Legislature(2019 - 2020)BARNES 124
04/02/2019 08:00 AM COMMUNITY & REGIONAL AFFAIRS
Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
Download Mp3. <- Right click and save file as
Download Video part 1. <- Right click and save file as
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 32-AK ENERGY EFFICIENCY LOANS: ELIGIBILITY 8:05:01 AM CO-CHAIR DRUMMOND announced that the next order of business would be HOUSE BILL NO. 32, "An Act making certain entities that are exempt from federal taxation under 26 U.S.C. 501(c)(3), (4), (6), (12), or (19) (Internal Revenue Code), regional housing authorities, and federally recognized tribes eligible for a loan from the Alaska energy efficiency revolving loan fund; relating to loans from the Alaska energy efficiency revolving loan fund; and relating to the annual report published by the Alaska Housing Finance Corporation." 8:07:54 AM REPRESENTATIVE KREISS-TOMKINS, as prime sponsor of HB 32, introduced the bill and related its history. He said this is the third legislature in which this legislation has been introduced. He said two legislatures ago the legislation passed out of two committees of referral and "died" in the House Rules Standing Committee. Last legislature, the legislation passed all House committees and then "died" in its last committee of referral in the Senate. He expressed his hope that HB 56 would "get all the way through" this attempt. REPRESENTATIVE KREISS-TOMKINS stated that HB 32 would expand the Alaska Energy Efficiency Revolving Loan Fund (AEERLF) to include nonprofits. Currently, those eligible for the fund are municipalities and state government. Nonprofits would include, for example, church councils, housing authorities, arts councils, and soup kitchens that may have energy inefficient buildings but insufficient capital to expend on energy efficiency improvements. 8:10:40 AM REPRESENTATIVE JACKSON asked why the legislation "died" previously. REPRESENTATIVE KREISS-TOMKINS answered that would be a good question for the co-chair of the Senate Finance Committee, who is no longer a legislator. REPRESENTATIVE JACKSON asked, if a nonprofit was not able to make the payments on the loan allowed under HB 32, who the responsible party would be. REPRESENTATIVE KREISS-TOMKINS offered his understanding that currently a loan from AEERLF is given only when the entity applying for the loan has demonstrated energy inefficiencies and an audit has been done. The audit determines how much money is being lost per month due to the energy inefficiency, and the amount of the loan payment is set at that amount; therefore, the amount of money the entity pays essentially stays the same. He concluded that the risk of an entity being unable to pay on the loan is low. REPRESENTATIVE JACKSON asked why HB 32 would not include "small and independent businesses." REPRESENTATIVE KREISS-TOMKINS answered that nonprofit organizations are generally cash poor in terms of being able to make investments. He pointed out that when this legislation was first introduced, Alaska was just beginning to experience its budget deficit. Not too many years prior, he said, the state had been "riding the gravy train," and any entity that wanted cash to upgrade a building came to the legislature "with hand outstretched" and requested a capital grant. He indicated that the AEERLF would be a means to help nonprofit entities become more self-sufficient. He said he thinks there is an assumption that nonprofits do good, and "we want to help." 8:17:02 AM CO-CHAIR HANNAN asked about the current number of loans and what the success rate of the loans is. CO-CHAIR DRUMMOND noted Stacy Barnes from the Alaska Housing Finance Corporation (AHFC) was available to answer questions. 8:17:38 AM JOHN SCANLON, Staff, Representative Jonathan Kreiss-Tomkins, Alaska State Legislature, on behalf of Representative Kreiss- Tomkins, prime sponsor of HB 32, replied that AEERLF was created in 2010 and allowed AHFC to bond up to $250 million to finance energy efficiency improvements. He offered his understanding that since that time one loan of $2.5 million, to the City of Galena, has been closed. 8:18:21 AM STACY BARNES, Director, Governmental Relations and Public Affairs, Alaska Housing Finance Corporation, confirmed that there has been one loan closed. In response to Co-Chair Hannan, she reported that AHFC has had some interest in the loan program over the years. She offered information regarding the loan program in the context of a current Anchorage Municipal election, in which voters are being asked to decide upon a proposal for an Anchorage School District bond. She indicated that the includes just over $59 million in projects, a number of which might be eligible for the [AEERLF], which would total approximately $30 million. She said there are several reasons that the Anchorage School District would not approach AHFC for a loan. She continued: With this bill, we see it as being one more tool in the toolbox. A Community Reinvestment Act made pricing competitive for nonprofit and public entities to go elsewhere, whether it's through a bond proposal, like Anchorage voters are being asked to vote on today, or if it's other sources of financing across the state and in the private sector. MS. BARNES responded to follow-up questions from Co-Chair Hannan. She confirmed that the loan to Galena is the only one that has been closed since 2010. She confirmed that "closed" means "open"; therefore, only one entity is carrying the loan under AEERLF currently. She said financing may be available up to 15 years for any given project; therefore, "the Galena loan is still active and open on our books." CO-CHAIR HANNAN expressed surprise that more entities have not applied. MS. BARNES responded that AHFC has a couple departments that are involved in the loans: the Research and Rural Development, also known as the Energy Department; and the Mortgage and Financing Department. She said the Energy Department has been aggressive in talking with leaders across the state, including the Alaska Municipal League (AML), so there has been interest in the program. However, in many cases, communities may choose "to bond on their own or have found cheaper financing elsewhere." She AHFC views itself as "one tool in the toolbox." She referred to the letters of support in the committee packet and offered one misconception is that "this loan would be a ... subsidized rate - low-cost financing - and that is not necessarily true." She said there may be other options that are in the best interest of the nonprofit or local government for accessing financing outside of AHFC. 8:23:03 AM REPRESENTATIVE THOMPSON recollected that at the time the loan was initialized and from about 2010-2014, many entities had the energy efficiency of their buildings tested, but because of the availability of capital at the time, a lot of these entities preferred to apply for grants rather than apply for a loan. He said there are a lot of places that could still benefit from this loan. MS. BARNES said Representative Thompson was correct. She said AHFC received federal money through the American Recovery and Reinvestment Act and was able to benchmark 1,300 public facilities and conduct investment-grade audits on 327 public buildings, and "the potential was great at the time." She added, "But you'll also recall that the price of oil was at over $100 per barrel, and so, the energy efficiency savings at that time was also greater than it is in this current environment." 8:25:06 AM REPRESENTATIVE REVAK asked what the total cost of the loan was in relation to the estimate of the work that needed to be done. MS. BARNES answered that the loan itself was consistent with the estimate that was provided through the investment-grade audit that had been performed prior to closing of the loan. REPRESENTATIVE REVAK said the customer gets a loan and a more efficient building but his/her costs remain the same - there are no savings. He said he assumes that is under the estimate for the work that is to be done. He questioned what happens when the work done exceeds the estimate. MS. BARNES answered that AHFC would close the loan after completion of the work, so it would know what the costs were prior to closing of the loan. 8:27:17 AM REPRESENTATIVE KREISS-TOMKINS added that as soon as the loan is paid back, the nonprofit entity would begin to save money, because the building would be more energy efficient. 8:28:12 AM REPRESENTATIVE JACKSON asked about variants to interest rates on the loans. MS. BARNES answered that the rate is determined at the time the loan is closed and is based on several factors, including the duration of the loan and the risk associated with that particular loan. 8:29:07 AM CO-CHAIR HANNAN asked about the duration and rate of the Galena loan. 8:29:53 AM ERIC HAVELOCK, Lending Officer, Alaska Housing Finance Corporation, recollected that the term for the Galena loan was 15 years, at an interest rate just under 4 percent. 8:30:44 AM CHRIS ROSE, Executive Director, Renewable Energy Alaska Project (REAP), spoke. [Due to technical difficulties, the first minute of Mr. Rose's testimony was inaudible.] 8:31:30 AM The committee took a brief at-ease at 8:31 a.m. 8:31:35 AM [Partially inaudible testimony.] MR. ROSE stated that Alaskans are spending $5 billion on energy annually; that includes transportation fuel, electricity, and heat. He said in 2008, the legislature made a large appropriation to the Weatherization Rebate Program. Over 50,000 homes have been energy retrofitted, and AHFC estimates the average savings to be 30 percent. He stated that REAP knows there is money to be saved and it is important to "push energy efficiency." He said REAP thinks there are nonprofit organizations that would like to take advantage of the loan program that would be available to them under HB 32. MR. ROSE related that for various reasons, some of the original targets for the loan program have decided not to take the loans. He surmised some nonprofit buildings have been bonded or nonprofit groups may have hoped the state would have money to give. He said those are not options for nonprofits, but those nonprofits would be able to borrow money through AEERLF under HB 32. MR. ROSE said payback periods vary, but nationwide, it is easy to estimate what an improvement will cost and what its payback period will be, then to structure the loan accordingly. He said, "There is an awareness of how much the loan is going to have to be serviced given the interest rate and the terms." 8:34:55 AM CO-CHAIR DRUMMOND connected with Mr. Rose to let him know the first portion of his testimony had not been heard. She asked him to repeat the information. 8:35:40 AM MR. ROSE stated that there is a huge amount of savings to be had through AHFC loans, and part of the reason this is apparent is because AHFC has had success with the grants it gave in its residential programs. He said public and nonprofit buildings "will probably have the same opportunity to save 30-40 percent on their energy bills, depending on the shape of the building." He echoed Representative Thompson's remark that one of the possible reasons [owners of] public buildings did not seek out a loan back in 2010 was that they hoped to get a grant from the state. Further, many public entities have the ability to bond on their own. He indicated those choices are "definitely lesser opportunities for nonprofits today." He reiterated that REAP believes that there are some decision makers at the nonprofits, who would take the opportunity to take a loan from AHFC through AEERLF. 8:37:27 AM REPRESENTATIVE THOMPSON recalled that in the past, after the energy efficiency evaluations were done, there had been variances in loan rates. He questioned how many who realized they could have "a savings on energy efficiency" might have approached other commercial entities because of lower interest rates there than with AHFC. He recalled some banks reacted back then by claiming they could meet or beat the offered interest rates. He asked how many places completed the energy efficiency upgrades but not with AHFC loans. MR. ROSE replied he does not have that data but anecdotally has heard the same thing: entities could either find a lower interest rate somewhere else or bond themselves. He said he knows for a fact that many building [owners] did "go ahead and do energy efficiency anyway, not using this fund." He concluded, "That is true that the interest rate may or may not have been competitive for some entities." 8:39:18 AM CO-CHAIR DRUMMOND opened public testimony on HB 32. After ascertaining that there was no one who wished to testify, she closed public testimony. 8:39:43 AM REPRESENTATIVE CLAMAN opined that this was good legislation in the last legislative session, and he thanked the bill sponsor for keeping it going. 8:39:54 AM CO-CHAIR DRUMMOND, in response to Co-Chair Hannan, clarified that the bill would be accompanied by a zero fiscal note. 8:40:23 AM REPRESENTATIVE KREISS-TOMKINS said for four to five years now, he has maintained dialogue with the Division of Public Facilities within the Department of Transportation & Public Facilities (DOT&PF) regarding energy efficiencies in state buildings. He noted that the State of Alaska is one of the eligible entities and has many facilities, not all of which are energy efficient. He said there have been investment-grade audits demonstrating that "there are some improvements that have pretty competitive paybacks." He said DOT&PF has proceeded with some of the energy efficiency improvements. He said he had been curious as to whether the agency would take advantage of the AEERLF or seek other capital. He said the agency put together a substantial energy efficiency investment package a couple years ago and found a more competitive interest rate elsewhere. He said he is "cautiously optimistic" that [the provision under HB 32] and "the specialized nature of this" will fill the void for smaller nonprofit organizations that are less sophisticated and do not have access to more institutional capital. 8:44:04 AM CO-CHAIR DRUMMOND said the recent renovation of the Capitol, which included upgrading exterior walls, doors, and windows, showed good results. She said she is interested in finding out from the Legislative Affairs Agency how much savings in energy costs is being seen now as a result. 8:45:11 AM CO-CHAIR DRUMMOND announced that HB 32 was held over.