Legislature(2003 - 2004)

04/15/2003 01:40 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 203                                                                                                            
                                                                                                                                
     "An Act relating to the definitions  of 'net income' and                                                                   
     'unrestricted  net income'  for purposes of  calculating                                                                   
     the  dividends to  be paid  to the state  by the  Alaska                                                                   
     Industrial   Development  and   Export  Authority;   and                                                                   
     providing for an effective date."                                                                                          
                                                                                                                                
                                                                                                                                
REPRESENTATIVE HAWKER,  SPONSOR, testified in support  of the                                                                   
bill.  He explained  that the  bill regarded  the formula  by                                                                   
which the Alaska Industrial Development  and Export Authority                                                                   
(AIDEA) determined  its dividend to the state of  Alaska.  He                                                                   
noted that  current statutes directed  that 25 to  50 percent                                                                   
of  Authority's net  income  be  paid as  a  dividend to  the                                                                   
State, not to exceed its unrestricted  net income.  He stated                                                                   
that the  language defining "net  income" was  later modified                                                                   
to agree  with the agency's  accounting standards  and annual                                                                   
report language.  He noted that  the legislature subsequently                                                                   
defined  the  income  subject   to  distribution  to  exclude                                                                   
intergovernmental   transfers,   capital  contributions   and                                                                   
grants.   He  pointed  out that  the State  did  not wish  to                                                                   
change these exclusions.                                                                                                        
                                                                                                                                
Representative  Hawker observed  that assets  invested  in by                                                                   
AIDEA had  become impaired  in the current  fiscal year.   He                                                                   
acknowledged  that there is  a loss  of value when  something                                                                   
happens to an asset  owned by AIDEA that causes  its value to                                                                   
decline  or   become  impaired,   but  emphasized   that  the                                                                   
operating  net  income  for  the year  is  not  affected.  He                                                                   
maintained   that  impaired   assets   do   not  affect   the                                                                   
Authority's  current net  income.  Impairments are  currently                                                                   
taken into  consideration in calculations  of net  income for                                                                   
AIDEA dividend distributions.  In the current year, values of                                                                   
certain assets  were written down  as impairment  loss, which                                                                   
resulted  in a negative  net income  and no  dividend to  the                                                                   
state of Alaska.                                                                                                                
                                                                                                                                
Representative  Hawker stated  that the  proposed bill  would                                                                   
change  this  practice,  and no  longer  account  for  failed                                                                   
assets  when  calculating  the   dividend  since  these  non-                                                                   
performing  properties do  not result  in a  net loss to  the                                                                   
agency.   He observed  that, had the  State not factored  two                                                                   
impaired assets into  AIDEA's net income for  the past fiscal                                                                   
year,  the  State would  have  received  between $9  and  $18                                                                   
million in a dividend payment.   He emphasized the benefit of                                                                   
clarifying the  dividend policy and  stated that there  is no                                                                   
reason not to have a general fund  contribution by AIDEA when                                                                   
unusual  write-downs occur,  which do  not have an  otherwise                                                                   
detrimental affect on the cash flow.                                                                                            
                                                                                                                                
Representative Hawker  noted that at the end  of fiscal year,                                                                   
AIDEA showed  $789 million  in unrestricted  net assets.   He                                                                   
maintained that the new procedure  would not result in a loss                                                                   
to the  agency, and would  enable the  State to budget  for a                                                                   
consistent dividend payment.                                                                                                    
                                                                                                                                
In response to a question by Co-Chair  Harris, Representative                                                                   
Hawker stated that  the Labor and Commerce Committee  did not                                                                   
amend  the bill.   Co-Chair  Harris  asked for  clarification                                                                   
about the net effect of the bill.                                                                                               
                                                                                                                                
Representative Hawker  clarified that the bill  would further                                                                   
define  "net income" and  "unrestricted  net income"  for the                                                                   
purpose of calculating the dividend.                                                                                            
                                                                                                                                
Co-Chair Harris expressed his strong support of the bill.                                                                       
                                                                                                                                
MIKE  BARRY,  CHAIRMAN,  ALASKA  INDUSTRIAL  DEVELOPMENT  AND                                                                   
EXPORT  AUTHORITY,   (AIDEA)  spoke  in  opposition   to  the                                                                   
legislation.  He explained that  the basis for opposition was                                                                   
the issue  of consistency.  He  discussed the history  of the                                                                   
dividend  policy and expressed  the Board's  full support  of                                                                   
the  current policy.   He  noted the  controversy within  the                                                                   
businesses  community  regarding  the rules  established  for                                                                   
calculating the dividend payment.    He pointed out that this                                                                   
was the  first year in which  AIDEA had not paid  a dividend.                                                                   
He stated the reason as being  two large investments that had                                                                   
suffered impairment.                                                                                                            
                                                                                                                                
Mr. Barry maintained  that the Authority might  be damaged by                                                                   
the prospect that the legislature  may at any time change the                                                                   
rules established  by the original statute.  He  noted that a                                                                   
lack of  consistency might  negatively impact the  impression                                                                   
of the Authority by the business and bonding community.                                                                         
                                                                                                                                
HB  203  was   HEARD  and  HELD  in  Committee   for  further                                                                   
consideration.                                                                                                                  

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