03/23/2009 08:00 AM House EDUCATION

HB 184-DEBT AUTHORIZATION FOR UNIVERSITY                                                                                      
                                                                                                                                
8:23:48 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON announced that the  final order of business would be                                                               
HOUSE BILL  NO. 184, "An  Act relating to the  debt authorization                                                               
of the University of Alaska."                                                                                                   
                                                                                                                                
8:24:26 AM                                                                                                                    
                                                                                                                                
DEREK  MILLER, Staff,  Representative  Mike  Kelly, Alaska  State                                                               
Legislature,  presented HB  184,  paraphrasing  from the  sponsor                                                               
statement,   which   read   as  follows   [original   punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     HB  184  adjusts the  current  bond  debt cap  for  the                                                                    
     University  of Alaska  to reflect  today's construction                                                                    
     prices.   Current Alaska Statute allows  the University                                                                    
     of Alaska  to borrow money,  issue debt, or  enter into                                                                    
     long-term obligations  for the purchase  of facilities,                                                                    
     goods, or services without having  to provide notice to                                                                    
     the  legislature as  long as  the  annual debt  service                                                                    
     payment doesn't exceed  $1.0 million.  HB  184 bumps up                                                                    
     the threshold to $2.5 million.                                                                                             
                                                                                                                                
     The current  bond debt  cap limit  of $1.0  million was                                                                    
     originally issued in 1990.   At that time, $1.0 million                                                                    
     in  annual debt  service was  the cost  of financing  a                                                                    
     $15.0  million capital  project.   Taking into  account                                                                    
     construction  inflation  in  Alaska,  a  $15.0  million                                                                    
     capital project  build in 1990  would cost  about $40.0                                                                    
     million today.   Annual debt  service on  $40.0 million                                                                    
     is $2.5  million assuming  a 4.5%  interest rate  and a                                                                    
     25-year straight line amortization.                                                                                        
                                                                                                                                
     The University has operated a  viable debt program over                                                                    
     the last  18 years.   It has issued 14  general revenue                                                                    
     bonds plus other financing  arrangements that have been                                                                    
     critical  in  securing  funding for  capital  projects.                                                                    
     The University  has never suffered a  rating downgrade.                                                                    
     In  fact, in  December 2007,  Moody's Investor  Service                                                                    
     upgraded  the University  credit  rating to  Aa3.   The                                                                    
     University continues  to monitor its debt  capacity and                                                                    
     compliance with tax exempt  bond covenants.  Currently,                                                                    
     the  amount  of  debt   service  outstanding  is  $11.2                                                                    
     million.  This is less  than half the Board of Regents'                                                                    
     policy limit  of 5% of  unrestricted revenues  which is                                                                    
     $26.2 million for  FY08.  This equates  to $127 million                                                                    
     in outstanding debt  with the ability to  issue a total                                                                    
     of $317 million in debt.                                                                                                   
                                                                                                                                
     By  increasing the  bond debt  cap approval  level, the                                                                    
     administrative  burden of  compliance with  the statute                                                                    
     for smaller bond  issues would be reduced  for both the                                                                    
     legislature  and the  University.   At  the same  time,                                                                    
     legislative  oversight  would  be retained  for  larger                                                                    
     financings.                                                                                                                
                                                                                                                                
     I would appreciate your support for HB 184.                                                                                
                                                                                                                                
8:26:48 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BUCH asked if this cap would allow the                                                                           
university's participation at the maximum level the university                                                                  
is seeking.                                                                                                                     
                                                                                                                                
MR. MILLER explained that HB 184 merely reflects the changing                                                                   
construction environment.  If the legislature were to authorize                                                                 
receipt authority for  a couple of the current  projects that the                                                               
university is proposing, this legislation would impact that.                                                                    
                                                                                                                                
8:27:56 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON  said  that  she  would  view  HB  184  as                                                               
problematic if it  creates a tuition increase.  She  asked if the                                                               
sponsor   would   object   to   an   amendment   specifying   the                                                               
aforementioned wouldn't happen.                                                                                                 
                                                                                                                                
REPRESENTATIVE  MIKE KELLY,  Alaska State  Legislature, clarified                                                               
that the  university oversight  remains because  no funds  can be                                                               
expended  without   receipt  authority,  which   the  legislature                                                               
approves.   "This [proposed legislation]  merely makes  the level                                                               
of bonding to  accomplish the same chores current," he  said.  He                                                               
then pointed out that state  funds to the university have reduced                                                               
from  60 percent  to 40  percent.   In  answer to  Representative                                                               
Wilson, Representative Kelly acknowledged  that a project that HB
 would  support could result in  an increase in tuition.   For                                                               
example, at  the Fairbanks  campus students  agreed to  a tuition                                                               
increase in  order to fund  a recreation center.   Representative                                                               
Kelly related  his opposition to  an amendment that  would hinder                                                               
the Board of  Regents' management of tuition rates  as related to                                                               
the proposed debt cap.   The legislation wouldn't cause/trigger a                                                               
tuition increase  because HB 184 strictly  permits the university                                                               
to bond for smaller amounts.                                                                                                    
                                                                                                                                
8:31:42 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON  inquired as to how  many tuition increases                                                               
the university system has experienced.                                                                                          
                                                                                                                                
MR. MILLER answered  that since 2003 there has been  a 10 percent                                                               
increase in  tuition for four years  in a row.   He recalled that                                                               
after those four  years, tuition increased by  the higher tuition                                                               
price index plus a bit more, but not quite 10 percent.                                                                          
                                                                                                                                
REPRESENTATIVE  WILSON   expressed  concern  with   such  tuition                                                               
increases.   She then  stressed that  the university  must review                                                               
ways in which it can avoid tuition increases.                                                                                   
                                                                                                                                
8:33:11 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON asked if the  Fairbanks recreation facility impacted                                                               
the  tuition across  the university  system  or was  it merely  a                                                               
surcharge at the Fairbanks campus.                                                                                              
                                                                                                                                
REPRESENTATIVE KELLY  responded that it was  a specific surcharge                                                               
for Fairbanks students.                                                                                                         
                                                                                                                                
8:33:41 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER  commented that  she  was  struck by  the                                                               
thinness  of the  committee packet  for  HB 184.   She  expressed                                                               
interest in receiving backup.                                                                                                   
                                                                                                                                
MR. MILLER said  that although he doesn't have a  letter from the                                                               
university specifically,  the Controller  from the  University of                                                               
Alaska is available online.                                                                                                     
                                                                                                                                
8:34:12 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   MUNOZ  related   her   understanding  that   the                                                               
university's  opportunity to  issue debt  is about  $317 million,                                                               
which won't  change even with  changing the cap.   Therefore, she                                                               
opined that changing the cap wouldn't affect tuition rates.                                                                     
                                                                                                                                
MR.  MILLER  explained  that  the   total  outstanding  debt  the                                                               
university  is  authorized  to  issue  is set  by  the  Board  of                                                               
Regents.    Currently,  that  limit   is  set  at  5  percent  of                                                               
unrestricted revenue.   The aforementioned  is separate  from the                                                               
university's annual  debt service.   He pointed  out that  if the                                                               
university  needs  to bond  above  the  specified threshold,  the                                                               
university  will seek  that  funding from  the  legislature.   In                                                               
further response  to Representative  Munoz, Mr.  Miller confirmed                                                               
that changing the cap doesn't  affect the university's ability to                                                               
bond that $317 million.                                                                                                         
                                                                                                                                
8:35:57 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BUCH inquired  as  to whether  students have  any                                                               
involvement in determining tuition costs.                                                                                       
                                                                                                                                
MR.  MILLER highlighted  that  the Board  of  Regents includes  a                                                               
voting student representative on  the board, which provides input                                                               
at that level.   However, the decision is ultimately  that of the                                                               
Board  of  Regents.    With   regard  to  the  Fairbanks  Student                                                               
Recreation  Center,  the  Fairbanks students  actually  voted  to                                                               
build that facility and impose  a surcharge.  In further response                                                               
to Representative  Buch, Mr. Miller  confirmed that  students who                                                               
may not  have been part of  the decision to impose  the surcharge                                                               
were faced with paying it.                                                                                                      
                                                                                                                                
8:38:06 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON  inquired as to the  percentage of students                                                               
who  pay their  own  tuition versus  the  percentage of  students                                                               
whose parents pay their tuition.                                                                                                
                                                                                                                                
MR. MILLER said  it would be difficult to  establish that number,                                                               
but offered to provide it if he could.                                                                                          
                                                                                                                                
8:39:10 AM                                                                                                                    
                                                                                                                                
CHAIR  SEATON   remarked  that  such   information  may   not  be                                                               
available, and in fact may be confidential.                                                                                     
                                                                                                                                
8:40:40 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON,  referring to page 1,  lines 9-12 of HB  184, asked                                                               
if the  language means that  the university doesn't have  to come                                                               
before the  legislature unless the  amount being sought  is above                                                               
the $2.5 million financing debt cap.                                                                                            
                                                                                                                                
8:41:55 AM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 8:41 a.m. to 8:43 a.m.                                                                       
                                                                                                                                
8:43:02 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KELLY  related his understanding that  the bonding                                                               
is separate from the approval.   Therefore, the receipt authority                                                               
is generated by  the legislative action.  The  bill merely states                                                               
that if the receipt authority is  from bonds, the approval is not                                                               
required for  the act  of bonding itself.   The  language doesn't                                                               
affect  the power  of the  legislature over  projects; rather  it                                                               
says  that   once  the  legislature   approves  a   project,  the                                                               
university has the ability to bond  at a higher level than before                                                               
without coming before the legislature.                                                                                          
                                                                                                                                
CHAIR SEATON  pointed out that the  discussion seems to be  as if                                                               
the legislature  has to  approve the  projects if  the university                                                               
totally bonds for  it and pays for it itself.   However, existing                                                               
language on  page 1, lines  9-13, says that the  legislature only                                                               
has to approve  the university's receipt authority  if the amount                                                               
is more  than the service  debt of  $2.5 million.   Therefore, he                                                               
requested  the  sponsor  have   Legislative  Legal  and  Research                                                               
Services check the meaning of this language.                                                                                    
                                                                                                                                
REPRESENTATIVE KELLY agreed to do so.                                                                                           
                                                                                                                                
8:46:31 AM                                                                                                                    
                                                                                                                                
MYRON DOSCH,  CPA, Controller, University  of Alaska,  offered to                                                               
answer any questions.                                                                                                           
                                                                                                                                
8:47:02 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON  asked if the  university has to  obtain legislative                                                               
approval for  bonded projects that  are below the  existing limit                                                               
of $1 million or the proposed $2.5 million limit.                                                                               
                                                                                                                                
MR. DOSCH  answered that  the university can  issue debt  if it's                                                               
below  the  specified  limit.   The  legislature  approves  those                                                               
projects through the receipt authority.                                                                                         
                                                                                                                                
8:48:10 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON posed an example  in which the university decides to                                                               
issue  debt  for a  project  rather  than  go through  a  capital                                                               
project request.   He asked  if the university  can do so  if the                                                               
anticipated debt service would be less than $2.5 million.                                                                       
                                                                                                                                
MR. DOSCH replied yes.                                                                                                          
                                                                                                                                
8:49:01 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WILSON asked  if the  university could  decide to                                                               
bond a project the legislature denied.                                                                                          
                                                                                                                                
MR. DOSCH  replied no,  and explained  that the  university would                                                               
still need the receipt authority to  issue debt if it's a capital                                                               
project.                                                                                                                        
                                                                                                                                
8:49:43 AM                                                                                                                    
                                                                                                                                
MR.   DOSCH,  in   response  to   Chair  Seaton,   confirmed  the                                                               
university's support for HB 184.                                                                                                
                                                                                                                                
8:50:31 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KELLY offered to  obtain a position statement from                                                               
the university.                                                                                                                 
                                                                                                                                
8:51:00 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   MUNOZ   suggested  that   including   clarifying                                                               
language  referring to  "projects greater  than $2.5  million" on                                                               
page 1, lines 9-11, would be helpful.                                                                                           
                                                                                                                                
REPRESENTATIVE  KELLY  related  his  agreement that  HB  184  may                                                               
create an  inconsistency with existing  law.  He pledged  to have                                                               
the  legislation  scrutinized on  the  points  the committee  has                                                               
addressed.   The intent, he  said, is not to  place unforeseeable                                                               
restrictions on the university.                                                                                                 
                                                                                                                                
CHAIR SEATON pointed out that the  portion of HB 184 referring to                                                               
the $2.5  million limit is  addressing an annual payment  not the                                                               
cost of the project.                                                                                                            
                                                                                                                                
8:54:27 AM                                                                                                                    
                                                                                                                                
CHAIR SEATON,  upon determining  no one  else wished  to testify,                                                               
closed the  public hearing on HB  184.  He announced  that HB 184                                                               
would be held over.