Legislature(2001 - 2002)
05/07/2002 08:10 AM CRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 date." 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 work. 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 construction. 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 house. 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 revenue. MR. BITNEY agreed. Number 1636 REPRESENTATIVE SCALZI related his understanding that this bill merely eliminates the 1 percent discount on any loans over $200,000. 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.