Legislature(1997 - 1998)
02/25/1998 01:40 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
HOUSE BILL NO. 386
"An Act relating to the financing authority, programs,
operations, and projects of the Alaska Industrial
Development and Export Authority; and providing for an
effective date."
RANDY SIMMONS, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY (AIDEA), ANCHORAGE, spoke
in support of HB 386 which would continue AIDEA's bonding
authority powers and which would provide new tools to meet
the mission purpose to facilitate job creation, retention,
and helping diversify the economy.
Mr. Simmons noted that a sectional analysis had been
distributed identifying four major areas of change. He
spoke to bonding authorization, export guarantees, business
assistance changes, confidentiality provisions and loan
participation changes.
Mr. Simmons commented that any bonds over $10 million
dollars would come to the Legislature for authorization.
HB 386 would reauthorize general bonding authority for
AIDEA for certain types of bonds. The legislation would
also allow for the Authority to bond for projects such as
Ft. Knox at $71 million conduit dollars, Goat Lake at $23
million dollars and Craig Port (False Island Marine
Facility).
Representative J. Davies asked what a conduit bond was.
Mr. Simmons explained that a conduit bond was a bond issued
in AIDEA's name but which does not put the credit of the
Authority or the State at risk. The credit risk would
instead go with the owner of the facility or the person
actually financially responsible. Co-Chair Therriault
interjected that it would act as a conduit to enhance our
tax-free status.
Mr. Simmons continued, the State of Alaska is eligible to
receive only $150 million dollars a year in volume, which
is the ability to issue private activity bonds tax-exempt.
In the last four or five years, that was not important for
the State, as volume caps were not used much. He pointed
out that in the next three or four years, that will not be
the case. AIDEA now will be working with the State's
bonding committee in order to decide which projects should
be brought forward to use the volume cap for private
activity bonds.
The one change the Authority is requesting would be to
eliminate the sunset. The sunset was important when
development finance bonding was new, but now the Authority
has a very good track record. AIDEA will still come before
the Legislature for authorization of anything over $10
million dollars. Under the Loan Participation Program, the
Authority can obligate $10 million dollars cash.
Representative J. Davies asked if the annual business plan
had been subject to the Executive Budget Act. Mr. Simmons
replied that the operating budget was included in that
consideration.
Mr. Simmons pointed out that in the sectional analysis, the
Export Guarantee Program was the most confusing to
understand. The intent is to modify the program and merge
it into the already existing Business Assistance Program.
That program allows the Authority to guarantee 80% of a
loan up to $1 million dollars.
The program has not been used in the ten years it has been
available. Following a study provided by an outside
consultant, it was determined that the program was not
applicable for the State's needs. It had been designed
from other state programs appealing to a strong
manufacturing base, which Alaska does not have. The
program was also transactional based and required 25% value
added, which eliminated opportunities for Alaskan
distributors and transshipments. It also required that
there was export credit insurance on every transaction.
The proposed change incorporates the data recommended in
the study.
The program will be modified so that it will reflect the
cost of goods and services, the 25% value added will be
removed and it will be established that the business must
be Alaskan. Insurance will be left at the discretion of
the Authority in each transaction. The two programs would
be merged and called the Export Guarantee and Business
Assistance Program.
Representative J. Davies believed that State policy should
be to keep documents open to the public and that they be
kept confidential only upon request of the applicant. Mr.
Simmons assured Representative Davies that confidentiality
is requested every time there is an application. He
stressed that the Authority is a part of the public records
balancing act. The banks are required to keep the
information confidential. He noted that he would support
language proposed in Amendment #D.
KEITH LAUFER, MANAGER OF FINANCIAL AND LEGAL AFFAIRS,
ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY (AIDEA),
ANCHORAGE, commented on Amendment #D. He noted that
deleting "or complied by" as recommended by Representative
Davies would be detrimental as the Authority receives many
documents which need to be compiled into some form before
they are taken to the internal credit committee.
Representative J. Davies asked if a credit-reporting agency
would require that the information be kept confidential.
Mr. Laufer agreed that there would be a need to insure that
the information came from a source and was confidential
when received. "Compiled" versus "submitted" would be of
maximum concern to the Authority. The identity of the
applicant is a public item. That information should be
kept confidential. The information becomes public when
there is a formal application before the Authority.
Mr. Simmons spoke to the technical changes to the loan
participation program. The release of interest rates would
be in reference to the interest rates charged by the
Authority and not those charged by the bank.
Representative Martin voiced concern that the State could
become a loosing partner when making these types of
arrangements. Co-Chair Therriault distributed the current
confidentiality statute proposed for deletion. [Copy on
file]. Mr. Simmons explained that language was used
specifically in addressing the export program only. The
new confidentiality provision applies to all of AIDEA's
programs.
Mr. Simmons spoke to Amendment #B. [Copy on file]. The
proposed project would create a new entrance channel to the
inner port in Nome. The project also would include
construction of a new 28-foot breakwater that would be
built parallel to the existing causeway. The new entrance
channel would improve navigational safety and reliability,
and the breakwater would create a protected turning basin.
Part of the existing channel would be filled to provide a
new access road to the sand spit, which will be protected
by a rip rap seawall connecting to the existing wall in
front of town. The cost would be $30 million dollars.
PAUL FUHS, COURT CONSULTANT, CITY OF NOME, noted that the
City of Nome has already paid $550 thousand dollars for
studies accompanying the proposal. The Army Corps of
Engineers has indicated through the cost benefit analysis
justification of a $40 million dollar project. Their
estimate for the project is $26 million dollars. The City
of Nome has paid for all the bills associated with the
project to date. Federal procurement takes a long time to
put projects out to bid. If the State put it out to bid
and managed all concerns associated with that, the Corps
would then pay 80% of the project costs in the first year.
Of the $26 million dollars, AIDEA would be repaid $21
million.
Mr. Simmons pointed out that AIDEA has not yet worked out
the feasibility of the proposed project. Because of timing
concerns, the construction would be started late in the
fall, which would not give AIDEA the opportunity to come
back to the Legislature. To date, a finding has not been
initiated. As part of the enabling legislation, all the
approval must be accomplished before the project is
considered. He noted that AIDEA does support the
authorization of this project.
Representative Martin pointed out that $25 million dollars
had already been invested into this project. He understood
that there is a problem that the Corps had not dredged deep
enough to maximize for bigger ships entering the port.
Mr. Fuhs responded that the proposed port is the only port
available from Dutch Harbor upward. It is a regional port
serving that entire region, with the potential to serve
Russian fishing vessels.
Representative Martin reiterated concern that the port was
not deep enough. Mr. Fuhs replied that it could be dug
deeper. Because of the currents, it has been maintained at
21' for the past eight years.
Mr. Simmons stated that Nome's port has the second largest
volume of incoming cargo in the State. At present, it has
limited access, safety issues, and situation problems which
significantly burden the port. If a conduit bond were
used, ownership would change. If development finance
authority were used, AIDEA would have to own the facility.
If AIDEA determines that conduit revenue financing will
work, the Authority would not own it, but would give the
City of Nome the credit risk for the facility. Mr. Simmons
guaranteed that the proposed wording would not cut off the
Authority's bonding ability. If conduit bonding was
successful, the proposed language would not be used.
(Tape Change HFC 98- 42, Side 2).
Mr. Simmons spoke to the proposed Red Dog project. The
project would extend the existing dock by approximately
2,500 feet and a 50 foot shipping channel would be
excavated, allowing ships to directly load the
concentrates. The project would eliminate barge traffic
and expedite the loading process.
Mr. Simmons informed Committee members of the benefits of
the proposed project. It would allow shipping season to be
extended to December and would eliminate the twice handling
of concentrates by eliminating barge relay. The proposal
would lower vessel loading time in half and would reduce
down time caused by poor weather conditions.
Mr. Simmons concluded that in economic terms, the project
would extend most seasonal jobs at the port and would lower
the cost of shipping concentrates. Additionally, the
regional port at Red Dog would no longer be used at 100%
capacity, opening up shipping opportunities for other
potential users.
HB 386 was HELD in Committee for further consideration.
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