Legislature(1993 - 1994)
04/22/1993 08:35 AM House FIN
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* first hearing in first committee of referral
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SENATE BILL NO. 171
"An Act relating to the contracting and financing
authority of the Alaska Industrial Development and
Export Authority, giving approval of the issuance of
the authority's revenue bonds, and delaying the
termination date of the authority's business assistance
program; and providing for an effective date."
JOHN OLSON, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT
AUTHORITY (AIDEA) clarified, in regards to a question asked
by Representative Brown during the 4/21/93 meeting, that the
amount of gas which would be used by the proposed iron plant
is 50 million cubic foot per day. He stated that long term
contracts have been put in place for consumer use. There
would be no change in consumer prices for 10 to 15 years.
Representative Hoffman provided members with Amendment 1
(Attachment 1). The amendment would require the AIDEA Board
to make available for rural development initiative grants,
$5 million dollars from the unobligated and unreserved
balance of the AIDEA Revolving Fund.
Representative Hoffman noted that AIDEA expects the Rural
Development Initiative Program (RDI) to be short funded. He
stressed that the Program has only been in existence for one
year and that the demand for the program is great. He
asserted that the Program has only touched the "tip of the
iceberg" in terms of need for economic development in rural
areas. He stressed the lack of jobs in rural areas.
Co-Chair Larson asked if the funding will be used for loans.
Representative Hoffman replied that the funding would be for
repayable loans. Co-Chair Larson asked why the program was
not working. Representative Hoffman emphasized that the
program is working, but that there is a great demand for
additional funding.
Co-Chair Larson asked why AIDEA would be used to float the
bonds. Representative Hoffman replied that it makes sense
to use the expertise of AIDEA. He pointed out that
administration costs could be saved by allowing AIDEA to
operate the bonds rather than duplicating efforts within
RDI.
WILLIAM (RILEY) SNELL, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY agreed that there is a need
for capitalization in rural Alaska. He stated that AIDEA
has the authority to assist in leveraging money. He
explained the bond/loan process used by AIDEA. He stressed
that there would be a double drain on AIDEA if amendment 1
is adopted.
Mr. Snell emphasized that AIDEA projects have focused on the
needs of rural Alaska. He stated that the source of funding
is his only concern with amendment 1.
Representative Hoffman stressed that the amendment will
address the needs of small businesses. He noted that the
previous projects developed through AIDEA have not gone to
small businesses. He pointed out that there is a $100.0
thousand dollar cap on project eligibility. He observed
that there are over 200 villages that need assistance. He
asserted that rural Alaska has the highest unemployment with
the fewest job opportunities.
Representative Hanley observed that AIDEA can only use money
which has been appropriated to the Authority. He noted that
the amendment states that money is authorized to be reserved
for the use of RDI. He noted that no new bonding will be
used. He asked if the amendment would limit AIDEA's
authority to issue bonds approved by SB 171.
Mr. Snell stated that AIDEA has $137 million dollars in
unrestricted surplus funds available. He stated that an
appropriation from these funds would reduce funds for other
program participation. He referred to a Legislative Budget
and Audit Committee advisor's report, issued March 1, 1993,
that reduction of AIDEA assets could affect bond ratings.
Representative Hanley expressed concern that the amendment
does not fit under the title of SB 171. Representative
Hoffman assured him that there is no need for a title
change.
Representative Hanley reiterated his concern that an
appropriation is needed. Representative Hoffman assured him
that amendment 1 is not an appropriation.
Co-Chair Larson noted that the amendment would require that
Board approval of the $5 million for RDI before the other
projects contained in SB 171 can be begun. Representative
Brown asked if AIDEA could be asked to approve the $5
million dollars for RDI without tying the other projects to
the Board's approval.
Co-Chair MacLean suggested that funding be provided through
reappropriation legislation. Mr. Snell did not think that
the Board would have to approve the reappropriation of
funds.
Members continued to discuss the option of reappropriating
funds to RDI.
JACK CHENOWETH, ATTORNEY, LEGISLATIVE AFFAIRS AGENCY
discussed the drafting of amendment 1. He reiterated that
SB 171 is not an appropriation bill and that the amendment
does not appropriate funds. He noted that an appropriation
would be necessary. He stressed that the amendment would
require that the Board approve $5 million dollars for RDI
before the other projects contained in SB 171 could be
begun.
(Tape Change, HFC 93-116, Side 2)
Representative Hoffman did not offer Amendment 1.
Co-Chair Larson expressed his support for a Rural
Development Initiative in areas where no economic base
exists. The Co-Chairs indicated that funding for RDI would
be sought through reappropriation.
Representative Brown stated that gas consumed by the
proposed iron plant contained in SB 171 will tighten
supplies in Cook Inlet. She referred to page 2, line 24.
She noted that the original bill requested $30 million
dollars. Mr. Snell explained that off-loading systems were
added to increase the project cost to $50 million dollars.
Representative Brown provided members with articles
regarding the proposed Mat-Su iron plant (Attachment 2).
She noted that line 13, page 2 says for use by the MIDREX
Company. She observed that according to attachment 2,
MIDREX would not own or operate the facility. She asked if
alternative language would be needed.
Mr. Snell stressed that MIDREX will perform the feasibility
analysis, be actively involved in securing financing and
would oversee the construction. At some point ownership
would be transferred to a new owner. He pointed out that
similar language was used in legislation regarding the Red
Dog mine.
Representative Brown asked how the language could be
modified to assure that firm financing is in place before
the project is begun. Mr. Snell assured her that the
project will not proceed before financing is secured.
Representative Brown and Mr. Snell discussed general
obligation versus revenue bonding. Mr. Snell stated that if
a general obligation bond were to be used that corporate
guarantee of subsidiaries would be required.
Representative Brown asked what would occur if MIDREX
Corporation did not use the facility. Mr. Snell explained
that MIDREX would be obligated prior to any release of
funds. A reimbursement agreement will be put in place prior
to funding release. Representative Brown suggested that
someone else could provide financial security. Mr. Snell
stated that financial guarantees by MIDREX would remain in
place.
Representative Martin MOVED to report CSSB 171 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note.
Representative Navarre asked when the final financial
feasibility study would be complete. Mr. Snell replied that
it is expected by Fall, 1993. Mr. Snell clarified, for
Representative Navarre, that it will be a multiple use
facility. Capacity will not be expanded without financial
support.
Representative Navarre noted that, due to budget reductions,
there may not be enough personnel to complete the permitting
process. He added that additional state support will be
needed due to the economic development. He questioned if
the state will receive increased revenues to offset the
additional social cost of development. He expressed support
for economic development but emphasized that the state will
not receive additional revenues. He stressed that a state
long range economic plan is needed.
Co-Chair Larson asked if there were objections to
Representative Martin's motion. There being NO OBJECTION,
CSSB 171 (FIN) was reported out of committee.
CSSB 171 (FIN) was reported out of Committee with a "no
recommendation" and with a zero fiscal note by the
Department of Commerce and Economic Development, dated
3/24/93.
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