four years ago about abuses in                                                            
the HALF system.  He noted the problems  were repaired and  that now                                                            
those  repairs are  being adjusted.  He asked  whether the  proposed                                                            
changes  could result  in a  return to  the situation  in which  the                                                            
abused first existed.                                                                                                           
Mr. Fauske  assured the proposed changes  would not. He opined  that                                                            
some of the identified  abuses were the result of misunderstandings.                                                            
He exampled  a loan to a  doctor in Dillingham.  He stated  that the                                                            
limit of the reduced interest  rates to the first $250,000 of a loan                                                            
would address the Committee's concern.                                                                                          
Senator Olson  surmised that the number  of rural residents  able to                                                            
participate  would  become  fewer  due  to  less  funding  to  rural                                                            
communities, such  as revenue sharing and longevity  bonus payments,                                                            
as well  as the  State's  fiscal problems.  He expressed  that  this                                                            
"pessimistic financial  attitude" has affected businesses  and asked                                                            
whether AHFC shared this observation.                                                                                           
Mr.  Fauske replied  that  the combination  of housing  programs  to                                                            
assist teachers  and nurses  have "created  an opportunity  for more                                                            
optimism instead of pessimism."  He explained that education funding                                                            
is allocated  to rural  communities,  some of which  is used  to pay                                                            
salaries and  miscellaneous expenses.  He stated that if  AHFC could                                                            
leverage  some of those funds  to ensure  housing is developed,  the                                                            
overall economy  would benefit. He admitted that funding  reductions                                                            
in other areas  would have impacts, although these  efforts would be                                                            
helpful.  He  also  noted the  changes  in  this  legislation  would                                                            
promote  investment  from  funding  sources   other  than  education                                                            
Senator Olson commented  that as a businessman from rural Alaska, he                                                            
has "reined in" his optimism because of the "dismal" forecast.                                                                  
Co-Chair  Wilken opined  that money  is always  available for  "good                                                            
mortgages" based on sound lending principles.                                                                                   
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             

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