Legislature(2009 - 2010)HOUSE FINANCE 519

03/17/2009 01:30 PM House FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 172 STATE INVESTMENT IN EDUCATION FUND TELECONFERENCED
Moved CSHB 172(FIN) Out of Committee
+ HB 90 AIDEA: BONDING LIMITS; CONFIDENTIALITY TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 90                                                                                                             
     "An Act relating to bonding limitations and Alaska                                                                         
     Industrial Development and Export Authority; and                                                                           
     providing for an effective date."                                                                                          
                                                                                                                                
                                                                                                                                
TED   LEONARD,   EXECUTIVE   DIRECTOR,    ALASKA   INDUSTRIAL                                                                   
DEVELOPMENT  AND EXPORT  AUTHORITY  (AIDEA) introduced  staff                                                                   
members  available  to  answer questions.  He  reported  that                                                                   
AIDEA requested  changes to statutes  that deal  with bonding                                                                   
and confidentiality.  The Alaska  Industrial Development  and                                                                   
Export Authority (AIDEA) mission  is to provide various means                                                                   
of financing  to promote economic growth  and diversification                                                                   
in  Alaska. It  fulfills  this  mission by  providing  Alaska                                                                   
businesses  and  non-profit  agencies  access  to  long  term                                                                   
capital  at reasonable  costs  through  two credit  programs:                                                                   
Conduit Revenue and Loan Participation  programs. The Conduit                                                                   
Revenue  program has  financed  309 projects  with over  $1.1                                                                   
billion. The Loan Participation  program has issued over $800                                                                   
million in  loans. House Bill 90  is part of a  larger effort                                                                   
to  become more  proactive and  responsive  to the  financial                                                                   
needs of Alaskans in this changing economy.                                                                                     
                                                                                                                                
2:36:56 PM                                                                                                                    
                                                                                                                                
Mr. Leonard noted  that HB 90 amends AIDEA  statutes to allow                                                                   
the authority,  flexibility and  timing that it  issues bonds                                                                   
to  ensure  the  most  favorable  terms  and  interest  rates                                                                   
possible in  order to  reduce the  overall cost of  financing                                                                   
for both  AIDEA and Alaska's  businesses using  this program.                                                                   
House   Bill  90   clarifies   and  assures   borrowers   and                                                                   
development  project  applicants  that  certain  records  and                                                                   
information  provided  to AIDEA  will be  kept  confidential.                                                                   
Section  1 amends AS  44.88.095(a) to  exclude refunding  and                                                                   
Conduit Revenue  bonds from  the $400,000,000 maximum  amount                                                                   
of bonds,  set in 1990, AIDEA  may issue during  any 12-month                                                                   
period  (AIDEA  CSHB  90(L&C)  Sectional  Analysis,  copy  on                                                                   
file). Mr.  Leonard referred to  the bond terms  descriptions                                                                   
paper (Alaska  Industrial Development  and Export  Authority,                                                                   
Description of Bond Terms, copy  on file). Mr. Leonard listed                                                                   
the four  types of bonds.  General Obligation Bonds  that are                                                                   
secured  by the  general assets  and future  revenues of  the                                                                   
Authority,  Revenue Bonds  that are payable  out of  revenues                                                                   
derived  from the  projects financed  or  the businesses  for                                                                   
which the projects  are financed, Conduit Revenue  Bonds that                                                                   
are  payable  out  of  revenues  derived  from  the  projects                                                                   
financed  or  the  businesses  for  which  the  projects  are                                                                   
financed, and Refunding  Bonds that are issued  to retire and                                                                   
replace already outstanding bonds.                                                                                              
                                                                                                                                
2:38:36 PM                                                                                                                    
                                                                                                                                
Representative  Fairclough asked if  Mr. Leonard  followed up                                                                   
on her  question regarding  whether refinancing  was specific                                                                   
to the  total accumulative  savings or  just individual  time                                                                   
specific savings.                                                                                                               
                                                                                                                                
2:39:10 PM                                                                                                                    
                                                                                                                                
Mr. Leonard responded that AIDEA is doing both.                                                                                 
                                                                                                                                
2:39:21 PM                                                                                                                    
                                                                                                                                
VALORIE WALKER,  DEPUTY DIRECTOR,  FINANCE, AIDEA,  testified                                                                   
via  teleconference, replied  that AIDEA  looks at  refunding                                                                   
savings as  a net present  value basis  over the life  of the                                                                   
issue,  comparing the  old  issue with  the  new issue  being                                                                   
refunded.  If the  savings are  graded in the  three to  five                                                                   
percent range, they would proceed with the refunding.                                                                           
                                                                                                                                
2:40:50 PM                                                                                                                    
                                                                                                                                
Mr. Leonard declared this allows  AIDEA to cover the issuance                                                                   
costs. With  the refunding bonds,  the total amount  of bonds                                                                   
is self  limiting due  to the  fact that  the bonds  are used                                                                   
only to replace existing bond  debt. The fourth type of bond,                                                                   
the Conduit Revenue  Bond, is used to finance  businesses and                                                                   
non-profits where  AIDEA acts as  a conduit or agent  for the                                                                   
issuance of  these taxable bonds.  Conduit Revenue  bonds are                                                                   
payable solely  by the project  developer primarily  from the                                                                   
revenues generated  from the project.  There is  no financial                                                                   
obligation  for the  bond  debt; therefore  they  are not  at                                                                   
risk. Conduit  Revenue bonds are  one of the main  means that                                                                   
non-profits  and some  businesses can  get tax exempt  status                                                                   
for their bonds.                                                                                                                
                                                                                                                                
2:42:18 PM                                                                                                                    
                                                                                                                                
Mr. Leonard  added that Refunding  and Conduit  Revenue bonds                                                                   
help  promote AIDEA's  economic  development mission  without                                                                   
substantially increasing the amount  of outstanding debt. The                                                                   
enactment of  this amendment would  ensure that  the 12-month                                                                   
bond limit would  not limit the effectiveness  of the Conduit                                                                   
and Refunding  bond programs  or prevent  AIDEA from  issuing                                                                   
debt  that would  provide  Alaska businesses  and  non-profit                                                                   
organizations  with more  favorable terms  and lower  capital                                                                   
costs.                                                                                                                          
                                                                                                                                
2:43:27 PM                                                                                                                    
                                                                                                                                
Mr. Leonard  remarked that Section  2 is for AIDEA  to regain                                                                   
the  bonding authority  before the  sunset on  July 1,  2007.                                                                   
Before that  time, the  Authority could  issue bonds  for $10                                                                   
million and  under; anything over  $10 million would  have to                                                                   
come  back  the  legislature.   Another  part  of  Section  2                                                                   
attempts  to change  the wording  that  allows the  refunding                                                                   
bonds  to include  the issuance  costs to be  covered by  the                                                                   
proceeds of the refunding bonds.                                                                                                
                                                                                                                                
Co-Chair Hawker  responded that  this just clarifies  what is                                                                   
standard  operating procedure  in  the refunding  world.  Mr.                                                                   
Leonard  agreed.  Mr.  Leonard   proceeded  with  Section  3,                                                                   
dealing  with  confidentiality.  He explained  concerns  from                                                                   
participants of the loan programs  and development program on                                                                   
the level of  confidentiality. Under Section 3  and Section 4                                                                   
it clarifies what would be kept  confidential and the process                                                                   
of how it would  be kept confidential. There would  also be a                                                                   
definition inserted of what is meant by trade secrets.                                                                          
                                                                                                                                
2:46:24 PM                                                                                                                    
                                                                                                                                
Co-Chair Hawker  referred to  Section 4  that makes  it clear                                                                   
the   Executive   Director   has   authority   to   determine                                                                   
confidentiality  of  specific  records and  information.  Mr.                                                                   
Leonard  agreed. Co-Chair  Hawker remarked  that the  cost of                                                                   
refunding makes  sense. He asked  for clarification  if AIDEA                                                                   
could issue  refunding and  conduit bonds at  a limit  of $10                                                                   
million  each. Mr. Leonard  responded  that the $400  million                                                                   
limit  is for all  bonds issued  by AIDEA.  Under the  sunset                                                                   
section  AIDEA  was  allowed to  issue  conduit  revenue  and                                                                   
refunding bonds  at any limit,  except for the limit  of $400                                                                   
million.                                                                                                                        
                                                                                                                                
2:48:40 PM                                                                                                                    
                                                                                                                                
BRIAN   BJORKQUIST,   SENIOR  ASSISTANT   ATTORNEY   GENERAL,                                                                   
DEPARTMENT OF  LAW testified  via teleconference,  that under                                                                   
the current  statute the  $10 million  limitation applies  to                                                                   
bonds  issued to  finance  development  projects. The  Alaska                                                                   
Industrial   Development  and   Export   Authority  has   had                                                                   
authority to issue  refunding bonds and conduit  bonds in any                                                                   
amount; there is no dollar amount  limitation, except for the                                                                   
aggregate under Section 1.                                                                                                      
                                                                                                                                
Co-Chair  Hawker  reiterated  that  the change  would  be  to                                                                   
eliminate legislative  approval for any of the  Refunding and                                                                   
Conduit bonds;  the Alaska Industrial Development  and Export                                                                   
Authority  would be allowed  to issue  any amount during  any                                                                   
given   year.   Mr.  Bjorkquist   agreed.   Co-Chair   Hawker                                                                   
questioned why this was necessary.  Mr. Leonard responded the                                                                   
belief that in  today's economy timing differences  could run                                                                   
up against this limit. He reported  that AIDEA has not run up                                                                   
to that  limit at this time,  but there have  been management                                                                   
concerns that the limit would  be reached. He noted that with                                                                   
the  bond  market   as  it  is  today,  there   may  be  more                                                                   
refinancing.                                                                                                                    
                                                                                                                                
2:52:23 PM                                                                                                                    
                                                                                                                                
Representative Austerman explained  that when the Conduit and                                                                   
Revenue  bonds  push the  $400  million  limit it  becomes  a                                                                   
problem.  The   Conduit  and   Refunding  bonds   should  not                                                                   
necessarily  be  impacted because  there  is  no cost  factor                                                                   
downside to the Conduit and Refunding bonds.                                                                                    
                                                                                                                                
2:53:15 PM                                                                                                                    
                                                                                                                                
Mr.  Leonard  responded  they   would  not  affect  financing                                                                   
capability to  finance General Obligation or  Conduit Revenue                                                                   
bonds. Representative Austerman  emphasized that it would not                                                                   
be a  problem unless  pushing the  $400 million. Mr.  Leonard                                                                   
said those  two bonds  do not  affect the  capacity to  issue                                                                   
bonds.   The  Alaska   Industrial   Development  and   Export                                                                   
Authority is  concerned that if  they issued about  $200-$300                                                                   
Conduit  or  Refunding  bonds,   then  it  would  affect  the                                                                   
capacity  to issue General  Obligation  or Revenue bonds  for                                                                   
projects.                                                                                                                       
                                                                                                                                
2:54:16 PM                                                                                                                    
                                                                                                                                
Representative  Fairclough  interjected   that  there  is  an                                                                   
administrative  fee that is  taken on  the Conduit  and other                                                                   
bonds that provide a revenue stream  with a financial impact.                                                                   
She  wondered  why  the  legislature  would  allow  unlimited                                                                   
authority  of an agency  to pass  this credit. She  expressed                                                                   
her concern that someone could  overextend themselves and the                                                                   
state would be left on the hook.  Mr. Bjorkquist replied that                                                                   
neither the state  nor AIDEA would be financially  liable for                                                                   
Conduit bonds. Co-Chair Hawker  expressed his concern for the                                                                   
extension of  credit to the  Conduit Revenue bonds.  He asked                                                                   
when the $400 million was established.                                                                                          
                                                                                                                                
2:57:39 PM                                                                                                                    
                                                                                                                                
Mr. Leonard  replied in 1990.  Co-Chair Hawker  questioned if                                                                   
this  proposal  had  been discussed  with  the  state's  debt                                                                   
manager. Mr. Leonard  replied that it had not  been discussed                                                                   
with  the  state's debt  manager.  Co-Chair  Hawker  strongly                                                                   
suggested that be done before the next meeting.                                                                                 
                                                                                                                                
2:58:35 PM                                                                                                                    
                                                                                                                                
Co-Chair Hawker  opened public testimony  on HB 90.  As there                                                                   
was  none,  public  testimony  was  closed.  Co-Chair  Hawker                                                                   
expressed that the committee planned  to hold the bill today.                                                                   
                                                                                                                                
2:59:26 PM                                                                                                                    
                                                                                                                                
Representative  Joule  disclosed   his  desire  to  enter  an                                                                   
amendment   for  discussion,   although  it   would  not   be                                                                   
introduced today.   His amendment would take  the sunset date                                                                   
from 2009  to 2012.  This would relate  to the valuation  and                                                                   
the Red Dog property.  The borough and the Red  Dog Mine have                                                                   
a  payment in  lieu  of taxes  agreement  as  opposed to  the                                                                   
borough actually  taxing. The  current agreement is  going to                                                                   
last  until 2011.   The  borough  and operators  of the  mine                                                                   
could  have  their  negotiations  on what  the  tax  rate  or                                                                   
payment would  be. Without  this, the  borough would  have no                                                                   
other  choice in these  low commodity  rate  times to go  and                                                                   
open an  agreement that  is still a  few years out.  Co-Chair                                                                   
Hawker noted  that the governor's  office is also  evaluating                                                                   
the same points brought forth by Representative Joule.                                                                          
                                                                                                                                
3:01:48 PM                                                                                                                    
                                                                                                                                
Representative  Kelly commented  that AIDEA  has performed  a                                                                   
very valuable  service and  believed there  has never  been a                                                                   
default  in Conduit financing.  Mr. Leonard  did not  believe                                                                   
so. Representative  Kelly asked  for verification  before the                                                                   
next meeting.  He suggested  a compromise;  the $400  million                                                                   
limit  could be  raised  to keep  Conduit  and Revenue  bonds                                                                   
under this limit. Co-Chair Hawker  agreed he was open to that                                                                   
conversation.  He added  that even under  the existing  AIDEA                                                                   
parameters, it  has come close  to hitting these  limits, but                                                                   
never  actually  been blocked  by  the existing  limits.  Mr.                                                                   
Leonard responded  that was correct;  they were  only looking                                                                   
into   the  future.   Co-Chair  Hawker   responded  that   if                                                                   
refinancing was taken  out of the overall cap,  but left some                                                                   
of the  conduit for  new debt  under the  existing cap,  this                                                                   
could create more margin.                                                                                                       
                                                                                                                                
3:04:14 PM                                                                                                                    
                                                                                                                                
HB  90   was  HEARD  and   HELD  in  Committee   for  further                                                                   
consideration.                                                                                                                  

Document Name Date/Time Subjects
07 HB90 AIDEA Description of Bonds Terms.pdf HFIN 3/17/2009 1:30:00 PM
HB 90
03 HB90 0043-CED-AIDEA-12-12-08.pdf HFIN 3/17/2009 1:30:00 PM
HB 90
CSHB 90 - LC Sectional Analysis.pdf HFIN 3/17/2009 1:30:00 PM
HB 90
Gov Transmittal Letter HB90.pdf HFIN 3/17/2009 1:30:00 PM
HB 90
HB172-DOR-TRE-3-11-09 revised.pdf HFIN 3/17/2009 1:30:00 PM
HB 172
HB172 Testimony 31309.pdf HFIN 3/17/2009 1:30:00 PM
HB 172
HB172 Sponsor Statement.pdf HFIN 3/17/2009 1:30:00 PM
HB 172
HB172 Sec Analysis.pdf HFIN 3/17/2009 1:30:00 PM
HB 172
HB172 Loan Funding Articles.pdf HFIN 3/17/2009 1:30:00 PM
HB 172
HB172 ASLC Background 31309.pdf HFIN 3/17/2009 1:30:00 PM
HB 172
ASLC gov memo.pdf HFIN 3/17/2009 1:30:00 PM
HB 172
Charter Ltr of Support.pdf HFIN 3/17/2009 1:30:00 PM
HB 172
HB172-DOR-TRE-3-13-09 revised.pdf HFIN 3/17/2009 1:30:00 PM
HB 172
HB172-EED-ACPE-03-13-09.pdf HFIN 3/17/2009 1:30:00 PM
HB 172
Ltr. to Reps. Hawker and Stoltze 02.26.09.pdf HFIN 3/17/2009 1:30:00 PM
HB 90
Stoltze 031309.pdf HFIN 3/17/2009 1:30:00 PM
HB 172