Legislature(1995 - 1996)

04/24/1995 01:45 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                 
  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.                                                          
  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                 
  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                 
  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.                                                               
  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                 
  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                 
  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.                                                                 

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