Legislature(2005 - 2006)

04/22/2005 02:48 PM FIN

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* first hearing in first committee of referral
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= bill was previously heard/scheduled
HOUSE BILL NO. 275                                                                                                            
     An   Act  authorizing   financing   for  certain   public                                                                  
     transportation  projects; giving notice of  and approving                                                                  
     the entry  into, and the issuance of revenue  obligations                                                                  
     that    provide   participation    in,    lease-financing                                                                  
     agreements   for  those   transportation  projects;   and                                                                  
     providing for an effective date.                                                                                           
PETE  ECKLUND, STAFF,  REPRESENTATIVE  KEVIN MEYER,  explained                                                                  
that  HB 275  would  fund  $115 million  of  highway  projects                                                                  
around  the State, using  Grant Anticipation  Revenue  Vehicle                                                                  
(GARVEE) bonds.                                                                                                                 
Since 1998,  eighteen  states have  leveraged federal  highway                                                                  
money by  using GARVEE  bonds.   Those transactions  accounted                                                                  
for more  than $12 billion  dollars par  value.  As  a result,                                                                  
the GARVEE  approach is  now an accepted  method of  financing                                                                  
needed transportation infrastructure projects.                                                                                  
To  be  eligible  for inclusion  in  a  GARVEE  bond  package,                                                                  
projects must  qualify for federal  highway aid and  appear on                                                                  
the  Statewide  Transportation  Improvement   Program  (STIP).                                                                  
All  of the  projects listed  in HB  275  qualify for  federal                                                                  
highway aid.                                                                                                                    
Future  federal  highway funds  would  be  used to  repay  the                                                                  
bonds.  The  interest earnings on  the bonds would be  used to                                                                  
pay  for   the  federal  highway   match,  saving   the  State                                                                  
approximately $15 million in general fund match.                                                                                
Mr. Ecklund highlighted  the factors taken into  consideration                                                                  
when placing a project into GARVEE consideration.                                                                               
   ·    A large project that might take more years to do,                                                                       
        could  save  the  inflation  costs  over  time.    The                                                                  
        average  cost  for  heavy  construction  projects  has                                                                  
        risen 15% per year.   Before that, rises  were between                                                                  
        2-3% per year.                                                                                                          
   ·    Other states that have GARVEEs have received                                                                            
        authorization  for  3x  coverage,   which  gives  them                                                                  
        authorization  to pledge  up to 33%  of there  federal                                                                  
        highway  aid for  the repayment  of  that  debt.   The                                                                  
        current program  is at $300  million dollars  per year                                                                  
        and the State is  paying back $13 million  per year on                                                                  
        current GARVEE.   The State  has been conservation  up                                                                  
        to this  time  and  has  not leveraged  a  very  large                                                                  
        portion of the GARVEE program.                                                                                          
2:56:47 PM                                                                                                                    
Co-Chair Meyer  requested an explanation  of the fiscal  note.                                                                  
Mr.  Ecklund  explained that  if  the  State bonded  for  $150                                                                  
million dollars  worth of projects, it would create  a payment                                                                  
schedule for  15 years with an  interest rate of 5.4%.   There                                                                  
are  four  states  recently  doing   GARVEE  issuance.    They                                                                  
received  a  AA  rating  by  pledging  their  federal  highway                                                                  
receipts for repayment.   At current rates, a  GARVEE could be                                                                  
issued at a 4%  rate per day; 5.4% used in preparing  the note                                                                  
is high.   In  order to issue  $116 million  dollars worth  of                                                                  
bonds,  the State  would be  paying back  about $11.4  million                                                                  
dollars  at  the 5.4%  interest.   Inserting  the  current  4%                                                                  
interest  rate,  the  annual   payment  drops  by  $1  million                                                                  
dollars per year.                                                                                                               
DEVON  MITCHELL,  EXECUTIVE  DIRECTOR,  DEBT  MANAGER,  ALASKA                                                                  
MUNICIPAL   BOND  BANK  AUTHORITY,   DEPARTMENT  OF   REVENUE,                                                                  
acknowledged  that   the  Department  did  use   the  high-end                                                                  
interest rate when preparing the note.                                                                                          
Co-Chair Meyer  asked if the fiscal note would  be adjusted or                                                                  
if  the Department  anticipated  interest  rates to  increase.                                                                  
Mr. Mitchell explained  that the note is an estimate  and when                                                                  
the Department  prepares a note,  they address the  worst-case                                                                  
scenario   under  which   they  are  borrowing.     There   is                                                                  
uncertainty regarding  interest rates and he was  reluctant to                                                                  
revise the note.                                                                                                                
3:00:15 PM                                                                                                                    
Co-Chair  Meyer asked  the  last time  the  State sold  GARVEE                                                                  
bonds.   Mr. Ecklund  replied  2002.   Mr. Mitchell  clarified                                                                  
that  they had  been authorized  in  2002, but  sold in  2003.                                                                  
Mr.  Ecklund added,  the  principle  amount was  $102  million                                                                  
Co-Chair  Meyer pointed  out that  the roads  included in  the                                                                  
list, were  ones included  in the  Governor's funding  request                                                                  
proposal from the Amerada Hess monies.                                                                                          
Representative  Kelly  asked  the  anticipated  longest  term.                                                                  
Mr. Ecklund explained  it would make most sense  to use the 6-                                                                  
year  increments,  following  similar  terms  of  the  federal                                                                  
reauthorization  bills.   At present  time, Alaska  is a  year                                                                  
and a  half into  that deal.   There are  four and half  years                                                                  
left  on the  current  reauthorization.   Given  two  more-six                                                                  
year periods,  would  provide around  16 years.   The bill  is                                                                  
written for a 15-year repayment.                                                                                                
3:02:23 PM                                                                                                                    
Representative   Joule  referenced  the  number   of  projects                                                                  
transferred  from the  Amerada  Hess component,  pointing  out                                                                  
that the numbers  were different.  Co-Chair Meyer  interjected                                                                  
that  a  couple  of  the  projects  would  not  fit  into  the                                                                  
program.    Mr.   Ecklund  added  that  the  project   amounts                                                                  
different from  those in the Amerada Hess.  If  the Department                                                                  
of Transportation  & Public Facilities  used the  Amerada Hess                                                                  
or  other State  funds,  it would  cost  less  for the  entire                                                                  
package and would  not go through the federal  process.  Under                                                                  
the  GARVEE  bond  bill, all  projects  have  to  fall  within                                                                  
federal guidelines.   Each has a different requirement,  which                                                                  
adds time and cost.                                                                                                             
Mr. Ecklund  anticipated discussion  regarding whether  or not                                                                  
the  GARVEE bonds  would  affect  the State's  credit  rating.                                                                  
The under-writers  believe it could  be structured so  that it                                                                  
would not be affected.                                                                                                          
3:05:32 PM                                                                                                                    
Representative  Hawker referenced  comments  from the  sponsor                                                                  
statement  indicating  that  interest  earnings on  the  bonds                                                                  
could  be  used  to  pay  the  federal   highway  match.    He                                                                  
understood  that bonds  are  a debt  obligation  and that  the                                                                  
State  would have  expense on  bonds,  not interest  earnings.                                                                  
Mr. Ecklund  stated that  it would result  from investing  the                                                                  
bond proceeds.                                                                                                                  
Representative   Hawker  explained   what   really  would   be                                                                  
happening  is that  the State  would be  investing the  unused                                                                  
portion of  the bond proceeds  and use  that interest  to off-                                                                  
set the  cost of  the bonds and  pay the  highway match.   Mr.                                                                  
Mitchell  replied  that  the  Federal  Highway  Administration                                                                  
(FHA) allows the  State to use all investment  earnings on the                                                                  
construction  fund as a State match.   The projects  would not                                                                  
be completed  quickly.  All the  earnings would accrue  to the                                                                  
benefit of the  State.  Historically, low short-term  interest                                                                  
rates have resulted.                                                                                                            
Representative  Hawker  asked  the possibility  of  the  State                                                                  
saving money  on the match.   Mr. Mitchell  did not know.   He                                                                  
expected  that   with  those  assumptions,  the   State  could                                                                  
possibly achieve around $13 million dollars.                                                                                    
3:08:46 PM                                                                                                                    
MICHAEL     BARTON,    (TESTIFIED     VIA    TELECONFERENCE),                                                                   
COMMISSIONER,   DEPARTMENT    OF   TRANSPORTATION   &   PUBLIC                                                                  
FACILITIES,  ANCHORAGE,  testified   in  opposition  to  using                                                                  
GARVEE bonds.   He pointed out  that the State has  identified                                                                  
over $10  billion dollars  in transportation  needs,  provided                                                                  
by the  Statewide Transportation  Improvement Program  (STIP).                                                                  
He stated that  GARVEE could have a negative impact  on future                                                                  
programs  and that the  GARVEE debt service  would need  to be                                                                  
subtracted from the annual STIP.                                                                                                
GARVEE  bonds are  federal  funds and  must  follow a  federal                                                                  
process,  which  adds time  and  dollars.   The  project  time                                                                  
could  be  extended  1  to 3  years  with  the  project  costs                                                                  
increasing 10-30%.                                                                                                              
Commissioner  Barton pointed out  that federal funding  is not                                                                  
clear  at this  time given  the U.S.  Senate  reauthorization.                                                                  
It needs  to be considered what  Alaska can expect  to receive                                                                  
from  that   program  in  future   years.    There   has  been                                                                  
discussion  in Washington  D.C. regarding  continued  funding.                                                                  
Future reauthorizations  will need to be achieved  without the                                                                  
benefit  of  Congressmen  Young  and  Stevens  chairing  their                                                                  
respective committees.                                                                                                          
Commissioner  Barton   pointed  out  that  the   Governor  had                                                                  
proposed  using the  Amerada Hess  match for  the federal  aid                                                                  
program.   GARVEEs  cannot be used  for that.   He  reiterated                                                                  
his serious  concerns  with using  GARVEE and  urged that  the                                                                  
Committee look elsewhere for a funding source.                                                                                  
3:13:14 PM                                                                                                                    
Co-Chair Meyer  pointed out that the roads already  chosen for                                                                  
the GARVEE bond  funding are ones currently being  recommended                                                                  
by  the Governor.   Commissioner  Barton  did  not oppose  the                                                                  
roads chosen but  the vehicle used to fund that  construction.                                                                  
Co-Chair  Meyer  asked  if using  the  GARVEE's  could  create                                                                  
delays  on other  projects  on the  STIP list.    Commissioner                                                                  
Barton said  yes.  The roads listed  are all part of  the need                                                                  
and   those    Governor's   package    deals   with    getting                                                                  
transportation  infrastructure needs  addressed.  The  goal is                                                                  
to  have  everything  in  place   for  the  structure  of  the                                                                  
pipeline  by 2009.  Currently,  there is  an effort to  expand                                                                  
the transportation needs throughout the State.                                                                                  
3:14:50 PM                                                                                                                    
Co-Chair Meyer  noted that the  GARVEE proposal was a  back up                                                                  
if  the Amerada  Hess  was not  possible  or did  not make  it                                                                  
through  the   Legislative  process.     Commissioner   Barton                                                                  
disagreed with  the statement that  the roads would  never get                                                                  
addressed  and  acknowledged that  it  would take  longer  and                                                                  
require the State to move the timeline further out.                                                                             
3:15:31 PM                                                                                                                    
Vice-Chair  Stoltze asked  if Commissioner  Barton's  position                                                                  
was  a  "political  preference"  and  requested  clarification                                                                  
about the funding source.                                                                                                       
Commissioner  Barton advised  that the  first priority  is not                                                                  
GARVEE  bonding and  that Amerada  Hess would  be the  logical                                                                  
   ·    The GARVEE bonds would extend the project time from                                                                     
        1 to 3 years.                                                                                                           
   ·    It would increase the project costs 10-30%.                                                                             
   ·    It would impact the STIP and projects currently on                                                                      
        the STIP would be delayed.                                                                                              
   ·    The State does not know how much money there will be                                                                    
        in the future against which the GARVEE debt payment                                                                     
        would be based.                                                                                                         
3:17:58 PM                                                                                                                    
In  response  to comments  by  Commissioner  Barton  regarding                                                                  
"anything  except GARVEE"  for  the funding  of the  projects,                                                                  
Co-Chair Meyer  asked if that would include using  the general                                                                  
fund.  Commissioner Barton replied it does.                                                                                     
DICK  CATTANACH,  (TESTIFIED  VIA  TELECONFERENCE),  EXECUTIVE                                                                  
DIRECTOR,   ASSOCIATED   GENERAL    CONTRACTORS   OF   ALASKA,                                                                  
ANCHORAGE,  testified   against  the  use  of   GARVEE  bonds.                                                                  
GARVEE  bonds  are  not  the way  to  go  if  building  Alaska                                                                  
infrastructure.   GARVEE bonds do  not increase the  number of                                                                  
dollars going  into the  hiring fund.   They will only  change                                                                  
the timing.   Future projects  would be accelerated  and there                                                                  
would  be fewer.    If  inflation were  under  control,  there                                                                  
would  be fewer  projects because  interest would  need to  be                                                                  
paid.   It is  important to  recognize  that Alaska  currently                                                                  
gets $5.37  for every dollar that  they send into  the Highway                                                                  
Trust Fund.                                                                                                                     
Mr. Cattanach continued,  when our U.S. Congressmen  Young and                                                                  
Stevens  leave, the  likelihood  of continued  funding at  the                                                                  
current  level  will  be  greatly   diminished.    The  amount                                                                  
referenced when  combined with current GARVEE  payments, would                                                                  
indicate that 15%  to 20% is used to payoff GARVEE  bonds.  He                                                                  
recommended  that  the  State  look  at  alternative  ways  to                                                                  
increase  the  highway  program.    That  was  what  initially                                                                  
enticed   the   State's   builders    about   the   Governor's                                                                  
recommendation,  using Amerada  Hess funds  for adding  to the                                                                  
highway program.                                                                                                                
3:22:04 PM                                                                                                                    
Co-Chair Meyer  acknowledged that  the Legislature  is looking                                                                  
for alternatives  for getting the roads built.   Mr. Cattanach                                                                  
responded that  GARVEE bonds represent  $9 dollars  of federal                                                                  
money for  each dollar the State  puts in.  That does  not add                                                                  
to  the road  funds because  the State  would  get those  same                                                                  
dollars  anyway.    Considering  the  needs of  the  State  as                                                                  
addressed  by Commissioner  Barton  with  $10 billion  dollars                                                                  
worth  of projects,  would take  more than  25 years and  does                                                                  
not consider maintenance.                                                                                                       
Mr. Cattanach stressed  that Alaska is the only  State without                                                                  
a  State  road  program.    Alaska's  State  road  program  is                                                                  
entirely  supported by  the federal government.   Every  other                                                                  
state supports their roads.                                                                                                     
3:24:00 PM                                                                                                                    
Co-Chair  Meyer   agreed,  however,   commented  that   it  is                                                                  
difficult  to compare Alaska  to other  states when  including                                                                  
aspects as the Alaska Marine Highway System (AMHS).                                                                             
Representative   Hawker   reaffirmed   that  Alaska   is   the                                                                  
wealthiest State  in the Nation.  Co-Chair Meyer  echoed those                                                                  
sentiments,  recommending  that  Alaska come  up  with a  road                                                                  
funding system.   Mr. Cattanach concurred that  the State does                                                                  
need a  program to  address infrastructure  concerns and  that                                                                  
the State can no longer wait for the federal government.                                                                        
3:25:55 PM                                                                                                                    
AT EASE:        3:27:04 PM                                                                                                    
RECONVENE:      3:28:18 PM                                                                                                    
Co-Chair Meyer  indicated a new committee substitute  would be                                                                  
forthcoming  and that HB  275 would be  HELD in Committee  for                                                                  
further consideration.                                                                                                          
3:29:42 PM                                                                                                                    

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