Legislature(1995 - 1996)

04/23/1996 03:50 PM TRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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        CSHB 526(FIN) am AIDEA OPERATIONS/PROJECTS/LOANS                      
                                                                              
 CHAIRMAN RIEGER brought CSHB 526(FIN) am before the committee.  He            
 requested a motion to adopt a proposed SCS CSHB 526(TRA) as a                 
 working document.                                                             
                                                                               
 SENATOR GREEN moved SCS CSHB 526(TRA), version "K," be adopted.               
 SENATOR ADAMS stated he was objecting to its adoption until the               
 committee has gone through the changes and received a response from           
 AIDEA.                                                                        
                                                                               
 Number 130                                                                    
                                                                               
 CHAIRMAN RIEGER outlined the following changes in SCS CSHB                    
 526(TRA):                                                                     
                                                                               
 (1)  Section 1 of the House version contained language which  said            
 that contracts of AIDEA related to an integrated transportation and           
 port facility, which was intended to apply to those contracts made            
 with the developer of the Red Dog Project.  The words "related to"            
 were deleted and replaced with "made with the developer of."  The             
 reason for the proposed change is so that the language is not                 
 overly broad so that it could apply to any contract, even                     
 theoretically, remotely related to the port facility.                         
                                                                               
 (2)  Section 4:  Testimony showed that the statutes are fairly                
 clear on the interest rate charged on loan participations which               
 were financed through bonds, but they were silent on the interest             
 rate on loan participations made directly out of the assets of the            
 authority.  Language was added on page 2, lines 15 through 18,                
 which provides that the interest rate on a loan participation                 
 purchased from assets of the authority may not be less than the               
 rate for treasury bonds that mature at the same time as the loan              
 participation, plus 150 basis points.                                         
                                                                               
 (3)  Section 9:  The House version referred to guarantees of 80               
 percent of a loan.  The new language changes it to guarantees of up           
 to 80 percent of a loan.  Also, subsection (c) of the House                   
 version, which referred to guarantees of interest, was deleted.               
                                                                               
 (4)  Section 12:  On page 5, line 23, language was added clarifying           
 that protection of the authority's interest is in a loan or a loan            
 guarantee.                                                                    
                                                                               
 (5)  Section 13:  Existing law refers to prime rate as the lowest             
 money center prime rate.  The new language clarifies that it is the           
 lowest domestic money center prime rate.                                      
                                                                               
 (6)  Section 17:  The House version contained a repealer of a                 
 sunset.  In the Senate version, instead of a complete repealer of             
 the sunset, the sunset is extended until July 1, 1998.                        
                                                                               
 (7)  Section 18:  The House version contained a repealer of AS                
 44.88.500(b), which referred to the limit on the extent to which              
 the assets of AIDEA pledged to a project or guarantee would                   
 actually be at risk.  That repealer is deleted so that existing               
 language, which restricts the recourse to the specific items                  
 pledged, would be the existing law with the passage of the bill.              
                                                                               
 (8)  Section 20:  This is transition language which was inserted in           
 Senate State Affairs and was not in the House version of the bill.            
                                                                               
                                                                               
 (9)  Section 21:  This is a new section which would reinstate the             
 ability for AIDEA to issue bonds in a amount not to exceed $10                
 million without legislative approval.                                         
                                                                               
 (10)  Section 22:  Language was added that is in large part                   
 borrowed from the original Red Dog authorization act.  However, in            
 the original act the definition of "reasonable return" was 5                  
 percent and that has been changed to 6.5 percent.                             
                                                                               
 Number 216                                                                    
                                                                               
 SENATOR ADAMS asked if the rate of return at 6.5 percent will also            
 affect any future investments that AIDEA will make, or does it just           
 pertain to Red Dog.  CHAIRMAN RIEGER responded that it only refers            
 to the Delong Mountain transportation system.                                 
                                                                               
 Number 227                                                                    
                                                                               
 CHAIRMAN RIEGER noted the members' packets also contained a                   
 proposed amendment relating to a bulk commodity loading and                   
 shipping terminal in Cook Inlet, which would be addressed later in            
 the meeting.                                                                  
                                                                               
 CHAIRMAN RIEGER asked if Senator Adams maintained his objection to            
 the adoption of SCS CSHB 526(TRA), version "K."  SENATOR ADAMS                
 stated his objection was maintained.  A hand vote was taken which             
 resulted in a 2-2 vote.  The Chairman stated the motion to adopt              
 the committee substitute failed.                                              
                                                                               
 CHAIRMAN RIEGER opened the hearing to public testimony.                       
                                                                               
 Number 245                                                                    
                                                                               
 JAN SIEBERTS, representing the National Bank of Alaska and                    
 testifying from Anchorage, stated their interest in the bill is               
 primarily because of the interest guarantee portion of the                    
 legislation.                                                                  
                                                                               
 Mr. Sieberts pointed out that in other guarantee programs like  the           
 Small Business Assistance program (SBA), the SBA guarantees the               
 payment of interest and also will pay off the bank the guaranteed             
 portion of the loan and liquidate the loan.  Under the AIDEA law,             
 the bank keeps the entire balance of the loan on its bank books and           
 liquidates the loan transaction at AIDEA's instruction, which can             
 take a long period of time.  There is absolutely no interest                  
 guarantee by AIDEA.  He added that if AIDEA paid the bank 90 days             
 worth of interest on the loan transaction, it probably would be               
 inconsequential in most cases.  He said it should be an obligation            
 of the authority to pay the guarantee if something goes wrong.                
 AIDEA has the ability through its board of directors to limit the             
 amount of guarantees or to expand or contract the programs.                   
                                                                               
 Mr. Sieberts referred to the new language relating to the interest            
 rate on loan participations purchased from assets of the authority            
 not being less than the rate for treasury bonds, plus 150 basis               
 points.   He said originally, most of these transactions were tax             
 exempt transactions, and the interest rates were generally down and           
 often below the treasury rate.  There is still federal law to do              
 certain types of tax exempt loans.  He said in those transactions,            
 if you are minimizing the rate at 150 basis points above the                  
 treasury, it would effectively substantially increase the interest            
 rates above what the customers are able to obtain or whether from             
 a practical point of view is reasonable.                                      
                                                                               
 Mr. Sieberts stated NBA is supportive of the original AIDEA bill.             
                                                                               
 Number 318                                                                    
                                                                               
 CHAIRMAN RIEGER requested that Randy Simmons and Keith Laufer                 
 present their response to the changes made in the Transportation              
 SCS.                                                                          
                                                                               
 RANDY SIMMONS, representing the Alaska Industrial Development and             
 Export Authority, stated AIDEA does not have a problem with the               
 change made on the procurement portion of Section 1.  The change in           
 Section 2 does not give them a problem for the loans that are                 
 taxable, but they are not sure how they would do it for the tax               
 exempt portions.                                                              
                                                                               
 Number 350                                                                    
                                                                               
 CHAIRMAN RIEGER asked how the tax exemption applies when AIDEA is             
 using its own assets.  KEITH LAUFER of the Department of Law                  
 explained it is the bank's portion of the interest that would be              
 tax exempt, but it is all part of one loan transaction so there is            
 the ability for AIDEA to issue loans out of their assets that would           
 qualify for tax exempt interest.  CHAIRMAN RIEGER commented that he           
 is not sure he is comfortable with AIDEA lending its own hard                 
 assets at tax exempt rates when they could invest those assets                
 elsewhere.  RANDY SIMMONS added that the reason they would look at            
 doing that is because their mission is economic development,                  
 creating jobs.  It is not necessarily getting the highest return on           
 their dollars from a dollar standpoint.  However, it is hard to               
 say; it depends on what the project is and what the amount of                 
 financing is.                                                                 
                                                                               
 Number 365                                                                    
                                                                               
 Continuing his response to the changes in the Transportation SCS,             
 RANDY SIMMONS said AIDEA agrees with the addition of the "up to"              
 language in Section 9.  Also, he believes it is important to the              
 financial community that AIDEA be able to guarantee the 90 days of            
 interest.                                                                     
                                                                               
 AIDEA agrees with the addition of the "loan or loan guarantee"                
 language in Section 12.                                                       
                                                                               
 AIDEA also agrees with the addition of "United States" to the                 
 definition of "prime rate."                                                   
                                                                               
 Referring to the sunset provision in  Section 17, Mr. Simmons said            
 AIDEA would be happy not to have a sunset provision, but they can             
 understand some of the concerns; however, he suggested the                    
 possibility of adding another year to the provision.                          
                                                                               
 Number 383                                                                    
                                                                               
 KEITH LAUFER, addressing the removal of the repealer in Section 18,           
 said as it stands now, the authority would have to designate                  
 certain assets that would be available for loan guarantees under              
 the fund.  That would allow the authority to segregate funds for              
 that purpose.  He added it doesn't cause a problem to leave that              
 language in, but he thinks the position of the authority would be             
 that it would have to designate sufficient assets in that reserve             
 to cover all the guarantees anyway.                                           
                                                                               
 Speaking in support of the transition provision in Section 20, Mr.            
 Laufer said he believes it just clarifies what he believes would              
 happen anyway, which is that the assets currently in the Business             
 Assistance Fund would roll back into the revolving fund.                      
                                                                               
 Number 400                                                                    
                                                                               
 RANDY SIMMONS, addressing Section 21, said they do not have a                 
 problem with giving the authority the $10 million authorization               
 under the development finance program.  However, AIDEA does have              
 concern that by changing the language that was in the original bill           
 they have no authorization to do revenue conduit financings and               
 they have no authorization to do loan participation financings                
 using bonds.  From AIDEA's perspective, that is probably as                   
 important or more important than the development finance program.             
 They believe it is an important provision that does not obligate              
 the authority's assets in any way.                                            
                                                                               
 Speaking to the Section 22 language, which is putting into statute            
 some minimum requirements for Cominco on the Red Dog project, Mr.             
 Simmons said AIDEA agrees with the idea that they should try to               
 maximize their investment, but they think that as they are going              
 into negotiations this will tie their hands somewhat as to how they           
 get the best deal for the state.  He said they agree with the                 
 concept, but they are uncomfortable with having it tied in statute.           
                                                                               
                                                                               
 Number 495                                                                    
                                                                               
 CHAIRMAN RIEGER said his recollection of the evolution of AIDEA, in           
 particular, and the original evolution of AHFC as a major                     
 corporation was that these corporations were structured in a way to           
 try to keep the transactions on a financial basis.  That was the              
 reason for the participation, the reason for requirements of                  
 minimum interest rates.  His concern is that when they stray from             
 the strict financial considerations to, in essence, marking down              
 the rates of return on a project or on a deal for the sake of other           
 benefits, other public good type benefits, they are really taking             
 away the power to appropriate from the legislature.  He is not sure           
 that he would be comfortable with trying to let this become an                
 agency where their mandate is that mixed, where they have to weigh            
 jobs against financial return and against taxes to a municipality.            
 He is a little concerned that the approach in AIDEA, or elsewhere             
 in the Executive Branch, is to try to mix financial returns and               
 other goods.                                                                  
                                                                               
 SENATOR TAYLOR said he shares the Chairman's concern.  Projects               
 that he has some sincere concern about are not advancing or moving            
 because of the economic viability of those concepts, and, yet, if             
 they were to focus just on the jobs, they would probably be seen as           
 very worthwhile investments.                                                  
                                                                               
 Number 541                                                                    
                                                                               
 SENATOR ADAMS said the majority would like to revert $21 million to           
 the general fund, and he asked if that has any effect on any onging           
 projects or any future projects.  RANDY SIMMONS responded that the            
 way the majority plan has put forward to take a dividend out of               
 AIDEA does have an effect at the current time, both on projects               
 that they are looking at right now and potential projects in the              
 future.                                                                       
                                                                               
 CHAIRMAN RIEGER inquired if AIDEA earned approximately $38 million            
 last year.  RANDY SIMMONS responded that he thought their net                 
 income figure was approximately $37 million, which is different               
 than their net revenues.  CHAIRMAN RIEGER asked if they could                 
 propose language which speaks to a percentage of net revenues that            
 gets to the same number and would be in statute.  RANDY SIMMONS               
 replied that the governor has made it clear that he opposes any               
 amounts coming out of AIDEA in a dividend and that he would veto              
 any of those amounts.                                                         
                                                                               
 TAPE 96-18, SIDE B                                                            
 Number 001                                                                    
                                                                               
 CHAIRMAN RIEGER invited Representative Navarre to address the                 
 proposed amendment (K.1) contained in the members' packets.                   
                                                                               
 REPRESENTATIVE MIKE NAVARRE explained he was offering the amendment           
 at the request of the Kenai Economic Development District, as well            
 as the mayor of the Kenai Peninsula Borough, who have been working            
 for a number of years on the Midrex project to be located at Point            
 McKenzie.  However, Midrex is not going to do the project, but                
 another group has formed with an iron carbide process, a new                  
 process that is cheaper, cleaner and more efficient than existing             
 ore processing.  That group is looking at locating two modules                
 somewhere in Cook Inlet.  The two modules would cost about $100               
 million and they are not connected to the authorization provided              
 for in the amendment.  This authorization would be for a loading              
 and unloading dock facility that would be part of the development.            
 If the group is able to put the package together, they will be                
 ready to be under construction by the spring of 1997, but nothing             
 would move forward on the dock facility until that $100 million               
 commitment for the modules is made.                                           
                                                                               
 Number 070                                                                    
                                                                               
 SENATOR TAYLOR asked if this authorization was put on the books,              
 would it still have to go before AIDEA.  REPRESENTATIVE NAVARRE               
 responded that ADIEA would have the final say in whether or not the           
 dock portion of the project would go forward.                                 
                                                                               
 Number 085                                                                    
 GEORGE DOZIER, committee aide to the House Labor & Commerce                   
 Committee, stated that Chairman Kott had not had an opportunity to            
 examine the Transportation SCS.  However, he did request that Mr.             
 Dozier articulate to the committee his opposition to the proposed             
 amendment being offered by Representative Navarre.  His position is           
 that the legislation had two hearings at the House level and this             
 matter could have been brought to his and the committee's attention           
 at any time and it was not.  As a consequence, the House                      
 essentially has been deprived of an opportunity to engage in debate           
 and consideration of the matter.                                              
                                                                               
 REPRESENTATIVE NAVARRE pointed out that offering the amendment at             
 this time was a matter of timing and that he would contact                    
 Representative Kott and explain why it wasn't offered until now.              
                                                                               
 Number 130                                                                    
                                                                               
 CHAIRMAN RIEGER stated work with AIDEA would continue on SCS CSHB             
 527(TRA).  He then recessed the meeting at 4:46 p.m. to a call of             
 the chair.                                                                    
                                                                               
 [THE 4/23 MEETING WAS CALLED BACK TO ORDER BY CHAIRMAN RIEGER AT              
 2:50 P.M. ON 4/26 AND ADJOURNED AT 2:51 P.M.]                                 

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