Legislature(1995 - 1996)
04/26/1996 03:51 PM TRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
CSHB 526(FIN) am AIDEA OPERATIONS/PROJECTS/LOANS CHAIRMAN RIEGER brought CSHB 526(FIN) am before the committee. He advised that since the last meeting on the bill the Alaska Industrial Development & Export Authority (AIDEA) has provided language, which are two different approaches to address the concern about the $10 million authorization. Number 227 SENATOR GREEN inquired which version of the bill the suggested languages applied to. KEITH LAUFER, Assistant Attorney General Governmental Affairs Section, Department of Law, clarified he drafted them off of the version that came over from the House, CSHB 526(FIN) am. Mr. Laufer explained that in response to some of the concerns raised by the chairman, they have provided for a sunset of ADIEA's bonding authorization similar to the sunset that went into effect on July 1, 1995. Both versions of the suggested language before the committee accomplish that. The second issue the chairman was concerned about had to do with a limitation on ADIEA's ability to bond for its loan participation program. The version which reads "bonding authorization amendment" provides for a limitation on AIDEA's ability to issue bonds in order to fund participation loans under its participation program, if those bonds would exceed $10 million. Number 254 RANDY SIMMONS of the Alaska Industrial Development & Export Authority, added that under the bonding authorization, the suggested language that does not have the $10 million limitation for loan participation bonds, there still is in AIDEA statutes a limitation for loan participation, so they could not do a loan participation over $10 million without coming to the legislature for authorization. It further states that they couldn't do a bond over $10 million. As an example, he said if they had two loan participations in one year that were $8 million a piece, normally what they would do to save money was issue one bond. They would group those together and issue one bond for $16 million. Under the bonding authorization, they could do that. Under the bonding authorization amendments, they could not; they would have to issue two $8 million bonds. Number 280 CHAIRMAN RIEGER commented that on that issue he is more comfortable with the existing language, with the exception of adding a sunset provision. He said another issue that was raised was on the interest rate on loan participations, and he asked for an explanation of suggested draft language provided by AIDEA. KEITH LAUFER explained that elsewhere in statute and being amended in the bill are the two provisions that provide for interest rates on loan participations when AIDEA issues both taxable, in one case, or tax exempt bonds in the other case. At the last committee meeting some questions were raised about the interest rate that AIDEA would charge on loans that are not funded with newly issued bonds, but, instead, funded out of AIDEA's own funds or equity without issuing bonds. The amendment provides the methodology that AIDEA uses to set its interest rates on loan participations funded out of equity. First, a determination is made whether tax exempt or taxable bonds could be used for the issue. In other words, certain types of loans can be funded with tax exempt bonds and, in that case, they would set the interest rate using the cost of funds based on the rate that would be available to AIDEA if they were to sell tax exempt bonds. In the other case, they use the taxable bond rights. Number 309 CHAIRMAN RIEGER suggested modifying that language when it's in final draft to say that the interest rate shall be determined by regulation, but not lower than what Mr. Laufer had described. MR. LAUFER and MR. SIMMONS responded that they would not have a problem with his suggested modification. Number 315 CHAIRMAN RIEGER then directed attention to language he had drafted, which is a shortened version of the conditions on the Delong Mountain Transportation System (Red Dog project), to accommodate some of the concerns of Senator Adams. It deletes from an earlier draft of the bill the requirement for a 6.5 percent floor on the rate of return. It also edits the language in b(2) to make it clear that the original return on the original investment is one deal, and the additional return on the additional investment is a different deal as far as making sure that the return is commensurate with the risk. He said number 3 is something that may still be an issue; however, it no longer reads that the toll- schedule may be periodically adjusted, but it is permissive that the original toll schedule could be crafted in any way that the parties negotiate. RANDY SIMMONS and SENATOR ADAMS stated they had no problem with the change in number 3. Number 350 CHAIRMAN RIEGER noted the Senate State Affairs version did not provide for the guarantee of interest to apply on the Small Business Guarantee Program, and he asked if the committee thought that should be added back in or whether that program should have a sunset. SENATOR TAYLOR asked why the provision was deleted in Senate State Affairs. RANDY SIMMONS responded there wasn't a lot of debate on the issue, and he could not speak as to what the concerns might have been of the senators at that time. However, he thought it might be a concern of why AIDEA would want to guarantee interest once there was a default. He added it is something that is generally in most loan programs, and, if a loan were to go into default, they would give a period of 90 days to guarantee the interest on their portion until that loan can be basically sold by the bank. AIDEA doesn't consider it a real problem from their standpoint because the interest is going to be fairly insignificant if it happens, and, even though their program hasn't been used that much so far, they've only had one default on any of the $3 million worth of loans issued so far. Number 397 SENATOR LINCOLN commented that it says it is for the time and in the manner established by the authority by regulation, so it doesn't seem to be a paragraph that would be detrimental. Number 430 After further discussion, CHAIRMAN REIGER stated the consensus of the committee was to add back in language limiting the interest guarantee to no more than 90 days. Number 434 SENATOR TAYLOR suggested modifying existing language that is already within the bill that updates what the current cost would be of the Bradfield Road project. This is just to provide the opportunity that if in fact it can be developed, that there already is legislative authorization in place to go forward with it. CHAIRMAN RIEGER asked if AIDEA has a position on this project and if this would work. RANDY SIMMONS answered that they have not looked at this and he really could not speak to it without looking at it first. He did point out that original authorization for the project was in the Department of Transportation; however, if it is a feasible project, AIDEA will be happy to look at it. If the project were to happen within the next couple of years they would not need this because they have a two-year statute of limitation. If it were left out of the bill and in that two-year period it became a viable project, it could either be done by conduit financing or specific statutory legislation or authorization could be provided under their program. If it is revenue bonds, AIDEA would not need the authority, but if it's under their development finance, it's a different type of bonding and ADIEA would need the authority. SENATOR TAYLOR asked if AIDEA could make a deal without this amendment. RANDY SIMMONS answered they could if the project were going to be financed by conduit financing. SENATOR TAYLOR said he wants AIDEA to have the greatest authority possible so that when someone comes to them with a project that is feasible, they can move forward with some dispatch at that point. RANDY SIMMONS said he didn't want to speak against the Bradfield project because AIDEA just doesn't know anything about it. Their normal process is to work with a developer beforehand to see if a project is fairly viable just from the start, without having to go through the full feasibility study. Then AIDEA would ask for authorization just as they have done with Red Dog, etc. Number 546 SENATOR TAYLOR said part of the concern is that there is a minimum of probably a two-year EIS, there is a national concern in that it will require an international crossing, which takes a considerable period of time, and if there isn't the authorization to move forward on the project upfront, it just further slows everything down. Number 570 CHAIRMAN RIEGER asked if there have been any further developments in the proposal regarding the bulk unloading facility that was testified to at the last hearing. REPRESENTATIVE NAVARRE said he spoke to Representative Kott's staff who informed him that the representative's position has not changed with respect to the amendment, although Representative Kott informed him he was leaving it up to the chairman of the Senate Transportation Committee. Number 580 CHAIRMAN RIEGER stated it was his intention to have a committee substitute drafted for consideration at the next meeting so that final action can be taken on the proposed amendments and the bill can be moved out of committee. He feels the committee is fairly close on all the issues with the exception of the additional bond authorization project.