Legislature(2015 - 2016)CAPITOL 106

03/30/2016 08:00 AM EDUCATION

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Audio Topic
08:04:29 AM Start
08:05:05 AM Confirmation Hearings(s):
08:05:24 AM Professional Teaching Practices Commission (ptpc)
08:17:18 AM State Board of Education and Early Development
08:23:41 AM SJR2
09:05:13 AM HB357
09:48:18 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Confirmation Hearings: TELECONFERENCED
- Board of Education & Early Development
- Professional Teaching Practices Commission
Moved SJR 2 Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
         SJR 2-CONST. AM: G.O. BONDS FOR STUDENT LOANS                                                                      
8:23:41 AM                                                                                                                    
CHAIR KELLER announced  that the next order of  business would be                                                               
SENATE  JOINT RESOLUTION  NO. 2,  Proposing an  amendment to  the                                                               
Constitution  of  the State  of  Alaska  relating to  contracting                                                               
state debt for postsecondary student loans.                                                                                     
8:24:38 AM                                                                                                                    
REPRESENTATIVE  VAZQUEZ noted  that  the  corporation has  enough                                                               
cash to  meet its  loan obligations.   She directed  attention to                                                               
the   committee  packet   handout   titled,   "State  of   Alaska                                                               
Comprehensive  Annual Financial  Report, Fiscal  Year Ended  June                                                               
30,  2015," issued  by  the Division  of  Finance, Department  of                                                               
Administration, and the  attached page 252, to  review the column                                                               
headed,  Alaska Student  Loan Corporation.   The  report provides                                                               
that  the assets  of the  corporation show  cash and  investments                                                               
totaling $35  million, with a  bottom line total net  position of                                                               
nearly $221  million.   Thus, she  surmised that  the corporation                                                               
doesn't appear to be strapped for  cash and unable to fund loans.                                                               
The  costs  reported  during  the   previous  hearing  of  SJR  2                                                               
[3/23/16], were  about $30  million.  Thus,  having to  enter the                                                               
bond market  and making  a change to  the constitution  to access                                                               
that  market,  is not  warranted,  she  opined.   She  questioned                                                               
whether  there might  not  be another  avenue  to explore,  which                                                               
would prove less draconian than changing the constitution.                                                                      
8:27:48 AM                                                                                                                    
DIANE   BARRANS,   Executive   Officer,   Alaska   Student   Loan                                                               
Corporation,   Executive    Director,   Postsecondary   Education                                                               
Commission, Department of Education  and Early Development (EED),                                                               
responded that  at issue is  whether the commission can  meet the                                                               
volume of  new loans,  as well as  the refinance  requirements of                                                               
existing, loans.   The  estimated volume  of the  combination for                                                               
these two  loan categories, in  the first year, could  exceed $40                                                               
million.     She  reported  that,  minus   operating  costs,  the                                                               
corporation's  capacity  does  not  meet this  level  of  demand.                                                               
Speaking to  the question  of possible  alternatives to  using GO                                                               
debt, she said the state,  since 2009, has provided two different                                                               
types of  supports to  the corporation.   One  was to  enable the                                                               
Department of Revenue (DOR) to  serve as a stand-by bond purchase                                                               
provider;  an agreement  whereby the  corporation can  access the                                                               
market  using  the  liquidity  support   from  the  state.    The                                                               
arrangement ensures  that, in the event  the corporation defaults                                                               
on the obligation, the state will  buy the outstanding bonds.  In                                                               
structuring  that deal,  she reported,  the corporation  was able                                                               
to, at a relatively low  cost, secure a liquidity provider letter                                                               
of  credit,  but  only  on  a standby  basis.    Thus,  the  loan                                                               
structure allows access to the  market, but it doesn't afford the                                                               
cost  reducing benefits  that the  GO bonds  provide.   The other                                                               
type of  assistance that the  state offered was  authorization in                                                               
statute, allowing  DOR to  extend a $100  million loan,  of which                                                               
$70 million has  been used.  It was structured  as a bridge loan,                                                               
which  is  not a  viable  long  term  strategy for  meeting  loan                                                               
demands or  for achieving  the low cost  interest rates  that the                                                               
corporation would like to offer to Alaskans.                                                                                    
8:31:18 AM                                                                                                                    
REPRESENTATIVE  COLVER inquired  whether the  revenue bonds  have                                                               
been leveraged to finance student loans.                                                                                        
MS.  BARRANS  responded yes,  and  added  that  it has  been  the                                                               
practice since  1988; however, with  the change in the  market it                                                               
has become a costly method.                                                                                                     
REPRESENTATIVE COLVER  asked about  the point spread  between the                                                               
revenue bonds versus GO financing.                                                                                              
MS. BARRANS answered that, if  the state maintains its AAA credit                                                               
rating, the  spread would be about  120 basis points, but  if the                                                               
rating drops to AA it would be about 97 basis points.                                                                           
8:32:51 AM                                                                                                                    
REPRESENTATIVE DRUMMOND asked for an  average amount of an Alaska                                                               
student loan.                                                                                                                   
MS.  BARRANS estimated  $6,000,  and offered  to provide  further                                                               
information.   The  allowed maximums  have recently  been raised,                                                               
she  said,  and  predicted  that  the  average  total  will  also                                                               
REPRESENTATIVE DRUMMOND  opined that, estimating an  $11,000 loan                                                               
and  considering 11,000  students, $220  million doesn't  go very                                                               
far.   She conjectured that,  should the  Performance Scholarship                                                               
fund  be jeopardized,  the corporation  will see  an increase  in                                                               
loan applications.                                                                                                              
8:34:20 AM                                                                                                                    
CHAIR  KELLER  noted  that  typically  a  getting  out  the  vote                                                               
investment will  be made  on either  side of  a ballot  issue and                                                               
asked who the corporation anticipates  will get behind promoting,                                                               
as well as opposing this legislation.                                                                                           
MS. BARRANS explained that when a  state agency puts an item on a                                                               
ballot the advocacy  is not through the agency.   Media relations                                                               
would allow factual  statements to be broadcast, but  there is no                                                               
expectation for promotional efforts.                                                                                            
CHAIR  KELLER asked  if there  are any  groups that  might pursue                                                               
advertising to advocate for or against the measure.                                                                             
MS. BARRANS said  there is no expectation of  any campaigns being                                                               
8:37:01 AM                                                                                                                    
REPRESENTATIVE  VAZQUEZ returned  to the  testimony predicting  a                                                               
surge  in  loan  applications  and  asked  what  information  the                                                               
prediction is based on.                                                                                                         
MS. BARRANS  replied that a  number of moving pieces  effect loan                                                               
demand.  The commission expects  an increase in enrollment levels                                                               
at  the university  in the  coming years,  and tuition  costs are                                                               
also expected to increase.                                                                                                      
8:38:21 AM                                                                                                                    
STERLING GALLAGHER  stated opposition to  SJR 2, and  described a                                                               
personal history  of financial work  within the  state, including                                                               
commissioner of  the DOR and  underwriting state bonds.   He said                                                               
the Student Loan  Corporation was designed around  cash flow, and                                                               
represents the weakest type of loan  that the state can make, due                                                               
to the  lack of collateral.   One thing that does  make this type                                                               
of loan  work is the  fact that  it cannot be  discharged through                                                               
bankruptcy.  The  national average student loan  is $60,000, with                                                               
high end  profession graduate  debt at  about $160,000.   Because                                                               
the commission  is designed  around cash  flow, he  opined, other                                                               
means  could  be  implemented  for loan  purposes  and  GO  bonds                                                               
reserved  for  construction  programs and  emergency  situations.                                                               
The loan  program has been soundly  run, he offered, but  a young                                                               
person  carrying heavy  student  loan debt  can  become a  socio-                                                               
economic burden as their lives  change.  The national concern for                                                               
the level  of systemic student  debt is  on the fore  burner, and                                                               
there  is  pressure  to  change   bankruptcy  laws  in  order  to                                                               
accommodate the  fallout, which in  turn could affect  the states                                                               
credit  rating.   Collateral versus  the states  moral obligation                                                               
would be  a better  approach, he suggested,  and returned  to the                                                               
figures from the previously cited  financial report to state that                                                               
the need  for further  assets is  appropriately noted.   However,                                                               
ways  and  means should  be  accomplished  by drawing  on  other,                                                               
sufficiently collateralized, state loan balances and programs.                                                                  
8:45:40 AM                                                                                                                    
CHAIR KELLER  asked about  the current debt  load carried  by the                                                               
state and its rating on Standard and Poor's.                                                                                    
MR.  GALLAGHER said  Alaska  has about  $600  million in  general                                                               
obligation debts, and opined that,  overall, the state is in good                                                               
8:47:35 AM                                                                                                                    
REPRESENTATIVE  COLVER  asked  for  a general  statement  of  the                                                               
outlook for GO  bonds in the state, and whether  SJR 2 appears to                                                               
present any problem.  A  state/national disaster would require GO                                                               
bonds, he noted, and asked about other future needs.                                                                            
MR. GALLAGHER responded  that the state has  ample flexibility at                                                               
this point and federal matching  funds continue to prove helpful.                                                               
He  suggested that  other means  could  be employed  to meet  the                                                               
current financial crisis in the state.                                                                                          
8:51:32 AM                                                                                                                    
REPRESENTATIVE SEATON  asked what loans could  be appropriated to                                                               
the commission, without compromise.                                                                                             
MR. GALLAGHER  answered that  the fishermen  loans would  be one,                                                               
with about $130 million collaterally extended on quality assets.                                                                
REPRESENTATIVE   SEATON  surmised   that   fishermen  loans   are                                                               
collateralized  using fishing  vessels  and  questioned how  much                                                               
money could actually be made available.   If the loans were based                                                               
on the payment  receipts, it seems that it  may be insignificant,                                                               
he opined.                                                                                                                      
MR.  GALLAGHER responded  that other  agency loans  may be  based                                                               
more on  cash flow  and it's  the quality of  the cash  flow that                                                               
should be considered.                                                                                                           
8:53:46 AM                                                                                                                    
REPRESENTATIVE VAZQUEZ  asked if there  is a link  connecting the                                                               
fishing  loans,   as  made  by   the  Division   of  Investments,                                                               
Department   of  Commerce,   Community  &   Economic  Development                                                               
(DCCED), and the Alaska Student Loan Corporation program.                                                                       
MR. GALLAGHER responded  no; however the fishing  program has $60                                                               
million in cash, in the till,  earning about a half of a percent.                                                               
Thus, extending  that cash to  cover $130 million in  loans would                                                               
be an appropriate leverage of funds.                                                                                            
REPRESENTATIVE  VAZQUEZ  clarified  that  the  suggestion  is  to                                                               
direct fishing loan funds to the commission.                                                                                    
MR. GALLAGHER  responded that, instead  of appropriating  cash to                                                               
the program, appropriate the loans.                                                                                             
8:55:04 AM                                                                                                                    
REPRESENTATIVE COLVER  stated his  understanding of  the scenario                                                               
being  described  and   said  it  utilizes  the   cash  flow  for                                                               
MR. GALLAGHER answered yes, and said  it's a smarter use of money                                                               
and doesn't consume the available balances.                                                                                     
8:56:29 AM                                                                                                                    
The committee took an at-ease from 8:56 a.m. to 8:57 a.m.                                                                       
8:57:11 AM                                                                                                                    
REPRESENTATIVE  COLVER commented  that amending  the constitution                                                               
is a  weighty affair.   He said he  does not object  to advancing                                                               
the bill  for further scrutiny  and debate in the  next committee                                                               
of referral.                                                                                                                    
8:58:42 AM                                                                                                                    
REPRESENTATIVE  TALERICO  clarified  that  the  members  are  not                                                               
casting  a  vote  to  amend  the  constitution  by  passing  this                                                               
legislation  out of  committee.   He said  many facets  will come                                                               
into play  as the bill advances  forward.  The voting  public may                                                               
be called  upon for  the final determination  and opined  that GO                                                               
bonds  may be  the best  financing alternative.   He  said he  is                                                               
neutral  on  the  bill,  but  appreciates  opportunities  to  put                                                               
decisions before the voters.                                                                                                    
9:00:24 AM                                                                                                                    
REPRESENTATIVE SEATON  said student  loan debt  is a  big problem                                                               
nationwide,  primarily  due  to  the  high  interest  rates  that                                                               
accumulate and  compound debt, even  as graduates enter  the work                                                               
force.   Lowering the  student loan interest  rate could  be very                                                               
beneficial, he opined, however,  using money from other programs,                                                               
such as the fishing vessel program, presents a concern.                                                                         
9:02:10 AM                                                                                                                    
CHAIR  KELLER  opined  that  the   committee  has  done  its  due                                                               
9:02:42 AM                                                                                                                    
REPRESENTATIVE VAZQUEZ  commented that  the student  loan program                                                               
is critical,  especially in light  of the tuition  rate increases                                                               
that may  be imposed.   She maintained  her concern  for amending                                                               
the  constitution,  Article 9,  and  said  that other  mechanisms                                                               
would be more appropriate.                                                                                                      
9:04:40 AM                                                                                                                    
REPRESENTATIVE TALERICO  moved to  report SJR 2,  29-LS0010\W out                                                               
of   committee   with    individual   recommendations   and   the                                                               
accompanying fiscal notes.   There being no objection,  SJR 2 was                                                               
reported from the House Education Standing Committee.                                                                           
9:05:02 AM                                                                                                                    
The committee took a brief at-ease at 9:05 a.m.                                                                                 

Document Name Date/Time Subjects
SJR2 version A.pdf HEDC 3/30/2016 8:00:00 AM
SJR 2 Sponsor Statement.pdf HEDC 3/30/2016 8:00:00 AM
SJR2 Fiscal Note OOG-DOE 3-18-2016.pdf HEDC 3/30/2016 8:00:00 AM
SJR 2 Letter of Support-University of Alaska.pdf HEDC 3/30/2016 8:00:00 AM
SJR 2 Letter of Support-Juneau Chamber of Commerce.pdf HEDC 3/30/2016 8:00:00 AM