Legislature(2005 - 2006)HOUSE FINANCE 519

04/26/2005 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 275(FIN) Out of Committee
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.                                                                                           
3:53:19 PM                                                                                                                    
*Co-Chair Chenault  MOVED to  ADOPT work draft  #24-LS0902\G,                                                                   
Utermohle,  4/26/05, as the  version of  the bill before  the                                                                   
Committee.  There being NO OBJECTION, it was adopted.                                                                           
PETE ECKLUND,  STAFF, REPRESENTATIVE  KEVIN MEYER,  explained                                                                   
the  changes.   The original  version of  the bill  allocated                                                                   
$115  million  dollars for  statewide  projects.   Version  G                                                                   
allocates $183  million dollars for projects.   He referenced                                                                   
the handout:  "Grant Anticipation  Revenue Vehicles  (GARVEE)                                                                   
Project List".  (Copy on File).   He pointed out that many of                                                                   
the projects  relate to the gas  pipeline.  The  bond package                                                                   
could  be paid  back over  16 years,  totaling $16.1  million                                                                   
dollars per year, for a total of $257 million dollars.                                                                          
3:55:56 PM                                                                                                                    
Co-Chair Meyer  related the bill's  history and  concern with                                                                   
using  the  bonds.    He  observed  that  the  Department  of                                                                   
Transportation  & Public  Facilities and  the Alaska  General                                                                   
Contractors would rather use a different funding source.                                                                        
3:57:38 PM                                                                                                                    
JOHN    MACKINNON,    DEPUTY    DIRECTOR,    DEPARTMENT    OF                                                                   
TRANSPORTATION AND  PUBLIC FACILITIES, testified  that GARVEE                                                                   
bonds  "do  not grow  the  program".    He pointed  out  that                                                                   
federal  funding for  the past  18 months has  been a  roller                                                                   
coaster  ride  and  the  Department   is  anxiously  awaiting                                                                   
reauthorization.   GARVEE's are  a great mechanism when there                                                                   
is a growing  program.  Paying out interest  earnings shrinks                                                                   
the  program,   ending  up  with  a  bulge   in  construction                                                                   
activity.    He  maintained  that   using  the  GARVEE  bonds                                                                   
concerns the Department.                                                                                                        
Co-Chair Meyer  pointed out that  some of the  proposed roads                                                                   
were ones supported  by the Governor, noting  that passage of                                                                   
the bill  would allow acceleration  for those projects.   Mr.                                                                   
MacKinnon agreed.                                                                                                               
3:59:58 PM                                                                                                                    
Representative Hawker  recognized the reticence  of using the                                                                   
proposed vehicle.   He asked if  the bill were  passed, would                                                                   
that  be  a single  placement  or  would  it be  placed  into                                                                   
components.   He asked the  schedule of the bond  placements.                                                                   
Mr. MacKinnon did  not know, indicating it would  be the call                                                                   
of the Governor.                                                                                                                
4:01:24 PM                                                                                                                    
Mr. Ecklund  countered  in support of  the GARVEE's  pointing                                                                   
out that in the last two years,  heavy construction inflation                                                                   
has been  growing at  the rate  of 50% per  year.   By moving                                                                   
some  projects up  and  doing  them now,  there  could be  an                                                                   
inflationary  cost savings.    The interest  earnings on  the                                                                   
bonds could be used to offset the State match.                                                                                  
4:02:19 PM                                                                                                                    
Co-Chair  Chenault asked  what  would happen  with left  over                                                                   
money  from the  allocations.    Mr. MacKinnon  replied  that                                                                   
rarely is  there money left  over on  a project and  the bill                                                                   
provides the ability to allocate for other projects.                                                                            
Co-Chair Chenault commented on  "old" money still waiting for                                                                   
the  General  Obligation  (GO)  allocation.    Mr.  MacKinnon                                                                   
understood that  the policy was  for those monies to  stay on                                                                   
the project  list.  That  money could  be reallocated.   If a                                                                   
GARVEE  package  results, the  Department  will  have to  use                                                                   
"discipline".   If  projects grow  and  exceed the  available                                                                   
number, it  is important that  the Department  remains within                                                                   
budget, otherwise it could drain other projects.                                                                                
4:04:49 PM                                                                                                                    
Representative  Holm was  concerned  that  projects would  be                                                                   
built with  no maintenance funding  placed in.   He requested                                                                   
an analysis  for the  projects and asked  to what  extent the                                                                   
State studies programs.  Mr. MacKinnon  acknowledged that the                                                                   
Department  is  aware  of the  increased  maintenance  costs,                                                                   
however,  those are not  considerations  when the project  is                                                                   
being  built.   Representative  Holm reiterated  his  concern                                                                   
that when projects are placed  on the STIP, they come without                                                                   
a maintenance  factor  built in.   He maintained  that  it is                                                                   
important  to  look at  planning  and  if  there would  be  a                                                                   
significant impact.                                                                                                             
4:07:41 PM                                                                                                                    
Mr.  MacKinnon pointed  out that  it  would be  good to  have                                                                   
information  regarding  the increase  in  annual  maintenance                                                                   
costs.  Representative Holm agreed.                                                                                             
Representative Hawker  asked if there could be  a penalty for                                                                   
early financing or payoff if another  preferred mechanism was                                                                   
chosen instead of the GARVEE.   Mr. McKinnon did not know but                                                                   
indicated that the State could  substitute the federal screen                                                                   
for other sources.                                                                                                              
4:09:40 PM                                                                                                                    
DICK  CATTANACH,   EXECUTIVE  DIRECTOR,  ASSOCIATED   GENERAL                                                                   
CONTRACTORS OF  ALASKA, ANCHORAGE,  clarified that  his board                                                                   
concurred with  the Department's  position against  using the                                                                   
GARVEE bonds.   The  use of the  bonds would  not add  to the                                                                   
highway  program  but rather  would  move projects  from  the                                                                   
future  to the  present.   The  bonds  will  not add  project                                                                   
money, with the exception that  building now might be cheaper                                                                   
than building  in four years  because of inflation.   Issuing                                                                   
GARVEE  bonds means paying  interest and  that interest  must                                                                   
come from  the $6  billion dollar  allocation.  The  interest                                                                   
costs might  offset the inflation  and the State will  end up                                                                   
with  a program  no bigger.    He emphasized  that using  the                                                                   
GARVEE bonds creates an artificial period of time.                                                                              
4:12:07 PM                                                                                                                    
Mr. Cattanach  thought  that the $200  billion dollar  number                                                                   
was  exorbitant.    The projects  would  total  $500  million                                                                   
dollars  for two  years  and contractors  would  ramp up  for                                                                   
that.   Paying off the  bonds, it would  be decreased.   With                                                                   
the  bonds  issued last  year  and  the current  ones,  would                                                                   
result  in a  reduced  program  of $25-$30  million  dollars.                                                                   
Instead of $4 million future dollars,  the end result will be                                                                   
$375 million  dollars  for the  next 14 years.   He  stressed                                                                   
that if  using GARVEE  bonds, the  projects must be  selected                                                                   
carefully.  He reiterated his  opposition to using the bonds.                                                                   
4:14:37 PM                                                                                                                    
Co-Chair  Meyer  commented that  finding  roads  for the  gas                                                                   
pipeline is  important.   He pointed out  that some  of those                                                                   
roads  are  on  that  list  and  there  is  a  need  to  find                                                                   
geographical balance.                                                                                                           
4:15:16 PM                                                                                                                    
Mr. Cattenaugh  argued against using  the GARVEE bonds.   Co-                                                                   
Chair Meyer  acknowledged that  his first  choice was  to use                                                                   
the surplus Amerada Hess general fund money.                                                                                    
4:16:05 PM                                                                                                                    
Representative Hawker asked how  Mr. Cattenaugh would counsel                                                                   
the Committee  for road  maintenance funding for  sustainable                                                                   
planning.    Mr.  Cattenaugh  responded  that  the  Statewide                                                                   
Transportation  Improvement  Projects (STIP)  process  works,                                                                   
acknowledged, it is  flawed.  The STIP is currently  the best                                                                   
process  that  the  State  has.   He  did  not  know  how  to                                                                   
otherwise  respond  to  Representative   Hawker,  reiterating                                                                   
concern  that  GARVEE  bonds  are  not  a  good  option;  the                                                                   
projects  would  be  on  top of  a  highway  program  already                                                                   
costing $400 million dollars.                                                                                                   
4:18:16 PM                                                                                                                    
Representative  Hawker  commented  that  he  really  did  not                                                                   
understand the  STIP process and  asked what would  happen if                                                                   
the State did  have an alternative funding source  and if the                                                                   
STIP  money was  lost  or available  for  rescheduling.   Mr.                                                                   
Cattenaugh  believed   it  would  be  available   as  it  was                                                                   
authorized for Alaska.                                                                                                          
4:19:52 PM                                                                                                                    
TOM   BOUTIN,   (TESTIFIED   VIA    TELECONFERENCE),   DEPUTY                                                                   
COMMISSIONER, DEPARTMENT OF REVENUE,  ANCHORAGE, responded to                                                                   
Representative Hawker's query,  a question for the Department                                                                   
of  Transportation &  Public Facilities.   He  noted that  in                                                                   
2003, the State  did issue GARVEE bonds.  He  understood that                                                                   
for  each GARVEE  qualified project,  the State  goes to  the                                                                   
federal  government  to  obtain  an okay  for  that  project.                                                                   
Therefore, a project that qualifies  for GARVEE, reduces what                                                                   
otherwise  would be  federal  receipts.   If  a project  were                                                                   
funded through some alternative  funding, the State would not                                                                   
be giving up federal money.                                                                                                     
4:22:12 PM                                                                                                                    
Mr. MacKinnon  agreed  and that  it could free  up that  much                                                                   
money.    Representative  Hawker   was  hopeful  to  find  an                                                                   
alternative mechanism  to the  GARVEE process that  would not                                                                   
compromise funding down stream.                                                                                                 
4:23:15 PM                                                                                                                    
Mr. Boutin added that typically  the bonds could be issued so                                                                   
that there could  be an early call provision.   With the call                                                                   
premium,  there  would  be  an issuance  cost  and  the  bond                                                                   
proceeds would not be invested  with high rates on the bonds.                                                                   
There would  be costs in issuing  that debt and  not spending                                                                   
the money.   Using the GARVEE  bonds, there will be  a credit                                                                   
rating concern.                                                                                                                 
4:24:24 PM                                                                                                                    
Representative Holm  asked if the money would be  lost if the                                                                   
projects  were not  completed and  wondered how  many of  the                                                                   
projects  would be  "time trapped"  under  the STIP  process.                                                                   
Mr. MacKinnon  did not know.   He pointed  out that  the list                                                                   
provided  by Co-Chair  Meyer's  staff  included  a number  of                                                                   
those projects.                                                                                                                 
Representative  Holm  commented  on the  problems  associated                                                                   
with the  STIP process in those  areas of the State  that are                                                                   
adversely affected by projects  not funded.  He was concerned                                                                   
with supporting the GARVEE bonding.                                                                                             
4:26:52 PM                                                                                                                    
Representative  Kelly  requested  clarification if  the  STIP                                                                   
list  would use  GARVEE  bond funding.    Mr. MacKinnon  said                                                                   
there would be a $100 million dollars total in that list.                                                                       
4:28:28 PM                                                                                                                    
Representative  Weyhrauch  noted  in  his area,  there  is  a                                                                   
backlog of projects  and continues to be a  stagnant decline.                                                                   
He thought the State should foster  more private development.                                                                   
He  applauded the  Chairman for  "looking for  every dime  he                                                                   
can", reiterating that his area  is "hurting".  There is high                                                                   
unemployment with access needs for resources and roads.                                                                         
Representative Weyhrauch  referenced the list,  requesting it                                                                   
to  be  amended  to  include  a  road  extension  on  Glacier                                                                   
Highway.   He  emphasized  that SE  Alaska  supports the  gas                                                                   
pipeline.   He acknowledged that  S.E. Alaska is  a different                                                                   
world and  urged that member's  support addressing  the needs                                                                   
in S.E. Alaska, too.                                                                                                            
Mr. Cattenaugh  stated that the  general contractors  are not                                                                   
opposed  to any projects;  however, warned  about moving  the                                                                   
proposed dollars  forward.   He warned  that the State  would                                                                   
not gain anything  that way.  The Alaska  General Contractors                                                                   
(AGC) will support another source  of funding.  Alaska is the                                                                   
only State in the  nation that does not have  a State highway                                                                   
program.  In  most states that program equals  or exceeds the                                                                   
amount received  by the federal  government.  There  are over                                                                   
$10 billion dollars worth of needed  projects.  He encouraged                                                                   
the Legislature re-think outside federal highway dollars.                                                                       
4:32:52 PM                                                                                                                    
Co-Chair Meyer indicated  that he would like  to find another                                                                   
source  of  money  for  these   roads;  however,  it  is  not                                                                   
available.   He agreed  that there are  other sources  but to                                                                   
date, they have  not been explored.  In order  to address the                                                                   
priority roads, GARVEE bonds are the only thing available.                                                                      
Representative  Weyhrauch  maintained the  real  need is  for                                                                   
fiscal planning.                                                                                                                
Representative  Hawker  interjected that  last  year, if  the                                                                   
House had  been successful  with the  Senate in adopting  the                                                                   
Percent  of Market  Value (POMV),  a constitutional  spending                                                                   
limit,  and HB  298, then  the  State would  be enjoying  the                                                                   
beginning of fiscal planning.                                                                                                   
4:35:04 PM                                                                                                                    
Representative Weyhrauch  MOVED to AMEND  on Page 3,  Line 3,                                                                   
inserting,  "Glacier Highway  road  extension  - $10  million                                                                   
dollars - Section (23)".                                                                                                        
Co-Chair  Meyer  asked  if  that was  on  the  Department  of                                                                   
Transportation  & Public  Facilities'  list.   Mr.  MacKinnon                                                                   
replied that  project could fit  into the list.   There being                                                                   
NO OBJECTION, it was added.                                                                                                     
Representative Foster  MOVED to report CSHB 275  (FIN) out of                                                                   
Committee  with  individual  recommendations   and  with  the                                                                   
accompanying fiscal  note.  There being NO  OBJECTION, it was                                                                   
so ordered.                                                                                                                     
CS HB  275 (FIN)  was reported  out of  Committee with  a "no                                                                   
recommendation" and with a new  fiscal note by the Department                                                                   
of Revenue.                                                                                                                     
4:38:12 PM                                                                                                                    

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