Legislature(2001 - 2002)

05/07/2002 08:10 AM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SB 181- SMALL COMMUNITY/TEACHER HOUSING LOANS                                                                                 
CO-CHAIR MORGAN announced  that the next order  of business would                                                               
be CS  FOR SENATE BILL NO.  181(FIN) am, "An Act  relating to and                                                               
increasing the  interest rate  on that  portion of  a loan  for a                                                               
single-family  house   or  owner-occupied  duplex   that  exceeds                                                               
$200,000  where the  loan is  for a  house or  duplex in  a small                                                               
community  with  a  population  of  6,500 or  less  that  is  not                                                               
connected by  road or rail to  Anchorage or Fairbanks, or  with a                                                               
population of 1,600 or less that  is connected by road or rail to                                                               
Anchorage  or  Fairbanks  for purposes  of  the  small  community                                                               
housing  program  of  the  Alaska  Housing  Finance  Corporation;                                                               
relating to loans for teacher housing  in which each unit that is                                                               
not  vacant  is  occupied  by  at least  one  individual  who  is                                                               
employed  as a  certificated teacher  in a  public elementary  or                                                               
secondary school in a small  community with a population of 6,500                                                               
or less  that is not  connected by road  or rail to  Anchorage or                                                               
Fairbanks,  or  with  a  population  of 1,600  or  less  that  is                                                               
connected  by  road  or  rail  to  Anchorage  or  Fairbanks,  and                                                               
increasing  the interest  rate  on the  loans  if this  occupancy                                                               
requirement is not complied with;  and providing for an effective                                                               
Number 2286                                                                                                                     
PHILIP  CUTLER,  Staff to  Senator  Dave  Donley, Senate  Finance                                                               
Committee, Alaska  State Legislature, testified on  behalf of the                                                               
sponsor  of   SB  181,  the   Senate  Finance  Committee.     The                                                               
legislation  was  introduced  due  to a  legislative  audit  that                                                               
concluded  the  [housing  assistance loan  fund  (HALF)]  program                                                               
wasn't necessary  because other commercial loan  programs provide                                                               
the necessary  financing for rural  resident housing.   This year                                                               
the bill  has been through  at least  15 versions.   He explained                                                               
that one program  provides a 1 percent reduction  in the interest                                                               
rates  for  those in  small  communities,  and there  wasn't  any                                                               
income  restriction.   Therefore, the  state, through  the Alaska                                                               
Housing Finance Corporation (AHFC),  was subsidizing the interest                                                               
for a couple of $400,000 loans.   This subsidization amounts to a                                                               
$100,000 to AHFC  and the state's profit statements.   There were                                                               
also about  a dozen loans that  were over $300,000.   Many people                                                               
questioned  why the  state would  be subsidizing  loans for  that                                                               
amount of money.                                                                                                                
MR. CUTLER informed the committee  that the bill includes Senator                                                               
Hoffman's request  to subsidize  loans for housing  for teachers.                                                               
This is an incentive to draw  teachers to the Bush where they are                                                               
direly  needed.   The  bill does  not  allow [subsidization]  for                                                               
multi-family housing  or non  owner-occupied housing,  except for                                                               
teachers.   Mr. Cutler  related Senator  Donley's and  the Senate                                                               
Finance  Committee's   belief  that   it  isn't   appropriate  to                                                               
subsidize an investment.  Therefore, someone constructing multi-                                                                
family  units should  be able  to pay  the market  rates for  the                                                               
mortgage.  Also,  the maximum amount of the loan  was adjusted to                                                               
a  $200,000 maximum  on  the  Senate floor.    According to  real                                                               
estate [professionals]  in the  legislature, a  family qualifying                                                               
for  a $200,000  loan  would  have a  monthly  income of  $5,000-                                                               
$6,000.   Therefore, it was  felt that those earning  that amount                                                               
didn't need to be subsidized by the state.                                                                                      
Number 2519                                                                                                                     
REPRESENTATIVE  MURKOWSKI  noted  that   she  liked  the  teacher                                                               
provision.   She posed a  situation in which a  certified teacher                                                               
who  is  teaching receives  the  loan  but takes  retirement  the                                                               
following year.   She inquired as  to how such a  situation would                                                               
MR. CUTLER  explained that as  the bill is currently  written the                                                               
loan would be available to the  homeowner as a teacher as well as                                                               
to  the  community/investor  to  build  a home  so  long  as  the                                                               
resident  is  a certified  teacher.    If  the resident  isn't  a                                                               
certified teacher, the loan rate reverts  to the market rate.  In                                                               
further response  to Representative Murkowski, he  confirmed that                                                               
the [loan rate] would be  retroactive.  Mr. Cutler clarified that                                                               
for a 15  year loan, the teacher  would have to be  a teacher for                                                               
the life of the loan.                                                                                                           
REPRESENTATIVE  MURKOWSKI surmised  then that  for a  teacher who                                                               
receives  one of  these loans  and decides  to retire  before the                                                               
loan is paid off, the entire amount would have to be paid back.                                                                 
MR. CUTLER replied yes, under the current bill.                                                                                 
Number 2633                                                                                                                     
CO-CHAIR MORGAN  informed the committee  that he has  a committee                                                               
substitute (CS) that addresses that.                                                                                            
REPRESENTATIVE MURKOWSKI  turned to  the anticipated  shortage of                                                               
administrators.  She, after hearing  from the sponsors, that high                                                               
school principals would be covered under this bill.                                                                             
MR. CUTLER, in response to  Representative Scalzi, explained that                                                               
the subsidy is 1 percent of the market rate.                                                                                    
REPRESENTATIVE  SCALZI  commented  that this  seems  inconsistent                                                               
with the Senate's  view with SB 4, which excludes  one borough in                                                               
that SB 181 doesn't exclude small villages.                                                                                     
MR. CUTLER pointed out that  there had been some high-value loans                                                               
to  persons making  over $100,000  a year.   It  is difficult  to                                                               
justify  subsidizing loans  to people  making the  aforementioned                                                               
income, especially  when some  of the  loans were  for investment                                                               
property.  He  clarified that now the loan  program is restricted                                                               
to residents, save  multi-family homes for teachers.   In further                                                               
response to Representative Scalzi,  Mr. Cutler confirmed that the                                                               
current  statute applies  to single-family  dwellings as  well as                                                               
investment properties.                                                                                                          
Number 2772                                                                                                                     
REPRESENTATIVE GUESS commented  that one can purchase  a house as                                                               
a first time homebuyer and  although the homebuyer's income could                                                               
change, the homebuyer  would still [benefit] from  the first time                                                               
homebuyer.  Representative Guess related  her desire to see other                                                               
professionals  in the  school system  included  as are  certified                                                               
teachers.     She   noted  the   difficulties  recruiting   other                                                               
professionals in  the school system  such as  speech pathologists                                                               
and counselors.                                                                                                                 
MR.  CUTLER  specified that  that  portion  of  the bill  was  an                                                               
amendment submitted by Senator Hoffman.                                                                                         
REPRESENTATIVE  HALCRO pointed  out  that  the sponsor  statement                                                               
says that  74 percent of the  loans made during this  period were                                                               
to borrowers where home construction  costs were less than in the                                                               
Anchorage  area.    He  inquired   as  to  the  location  of  the                                                               
MR. CUTLER  answered that these  [borrowers] were  throughout the                                                               
Interior.  He said that the  basic difference is the value of the                                                               
land.  Sometimes  the low cost of the land  more than offsets the                                                               
increased  cost of  bringing in  the materials  and building  the                                                               
REPRESENTATIVE  HALCRO  asked,  "Is this  just  Senate  Finance's                                                               
feeling that these people in rural Alaska are building homes?"                                                                  
MR.  CUTLER recalled  that  it's part  of  the legislative  audit                                                               
report.    In  further  response to  Representative  Halcro,  Mr.                                                               
Cutler specified  that the AHFC  dividend was about  $103 million                                                               
last year.                                                                                                                      
Number 2928                                                                                                                     
CO-CHAIR MEYER  inquired as  to what  $200,000 would  purchase in                                                               
rural Alaska.                                                                                                                   
TAPE 02-25, SIDE B                                                                                                              
MR. CUTLER mentioned  the multiple listing service  and noted the                                                               
he didn't  know how many homes  in rural Alaska would  go through                                                               
the multiple  listing service.   He  informed the  committee that                                                               
for  the  third quarter  of  2001  the  average  cost of  a  home                                                               
statewide was $187,000.                                                                                                         
CO-CHAIR  MEYER  suggested  that nurses,  paramedics,  EMTs,  and                                                               
Village Public  Safety Officers  (VPSO) are  also in  shortage in                                                               
rural Alaska and those groups seem to be missing from this.                                                                     
Number 2850                                                                                                                     
BILL LAWRENCE,  Staff to  Representative Morgan,  House Community                                                               
and   Regional   Affairs   Standing   Committee,   Alaska   State                                                               
Legislature, informed the  committee that on page 2,  line 29, of                                                               
HCS CSSB 181  the words "entire original" were  replaced with the                                                           
words "remaining  balance".  He  noted that this  language change                                                           
is  related   to  Representative  Murkowski's   earlier  comments                                                               
[regarding the retroactivity of CSSB 181(FIN)am].                                                                               
Number 2775                                                                                                                     
REPRESENTATIVE KERTTULA moved to adopt  HCS CSSB 181, Version 22-                                                               
LS0488\V, Cook, 5/6/02, as the  working document.  There being no                                                               
objection, Version V was before the committee.                                                                                  
Number 2745                                                                                                                     
JOHN   BITNEY,  Legislative   Liaison,  Alaska   Housing  Finance                                                               
Corporation, Department of Revenue,  began by thanking Mr. Cutler                                                               
for his  work on this  bill.   Mr. Bitney informed  the committee                                                               
that the  rural program  began in  1980 and  was moved  under the                                                               
purview  of AHFC  in 1992.   The  loan program  is funded  from a                                                               
revolving fund known as HALF.   During the merger [in 1992], AHFC                                                               
purchased HALF  from the  state for about  $190 million  in cash.                                                               
Since 1992  AHFC has run HALF.   Mr. Bitney pointed  out that the                                                               
qualifications for  loans under the  program are set  in statute,                                                               
which  is unlike  any other  AHFC  program.   Normally, all  loan                                                               
programs are driven by cost of  funds; for [AHFC's] ability to go                                                               
out into the  capital markets and issue bonds that  are backed by                                                               
the  mortgages that  AHFC makes  from those  bond proceeds.   The                                                               
interest rate  is set at 1  percent below the taxable  bond rate,                                                               
which he  referred to  not as  a subsidy but  as a  lost earnings                                                               
potential.  However,  there are other interest  rates besides the                                                               
tax-exempt  interest  rate  such   as  the  rate  for  first-time                                                               
homebuyers.   The  first-time homebuyer's  program  is driven  by                                                               
income limits  of the borrower and  the price of the  home.  Most                                                               
of those  funds [are used]  in Anchorage and  Southcentral Alaska                                                               
where  cost construction  and homes  fit  within the  acquisition                                                               
limits of that  tax-exempt program.  Mr. Bitney  said that having                                                               
a 1 percent discounted loan  program wasn't necessarily unfair in                                                               
terms  of  opportunities for  people  across  the state  to  have                                                               
access to buying a home.   The only other limitation on the rural                                                               
program  is  related to  people  living  within a  defined  small                                                               
community.   Statute  defines a  defined small  community as  one                                                               
with a population of less than  1,600 on the road system and less                                                               
than  6,500 off  the road  system.   Therefore, the  districts of                                                               
Representative Scalzi and  Morgan would qualify.   He pointed out                                                               
that the vast  majority of the loans under this  program occur in                                                               
the areas of Ketchikan, Kodiak, and the Kenai Peninsula.                                                                        
Number 2528                                                                                                                     
MR.  BITNEY  highlighted  that  the bill  specifies  that  the  1                                                               
percent discount only  applies up to the  first $200,000 purchase                                                               
price of the  home.  The portion of the  loan above $200,000 will                                                               
pay that 1  percent extra.  Therefore, loans  above $200,000 will                                                               
have  a  blended rate  loan.    Mr.  Bitney explained  that  when                                                               
Senator  Donley  originally wished  to  repeal  the program,  the                                                               
concern was that  without the 1 percent discount  AHFC would lose                                                               
business  to  other  major  secondary   purchasers.    Since  the                                                               
legislative audit was released, AHFC's  stance has been that AHFC                                                               
has  become a  business entity  that the  state relies  on for  a                                                               
dividend every year.  For  example, this revolving fund generated                                                               
$20 million in net income to AHFC  in fiscal year 2001.  That $20                                                               
million is  a substantial portion  of the funds that  AHFC relies                                                               
upon to make available to the state each year.                                                                                  
MR.  BITNEY  turned  to  the  discussion  regarding  whether  the                                                               
$200,000  limitation  is  appropriate  and  said  it's  a  guess.                                                               
However, when looking  at things in terms of a  blended rate, the                                                               
price of  a home  has to  increase before  crossing the  line and                                                               
becoming   competitive   with   other   secondary   [purchasers].                                                               
Therefore, AHFC  continues to  feel that it  will continue  to be                                                               
competitive.  Over  the last 17 quarters of  activity, 12 percent                                                               
volume  was in  excess of  $200,000.   Mr. Bitney  related AHFC's                                                               
belief that  it will  earn a  bit more  in terms  of the  rise in                                                               
interest  rates.    However,  all  things  aren't  equal  because                                                               
raising the  rates could result in  the borrower losing a  bit in                                                               
terms of their qualifications.                                                                                                  
Number 2380                                                                                                                     
MR.  BITNEY  directed  attention  to the  teacher  provision  and                                                               
informed  the  committee that  it's  a  rewrite of  the  nonowner                                                               
occupied portion.   Mr. Bitney  explained that under  the regular                                                               
program for the 1 percent discount,  one can borrow for a single-                                                               
family  or  duplex.    However,   if  the  property  isn't  owner                                                               
occupied,  then  a  multi-family  loan,  which  receives  a  half                                                               
percent discount,  can be used.   Section 2 of the  bill rewrites                                                               
the  nonowner  occupied  portion  such  that  units  have  to  be                                                               
occupied  by   a  certified  teacher.     The   language  doesn't                                                               
necessarily speak to  who the borrower is.  If  the person living                                                               
in the  unit isn't  a certified teacher,  [Version V]  would have                                                               
the interest  rate increase by 1  percent up to the  full taxable                                                               
rate  for  the  remaining  portion  versus  returning  that  full                                                               
taxable rate  to the date  of origin of  the loan, which  was the                                                               
case under  CSSB 181(FIN)am.   Under CSSB 181(FIN)am,  Mr. Bitney                                                               
said he  wasn't sure  anyone would  take out a  loan with  such a                                                               
potential penalty over the life of a 15-30 year note.                                                                           
Number 2266                                                                                                                     
REPRESENTATIVE HALCRO pointed out that  the bill has an immediate                                                               
effective date and  inquired as to what happens  with those folks                                                               
in the loan approval process.                                                                                                   
MR. BITNEY  explained that a  borrower obtains a  commitment from                                                               
AHFC  at  some  point  during the  application.    Therefore,  he                                                               
related his belief that AHFC's intent  would apply to the date of                                                               
commitment versus  the effective  date of the  bill.   In further                                                               
response  to Representative  Halcro,  Mr.  Bitney clarified  that                                                               
from 1998 to  the first quarter of 2002 were  loans that exceeded                                                               
$200,000 amounted to 12 percent by volume.                                                                                      
Number 2190                                                                                                                     
MR. BITNEY,  in response to Representative  Guess, specified that                                                               
the definition of  small community is in  the definitions Section                                                               
of AS  18.56.600.  In  further response to  Representative Guess,                                                               
Mr. Bitney read the provision  relating to teachers as allowing a                                                               
teacher  to  purchase a  home  with  this [discount]  or  someone                                                               
[other than  a teacher]  could build  a multi-unit  dwelling [and                                                               
house teachers].                                                                                                                
REPRESENTATIVE GUESS inquired  as to why this bill  is limited to                                                               
small  communities.   She  likened  this  [provision relating  to                                                               
teachers]  to Representative  Rokeberg's  bill  that attempts  to                                                               
help recruit  and retain teachers  by giving a break  on [buying]                                                               
homes.  Therefore, she questioned  whether this "break" should be                                                               
given to  all teachers  in the  state rather  than just  those in                                                               
small communities.                                                                                                              
MR.  CUTTER remarked  that Representative  Rokeberg's  bill is  a                                                               
fine  bill,  save its  lack  of  a  funding  source.   This  bill                                                               
provides a way to fund those loans.                                                                                             
MR. BITNEY interjected  that the loans are from  a revolving fund                                                               
and thus  there is a limited  pool of funds available  since it's                                                               
not tied  to a bonded  program like all other  mortgage programs.                                                               
The  funds  aren't available  to  handle  expanding this  program                                                               
statewide.  That is also  the issue with adding other professions                                                               
to the program.                                                                                                                 
REPRESENTATIVE GUESS  asked if Mr.  Bitney reviewed  [the entire]                                                               
community of educators.   That is, was there  review of narrowing                                                               
the scope to  only provide this [discount] to  places where there                                                               
is a shortage of teachers or  areas in education where there is a                                                               
shortage,  she  asked.   Therefore,  an  elementary in  Anchorage                                                               
wouldn't [qualify  for the discount] while  the special education                                                               
teacher would due to the shortage in that area of education.                                                                    
MR. BITNEY  replied no and  noted that the teacher  issue arrived                                                               
fairly late.  He mentioned that  AHFC is working on another piece                                                               
of  legislation  with Representative  Rokeberg.    He echoed  Mr.                                                               
Cutler's  indications that  AHFC  hasn't identified  a source  of                                                               
funds  for [Representative  Rokeberg's bill]  such that  AHFC can                                                               
lower the rate lower than what other programs already offer.                                                                    
Number 1938                                                                                                                     
REPRESENTATIVE  KERTTULA  inquired as  to  how  the loss  of  the                                                               
nonowner program impacted AHFC.                                                                                                 
MR.  BITNEY answered  that from  [1998  to the  first quarter  of                                                               
2002] the loan volume for  the nonowner program amounted to about                                                               
3 percent.   Because it is multi-family, it may  increase in some                                                               
years due  to the [development]  of one project.   Therefore, the                                                               
hope would  be to offset  that 3 percent  loss with some  gain in                                                               
the teacher activity.   Mr. Bitney said that the  increase in the                                                               
interest rate  on the  single family home  with the  blended rate                                                               
should balance the situation.  Still, this is a best guess.                                                                     
REPRESENTATIVE  KERTTULA  inquired  as  to  the  number  of  loan                                                               
programs that have a professional preference.                                                                                   
MR.  BITNEY said  that in  working  on Representative  Rokeberg's                                                               
bill, he reviewed what other states  do.  The teacher shortage is                                                               
a national shortage.   He found down  payment assistance programs                                                               
[for teachers] and foreclosed properties  that are made available                                                               
to  teachers and  police.    Currently, he  wasn't  aware of  any                                                               
programs in Alaska that [target] professionals.                                                                                 
Number 1710                                                                                                                     
MR. BITNEY, in response to  Representative Halcro, explained that                                                               
the delinquency rate on the  rural program is generally below the                                                               
urban  [delinquency   rate].     He  recalled  that   the  [rural                                                               
delinquency] rate averaged less than 3 percent.                                                                                 
REPRESENTATIVE HALCRO  surmised then  that the  existing business                                                               
practices  clearly illustrate  that  when  AHFC makes  exceptions                                                               
they  are  good  credit  risks  and  contribute  $20  million  in                                                               
MR. BITNEY agreed.                                                                                                              
Number 1636                                                                                                                     
REPRESENTATIVE SCALZI  related his  understanding that  this bill                                                               
merely  eliminates  the 1  percent  discount  on any  loans  over                                                               
MR.  BITNEY  agreed,  and  clarified that  for  loans  above  the                                                               
$200,000  that  amount  above $200,000  wouldn't  receive  the  1                                                               
percent discount.  In further  response to Representative Scalzi,                                                               
the $200,000 cap doesn't apply to a teacher.                                                                                    
REPRESENTATIVE  SCALZI   commented  that  the  loan   program  is                                                               
supported in [the Homer] area and  the Kodiak area.  He noted his                                                               
support  of the  program, although  he mentioned  that he  wasn't                                                               
sure  that the  $200,000  [cap] is  appropriate.   Representative                                                               
Scalzi turned to the fist-time  homebuyer program and related his                                                               
belief  that if  a first-time  homebuyer's income  increases, the                                                               
interest rate would rise.                                                                                                       
MR. BITNEY replied no.                                                                                                          
CO-CHAIR MORGAN announced that public testimony would be closed.                                                                
Number 1545                                                                                                                     
REPRESENTATIVE HALCRO moved to report HCS CSSB 181, Version 22-                                                                 
LS0488\V,  Cook,   5/6/02,  out  of  committee   with  individual                                                               
recommendations and the accompanying fiscal note.                                                                               
REPRESENTATIVE KERTTULA objected.   She said that  she didn't she                                                               
a reason to  do this.  She  related that she likes  the 1 percent                                                               
discount, but didn't like the $200,000 cap.                                                                                     
REPRESENTATIVE  HALCRO recalled  testimony from  Mr. Bitney  that                                                               
this bill  is part of sound  business practices.  "I  say that we                                                               
should not look  ... a $103 million  gift horse in the  mouth.  I                                                               
think this  is far over-reaching  and I don't support  the bill,"                                                               
he said.                                                                                                                        
CO-CHAIR  MEYER  expressed  the  need to  hear  from  the  people                                                               
affected, Co-Chair Morgan and Representative Scalzi.                                                                            
Number 1463                                                                                                                     
CO-CHAIR MORGAN  related his  belief that the  $200,000 cap  is a                                                               
little low.   He noted  that he was  disturbed to hear  that it's                                                               
cheaper to build a house off  the road system in Bush Alaska when                                                               
he   also  hears   that   it's  too   expensive   to  build   the                                                               
infrastructure necessary in these same areas.                                                                                   
A  roll call  vote was  taken.   Representative  Meyer voted  for                                                               
reporting Version  V from  committee.   Representatives Kerttula,                                                               
Halcro,  Scalzi,  Guess,  and   Morgan  voted  against  reporting                                                               
Version  V from  committee.   Therefore, Version  V failed  to be                                                               
reported out of the House Community and Regional Affairs                                                                        
Standing Committee by a vote of 1-5.                                                                                            
REPRESENTATIVE SCALZI noted that he would like to hear SB 181 at                                                                
the next meeting, after speaking with the realtors in his area.                                                                 

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