Legislature(2001 - 2002)

03/15/2001 08:10 AM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 156-MUNICIPAL DEBT FOR DEVELOPMENT PROJECTS                                                                                
CO-CHAIR MEYER announced  that the first order  of business would                                                               
be HOUSE  BILL NO. 156,  "An Act  relating to municipal  debt for                                                               
development and redevelopment projects."                                                                                        
Number 0190                                                                                                                     
REPRESENTATIVE   LESIL   McGUIRE,   Alaska   State   Legislature,                                                               
testified as  the sponsor of HB  156.  She explained  that "Title                                                               
29  authorizes municipalities  to  create redevelopment  agencies                                                               
for  the purpose  of  developing and  redeveloping  land."   This                                                               
specific statute  encourages development and redevelopment.   She                                                               
related her understanding that this  statute has been dormant for                                                               
a number of years,  which is, in part, due to  the "cloud" in the                                                               
current  language.   The problematic  language is  the following:                                                               
"but  only if  additional security  in the  form of  a letter  of                                                               
credit or  equal security is also  pledged".  She noted  that Mr.                                                               
Klinkner, an attorney who specializes in bonds, is online.                                                                      
REPRESENTATIVE  McGUIRE  informed  the committee  that  the  bond                                                               
underwriters already  go through  a process that  determines what                                                               
security is required with respect to  the issuance of bonds.  The                                                               
[type of security  required] is largely determined  by the market                                                               
at  that time.    She pointed  out  that a  letter  would not  be                                                               
required  in every  case.   Therefore,  HB 156  would remove  the                                                               
"cloud"  from the  language and  place  the power  [in regard  to                                                               
security] in the hands of the  bond underwriters.  She noted that                                                               
the  concept of  tax increment  financing is  used in  many other                                                               
states.   She informed the  committee that her  sponsor statement                                                               
and letters of support are included in the packet.                                                                              
Number 0513                                                                                                                     
REPRESENTATIVE  KERTTULA  related  her  understanding  that  this                                                               
would only happen in certain areas.                                                                                             
REPRESENTATIVE McGUIRE  replied yes  and clarified  that it  is a                                                               
local control mechanism.                                                                                                        
REPRESENTATIVE KERTTULA also related  her understanding that this                                                               
has  always  been  allowed,   although  additional  security  was                                                               
REPRESENTATIVE McGUIRE replied yes.                                                                                             
REPRESENTATIVE  KERTTULA asked  if  there is  any  danger in  not                                                               
requiring the additional security.                                                                                              
REPRESENTATIVE McGUIRE  noted that  she had asked  that question.                                                               
She  related   her  understanding   that  the  process   of  bond                                                               
underwriting  must  occur  before   the  issuance  of  any  bond.                                                               
Therefore,  the  bond  underwriters  will review  the  method  of                                                               
security that is  in place.  She said that  requiring 100 percent                                                               
"securitization" is  not reasonable and  is not required  or done                                                               
in  most cases.    She  pointed out,  "The  sideboards are  there                                                               
through the process and through the market."                                                                                    
Number 0653                                                                                                                     
REPRESENTATIVE   HALCRO  mentioned   that  two   years  ago   the                                                               
legislature  passed  investment  tax credits  for  municipalities                                                               
that redevelop dilapidated properties.   He inquired as to how HB
156 would  work with that investment  tax credit.  He  also asked                                                               
if  there  was any  possibility  that  the  two would  come  into                                                               
REPRESENTATIVE McGUIRE  said that she  was not familiar  with the                                                               
specifics of that bill and statute.   She related her belief that                                                               
the  concepts  are  separate;  however,   she  could  envision  a                                                               
situation that  would result in overlap.   Representative McGuire                                                               
indicated that  one [tax  increment] deals  with the  initial tax                                                               
implications   while  the   other  deals   with  the   later  tax                                                               
REPRESENTATIVE  SCALZI  read  the   language  from  Section  1(b)                                                               
regarding  the  definition  of  "tax  increment."    He  posed  a                                                               
situation  in   which  the  property  value   decreased  and  the                                                               
increment would go  down.  He was unsure how  a negative [amount]                                                               
could be attributed to a payment.                                                                                               
REPRESENTATIVE McGUIRE  deferred to  Mr. Klinkner.   However, she                                                               
pointed out  that typically this  would refer to  development and                                                               
redevelopment, which increases the value of the property.                                                                       
Number 0891                                                                                                                     
REPRESENTATIVE  MURKOWSKI  referred  to  the  sponsor  statement,                                                               
which  says,  "Removing  the  existing  language  will  remove  a                                                               
potential  cloud on  the  tax increment  bond  issue."   However,                                                               
Representative  Murkowski  said  she believes  that  keeping  the                                                               
language  in  doesn't  cloud  the   issue  but  rather  adds  an,                                                               
essentially, unnecessary requirement  because an appropriate form                                                               
of security already has to be established.                                                                                      
REPRESENTATIVE  McGUIRE said  that  she had  a conversation  with                                                               
Mike  Scott,  General  Manager,  Municipal  Light  &  Power,  who                                                               
remarked  that this  language has  placed a  cloud on  financing.                                                               
This  language  is unclear  to  bond  underwriters and  seems  to                                                               
require   100  percent   "securitization."     She  agreed   that                                                               
Representative Murkowski is  correct in that [HB  156] removes an                                                               
unnecessary and  somewhat arbitrary requirement.   Representative                                                               
McGuire informed the  committee that there have  been attempts to                                                               
use  this language  for  its intended  purpose,  but the  current                                                               
language is  problematic.   Furthermore, Mr.  Scott has  told her                                                               
that  the language  is  clear and  thus  [the bond  underwriters]                                                               
can't just make the decision.                                                                                                   
REPRESENTATIVE  MURKOWSKI reiterated  that the  current statutory                                                               
language is very clear.                                                                                                         
REPRESENTATIVE  McGUIRE mentioned  that she  believes there  have                                                               
been  attempts  to  interpret  the   language  otherwise.    This                                                               
legislation attempts to  broaden this and place the  power in the                                                               
hands [of the bond underwriters].                                                                                               
Number 1160                                                                                                                     
TOM  KLINKNER,  Attorney,  Birch, Horton,  Bittner,  and  Cherot,                                                               
testified via teleconference.  He  informed the committee that he                                                               
has been working with the  Anchorage Downtown Partnership and the                                                               
Municipality of Anchorage on various  means of financing downtown                                                               
development projects.   During that process this  statute came to                                                               
his  attention.   He  also  informed the  committee  that he  was                                                               
involved in  the drafting  of [AS  29] some 10  or 15  years ago.                                                               
Originally, the  statute was  designed to  provide a  state block                                                               
that would  mesh with  a federal tax  code provision  that allows                                                               
the  issuance of  tax exempt  bonds  for redevelopment  projects.                                                               
These  projects  are  mainly  projects  that  are  governmentally                                                               
MR.  KLINKNER  turned  to the  earlier  question  regarding  this                                                               
legislation's    relationship   with    the   tax    relief   for                                                               
rehabilitating properties.   Mr. Klinkner said  that although the                                                               
two are separate, they are  complimentary.  He explained that the                                                               
tax  credit/relief is  aimed  at  privately-owned property  while                                                               
this statute is aimed  at financing governmentally-owned property                                                               
that would support private development.                                                                                         
MR.  KLINKNER agreed  with Representative  McGuire's explanation.                                                               
He said:                                                                                                                        
     The amendment  proposed here is  to delete  language in                                                                    
     the statute  that adds a  requirement above  and beyond                                                                    
     what is required, simply for  the issuance of the bonds                                                                    
     or to meet the federal  tax exemption criteria.  It has                                                                    
     two  ...  adverse  effects.    One  is:    it  imposes,                                                                    
     arbitrarily,  and  in  each case  the  requirement  for                                                                    
     additional security, which may  not be necessary in the                                                                    
     judgment of the market in  a particular financing.  And                                                                    
     second,  because   of  the   reference  to   "or  equal                                                                    
     security" in the statute it  imposes an ambiguity as to                                                                    
     what constitutes  equal security  and if the  letter of                                                                    
     credit  isn't  desirable  what  alternatives  would  be                                                                    
     permitted to meet the statutory requirements.                                                                              
MR.  KLINKNER  related  his  belief that  the  deletion  of  this                                                               
language  would  leave the  decisions  to  the bond  marketplace,                                                               
which is the appropriate place for these decisions to be made.                                                                  
Number 1375                                                                                                                     
REPRESENTATIVE  MURKOWSKI  asked  if Mr.  Klinkner  believes  the                                                               
current  language   has  prevented  the  use   of  tax  increment                                                               
MR.  KLINKNER replied,  "I believe  it has."   However,  he noted                                                               
that  it  isn't  the  only factor  determining  whether  the  tax                                                               
increment financing will  work in a specific case.   The language                                                               
is an  additional hurtle, which  he believes has  discouraged use                                                               
of the statute.                                                                                                                 
Number 1438                                                                                                                     
MR.  KLINKNER, in  response to  Representative Halcro,  said that                                                               
this  [tax   increment]  would  not   be  available   to  private                                                               
investors.    The  way  that  the remainder  of  the  statute  is                                                               
structured  as  well  as  the   way  the  federal  tax  exemption                                                               
provision is structured limits the  use [of the tax increment] to                                                               
publicly-owned property or projects.                                                                                            
REPRESENTATIVE  HALCRO said,  "I'm not  quite sure  how this  ...                                                               
process is  going to play  out if it is  a publicly funded  or if                                                               
it's  a  public  undertaking, a  government  undertaking,  that's                                                               
going to support  private development."  He  requested an example                                                               
of a project for which this would apply.                                                                                        
MR. KLINKNER specified  that this would apply to  new or improved                                                               
infrastructure  that  would  make  an area  more  attractive  for                                                               
private development.  He identified  the construction of a public                                                               
building or  facility, such  as a  convention center,  that would                                                               
encourage private development.   He explained that  the area that                                                               
would  potentially   be  subject   to  the  increment   would  be                                                               
determined  by the  local governing  body when  the financing  is                                                               
approved.   Therefore,  a line  would  be drawn  around an  area,                                                               
including the  publicly-owned property that may  be financed with                                                               
the  bonds as  well as  the surrounding  privately-owned property                                                               
that  would  increase  in  value   as  a  result  of  the  public                                                               
investment.   He  said, "That's  where the  increment would  come                                                               
REPRESENTATIVE McGUIRE thanked Mr. Klinkner for his time.                                                                       
Number 1620                                                                                                                     
ANNA  FAIRCLOUGH,   Member,  Anchorage  Assembly,   informed  the                                                               
committee that  she is a  representative of the  Legislative Body                                                               
of the Anchorage Assembly.  As  an assembly member, she noted her                                                               
[constituent's] support of HB 156.   The assembly has not taken a                                                               
specific position on HB 156,  although she was confident that the                                                               
assembly could pass  a specific bill of support.   Ms. Fairclough                                                               
related her appreciation of having  the opportunity to have local                                                               
control and  creative financing.   This  [legislation] is  a tool                                                               
that will  allow the Municipality  of Anchorage to work  well for                                                               
redevelopment of  particular areas in  the city.  She  noted that                                                               
she  does  serve  on  the  Convention  Center  Task  Force.    In                                                               
conclusion,  Ms.   Fairclough  said  she  would   appreciate  the                                                               
committee's support of HB 156.                                                                                                  
REPRESENTATIVE  HALCRO recalled  that  after the  passage of  the                                                               
investment tax  credit there  was debate  regarding how  to apply                                                               
some  of  these tax  credits.    He  mentioned the  Mark  Marlowe                                                               
project.  He  recalled there being a question as  to whether [the                                                               
Mark Marlowe project]  was a good use of tax  dollars and whether                                                               
this   would   shift  the   tax   burden   to  other   taxpayers.                                                               
Representative Halcro  asked if  a similar argument  could happen                                                               
with the use of this [tax increment] program.                                                                                   
MS.  FAIRCLOUGH  related  her   understanding  of  the  Anchorage                                                               
Convention Center and those involved.   She said "they" would use                                                               
the hotel  tax to  provide the payment  dollars to  subsidize the                                                               
project.  Ms. Fairclough emphasized,  "We are trying in every way                                                               
possible, with  all tools  possible, to have  it a  zero personal                                                               
property tax effect  in the City of Anchorage."   For the record,                                                               
Ms. Fairclough  noted that she  was in opposition to  the Marlowe                                                               
project going  forward because  she wanted  to [ensure]  that the                                                               
assembly  establish how  it  would [specify]  and  apply the  law                                                               
fairly to everyone.                                                                                                             
REPRESENTATIVE MURKOWSKI  reiterated her understanding  that this                                                               
is  not a  new tool,  but  rather [the  bill] is  making it  more                                                               
workable for the municipality.                                                                                                  
MS. FAIRCLOUGH  answered in the  affirmative.  With  this [bill],                                                               
the convention center will not have to address a larger hurtle.                                                                 
Number 1901                                                                                                                     
ALAN   TESCHE,   Member,   Anchorage  Assembly,   testified   via                                                               
teleconference.    Mr.  Tesche,  from   the  perspective  of  the                                                               
district   he  represents,   concurred   with  Ms.   Fairclough's                                                               
[remarks].  He noted his agreement  with Mr. Klinkner that HB 156                                                               
would remove a  potential obstacle to the use  of this financing.                                                               
He said  he believes that the  passage of HB 156  will allow this                                                               
type  of  financing   to  be  more  attractive   in  the  private                                                               
marketplace.  Mr.  Tesche pointed out that even  with the passage                                                               
of HB  156, the private  bond market will determine  the specific                                                               
terms and  conditions regarding how  particular projects  will be                                                               
financed through  the issuance of  these bonds.   Therefore, this                                                               
is in the interest of the public.                                                                                               
MR.  TESCHE addressed  how  [HB  156] would  work.   In  downtown                                                               
Anchorage there  are, in  his view, a  number of  properties that                                                               
are  underdeveloped.    For  example,   there  are  a  number  of                                                               
properties around the McKay Building  that could be used for much                                                               
more  intensive commercial  and residential  use.   Although such                                                               
projects  require intensive  private capital,  they also  require                                                               
additional   public  improvements   such   as  parking   garages.                                                               
Therefore, enactment  of HB 156,  which would make  tax increment                                                               
financing  easier for  public projects,  would ease  the way  for                                                               
public/private partnerships.   Mr.  Tesche remarked that  this is                                                               
exciting  for him  in that  [HB 156]  provides a  more attractive                                                               
financing  tool that  would  benefit  communities throughout  the                                                               
state.  He  informed the committee that the use  of tax increment                                                               
financing  is supported  by the  Anchorage Downtown  Partnership,                                                               
the Legislative  Program of  the [Anchorage]  Municipal Assembly,                                                               
the Alaska  Municipal League, the Anchorage  Economic Development                                                               
Corporation, and  Municipal Light  & Power.   In  conclusion, Mr.                                                               
Teshce urged the committee to support HB 156.                                                                                   
Number 2159                                                                                                                     
REPRESENTATIVE MURKOWSKI remarked that  the legislature should do                                                               
all   possible   to    encourage   good   financing   mechanisms.                                                               
Furthermore,  when  obstacles  are  discovered,  the  legislature                                                               
should  fix the  problem so  that it  can be  used as  originally                                                               
intended.  She commented that HB  156 seems to facilitate the use                                                               
of a  good tool and  thus she supported  Representative McGuire's                                                               
REPRESENTATIVE  HALCRO  associated  his comments  with  those  of                                                               
Representative  Murkowski.     Representative  Halcro  noted  his                                                               
support of [HB 156].                                                                                                            
REPRESENTATIVE McGUIRE  commented that this  [legislation allows]                                                               
local  communities   and  state  government  to   work  together.                                                               
Representative McGuire thanked those involved in this matter.                                                                   
CO-CHAIR MEYER  said that  in his  experience with  the assembly,                                                               
this  [bill]  will help  with  the  convention center  and  other                                                               
public projects.                                                                                                                
Number 2315                                                                                                                     
REPRESENTATIVE MURKOWSKI moved to report  HB 156 out of committee                                                               
with individual recommendations and  the accompanying zero fiscal                                                               
note.   There being no  objection, HB  156 was reported  from the                                                               
House Community and Regional Affairs Standing Committee.                                                                        
The committee took a brief at-ease from 9:48 a.m. to 9:50 a.m.                                                                  

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