Legislature(1995 - 1996)
03/27/1996 09:15 AM Senate FIN
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* first hearing in first committee of referral
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CS FOR SENATE BILL NO. 163(FIN)
"An Act approving the University of Alaska's plans to
enter into long-term obligations with the Alaska Housing
Finance Corporation to borrow money from the corporation
for the construction of new student housing facilities,
and authorizing the Alaska Housing Finance Corporation to
issue its debt obligations and to make loans to the
University of Alaska to finance construction of those
student housing facilities; and providing for an
effective date."
Senator Rieger introduced SB 163. Senator Donley moved CSSB
163() work draft for discussion purposes and without
objection it was adopted.
Wendy Redmond said that the bill was changed at AHFC
suggestion to give them some flexibility to issue bonds.
The current language in the CS would not disallow them from
looking at other options if they felt that was in the
corporation's best interest.
John Bitney, AHFC testified before the committee. He said
the way the debt schedule as set up was to look at how much
was annually required to pay off the bonds or raise the
funds to construct the facility. The university's portion
is predicated on what they expect to generate from the
student fees there. AHFC would provide the subsidy on the
remaining cost of those funds on an annual basis. This was
more the criteria looked at than any type of interest rate.
The way this is arranged presently no arbitrage funds would
be used based upon the advice received from counsel.
Senator Rieger asked if when bonds were issued the interest
rate would be higher than 3%. Would the arbitrage
provisions allow the 3% to be a blended return coming back
to AHFC on this project with other higher yielding returns
on the proceeds of a bond issue for another investment and
if the overall aggregate came out within bounds would you be
fine? Mr. Bitney said this was not correct. He noted a
memorandum from legal counsel, Ken Vassar to Dan Fauske,
dated 22 March 1996. The way it is arranged now is that the
IRS code does not look at a loan or grant of arbitrage funds
to the university as an obligation. Therefore the funds
cannot be counted in terms of what is being blended to try
and stay within the 1-1/2% target number that is being
blended down to maintain the tax exempt status. Since the
loan or arbitrage funds are being given to another entity
within the State it does not incur that obligation. The
subsidy from those funds annually used would be applied to
our net profits on an annual basis that otherwise are used
to pay for capital projects in the state transfer plan.
Senator Sharp referred to page 2, line 2 annual debt
service. Without knowing what the actual debt service is
going to be how can exact figures be loaded into the bill?
Does this annual debt service include interest? Wendy
Redmond said that the university is required by statute to
provide to the legislature on revenue bonded facilities the
full cost of the facility including the debt service in a
piece of legislation that must be passed separately. This
meets our statutory requirement. It is exactly known what
the amount will be that is being bonded for with AHFC. The
rate is fixed through a 25-year period based on what the
rental revenues are expected to be with annual increases
that will be assessed for the fees. AHFC will subsidize the
balance of that based on however the rates go up.
Senator Sharp referred to lines 6 and 7 $30,000,000 will be
financed throughout AHFC under a subsidized bond
authorization and combined with lines 2 and 3 what interest
rate was used to arrive at these figures of $2,767,000. Mr.
Bitney advised it was 6%. The estimated annual subsidy
would be $1 million and that is based on the difference
between what is generated by the University from the
facility. Senator Sharp asked if line 3 established the
exact amount the university would pay for debt service at
$1,751,515 no matter what the bond interest rate is? Is
that a guaranteed amount to the university? Mr. Bitney
concurred. Senator Rieger referred to line 3, page 2 and
said the phrase should read including "...an amount not to
exceed..." and that way the issue could be explored further
for flexibility and not prevent the bill from moving
forward. He moved this amendment and Wendy Redmond
concurred. She stated that in addition to the $30 million
that is being assigned specifically to the dormitory an
additional $3 million was being collected from a community
group doing private fund-raising for the dorm. If that
money is collected ahead of time it will reduce the
$1,751,515 each year. The basic dorm rental portion of this
is $1.5 which is fixed in for 25 years. Senator Sharp has
no objection to the amendment of Senator Rieger but is
concerned the amount could go to zero and that would leave
much room for negotiation. Ms. Redmond said she never
considered that an option. Mr. Bitney said he assumed
whatever loan agreement would be negotiated with the
university would basically follow the structure of the
subsidized loan as it is laid out here. Senator Sharp feels
the exact amount should be written in. Wendy Redmond said
the amount was in the loan documents themselves.
Senator Rieger said they should find a better way to make
use of arbitrage and give a break to the students for the
rates at the dorm. This is leaving the door open for
possible creative finance it if turns out there is any way
it could be done. Co-chairman Halford concurred.
Co-chairman Halford re-iterated Senator Rieger's amendment
and with objections being duly noted it was adopted by a
vote of 4 - 3.
Senator Zharoff commented on the debt service. Mr. Bitney
explained the AHFC subsidy. Wendy Redmond said it was not
being done with any other projects around the state at this
time.
Senator Rieger moved CSSB 163 (FIN) and without objection
the bill was reported out with individual recommendations
and accompanying fiscal notes zero (previous) DOR(AHFC); and
University at Anchorage zero.
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