Legislature(2015 - 2016)HOUSE FINANCE 519
03/30/2015 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB64 | |
| HB86 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 64 | TELECONFERENCED | |
| += | HB 68 | TELECONFERENCED | |
| + | HB 86 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 30, 2015
1:46 p.m.
1:46:20 PM
CALL TO ORDER
Co-Chair Thompson called the House Finance Committee
meeting to order at 1:46 p.m.
MEMBERS PRESENT
Representative Mark Neuman, Co-Chair
Representative Steve Thompson, Co-Chair
Representative Dan Saddler, Vice-Chair
Representative Bryce Edgmon
Representative Les Gara
Representative Lynn Gattis
Representative David Guttenberg
Representative Scott Kawasaki
Representative Cathy Munoz
Representative Lance Pruitt
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Laura Pierre, Staff, Senator Anna MacKinnon; Elizabeth
Nudelman, Director, School Finances and Facilities,
Department of Education and Early Development; Sheri
Thomas, Bristol Bay School District; Pam Leary, Director,
Treasury Division, Department of Revenue; Jerry Burnett,
Deputy Commissioner, Treasury Division, Department of
Revenue.
PRESENT VIA TELECONFERENCE
Mark Foster, CFO, Anchorage School District, Anchorage;
David Nees, Self, Anchorage; Deena Paramo, Superintendent,
Mat-Su Borough School District, Mat-Su.
SUMMARY
HB 68 ELECTRONIC DISTRIB. OF REPORTS
HB 68 was SCHEDULED but not HEARD.
HB 86 PCE ENDOWMENT FUND INVESTMENT
HB 86 was HEARD and HELD in committee for further
consideration.
SB 64 SCHOOL BOND DEBT REIMBURSEMENT
CSSB 64(EDC) was REPORTED out of committee with a
"do pass" recommendation and with one previously
published indeterminate fiscal note: FN1 (EED).
1:46:38 PM
Co-Chair Thompson discussed the agenda for the day.
CS FOR SENATE BILL NO. 64(EDC)
"An Act relating to school bond debt reimbursement;
and providing for an effective date."
1:47:52 PM
LAURA PIERRE, STAFF, SENATOR ANNA MACKINNON, discussed the
bill sponsored by the Senate Finance Committee that would
sunset the school bond debt reimbursement program for five
years. She detailed that after the five-year period the
program would be reinstated at reduced levels. She
elaborated that currently the state reimbursed for standard
major maintenance and school construction at 70 percent and
at 60 percent for nonstandard construction and maintenance.
The legislation would reduce state reimbursement to 50
percent and 40 percent respectively.
Representative Kawasaki noted that some ballots had already
been mailed for an upcoming Anchorage election. He referred
to the legislation's retroactive date of January 1, 2015
and wondered if there would be any legal implications if
the bill passed.
Ms. Pierre replied that Legislative Legal Services had
advised that the retroactive date was legal. However, the
bill would need to be signed prior to the election date of
April 7, 2015.
Co-Chair Thompson noted that Representative's Edgmon and
Munoz had joined the meeting.
Representative Wilson wondered why major maintenance and
school construction had not been included given that they
were 100 percent grant funded. She noted that the state was
paid back for a portion on other items.
Ms. Pierre answered that the bill was specific to school
construction and major maintenance projects. The Department
of Education and Early Development (DEED) had other
programs that it reimbursed for other school projects.
Representative Wilson understood. She stated "since we're
looking at school construction debt, whether it's through a
grant program or 70/30 or 60/40 - was that considered as
part of this bill - and for maybe some reason that I don't
know, that they went with just the bonding and not these
other two programs."
Ms. Pierre replied in the negative. The Senate Finance
Committee specifically wanted to address debt service.
Co-Chair Thompson noted that DEED staff were available for
questions.
Vice-Chair Saddler asked if the bill would prevent the
legislature from appropriating funds to a school in the
event of an emergency (e.g. damage from a flood,
earthquake, or other). Ms. Pierre replied in the negative.
Co-Chair Neuman asked for an explanation of major
maintenance and how that type of program was generally
funded. He asked for detail on how programs for school bond
debt reimbursement for new schools could also go for
maintenance. He noted that there were separate maintenance
programs.
1:52:11 PM
ELIZABETH NUDELMAN, DIRECTOR, SCHOOL FINANCES AND
FACILITIES, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT,
answered that DEED had two primary funding programs for
school facilities. The bill addressed the debt program,
where municipal school districts applied for a project;
criteria that allowed projects to be reimbursable was
designated in statute. She detailed that the program could
be used in the event of needed construction for unhoused
students, life-safety issues requiring major maintenance,
necessary changes for improvement of instruction, and
other. The project was required to meet the criteria and to
apply for the debt program; if requirements were met, the
project would be either 60 or 70 percent reimbursable. The
reimbursable rate was based on whether the space qualified
within the department's calculation. She detailed that once
the requirements had been met, the municipality was
responsible for selling the debt and moving forward on the
construction process. Additionally, the municipality was
responsible for submitting a request for reimbursement on
an annual basis (for either 60 or 70 percent).
Ms. Nudelman highlighted that the second funding program
was a grant program. The program was available to Regional
Education Attendance Areas (that did not have the legal
capacity to bond) and municipal school districts. All
school districts could apply through the grant program. She
stated that the grant applications were due annually on
September 1; districts were required to apply on the
construction list or the major maintenance list depending
on the project. She elaborated that the department ranked
the projects on each list from 1 to 150 (beginning with 1
as the neediest project). The lists were provided by DEED
for the governor's budget and on to the legislature for its
consideration. She summarized that the bond debt
reimbursement program was available to municipalities and
the grant program was available to all districts.
1:55:57 PM
Co-Chair Neuman asked for clarification that the bill
applied to two separate bond debt programs: bond debt
reimbursement to municipalities for school construction and
major maintenance for indebtedness.
Ms. Nudelman answered in the affirmative. She detailed that
the debt program covered construction and major
maintenance.
Representative Gara asked what qualified for 70/30 and
60/40 reimbursement (under the legislation the
reimbursement rate would change to 50/50 and 40/60
respectively in five years).
Ms. Nudelman replied that each project had to qualify under
the statutory requirements as an educational project in one
of the categories the program provided for. She explained
that if a project would add space or replace space there
was a DEED calculation providing for a certain square
footage per Average Daily Membership. She elaborated that
projects were eligible for the 60/40 reimbursement if the
new space was larger than the space calculation allowed
for. She added that if the new space met the DEED space
guidelines it would be eligible for the 70/30
reimbursement.
Representative Gara asked for verification that the
distinction was purely related to the department's space
guidelines and was not related to a distinction between
major maintenance and new construction. Ms. Nudelman
replied that the space issue only arose in new construction
projects. She explained that there was not a space criteria
related to major maintenance projects such as roof repair,
fixing out of date code issues, or repairing a boiler. The
only time the 70/30 or 60/40 came into play was for
construction or major renovation projects.
Representative Gara asked for verification that general
maintenance was 70/30. Ms. Nudelman replied in the
affirmative.
Representative Gara understood the need for the state to
save money and the proposal to go from 70/30 and 60/40 down
to 50/50 and 40/60 respectively. However, he did not
believe it was reasonable to let schools dilapidate for
five years [before the reimbursement rate was reinstated at
the lower rate]. He communicated that it had been over 30
years since the last major maintenance was done on any of
the Anchorage schools; the schools had been built between
1956 and 1970. He asserted that it may be much more
expensive to repair the schools in five years' time due to
their decreased condition. Additionally, interest rates
were currently near record lows; when interest rates rose,
schools and debt would be more expensive.
Ms. Nudelman agreed that it may cost more in the future to
repair a project that further deteriorated during the five-
year period. She relayed that she could not guess what
interest rates would be in five years.
Co-Chair Thompson did not expect the department to project
what kind of shape schools would be in five years from the
present day.
Representative Gara spoke to a scenario in which projects
were delayed for five years. He asked what the difference
would be in the state's annual debt service if the school
construction and maintenance currently on the ballot were
allowed, compared to what it would be if the projects were
blocked from moving forward. He relayed that Dillingham and
other municipalities had bond related ballot propositions
for the current year. He wondered about the difference in
the state's annual debt service payments if the projects
moved forward or if they were blocked.
Ms. Nudelman replied that the department's fiscal note was
indeterminate. She elaborated that voters would first be
required to authorize the debt. The department had not been
able to aggregate the cost.
2:03:43 PM
Co-Chair Neuman stated that currently the state was paying
approximately $108 million in debt service towards new
school construction and major maintenance. He wondered what
the debt payment would be in five years if the state
continued to pay down the current debt but did not provide
any additional debt reimbursement during the given time
period.
Ms. Nudelman believed the department had submitted the
information.
Co-Chair Thompson asked his staff to copy and distribute
the information to committee members.
Vice-Chair Saddler asked if the bill would prevent the
legislature from appropriating funds to any clear needs
that arose in school construction or maintenance. Ms.
Nudelman replied in the negative.
Vice-Chair Saddler asked how much money the state had spent
on school construction and maintenance over the past 10
years. He asserted that the state had spent significant
funds on the capital budget over the past 10 years. Ms.
Nudelman replied that she did not have the information on
hand.
Vice-Chair Saddler requested the information from the
department. He wondered whether the department believed the
state had been neglecting school construction and debt
reimbursement over the past 10 years.
Ms. Nudelman replied that the two programs had processed
numerous projects for school districts; the state had
reimbursed the projects. She elaborated that the debt
program had been open to any projects that qualified and
the grant program had reimbursed as far down the list as
the governor and legislature deemed appropriate.
Vice-Chair Saddler believed it appeared that municipal
districts got to "double dip" with debt reimbursement due
to their capacity to issue bonds; whereas, Regional
Education Attendance Areas did not. He observed that urban
districts also had the capacity to utilize the grant
program as well. He asked for historical detail.
Ms. Nudelman answered that she had read the program back to
the 1970s. She detailed that the state and legislature had
taken action to meet the times; the grant program had been
used and revised. She explained that it had simply been a
choice; as the debt program became available, the grant
program also remained open to municipalities.
2:08:21 PM
Representative Kawasaki wondered about the submittal
process for the program. He referred to a memorandum
addressed to the superintendent of the Anchorage School
District notifying the district of approved projects
pending legislative approval. He relayed that his school
district had talked about the issue. He wondered how long
it typically took for an applicant to receive approval from
DEED.
Ms. Nudelman answered that the requirement to submit an
application to DEED prior to going to voters for bond
authorization, had been removed. She detailed that a
municipal district could apply prior to or after voter
approval. Therefore, she did not know the precise
timelines. She added that typically most districts applied
to the department for debt as a first step to determine the
eligibility of their project. She relayed that there were
also several other major components that needed to be met
after a project was deemed eligible.
Representative Kawasaki asked if there were other school
districts currently in the queue that had applied. Ms.
Nudelman was not aware of any other districts aside from
Anchorage that had a letter seeking the department's
determination on the project and its eligibility for the 60
or 70 percent reimbursement. She had heard that perhaps
other districts had considered submitting an application;
however, ultimately a voter approved initiative was
required.
Representative Kawasaki wondered how far in advance a
typical school district would seek the 60 versus 70 percent
eligibility determination from DEED. He imagined that
typically it was well before a municipality began
advertising for elections. He wondered if the process
typically began a couple of months prior to an election or
much earlier.
Ms. Nudelman answered that the process could take place
after an election; therefore, the timeframe varied. She
elaborated that under current statute, a municipal school
district could plan a project, go to the voters, and then
ask for department approval.
2:12:39 PM
Representative Guttenberg wondered whether there had been
an analysis about the cost-effectiveness of legislation. He
believed it boiled down to what the expense of the projects
would be in five years versus at present and a cost at a
range of interest rates.
Co-Chair Thompson noted that Representative Guttenberg was
asking for a prediction of interest rates in five years.
Representative Guttenberg wondered if an analysis had been
done on the cost effectiveness. He noted that bond issuers
modeled a range of costs and estimates. Ms. Nudelman
replied in the negative.
Representative Guttenberg asked for clarification that Ms.
Nudelman was only referring to the department. Ms. Nudelman
replied in the affirmative.
Representative Guttenberg asked if any consideration had
been given to expanding the bill to cover other things like
highways, roads, bridges, or state buildings that used
bonds.
Ms. Pierre replied in the negative. She addressed his
previous question and relayed that when the Senate Finance
Committee considered the legislation its goal had been to
avoid incurring any additional debt. She elaborating that
sun-setting the program for five years would prevent the
state from incurring additional debt during the time
period. She relayed that since the program's inception the
state had paid out over $3 billion.
Representative Guttenberg was concerned that the state's
fiscal situation may not be considerably improved in five
years. He hoped the worst case scenario would mean the
state was facing the same thing with additional costs in
five years' time. He elaborated that the state may not have
the capacity to pay for the program in the future; it could
be debatable whether the state currently had the capacity.
2:15:46 PM
Co-Chair Thompson referred to a handout titled "School
Construction Debt Retirement" dated February 13, 2015 (copy
on file). He noted that if the state incurred no additional
bond debt it would take until 2034 for the state to pay off
existing bonds; by that time it would have paid
$1,212,000,713. He remarked that the figure was
significant.
Representative Gara stated that the way the bill was
written the state's annual debt service would decrease a
little each year for five years; however, the chart did not
factor in that schools would come forward at the end of the
five-year period with two to four times as many projects.
He discussed holding off on elementary school projects in
Anchorage and the rest of the state and reasoned that there
would be a huge balloon in applications for bond debt in
five years. He highlighted that the chart showed a $6
million decrease in the annual debt service in six years.
He stressed that the decrease would not occur and could
balloon out to over $100 million. He wondered if the
department had done any analysis on what the impact would
be in five years when the state resumed paying for new bond
debt.
Ms. Nudelman replied that the bill did not come from the
governor. She relayed that the department had not reviewed
the question.
Co-Chair Neuman remarked that the cost of the debt in five
years was not known. He disputed the comment that the cost
may exceed $100 million. He elaborated that it was a known
quantity that municipalities had the ability to apply and
legislators had the ability to introduce legislation. He
reasoned that a legislator could introduce legislation if
they felt their school district's population had grown by
thousands. He believed that asking the department to
speculate was not applicable. He thought the questioning
was out of order.
2:19:22 PM
Representative Gara remarked that he had not heard in any
answers during the meeting that the bill would save the
state money. He stressed that there was no financial
information to rely on; no one had looked at what would
happen if the state waited five years to fund [maintenance
or construction] a 60-year old school. He emphasized that
waiting five years to fund maintenance would mean schools
would have many projects needing bond funding. He agreed
that the cost of the bonds was not known; however, he
believed it was pretend to say that the costs would go
away. He stated that the legislation would only move the
costs out into the future. He asserted that costs would
rise if interest rates and damage to schools increased. He
believed it was more responsible to adjust the
reimbursement rate. He opined that the schools would still
have needs in five years and that the state would probably
have even less money than it had currently. He reiterated
that the bill did not save money. He added that he did not
support the retroactivity clause. He agreed that the state
could no longer afford the 70/30 reimbursement rate given
the state's current fiscal situation.
Ms. Pierre answered that the state could not afford to
continue the program at present. Additionally, the
legislation did not prevent districts from continuing to
bond or to prioritize needed projects. However, the
districts would not receive money from the state.
Representative Gara believed that if localities had to pay
100 percent of the costs [for school maintenance and
construction] the costs would be passed on to property tax
payers. He opined that it would mean a massive property tax
increase.
Representative Wilson asked for verification that the debt
belonged to the municipalities and not the state. Ms.
Pierre answered in the affirmative.
Representative Wilson noted that the state paid 70 percent
of the debt in the 70/30 debt reimbursement scenario. She
asked for verification that the state had the option to
stop paying the debt. Ms. Pierre answered in the
affirmative. She detailed that the state had the option to
stop paying or short-fund the debt. She noted that the
state had continued to pay the debt out of a moral
obligation more than anything.
Representative Wilson surmised that it was all about the
current debt. She wondered why the state would not choose
to discontinue funding the debt altogether until it had
more money. Ms. Pierre answered that she did not know of
any conversation that had taken place on the idea.
2:24:22 PM
Representative Wilson did not see the cost as the state's
obligation. She thought the state had been more than
generous with the 70/30 and 60/40 reimbursement. She
believed the state's obligation was to pay only if it had
the money. She stressed that the state did not currently
have the money. She believed the state could communicate
that it would stop providing the funding and that
municipalities would be responsible for the payment. She
concluded that there either needed to be a moratorium on
state reimbursement for five years or the state could
discontinue payment. She thought a conversation on
discontinuing payment would have been prudent.
Co-Chair Thompson believed that if the state did not pay
and a municipality could not pay the entire amount that the
state's bond rating would plummet.
Representative Wilson thought that it was determined prior
to bond approval that municipalities could pay the entire
amount. She hoped that the state was not allowing bonds to
be approved if municipalities could not pay.
Representative Edgmon highlighted the collateral damage the
bill could bring to a smaller school. He detailed that the
Bristol Bay Borough School District was facing some serious
structural challenges (a portion of the school was 45 years
old and the other portion was 25 years old). He guessed
that seasonal earnings from the borough's raw fisheries tax
could float a bond, but it would not leave sufficient funds
for other things. He communicated that the roof on the
Naknek school had serious problems; fortunately there had
not been a heavy snow load in the past couple of years. He
relayed that in the event of heavy snowfall the roof could
potentially collapse. He elaborated that the borough had
been trying to get into the reimbursement program since
2012; it had received a letter from DEED that it qualified
for the 60/40 split. Additionally, the borough had put up
$500,000 for design work. He believed the issue illustrated
the dilemma of a smaller district getting caught in between
other things going on. He stressed that the grant program
was highly competitive and that it could take years for a
school to make it to the top of the list. He underscored
that the cost-benefit analysis was not currently known on a
situation where the state allowed schools to get to a point
of irreparable damage. The issue was of great concern to
him. He asked what would happen if the roof on the Bristol
Bay school collapsed. He wondered how the state would deal
with the problem if $2 million or other was needed in the
middle of February.
2:29:58 PM
Ms. Nudelman replied that the local school district would
need to decide where to relocate the students. She imagined
that quickly thereafter the borough and the legislature
would be presented with the decision on the best avenue to
rectify the situation.
Representative Edgmon reasoned that the legislature could
put money in the supplemental budget, which would be the
following February; if the school could be renovated during
the subsequent construction cycle it may be able to open
the following September, which was almost 1.5 years of the
downtime for the school.
Ms. Nudelman did not disagree with the timelines.
Representative Edgmon was concerned by the issue. He noted
that the state would still be facing a $1.2 billion
liability if the current program was stopped in its tracks
with a retroactive date of January 2015. He appreciated the
presence of a couple of board members from his school
district.
2:32:12 PM
Vice-Chair Saddler referred to criteria for the debt
reimbursement and grants program. He asked Ms. Nudelman
what she meant by necessary improvements to construction
when discussing program eligibility.
Ms. Nudelman clarified that she had referred to
"improvement to instruction." For example, a school could
be eligible for the program if it needed to add room for
special education services or other.
Vice-Chair Saddler believed there was a hierarchy of needs
for education funding as there was for anything. He
wondered how much of the debt reimbursement and grant money
spent had gone towards life-safety projects.
2:33:37 PM
Ms. Nudelman did not want to guess. She reported that on
the grant list all of the projects were considered. She
detailed that a leaking roof that put a structure in harm's
way would rank higher than some other projects. She relayed
that the debt program was open to all projects; there was
not a limit on the number of projects. She communicated
that the limit was voter authorization.
Vice-Chair Saddler asked for verification that
prioritization was not given to falling down roofs as
opposed to renovations, improved cameras, or class systems.
Ms. Nudelman replied that raters ranked projects with
points on a list of approximately 15 questions; questions
included emergency and a life and safety category. She
relayed that the life and safety category was heavily
weighted. She shared that it would not completely negate a
non-life safety project from receiving enough points in
other categories to rank alongside a life safety project.
Vice-Chair Saddler relayed the committee had heard of 60
year old schools that were falling down. He wondered how
many 60 year old schools were operating in Alaska.
Representative Gara interjected that he had said nothing
about schools falling down.
Vice-Chair Saddler asked how many 60 year old schools were
operating in Alaska. Ms. Nudelman replied that she did not
have the precise number. She stated that there were plenty
of 60 year old schools in Alaska; plenty of them were
delivering excellent education. She relayed that it
depended on the useful life of the components and where
they fell on the renewal schedule for the schools. She
could not tell the committee if a school was in average or
good condition based on its age.
2:36:28 PM
Vice-Chair Saddler asked if there was a median age of the
school structures in Alaska. Ms. Nudelman that she would
need to do some research for the information. She added
that the state's schools were renovated; therefore, the age
of the initial school and subsequent renovations needed to
be considered.
Vice-Chair Saddler requested the information. He wondered
what kind of metrics DEED had about the age and condition
of Alaska's schools. Ms. Nudelman responded that DEED had a
database of all of the state's school facilities. She
detailed that the information was available on the
department's website. She elaborated that the information
about each facility based on school district was on the
website. Additionally, the website showed the original
facility date and any major remodels.
2:38:07 PM
Co-Chair Neuman believed committee questions had been
asking a lot of the department. He asked if the schools
belonged to the state or the school district.
Ms. Nudelman replied that approximately 95 percent of the
schools belonged to the school districts. She elaborated
that some of those schools belonged to the school district
and others belonged to the municipal government. There were
very few schools that perhaps were once Bureau of Indian
Affairs schools that may belong to the state. She expounded
that schools in Regional Education Attendance Areas
typically belonged to the school district; schools in
municipality typically belonged to the municipality.
Co-Chair Neuman stated that the bottom line was that the
state did not own the schools or decide when a school
needed repair or replacement. Ms. Nudelman replied in the
affirmative; statute clearly laid out who was responsible
for school buildings.
Co-Chair Neuman wondered if a municipality's inability to
pay its portion of a bond had any effect on the state's
debt or credit rating. Ms. Nudelman replied that school
districts were their own entities and received their own
bond ratings through bonding sources. She elaborated that a
school district would be looked at to determine if it could
carry the debt.
Co-Chair Neuman clarified that it was not the state's
responsibility. Additionally, he referred to Representative
Edgmon's earlier question about what would occur if a
school's roof collapsed. He wondered about the state's
responsibility under the scenario.
Ms. Nudelman replied that the school would be owned by the
municipality. She did not know of anything that would
involve the state under the scenario.
2:41:40 PM
Representative Guttenberg asked how relevant the bill was
if Ketchikan succeeded in its law suit against the state.
Ms. Nudelman replied that the issues were separate. She
added that there were many unknowns.
Ms. Pierre answered agreed.
Representative Gara apologized for getting "amped up." He
relayed that Ms. Pierre had done a fine job presenting the
bill. He understood that Senator MacKinnon was working to
find a way to deal with the state's fiscal crisis as were
other legislators. He expressed frustration with the
information available on the topic.
SHERI THOMAS, BRISTOL BAY SCHOOL DISTRICT, spoke against
the legislation. She read a prepared statement:
The Bristol Bay Borough and the Bristol Bay Borough
School District have spent a significant amount of
time and money developing a bonded reimbursable
facility upgrade project. We started this project back
in 2012. As a small borough it is taking a lot of time
for us to work out all of the details. We are now
ready to take this to the voters before the original
deadline of May 1. Our facilities have been well cared
for, but the buildings have reached or exceeded their
lifespan. Our project is to focus on bringing our
systems back to an efficient and sustainable state. We
are currently spending over $2,900 per student a year
on energy costs due to the outdated inefficient
systems and declining enrollments. We struggled with
meeting the 70 percent instructional funding
requirements. Our community would need to have access
to the debt reimbursable program in order to make this
project a reality. Our borough does not have the
resources to support a project of this magnitude.
We feel that retroactively changing the date to
January 1 will effectively cancel our project. We
would appreciate any consideration that you would make
toward allowing the original May 1 date to stand.
Additionally, we fear that the five-year moratorium on
the new projects will have an adverse fiscal effect on
the state's economy forcing many architects,
engineers, and construction companies to go elsewhere
for work. We hope you have studied what the impact
will be and would advocate for a review of the
moratorium duration.
MARK FOSTER, CFO, ANCHORAGE SCHOOL DISTRICT, ANCHORAGE (via
teleconference), asked the committee to consider looking at
the retroactivity provision in the bill. He relayed that
the school district had been working over one year on
compiling a bond proposal that had approved by the school
board in September 2014 and the Anchorage Assembly in
November 2014 (all of which was long before the legislative
proposal to eliminate new debt reimbursement). He detailed
that DEED had declared all of the projects on the Anchorage
2015 school bond list as eligible for debt reimbursement in
the December 2014 determination. He relayed that currently
voters were operating in an environment where it was
unclear that state reimbursement would occur. The Anchorage
School District believed clarity and moving the date
forward to allow its bond proposition to advance would be
advantageous for all concerned. He emphasized that the
bonds the district put forward addressed items that were
frequently referred to as deferred maintenance (i.e.
improving roofs and replacing worn out flooring, ceiling,
walls, and doors). He stated that the improvements
represented the kinds of things that accumulated over years
that maintenance cycles could only keep up so much until
the time came to renovate facilities. The school district
worried that if the burden was completely shifted to local
municipalities a problem similar to one experienced by the
University of Alaska Fairbanks (UAF) may be created (the
UAF deferred maintenance had been mounting over the years).
He reiterated the district's request for the committee to
consider changing the retroactivity provision back to the
original legislation.
2:47:50 PM
DAVID NEES, SELF, ANCHORAGE (via teleconference), spoke in
favor of the current version of the bill. He elaborated
that the six-year plan for ASD included roughly $500
million for projects in the upcoming five years; the cost
would put the state an additional $350 million in debt. He
reasoned that it was necessary to stop somewhere. He stated
that if the bill allowed various bonds that were floating
in municipalities it would never "get off this merry-go-
round." He stated that a five-year timeout allowed everyone
to rethink how to take care of maintenance in schools. He
continued that prior to the bond debt reimbursement program
instituted by former Governor Jay Hammond in 1972,
cigarettes had paid for school maintenance. He elaborated
that tax was still collected by the state and could be
rededicated to pay for school maintenance; it brought in
approximately $27 million annually, which was almost
precisely what the state paid out annually in deferred
maintenance. He believed the spending needed to stop.
2:49:58 PM
DEENA PARAMO, SUPERINTENDENT, MAT-SU BOROUGH SCHOOL
DISTRICT, MAT-SU (via teleconference), communicated that
the school bond debt reimbursement program was a great
example of a highly effective state government program
working for its people. She shared that the Mat-Su Borough
had recently benefitted from a bond package that built six
new educational facilities in the community. She continued
that the program was part of an integral part of a sound
facility management strategy as major maintenance had its
place in providing operational efficiencies. She cited that
according to the National Center for Educational
Statistics, facilities maintenance produced savings by
decreasing equipment replacement costs over time,
decreasing renovation costs due to a reduced need for
large-scale repair projects, and decreasing overhead costs
such as utility bills due to increased efficiency. She
highlighted that the Mat-Su Borough School District had
implemented an effective preventative maintenance program
aiming to extend the useful life of its facilities.
However, even with preserving its current assets, the
educational infrastructure did have a standard life
expectancy; therefore, the district was appreciative that
the legislation would reinstate the program after five
years.
Ms. Paramo communicated that the Mat-Su district was
growing and had needs to support unhoused students. She
informed the committee that over the past ten years the
district had grown by 232 students per year; it currently
used 80 modular units to serve as additional classrooms.
She stated that given the program's importance, the
district did not support the discontinuance of the school
bond debt reimbursement program altogether; however, the
district's board of education understood the immense
financial challenges facing the state. She thanked the
committee for its ongoing support and consideration of
education. She reiterated that the program was an effective
and efficient use of state resources. She guaranteed that
after the five-year moratorium the Mat-Su district would be
before the state with a school bond debt reimbursement
program application to support the needs of its growing
community.
Co-Chair Thompson CLOSED public testimony. He notified the
committee that going forward any amendments to bills had to
be submitted 24 hours in advance of a bill hearing.
2:54:10 PM
Representative Gara MOVED to ADOPT Amendment 1:
By: Representative Gara
Page 1, lines 4 - 9:
Delete all material.
Page 1, line 10:
Delete "Sec. 2"
Insert "Section l"
Renumber the following bill sections accordingly.
Page 7, line 1:
Delete "["
Page 7, line 2, through page 13, line 13:
Delete all material and insert:
"(18) subject to (h), (i), and (j)(2), (3), and (5) of
this section, 40 [50] percent of payments made by a
municipality during the fiscal year for the retirement
of principal and interest on outstanding tax exempt
bonds, notes, or other indebtedness authorized by the
qualified voters of the municipality on or after
January 1, 2015 [MAY 1, 2015], to pay costs of school
construction, additions to schools, and major
rehabilitation projects and education-related
facilities that exceed $200,000, are reviewed under AS
14.07.020(a)(11), and are not reimbursed under (o) of
this section; (19) subject to (h), (i), and (j)(2) -
(5) of this section, and after projects funded by the
tax exempt bonds, notes, or other indebtedness have
been approved by the commissioner, 50 percent of
payments made by a municipality during the fiscal year
for the retirement of principal of and interest on
outstanding tax exempt bonds, notes, or other
indebtedness authorized by the qualified voters of the
municipality on or after January l, 2015, to pay costs
of school construction, additions to schools, and
major rehabilitation projects and education-related
facilities that exceed $200,000, are approved under
AS 14.07.020(a)(11), and are not reimbursed under (o)
of this section."
Renumber the following bill sections accordingly.
Page 13, line 16:
Delete "Sections 1, 2, 4, and 5 of this Act are"
Insert "Section 1 of this Act is"
Page 13, line 18:
Delete all material.
Renumber the following bill section accordingly.
Page 13, line 19:
Delete "Sections 1, 2, 4, 5, and 7 of this Act take?
Insert "Section 2 of this Act takes"
Co-Chair Neuman OBJECTED.
Representative Gara believed the 70/30 school debt
reimbursement program was something the state could afford
in times of financial surpluses. He believed a good case
could be made that it was not affordable in the current
fiscal climate. However, he opined that the five-year
moratorium would not get the state out of its fiscal
crisis. The amendment would switch to the 50/50
reimbursement program immediately instead of waiting five
years. He reasoned that interest rates were currently at a
near all-time low. He rationalized that it would be more
expensive to wait five years to conduct maintenance on
projects that were needed already. He believed the danger
in some schools would increase. He communicated that over
the long-term the amendment would save the state the same
amount of money. He believed that without the amendment the
state would see a significant balloon of bond reimbursement
requests put forth by school districts. Additionally, he
believed the state would be spending more in six to eight
years on annual debt service. He reasoned that fixing
maintenance problems up front would be less expensive. He
noted that no one had done an analysis on what would happen
to schools if they waited five years to do maintenance or
what the impact would be in five years on the state's
annual debt service. He underscored that the state would be
paying for the costs when the moratorium ended; however,
the costs would include additional bonds. He noted there
would probably be less oil in the pipeline in the future.
He concluded that the bill would achieve a goal of reducing
the state's financial liability and spending. He believed
it would probably save the state money in the long-term.
The amendment would reduce the state's reimbursement level
by 20 percent in both of the two categories. Additionally,
the bill would remove the retroactivity provision and the
five-year moratorium. He understood that the intentions of
the bill were to save the state money. He believed the
amendment would save the state more money and would do
better by the state's school districts.
Co-Chair Thompson replied that there was a $3.5 billion
deficit in the current year. He stated that the debt could
grow to $4 billion if oil dropped to $45 or less per
barrel. He believed that the bill represented a way to
prevent from adding more debt to the state.
Co-Chair Neuman spoke to his objection. He stated that no
one knew if there would be more or less oil or what school
costs would be in the future. He discussed that the bill
would implement a five-year moratorium on the state's
portion of school debt reimbursement for municipalities. He
continued that the state could not currently afford the
reimbursement program; there were many other programs that
needed to be funded. He did not support removing the five-
year moratorium.
Representative Wilson spoke against the amendment. She
believed DEED should be approving the bonds on additional
criteria apart from voter approval. She had heard rumors
that paying 70/30 did not get the necessary analysis. She
believed the five-year moratorium would allow time to look
into the program. She believed that if a school had a leaky
roof the municipality should pay to fix it (instead of
waiting five years for the reinstatement of the
reimbursement program). She did not think municipalities
would let damage happen to schools for five years just
because the state was not paying the 70 percent. She opined
that it needed to be determined how the items would be paid
for in the future. She stated that there was no guarantee
the program would be made available again in the future.
She hoped that if the program was reinstated in five years
that there would be more requirements for reimbursement
eligibility.
3:01:57 PM
Vice-Chair Saddler testified in opposition to the
amendment. He commented that someone else's money was much
easier to spend. He believed the state had been fairly
generous and responsible in funding school construction and
maintenance. He understood that local school districts
would continue to have the ability to bond if they saw a
clear need for life safety. He acknowledged that it would
be more expensive for municipalities; he believed they
would focus more on life safety needs and less on
renovation that may not be necessary. He believed there
would continue to be a secondary avenue towards funding
through the state for construction and maintenance for
schools with significant needs. He stated that the bill's
goal was to reduce expenditures due to the fiscal deficit
facing the state. He referred to testimony by Ms. Paramo
that a five-year hiatus would focus people's attention. He
believed the amendment could have the unintended
consequence of prompting a land rush of districts hurrying
to issue bonds.
Representative Guttenberg spoke in support of the
amendment. He did not believe any school district rushed to
increase its mill rate. He recognized that the opportunity
to receive 70 percent reimbursement was enticing; however,
schools did not just put any project on the list. There was
nothing in the bill that prevented a district from paying
100 percent on a bond. He believed a reduction to 50/50 was
appropriate. He thought that the current bill may have the
result of increasing property taxes, which he did not want.
He did not have a problem paying for tax increases for
education and new schools, but he believed the state needed
to be at the table as well.
Representative Gara addressed Vice-Chair Saddler's comments
on a potential rush on bond issuances. He believed schools
may hurry to get bonds on the ballot if they were given
until December 31 followed by a five-year freeze. On the
other hand, the amendment would continue the school debt
reimbursement program, but it would reduce the 70/30
reimbursement to 50/50. He asserted that no one would rush
to receive the lower reimbursement any more than they would
under the existing program. He stressed that the amendment
would save money. He reasoned that the debt would not be
any smaller in five years because schools would wait on
projects until the reimbursement was offered again.
Co-Chair Neuman MAINTAINED his OBJECTION.
A roll call vote was taken on the motion to adopt Amendment
1.
IN FAVOR: Edgmon, Gara, Guttenberg, Kawasaki, Munoz
OPPOSED: Wilson, Gattis, Pruitt, Saddler, Neuman, Thompson
The MOTION to Adopt Amendment 1 FAILED (5/6).
Co-Chair Neuman noted that committee decorum did not
guarantee the right of the maker of an amendment to provide
closing comments. He detailed that House floor rules did
provide that right.
3:07:38 PM
Representative Kawasaki MOVED to ADOPT Amendment 2:
BY: Representative Kawasaki
Page 1, line 5, following "law,":
Insert "and except as provided in AS
14.11.100(a)(18),"
Page 1, line 8:
Delete "January 1"
Insert "November 15"
Page 6, line 21:
Delete "January 1"
Insert "November 15"
Page 6, line 29:
Delete "January l"
Insert "November 15"
Page 7, line 1:
Delete "["
Page 7, lines 2 - 11:
20 Delete all material and insert:
"(18) subject to (h), (i), and G)(2), (3), and (5) of
this section, 50 percent of payments made by a
municipality during the fiscal year for the retirement
of principal and interest on outstanding tax exempt
bonds, notes, or other indebtedness authorized by the
qualified voters of the municipality at a regularly
scheduled municipal election on or after January 1
[MAY 1 ], 2015, but before November 15, 2016, to pay
costs of school construction, additions to schools,
and major rehabilitation projects and education-
related facilities that exceed $200,000, are reviewed
under AS 14.07.020(a)(11), and are not reimbursed
under (o) of this 6 section."
Page 12, line 6:
Delete "January 1"
Insert "November 15"
Page 12, line 14:
Delete "January 1"
Insert "November 15"
Page 12, line 16, following "section":
Insert";
(18) subject to (h), (i), and (j)(2), (3), and (5) of
this section, 50 percent of payments made by a
municipality during the fiscal year for the retirement
of principal and interest on outstanding tax exempt
bonds, notes, or other indebtedness authorized by the
qualified voters of the municipality at a regularly
scheduled municipal election on or after January 1,
2015, but before November 15, 2016, to pay costs of
school construction, additions to schools, and major
rehabilitation projects and education-related
facilities that exceed $200,000, are reviewed under AS
14.07.020(a)(11), and are not reimbursed under (o) of
this section."
Page 12, line 17:
Delete "(18)"
Insert "(19"
Page 12, line 26:
Delete "(19)"
Insert "(20)"
Page 13, line 4, following "law,":
Insert "and except as provided in AS
14.11.100(a)(18),"
Page 13, line 7:
Delete "January 1"
Insert "November 15"
Page 13, line 9:
Delete "The"
Insert "Except as provided in AS 14.11.100(a)(18),
the"
Page 13, line 12:
Delete "January 1"
Insert "November 15"
Page 13, lines 14 - 17:
Delete all material.
Renumber the following bill sections accordingly.
Page 13, line 19:
Delete "Sections 1, 2, 4, 5, and 7"
Insert "Sections 1, 2, 4, and 5"
Representative Wilson OBJECTED.
Representative Kawasaki explained that the amendment would
enable municipalities with a last chance to put projects
forward. He detailed that many school districts (including
Fairbanks, Anchorage, and Bristol Bay) had been given the
impression that there would be a state funding match. He
elaborated that the projects did not come in solely every
year. He referred to discussion that there could be rush to
push projects through. He referenced the administration's
testimony that the process the projects went through could
take months to years in advance of an election. He relayed
that his community understood that it would be financially
difficult in the current year and had communicated that it
would not come to the legislature with capital projects. He
reminded the committee that school board members had come
forward in the November/December 2014 timeframe notifying
legislators that they would need a bond proposition in the
fall election cycle (instead of asking for cash). One of
the projects would be the fourth and final phase of the
Barnette Magnet School renovation. Other projects included
the installation of district-wide fire sprinkler systems
for $750,000 (the upgrade was necessary for most of the
outdated schools using the local water utility, Wood
River/Tanana mechanical upgrades, and a roof replacement
for Joy Elementary School (the project would replace major
parts of the roof that had been part of a 1989 addition).
He underscored that the projects had been vetted and
discussed by the school board; the projects had also been
entered into the school bond major maintenance by district
request. He added that Barnette had not made it into the
list of qualifying schools in the current year, but its
project was certainly needed. He believed it was important
for the state to keep its word related to the bond
reimbursement. The amendment would extend the program out
to the fall election cycle (most of the communities had
fall elections including Fairbanks, Mat-Su, and Juneau).
Representative Wilson spoke to her objection. She stressed
that the state did not have any money. She added that the
state was not obligated to pay any of the bonds. She
believed the state could tell districts that due to its
deficit it could not pay the 70 percent reimbursement in
the current year. She stated that municipalities understood
that there was a chance the state may not have the ability
to pay the 70 percent. She stressed the need to make
changes based on the state's budget outlook. She believed
the legislation's five-year moratorium offered a milder
option versus discontinuing the reimbursement indefinitely.
A roll call vote was taken on the motion.
IN FAVOR: Kawasaki, Gara, Guttenberg
OPPOSED: Munoz, Pruitt, Saddler, Wilson, Edgmon, Gattis,
Neuman, Thompson
The MOTION to adopt Amendment 2 FAILED (3/8).
Co-Chair Neuman MOVED to REPORT CSSB 64(EDC) out of
committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CSSB 64(EDC) was REPORTED out of committee with a "do pass"
recommendation and with one previously published
indeterminate fiscal note: FN1 (EED).
3:13:23 PM
AT EASE
3:17:58 PM
RECONVENED
HOUSE BILL NO. 86
"An Act relating to investment of the power cost
equalization endowment fund; and providing for an
effective date."
3:18:04 PM
PAM LEARY, DIRECTOR, TREASURY DIVISION, DEPARTMENT OF
REVENUE, provided a PowerPoint presentation titled "State
of Alaska Department of Revenue HB 86 PCE Endowment Fund
Investment" (copy on file). She relayed her intent to
discuss the fund history and the bill. She turned to slide
2 and communicated that the fund's purpose was to fund the
Power Cost Equalization and Rural Electric Capitalization
Fund, which helped to reduce the cost of energy in areas
with high electrical costs. The fund also covered the costs
associated with its management. She continued that 7
percent of the monthly average market value of the fund for
the previous three fiscal years may be appropriated. She
relayed that the fund had been created in 2000 with an
appropriation of $100 million from the Constitutional
Budget Reserve (CBR). In 2002 the Power Cost Equalization
Fund (PCE) received $89.6 million from proceeds of the sale
of the four dam pool hydroelectric project; it had received
two subsequent appropriations of $182.7 million in 2007 and
$400 million in 2012. The fund balance at the end of
February 2015 was $986 million.
Ms. Leary discussed the bill's purpose on slide 3. She
explained that the bill would remove the stated nominal
return target of at least 7 percent of the statute. The
bill would allow the commissioner of the Department of
Revenue (DOR) to invest the fund in a manner that would
meet the fund's objectives by providing flexibility as it
related to the rate and the risk associated with certain
types of investments. She explained that the bill was
important because it would enable the DOR commissioner to
invest in less risky investments, when appropriate, that
would continue to meet the financial needs of the program.
She relayed that the bill had a zero fiscal note.
3:20:56 PM
JERRY BURNETT, DEPUTY COMMISSIONER, TREASURY DIVISION,
DEPARTMENT OF REVENUE, highlighted that one of the
fundamentals of asset management was to seek the highest
rate of return with appropriate risk levels. He drew
attention to the 2015 capital market expectations for
return and risk from Callan Associates (slide 4). He noted
that Callan Associates was the financial advisor to the
Alaska Retirement Management Board and to the Alaska
Permanent Fund Corporation (APFC). He pointed to the
arithmetic and geometric return and standard deviation
(projected risk). He remarked that the geometric return was
less than the arithmetic return. He highlighted the 19
percent standard deviation for the broad domestic equity
category, meaning that two-thirds of the time returns were
expected to be within 19 percent of the 9.15 percent
arithmetic return (-10 to 29). He explained that the
arithmetic return over time was used to calculate the
geometric average (some years would be well below the
arithmetic average, while some years would be well above).
He noted that the [10-year] geometric return for broad
domestic equity was 7.6 percent. He remarked that 7.6
percent was one of the highest returns on the chart;
emerging market equities had a return of 7.9 percent, but
with a 28 percent standard deviation).
Mr. Burnett discussed that when constructing a portfolio to
achieve a 7 percent return (given the 2015 capital
markets), nearly 90 percent of assets should be equities.
He explained that based on a 19 percent standard deviation,
a -10 percent return would occur in one out of six years.
He discussed that equity markets had been positive for six
years in a row; therefore, it was fairly likely that
negative returns would occur sometime in the next several
years. He relayed that DOR did not feel comfortable
building or recommending a portfolio that was 90 percent
equities because it was currently beyond the risk
tolerance. He elaborated that in 2002 a portfolio achieving
an 8 or 9 percent return could have been constructed with
similar risk as at present. He noted that it varied from
year to year. He communicated that inserting 7 percent in
statute could create a situation where the department was
managing to a risk that was beyond what was reasonable for
the markets. He stated that APFC had an expected rate of
return of approximately 6.17 percent in the current year.
The department wanted to have the ability to manage
appropriate risk while achieving the highest rate of return
within the risk tolerance rather than to a fixed number. He
noted that the Treasury Division managed over 40 unique
asset allocations; the Power Cost Equalization Fund was the
only major fund that had a specific target return
identified in statute.
3:24:59 PM
Representative Edgmon asked why a lower number was not
identified. Mr. Burnett did not believe a lower number
should be identified. For example, if the target return was
5 percent, the asset allocation may be less risky than what
was responsible over time. He relayed that no number would
be durable; what may be good at present may be very bad at
another time. He noted that in 1982, money market rates had
been at 10 or 11 percent and mortgage bonds could be
purchased with 18 percent interest rates. He explained that
a portfolio constructed for that time may be very
different. He reiterated that it was not possible to set a
durable number that made sense in the long-term.
Representative Edgmon asked for verification that it would
be at the discretion of DOR and its fund managers to manage
the target year after year. He surmised that the target may
be 6 percent in some years and 5 percent in others. He
wondered why the department had not elected to pick a
target that was more commensurate with the state's other
long-term endowments such as the CBR.
Mr. Burnett answered that DOR would look at an asset
allocation that was durable and would set the expected rate
of return off of a reasonable risk asset allocation rather
than looking at setting an allocation to a specific target
number. Management factored in that the fund needed a
certain amount of income annually; there was a payout rule
that was 7 percent of the prior three years' monthly
rolling average balance. The fund was managed to meet its
intent, but the asset allocation was not set to a hard
number.
Representative Edgmon asked what assurance he would have as
a rural legislator that the fund was being managed for the
long-term. Mr. Burnett answered that the returns were
available for review. Additionally, the DOR commissioner
and staff were available to discuss the strategy and
returns. He noted that the legislature had annual hearings
on fund performance. He explained that other funds did not
have target returns identified in statute. He cited the
CBR, the Alaska Permanent Fund, and the Higher Education
Fund as examples. He explained that the flexibility
provided more assurance in an environment like the present
that the commissioner would not try to set to a 7 percent
level, which may result in lost money the following year.
3:28:45 PM
Representative Edgmon stated that the PCE endowment fund
was large enough that if managed in a conservative manner
it should be able to satisfy the annual outlay of PCE costs
(approximately $42 million to $45 million). He wondered
what return the fund would target. He noted that the fund
was close to $1 billion and small number of 4 or 5 percent
was needed. He surmised that management would want to stick
to a target rate over time. He wanted to ensure that money
managers would not have free reign to ride the market and
make more risky investments when they were not needed.
Mr. Burnett replied that each of the funds managed by DOR
had a purpose including expected payout, duration and
other. The department set new asset allocations annually on
July 1 based on capital market expectations; the allocation
did not necessarily change every year. Department staff
analyzed risk and program needs on a full-time basis. He
noted that under the legislation the commissioner would
manage the fund to meet the needs of the PCE program.
Representative Edgmon surmised that the probability was
that the department would be managing the fund for a rate
below 7 percent. Mr. Burnett replied that it was most
likely that the fund would be managed for a rate below 7
percent in 2015. He could not predict the target rate for
2016.
Representative Guttenberg asked how the objectives for the
PCE fund were defined. He wondered about the definition and
objective of the Rural Electric and Capitalization Fund. He
believed the objectives may be different or in conflict if
the 7 percent target was removed from statute. He was
concerned about what the state was "letting out of the
box."
Mr. Burnett responded that determining asset allocations
was based on the legal purpose of each of the funds. He
explained that the PCE fund's purpose was to equalize the
power cost per kilowatt hour, making grants and power cost
equalization available to eligible electric utilities. He
relayed that a payout rule of 7 percent of previous years
was currently in statute. He communicated that the PCE fund
had earned about 20 percent in 2014 and an average of 14
percent over the past five years; since inception it had
earned just over 6 percent. He explained that the
department would look at the fund's specific purpose just
like it did for each of the other funds it managed. He
added that there was nothing unique about the fund and its
purpose that created a different look. The department
considered the fund's legal requirements, its purpose, its
timeframe, and other.
3:33:59 PM
Ms. Leary added that 7 percent had been the target;
however, having the target identified in statute had
resulted in a return of -13.87 percent in 2009. The return
had been negative 4 years out of 15; it had also been as
high as 21.8 percent with the same target. She elaborated
that a target may come to fruition, but may not. She
clarified that capital market expectations were only
expectations based on known economic factors; there
generally tended to be a 10-year expectation.
Representative Guttenberg asked if the department's
responsibility would fit inside the successes of the
permanent fund. He wondered how the end result would differ
if the department had moved its management into the
permanent fund portfolio.
Mr. Burnett replied that the permanent fund had some unique
assets that the Treasury Division would not consider
holding due to their illiquidity. He explained that because
the PCE fund was non-dedicated it had to be available and
liquid at some level at all times. He stated that DOR would
not make the recommendation, but if the legislature chose
to change the purpose of the fund [the portfolio could
invest in illiquid assets]. He furthered that the permanent
fund was a constitutionally dedicated fund and held assets
that could not provide money for 5 to 10 years (e.g.
private equity or long-term real estate investments), which
would never be considered for a state-managed fund.
Additionally, the permanent fund may hold assets that
Treasury was not allowed to hold under Securities Exchange
Commission rules.
Co-Chair Thompson asked committee members to be cognizant
of the time and relayed that the bill would be heard again
at a later date.
Vice-Chair Saddler wondered if the bill had been prompted
by the desire to revert to more a prudent investment rule,
the declining revenue stream required by lower energy
prices, or by fear of the coming market correction. Mr.
Burnett answered that there had been no consideration of
the declining need for a revenue stream. The decision had
been based on a prudent investment rule and the
unwillingness to take on risks beyond what were prudent.
Vice-Chair Saddler stated that when the AKLNG gasline
project came to fruition 25 percent of its royalties would
be dedicated towards the energy needs of rural Alaskans off
the Railbelt. He asked if the bill would allow the PCE
endowment fund management to adjust to the reality of a new
funding source with the same purpose.
Mr. Burnett answered that if the money went into the fund
it would allow for changes. He elaborated that the purpose
of the fund, the realities of the marketplace, and the
fiscal realities of the state were all taken into
consideration by the department.
3:38:00 PM
Representative Edgmon clarified that it was 20 percent of
the royalty revenues [that would be dedicated to rural
Alaska energy needs when the AKLNG project came to
fruition].
Representative Munoz asked if the fund was managed in-house
or by outside managers. Mr. Burnett replied that the fixed
income component was managed internally; the rest was
managed by external managers.
Representative Munoz asked if the management fees were
typical. Mr. Burnett agreed. Representative Munoz asked
about 14 percent earnings from the previous year. Mr.
Burnett clarified that the earnings had been 20.7 percent
the previous year and averaged 14.5 percent over the past
five years. He added that the fund had grown quite rapidly
over the past several years.
Representative Munoz asked for the growth in dollars. Ms.
Leary replied that earnings had been $171 million in 2014.
Representative Munoz spoke to a payout of roughly $45
million to communities. She wondered if the balance of the
earnings was deposited directly into the fund or for other
purposes as well. Mr. Burnett answered that the earnings
that were not used for fund management or the PCE program
remained in the fund.
Representative Gattis asked why the PCE fund had not
originally been set up like the other state-managed funds.
Mr. Burnett answered that he did not recall the discussion
on the original language related to the fund's investment
purposes. He relayed that the fund had been implemented in
2002. He was not certain that any changes had been made to
the fund's investment since inception. He relayed that it
was not the first year DOR had requested the change; the
department had identified the issue as problematic in
previous administrations as well.
Representative Gattis asked if it was the first time a bill
had been presented. Mr. Burnett replied in the negative.
Representative Gattis surmised that a bill had failed in
the past and the department was giving it another attempt.
Mr. Burnett replied in the affirmative. He thanked the
committee for hearing the bill.
Ms. Leary informed the committee that DOR had a great
website that included significant information about the PCE
fund and other funds managed by the Treasury Division.
Additionally, the website included cash management and all
aspects of the division.
HB 86 was HEARD and HELD in committee for further
consideration.
Co-Chair Thompson discussed the agenda for the following
day.
Vice-Chair Saddler informed committee members that the
Department of Health and Social Services budget
subcommittee would hear a Medicaid 101 presentation the
following morning.
ADJOURNMENT
3:42:54 PM
The meeting was adjourned at 3:42 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 68 CS WorkDraft I version.pdf |
HFIN 3/30/2015 1:30:00 PM |
HB 68 |
| SB 64 Legal Opinion Retro Date.pdf |
HFIN 3/30/2015 1:30:00 PM |
SB 64 |
| SB 64 EDC- Sectional Analysis.pdf |
HFIN 3/30/2015 1:30:00 PM |
SB 64 |
| SB 64 - Sponsor Statement.pdf |
HFIN 3/30/2015 1:30:00 PM |
SB 64 |
| SB 64 - Explanation of Changes.pdf |
HFIN 3/30/2015 1:30:00 PM |
SB 64 |
| HB86 Sponsor Statement.pdf |
HFIN 3/30/2015 1:30:00 PM |
HB 86 |
| HB86 PCE presentation March 30 2015.pdf |
HFIN 3/30/2015 1:30:00 PM |
HB 86 |
| SB 64 Amendment 1 Gara.pdf |
HFIN 3/30/2015 1:30:00 PM |
SB 64 |
| SB 64 Amendment #2 Kawasaki.pdf |
HFIN 3/30/2015 1:30:00 PM |
SB 64 |
| SB 64 Support Material - MultiYearAllocationTotals.pdf |
HFIN 3/30/2015 1:30:00 PM |
SB 64 |
| SB 64 Support Material - State Debt Liability.pdf |
HFIN 3/30/2015 1:30:00 PM |
SB 64 |