Legislature(2001 - 2002)
03/26/2002 08:05 AM House CRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 471-AIDEA PROGRAMS CO-CHAIR MORGAN announced that the next order of business would be HOUSE BILL NO. 471, "An Act relating to the definitions of 'net income' and 'unrestricted net income' for purposes of determining the amount of the Alaska Industrial Development and Export Authority's dividend to the state; relating to communities within which rural development loans may be made by the authority; and providing for an effective date." Number 1516 REPRESENTATIVE CO-CHAIR MEYER moved to adopt Version 22- LS1560\C, Cook, 3/20/02, as the working document. There being no objection, Version C was before the committee. REPRESENTATIVE JOE GREEN, Alaska State Legislature, Sponsor of HB 471, deferred to his staff. LAURA ACHEE, Staff to Representative Green, Alaska State Legislature, testified on behalf of the sponsor. She explained that by statute the Alaska Industrial Development and Export Authority (AIDEA) pays yearly dividends into the general fund (GF) of the state. The Governmental Accounting Standards Board (GASB), which establishes the standards for the auditing procedures and financial statements that AIDEA puts out, has made recent changes. The statute that determines the dividend refers to net income and unrestricted net income as the amounts which are used to calculate the dividend. The [net income and unrestricted net income] are obtained from the annual audited financial statement from AIDEA. However, under the new GASB standards those figures can't be used on the annual audited statement. Therefore, the statute points to numbers that no longer exist. In Ms. Achee's opinion, the most important accomplishment of HB 471 is that it places definitions for net income and unrestricted net income in statute, which provides values that will correspond with the GASB standards. MS. ACHEE informed the committee that GASB also said that any payouts would have to be charged to AIDEA as an expense, including the dividend that is paid to the GF each year. Therefore, when AIDEA does its accounting for next year, AIDEA would have to count the dividend that it paid out in the prior year as an expense, which would lower the base numbers in the calculations for next year's dividend payout. Over time, dividends would decrease. Therefore, Sections 2 and 3 specify that [net income and unrestricted net income] exclude the amounts attributable to intergovernmental transfers, capital contributions, or grants. MS. ACHEE pointed out that Section 4 makes changes to the Rural Development Initiative Fund (RDIF) run by AIDEA. This fund provides commercial loans to rural businesses that wouldn't necessarily qualify for a commercial loan under guidelines established in the Lower 48. There were some gray areas; that is, there were some areas that qualified as rural, but were located very near an urban center. Therefore, [Section 4] tightens the restrictions on the program in order to ensure that [the loans] go to those businesses that truly qualify. Number 1774 CO-CHAIR MORGAN announced that he had discussed an amendment with the sponsor of HB 471, which is incorporated in Version C. The amendment incorporated in Version C changes the rural bulk fuel revolving loan fund from "$100,000" to "$200,000". He explained that many communities in Bush Alaska purchase fuel in bulk and the more fuel that is purchased the better the rate, and therefore there is the need to increase the fund to [$200,000]. REPRESENTATIVE HALCRO returned to the issue of the changes of GASB. He related his understanding that because of the changes associated with Section 2, the dividend taken this year would have to be taken as an expense next year and thus lower the dividend. He asked if the accounting standards specify how that should be handled. MS. ACHEE deferred to expert witnesses. REPRESENTATIVE GREEN said that [the federal government] doesn't address that and thus there is the need to define net profits. He explained that if one makes $100 and has costs of $90, under the current system there would be $10 net profit and if $5 was placed in the GF that was fine. However, now that $5 is viewed as an intergovernmental transfer and thus has to be shown as an expense, and therefore the net profit is really only $5. The problem is that AIDEA can't actually provide up to half of its net profits to the GF. Therefore, [HB 471] specifies that net profits means that difference between income and expense as it does in any other accounting. REPRESENTATIVE HALCRO related his understanding that these changes are being made because of [GASB] changes. Therefore, [HB 471] adopts the changes with an exception to those changes in Section 3. REPRESENTATIVE GREEN replied yes. He clarified, "Not in true accounting words, but we're adding a definition that is not included in the new general accounting." Number 2004 BOB POE, Executive Director, Alaska Industrial Development and Export Authority (AIDEA) and Alaska Energy Authority (AEA), Department of Community & Economic Development, testified via teleconference. Mr. Poe commented that the dividend program with AIDEA has been working well for AIDEA as well as the state. Since 1996 AIDEA has paid in or committed to pay in over $128 million in dividends. The problem is that GASB 33 and 34 impacted how AIDEA's dividend program works. The desire is to keep the dividend working as it has. Therefore, Representative Halcro's statements were fairly accurate in that this is an attempt to state in law how the AIDEA dividend will be calculated regardless of what GASB 33 and 34 require in AIDEA's audited financial report, which will comply with GASB 33 and 34. Mr. Poe turned to the RDIF program and explained that the language in [HB 471] is an attempt to [direct] the loan program to those businesses that it was intended to serve. MR. POE noted that he hasn't seen the CS, but he understood that Version C increases the amount of funds that can be loaned under the rural bulk fuel revolving loan fund from $100,000 to $200,000. The [department] supports that provision. Mr. Poe mentioned that AIDEA has been informed by the USDA that AIDEA has been awarded a $5 million contribution to the bulk fuel revolving loan fund, which has a significant impact in the amount of the revolving fund. He agreed with Co-Chair Morgan that the capacity for bulk fuel storage in rural Alaska has increased significantly. Additionally, quantity discounts do prevail even in rural Alaska. Mr. Poe explained that this program works well because it allows communities to buy their fuel in advance and the money is collected and the loan is paid back as the fuel is sold to residents. He pointed out that it would be difficult for urban Alaskans to pay for all their fuel consumption for the next seven or eight months in October. However, that is what rural communities do on a regular basis. Therefore, raising the amount to $200,000 is a positive step. Number 2259 REPRESENTATIVE HALCRO returned to Sections 2 and 3. He expressed the need to be sure that this exception to general accounting standards isn't going to come back to haunt the state. He inquired as to how Sections 2 and 3 will apply to the AIDEA dividend in practical terms. MR. POE explained that the changes will allow AIDEA to continue to pay the dividend as it has since 1996. The AIDEA board has to find that the dividend is Okay to pay, which requires review of the following issues: the future cash demands of AIDEA, the financial wherewithal, and the bond covenants. All of those must be found to be satisfactory before AIDEA can state a dividend. MR. POE continued by explaining that currently AIDEA's income statement takes the net income from which it is allowed to make a dividend from 25-50 percent of the earnings in that year. That dividend would represent two years out. The board determines what percentage the dividend can be. That dividend was 47 percent this year, which is fairly typical. Therefore, [Sections 2 and 3] intend to address an unintended consequence of GASB 34. Number 2457 JIM McMILLAN, Deputy Director - Credit, Alaska Industrial Development & Export Authority (AIDEA) and Alaska Energy Authority (AEA), Department of Community & Economic Development, testified via teleconference in regard to RDIF. He explained that RDIF began in 1992 in order to provide commercial financing for those businesses located in areas where there is no access to conventional financing. The enabling legislation of 1992 included a definition of community, which is used in qualifying borrowers. In 1999 DCED was reorganized and RDIF was transferred to AIDEA. However, the definition of community wasn't included in the legislation. Therefore, this amendment [HB 471] reinserts the definition of community and attempts to further clarify an eligible community under RDIF. REPRESENTATIVE GREEN returned to the bulk fuel storage issue. He recalled that recently there was a severe winter in which some villages had to import additional fuel. Therefore, those villages didn't receive the volume discount nor the summer discount. Therefore, [Version C] could help bypass such catastrophe. Number 2603 BRIAN BJORKQUIST, Assistant Attorney General, Governmental Affairs Section, Civil Division(Anchorage), Department of Law, testifying via teleconference noted that he primarily works with AIDEA and AEA. Mr. Bjorkquist turned to the bulk fuel loan program amendment that is incorporated in Version C, and remarked that its insertion raises the single subject rule. Mr. Bjorkquist related his understanding that Legislative [Legal and Research Services] has reviewed this question and determined that public corporation is the single subject. Therefore, the amendment seems to be defensible from a legal standpoint. Mr. Bjorkquist acknowledged that both AIDEA and AEA support the amendment incorporated in Version C. REPRESENTATIVE SCALZI inquired as to the history of the single subject rule. Number 2740 MR. BJORKQUIST explained that the [Alaska] Constitution provides that any bill must be limited to a single subject. However, the courts have interpreted that section very broadly. The single subject can be anything in a broad topic as long as there is only one subject. Mr. Bjorkquist noted that there are exceptions to the single subject rule such as appropriations legislation or restating of legislation; both of those aren't applicable here. REPRESENTATIVE SCALZI remarked that he didn't realize the increase to $200,000 would create such debate. CO-CHAIR MORGAN, upon there being no one else to testify, announced that public testimony was closed. Number 2868 REPRESENTATIVE MURKOWSKI moved to report CSHB 471, Version 22- LS1560\C, Cook, 3/20/02, out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, CSHB 471(CRA) was reported from the House Community and Regional Affairs Standing Committee.
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