Legislature(1995 - 1996)
04/24/1995 01:45 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE BILL NO. 92 "An Act requiring that, in addition to its operating budget, all activities of the Alaska Housing Finance Corporation are subject to the Executive Budget Act." JOHN BITNEY, STAFF, REPRESENTATIVE MARTIN testified on behalf of HB 92. He explained that the legislation was sponsored at the unanimous request of the Legislative Budget and Audit Committee. He explained that the legislation attempts to bring all the activities of the Alaska Housing Finance Corporation (AHFC) under the review procedures of the Executive Budget Act. He observed that the Committee was concerned that the Corporation had undertaken a fairly substantial program with the use of arbitrage funds. Loans were made with arbitrage funds at a 5 percent interest rate. He noted that the legislation was amended in the House State Affairs Committee. The State Affairs Committee placed three items in the bill on page 2, lines 8 - 16, that would be exempted from the review procedures. He explained that financing through the sale of bonds, multi-family loans and projects not to exceed 10 million dollars, and any loan program for which a subsidy is not required would be exempt from review procedures under the Executive Budget Act. He stressed that the intent is to craft language to be added to what is provided for the Corporation in the front section of the operating budget. He explained that AHFC functions approved in the front section of the budget receive open- ended authorization. He stressed that the front section language would be expanded to give the Corporation open- ended authority for the programs which are being brought under the review procedures of the legislature. In response to a question by Representative Brown, Mr. Bitney explained that the legislation varies from the status quo by listing the three exemptions that are not covered by 2 the Executive Budget Act instead of listing the specific areas in which the review of the Executive Budget Act applies. He noted that loan programs and use of arbitrage funds to set up programs and bonding authority were previously exempted. The legislation would require the Corporation to seek approval for grants, any arbitrage program and any subsidized project or program that exceeds 10 million dollars. TOM WILLIAMS, STAFF, SENATOR FRANK asserted that the House State Affairs Committee Substitute for SB 92 may make Alaska Housing Finance Corporation less subject to the Executive Budget Act than it is under current statute. He referred to section (B), page 2, line 12 regarding multi-family loans. He stated that Senator Frank would prefer that the previous version be adopted. CYNTHIA PARKER, EXECUTIVE DIRECTOR, ANCHORAGE NEIGHBORHOOD HOUSING SERVICES testified in support of HCS CSSB 92 (STA). She expressed concern that if all of AHFC's activities were brought under the Executive Budget Act that AHFC could not take advantage of quick changing financial market activities. She discussed the bond issuance capacity of AHFC. She referred to (B) on page 2, line 12. She noted that most multi-family housing projects in Alaska involve subsidy layering from the federal government. She stressed that the complexity of the projects could require up to five different funding sources to make a project work. JAN SIEBERTS, NATIONAL BANK OF ALASKA (NBA) stressed that NBA has been a good partner in supplying financing for housing in the State. He testified in support of HCS CSSB 92 (STA). He expressed concern that AHFC be given flexibility to accomplish complex financing needed for senior and low income housing projects. He reviewed a senior citizen project in Fairbanks. He observed that the project includes federal grants, the use of arbitrage funds, federal tax credits, and other forms of assistance. He stressed that AIDEA has a $10.0 million dollar loan authority. He suggested that AHFC be also given a $10.0 million dollar level of authority. In response to a question by Representative Parnell, Ms. Parker stated that she interpreted page 2, line 12 as a $10.0 million dollar cap on the project not AHFC's portion of the financing. Representative Martin stated that the problem came to the attention of the Legislative Budget and Audit Committee when the 5 percent arbitrage program was initiated. He stressed that the Legislative Budget and Audit Committee is charged with the financial well being of the State. He emphasized 3 the responsibility of the Legislative Budget and Audit Committee to oversee the welfare of the State. Representative Kohring stated that the State will not be encumbered on the part of the Legislation given the strong financial status of AHFC. In response to a question by Representative Kohring, Ms. Parker noted that the addition of "programs" on page 2, line 12 after "loans" would be advisable. She explained that the intent during the drafting was that there be a $10.0 million dollar cap. Legislative oversight would remain under the Executive Budget Act. She suggested that "multi-family" loans may be too restricted. She discussed projects that would be affected by the insertion of "multi-family". Representative Kohring questioned if language should be inserted to clarify that the $10.0 million dollar cap refers to AFHC's participation as opposed to the entire project. Ms. Parker stated that the language suggested by Representative Kohring would be consistent with AIDEA's authority. In response to a question by Representative Mulder, Ms. Parker stated that $10.0 million dollars would equate to a 82 unit building. She noted that "multi-family" units would primarily be low income or special needs units. She explained that tax credits are sometimes allocated to projects to reduce debt. Representative Parnell questioned the intent by the House State Affairs Committee in providing a $10.0 million dollar cap. He asked how often AHFC reaches $10.0 million dollars in contribution for low income projects. She noted that other funding sources are usually involved. She noted that AHFC contributed $4.5 million dollars of a $11.0 million dollar multi-family project in Anchorage. She stressed that some Anchorage projects under AHFC's for profit equity extraction and refinancing could require a $10.0 million dollar involvement by AHFC. She conceded that $10.0 million dollars is a upper limit that is would be reached for multi- family loans and programs. Representative Martin emphasized the importance of AHFC's influence. He stressed the need for legislative oversight. Mr. Sieberts asserted that the legislation substantially brings AHFC under control of abuses previously discussed. He emphasized that the legislation is a compromise that allows AHFC to continue to do business without jeopardizing projects. He asserted that government is involved in all housing loans. 4 Representative Therriault pointed out that AIDEA provides funding for larger projects such as port facilities. He expressed concern with allowing the $10.0 million dollar contribution to refer to only AHFC's portion of a multi- family project. Representative Kohring stressed that AHFC steps in to provide loans when other governmental housing loans are not available. He stated that the entire banking and mortgage lending industry is concerned about the restrictions that the legislation poses. Representative Navarre questioned what portion of AHFC's activity would be available through other markets. Ms. Parker stressed that changing interest rates and market activities effect the availability of secondary market sources. She pointed out that rural areas were disadvantaged until the merger. She stressed that AHFC is able to make rural loans at competitive rates. (Tape Change, HFC 95-96, Side 2) Ms. Parker emphasized that AHFC is the primary lender for multi-family loans. She noted that outside capital may be available for some larger multi-family projects. Mr. Siebert added that NBA services approximately $2.1 billion dollars in loans. He noted that $900.0 million of these loans represent AHFC loans. He stressed that AHFC is probably the only source of money in rural Alaska. He pointed out that mortgage companies take the top third of the market. He noted that conduit marketing representatives are not interested in the Alaska market place. He stressed that HUD projects can take up to a year to arrange lending. He emphasized that AHFC has a rural housing program that works well for up to 12 units. Representative Navarre asked how much of AHFC's rural lending could be displaced with other sources. He asserted that the State has driven up the housing economy by providing financing to the lower two-thirds of the market. He suggested that the financial security of AHFC could be at risk with another down turn in the economy. He stressed that most of the risk falls on AHFC. He stated that the government absorbs most of the loses. Ms. Parker stated that the distortion in the market occurred as a result of single family loans when interest rates were high. She stressed that the issue is AHFC's ability to access normal capital markets in a market driven economy without subsidy. She stated that there is not as high a 5 foreclosure risk in rural Alaska since there is no where for residents to go. Mr. Siebert stressed that the rural portfolio has the lowest default and delinquency rates. He asserted that the rural portfolio carried the rest of Alaska during the last recession. He maintained that the reason that the National Bank of Alaska survived the recession was because the nucleus of its power was in Southeast Alaska. He estimated that it would be difficult to displace rural AHFC loans to other sources. He stressed that AHFC's mortgage standing has aged and is in a better position to withstand another downturn. Representative Brown clarified that the Alaska Railroad is not under the Executive Budget Act. She noted that the merger is three years old. She noted that she introduced the original legislation to make the merger. She emphasized that the level of oversight was discussed in detail. She stressed that there is still a shortage of affordable housing. She noted that up to 25 percent of the housing available is not energy efficient. She spoke in support of HCS CSSB 92 (STA). Co-Chair Hanley noted that SB 92 would be assigned to a subcommittee consisting of Representative Martin as Chair and Representatives Kohring and Navarre. Representative Martin questioned whether the rural portfolio is carrying the rest of Alaska's housing market. He stressed that homes are over priced. Mr. Siebert clarified that the delinquency rates and the portfolio served by the National Bank of Alaska for AHFC in rural Alaska out performs urban centers. SB 92 was assigned to a subcommittee consisting of Representative Martin as Chair and Representatives Kohring and Navarre.