Legislature(1997 - 1998)
05/01/1997 03:07 PM House HES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 215 - APPROP: EDUCATION FACILITIES FUND HB 216 - EDUC. FACILITIES FINANCING AUTHORITY Number 0487 CHAIRMAN BUNDE announced that the committee would address HB 215, "An Act making an appropriation to the education facilities fund; making an appropriation from the constitutional budget reserve fund under art. IX, sec. 17(c), Constitution of the State of Alaska; and providing for an effective date," and HB 216, "An Act relating to the Education Facilities Financing Authority; and providing for an effective date." Number 0498 GEORGE DOZIER, Legislative Assistant to Representative Kott, Alaska State Legislature, stated that Representative Kott has become increasingly concerned about the inadequate and deteriorating school facilities throughout the state of Alaska. Representative Kott's bills, HB 215 and HB 216, address this deficiency. House Bill 216 establishes an Education Facilities Financing Authority, located within the Department of Education (DOE) and an Education Facilities Fund, under the control of the Education Facilities Financing Authority but administered by the Department of Revenue (DOR). The Education Facilities Financing Authority would issue bonds to directly finance the construction of those school facilities specifically approved by the legislature. This bill includes funding provisions for a number of new construction and improvement projects. "In addition, HB 216 would permit the authority to contract, to pay up to 70 percent of the net debt service, on municipal bonds that are issued to finance municipal school facilities and up to 100 percent of such bonds which are issued by the University of Alaska." He reiterated that specific projects would have to be approved by the legislature. MR. DOZIER explained that the authority would apply only non-corpus balances of the fund to debt service on bonds that are issued by the authority and would also pay specified percentages of municipal debt service on municipal bonds. The authority would have the right to pledge assets of the fund as security for bonds that would be issued. The fund corpus would not be utilized, only the earnings of the corpus would be used. He said HB 215 transfers, from the constitutional budget reserve fund (CBRF), $1.2 billion into the education facilities fund. Number 0696 CHAIRMAN BUNDE clarified that HB 215 would essentially dedicate $1.2 billion to a permanent fund for school facilities. This bill deals with school facilities as opposed to the educational endowment which deals with the operation of the schools. He noted that the fiscal note was for $500,000. He understood the need for money to set up the Education Facilities Fund, but questioned why it couldn't pay its own operating expenses. Number 0756 MR. DOZIER answered that he had just received the fiscal note and hadn't had a chance to review it. Number 0778 CARL ROSE, Executive Director, Association of Alaska School Boards, said the association supports the efforts of both HB 215 and HB 216. They feel that there is some value in restricting dollars for the purpose of investment to address some of the long term problems with schools in the state. The real value of these bills is that a measure such as this can create latitude in the state's capital budget in years to come. If the legislature has a concern regarding downsizing or closing the fiscal gap, this type of measure can create the needed latitude. MR. ROSE felt the numbers looked favorable in terms of addressing current issues before they become critical. Last year, the state appropriated $7 million into the capital budget for schools while a billion dollars of need has been identified. These bills address this long term and large problem in a creative way. Number 0888 CHAIRMAN BUNDE encouraged him to identify the differences between wants and needs. The state needs very little, but wants a lot. MR. ROSE responded that the state needs a lot. Number 0907 CHAIRMAN BUNDE referred to the 30 percent local match requirement and the zero percent match for the university. He asked whether the association had taken a position on that requirement. Number 0917 MR. ROSE answered that many of the school districts across the state lack the ability to meet this match requirement. He felt there would be ongoing negotiations and proposed amendments which would lessen that matching figure. There is a statewide problem, without the necessary resources statewide, about how to meet this match requirement. He mentioned the inability of the Rural Education Attendance Area (REAA) to meet such a match requirement because of the small property value or their ability to garner a local contribution. Number 0957 B. A. WEINBERG, Lobbyist, Kashunamiut School District; Citizens for the Educational Advancement of Alaska's Children, was next to testify. He said the latter group is comprised of rural school districts, parents and citizens who are concerned about the state's mandate for providing adequate and equitable funding for public education and facilities. The DOE has identified, through their capital improvement program (CIP) application process, about $615 million of capital improvement projects that meet the criteria established under law. This problem will not go away if it is ignored or put off; it will only become worse and more expensive to fix. MR. WEINBERG explained that HB 215 and HB 216 provide for a long- term, steady stream of revenue to begin addressing these needs. The groups he represents endorse the concept of these bills, especially the projects which are on the DOE's CIP priority list. Number 1066 CHAIRMAN BUNDE asked whether the people he represented would be able to meet the match requirement in order to take advantage of this program. Number 1077 MR. WEINBERG responded that REAAs, in most cases, have no means of coming up with a 30 percent match. In the case of the Kashunamiut School District, they are unable to come up with the 2 percent match needed for their project under the current statute. The only practical place for this money to come from is out of their district's operating budget. If you were to require 15 times this 2 percent local match, it would equal several years of the total operating budget of the school district. The Kashunamiut School District facility has been independently documented as being a life, health and safety hazard to students as well as being educationally inadequate. Under the DOE's space guidelines it is at 189 percent of capacity. This building is owned by the state, and the state has statutory obligations with regard to education in unorganized boroughs. He concluded that this school district and many other REAAs could not meet a 30 percent match requirement. Number 1160 CHAIRMAN BUNDE asked whether this meant that HB 215 and HB 216 were urban school bills. MR. WEINBERG answered possibly but he hoped that, as these bills went through the process, they would incorporate the needs of the rural school districts. Most of the highest capital improvement projects, as identified in the need criteria of the DOE, are located in rural school districts. Number 1203 STEPHEN McPHETRES, Executive Director, Alaska Council of School Administrators, stressed that HB 215 and HB 216 are not just educator's bills. This project started off in cooperation with the Cominco / Red Dog Mine Company, who recognized that schools across the state are deteriorating and are in need of help. If work is not done on these facilities, the local businesses and industries will eventually pay higher taxes for the repairs and maintenance of the educational facilities. Cominco felt this proposal had a lot of merit. MR. McPHETRES said that HB 215 asks the legislature to take $1.2 million from the CBRF in order to leverage the sale of revenue bonds which would then finance school construction and major maintenance projects across the state for years to come. This fund would be able to operate for five to ten years, providing a growing stream of revenue to pay for these projects. This is different from general obligation bonds which are one shot deals with a list of projects on the ballot. This fund would address the rising needs of school construction and major maintenance. MR. McPHETRES explained that the $1.2 billion would be given back. Money would be invested through the Alaska Permanent Fund Corporation, the interest off the Education Facilities Fund would be used to secure revenue bonds. Once the revenue bonds have been expended, the $1.2 billion would be available for further use by the legislature. He stated that these expenditures would also stabilize the construction industry. Number 1329 BOB LeRESCHE, Cominco / Red Dog Mine, referred to a handout located in the committee file. These bills involve appropriations of $1.2 billion from the CBRF to a new fund, which these bills set up, called the education facilities fund. That money is then invested by the permanent fund corporation under exactly the same rules it uses to invest permanent fund money. The education facilities fund wouldn't require any special management; it would allow the Education Facilities Financing Authority to sell revenue bonds based on corporate assets, not secured specifically by this $1.2 billion. This bill provides three different channels to authorize revenue bonds. Revenue bond proceedings could be used, with legislative authorization under Section A, to directly fund the school construction project. This funding amount is determined by the authorization section of these bills. MR. LeRESCHE mentioned that the Education Facilities Financing Authority can be authorized to use the bond proceeds to pay reimbursement contracts with municipalities or the university for special school projects. These projects, authorized by the legislature, would be reimbursed up to 70 percent of debt service. The legislature would authorize specific projects in an annual authorization bill. The legislature may authorize the authority to reimburse 100 percent of university bonds for university deferred maintenance. MR. LeRESCHE said the actual authorizations, which are included in this initial bill, could be for the amount listed or they could be greater or less than that amount. A proposal to change this bill calls for an authorizations in the first box. It applies the formula under AS 14.11.008, the school district participation, in the grant program. This would make the required match dependent on the ratio of full value assessments to the average daily membership (ADM). The minimum amount of local share would be 2 percent, going up to 10 percent with a maximum percentage of 30 percent. Most large municipalities would have a 30 percent local match. Some smaller municipalities including Unalaska, Valdez and the North Slope Borough would also have a 30 percent match. Number 1635 MR. LeRESCHE explained that these bills provide an ongoing solution. The authority would stay in place as long as the legislature decides to maintain it and the legislature could annually authorize specific school projects off the budget. These projects would be funded through bond proceeds. Part of the earnings from this fund would be used to pay the debt service on the bonds. This would allow the state to build schools when they are needed, rather than waiting for earnings to accrue. The longer the waiting period, the greater the cost of the project will be. MR. LeRESCHE stated that this fund would actually gain in value while it paid off these bonds. This occurs through the magic of arbitrage which the state has the right to do. Cominco's bond counsel and the DOR's bond counsel have been discussing this proposal. There is some question of whether or not this fund would be forced to yield restrict by the Internal Revenue Service (IRS). The Cominco bond counsel is convinced that this bill is written so that there wouldn't be a yield restriction. The fiscal note was written by the "permanent fund" for the permanent fund on the assumption that they would have to restrict the yield on these investments. It would cost $500,000 a year to do the investments differently than the standard corpus. He felt that once it was determined that yield restriction does not apply to this fund, the fiscal note would decrease. This fund could easily support itself. Number 1800 MR. LeRESCHE announced that this bill should have chosen the title, "corporation" instead of "authority." This paper authority is necessary if the state is going to sell revenue bonds secured by the assets of a corporation under the Education Facilities Financing Authority. This bill suggests that the authority consist of the commissioners of the Department of Revenue, the Department of Transportation/Public Facilities and the Department of Education. The commissioners would only be able to sign the bonds, which are directed by the legislature in the annual allocations. Number 1858 MR. LeRESCHE explained that a simple, but accurate way to look at this authority is that it is modeled after the Alaska Housing Finance Corporation (AHFC) and the Alaska Industrial Development and Export Authority (AIDEA) system of financing. The Education Facilities Financing Authority does not contain the same management or authority models of AHFC and AIDEA. Basically AHFC and AIDEA started out with appropriations to their corporate assets and used those appropriations to leverage billions of dollars in private development and homes. The Education Facilities Financing Authority is a financially similar entity, using the basic deposit to leverage early construction of necessary capital facilities and major maintenance. The Education Facilities Financing Authority would be as profitable as AIDEA and AHFC. MR. LeRESCHE referred to the legislative majority's five-year budget strategy which uses the earnings from this $1.2 billion as revenue. The proposed committee substitute was consolidated into the five-year spending plan. The result is that $731 million worth of schools can be obtained and a certain dividend can still fall back into the revenue stream. This is done by allocating a portion of the earnings of the CBRF to the retirement of the school bonds. This does not impact the spending plan and the fiscal gap comes down almost as fast as in the five-year budget strategy. Number 1920 CHAIRMAN BUNDE referred to the "Molly Hootch situation," where the state built far more schools than were needed. Now there is the problem of having schools consisting of four to ten students, costing the state a lot of money. He asked whether these bills would start another construction bonanza focused more on enriching contractors than on educational excellence. Number 1947 MR. LeRESCHE explained that the only school projects that would be done are the ones authorized by the legislature in the authorization section of the bill. This bill would allow authorization of regional high schools and does not have to create a construction bonanza. It is the process and the technique that he is advocating with this bill, not a specific item on the allocation list. If there is an agreement that schools need to be built, that the university needs money to for deferred maintenance, then this bill is the most cost-effective and efficient way to do accomplish these goals. Number 1985 CHAIRMAN BUNDE pointed out that the university gets 100 percent, while local school districts have to come up with some match, 30 percent initially and perhaps smaller. He asked why the university was being given a free ride, when the municipalities were required to come up with a match. Number 2000 MR. McPHETRES answered that the university is more directly state- supported than a school that is part of another governmental structure such as a school district. Number 2012 CHAIRMAN BUNDE referred to an initiative petition which is being circulated about an educational endowment. This educational endowment also finds the CBRF to be a useful vehicle. He asked whether it was possible to do both the endowment and the construction of facilities. Number 2020 MR. McPHETRES answered that it was not possible to do both with the CBRF. Number 2025 CHAIRMAN BUNDE clarified that they were familiar with the sweep provision on the CBRF and that it would be conceivable that money would not be available for any of these projects if the sweep were required. Number 2036 MR. LeRESCHE understood the budget process to be such that there is a "sweep provision" in the front section and then a reappropriation back from where it was originally swept. This would fit in the same category. If the sweep were fully enforced and it couldn't be put back in, then all AHFC's assets, including the science foundation and AIDEA's liquid assets, would be put back in the CBRF. This Education Facilities Financing Authority is not in a different category. Number 2064 REPRESENTATIVE KEMPLEN clarified that the Education Facilities Financing Authority is similar to the AHFC. He asked the connection between the capital on one side and the operations and maintenance on the other side. The endowment referendum focuses on the operating side of the equation and the Education Facilities Financing Authority is on the capital side of the equation. He asked who would be paying for the operations and maintenance and discussed the difficulties in coming up with state money to fund the additional facilities. Number 2168 MR. McPHETRES referred back to the chair's question about whether or not the CBRF would be able to support the endowment and the authority. The answer to the question was that both sides could not be supported. He said an endowment could be set up somewhere else and still have authority under the CBRF. Whenever any school district gets into a design plan for a facility in their school district, the cost of operations is part of the determination of whether or not they can afford it and if they need to have it. The operational component is written into their proposed design. Many of the repairs, there are 61 projects currently on the list which have not been addressed for years, are health and safety issues. In the case of a new facility, many of those facilities are replacing older facilities. He referred to the Juneau School District's closing Capital School and replacing it with Riverbend Elementary School. The costs are being shifted from one facility to the other. TAPE 97-40, SIDE B Number 0000 MR. McPHETRES added that he felt the proposed committee substitute would include a local contribution. He felt the local school board should be trusted to come up with a fundable operating budget. Number 0031 REPRESENTATIVE KEMPLEN asked who made the decision to fund which project first. Number 0071 MR. LeRESCHE answered that the legislature decides. Even though the DOE priority list is put into statute, the legislature can still authorize what they choose to authorize. Number 0120 ROSS A. KINNEY, Deputy Commissioner, Office of the Commissioner, Department of Revenue, stated that in January, 1997, the Treasury Division of DOR came before the legislature and outlined a long range investment plan for the CBRF. This plan was comprised of three components; an investment strategy, reserve strategy and an asset allocation. During this time, the division asked for a supplemental appropriation for the fiscal 1997 budget to begin to implement the asset allocation and these strategies. This appropriation was approved by the legislature. The DOR also asked for an increment to the fiscal year 1998 budget of $100,000 to continue the operation and implementation of this asset allocation. This increment has thus far been approved in the fiscal year 1998 operating budget. MR. KINNEY explained that HB 215 appropriates $1.2 billion from the CBRF. This appropriation would dramatically change the asset allocation, the reserve policy and the investment strategy which was presented to the legislature. It will reduce the investment horizon and may also take the described equity component, making it no longer feasible for CBRF investments. The DOR thinks that the CBRF is an important component of the state's long range financial plan and it should be managed accordingly. At this point the DOR is back before the legislature asking for direction. If HB 215 is to pass, then the DOR has to change the approved strategy. The DOR would redeploy those assets into a different mechanism in order to be able to earn the highest rate of return with the least risk, but information is needed to determine what the time constraints should be on each of these categories of money. MR. KINNEY said HB 216 requires that the fund and any other funds of the authority be invested through the Alaska Permanent Fund Corporation, which is responsible for investing the assets of the permanent fund with a diversified asset allocation. The legislature has added a couple investment authorities to the Alaska Permanent Fund Corporation through the mental health trust fund and through the science and technology fund. MR. KINNEY said there needs to be a recognition that the asset allocation on those three funds is the same; it does not change. Every time the Alaska Permanent Fund Corporation board of directors changes the asset allocation for the permanent fund, the asset allocations for the other two funds change along with it. This is extremely important because the DOR focuses the investment of those funds on a single asset allocation which makes it very easy to implement and to monitor. MR. KINNEY explained that the state has a bond attorney, who is counsel to the state bond committee, and a financial advisor. These bills have been provided to them for their review. The state believes, based on the opinions that have been received, that bonds issued in the form of revenue bonds, utilizing a portion of the CBRF to collateralize or pledge as security the interest earnings of that fund, would be yield restricted. This means that the investments that are acquired to pay the interest on the bonds would be restricted to the same rate of interest that are paid on the bond issue. Therefore, there would be no net gain. If the state were able to sell bonds for 6 percent, then the investment income would be limited to 6 percent on what has been pledged as collateral to pay for the bond issue. No gain whatsoever. In the permanent fund situation, this scenario changes the asset allocation for this particular section of money, the $1.2 billion or the portion that has been pledged. MR. KINNEY explained that, in the normal course of events, revenue bonds are normally sold based on a revenue stream provided by the project. Historically, this would comprise a building that has a rent stream coming to it, a water or sewer treatment plant with recognized revenues from users. In the proposed situation, revenue bonds would be sold based on earnings off of money which has been set aside and restricted for that particular purpose. MR. KINNEY said this proposed situation creates some concerns for the DOR. He questioned what would happen if the IRS doesn't allow it. The interest rate would be changed because it becomes taxable, the bond holders would incur a liability and they would come back to the state of Alaska to ask to be made whole. The bond holders would probably succeed in their litigation and the state of Alaska would be liable for making up that difference, resulting in a significant loss. MR. KINNEY realized that there are a number of differences of opinion with respect to this bill. While the DOR recognizes the need for some mechanism to fund school construction, they are waiting for a legal opinion from Mr. LeResche and his bond attorney. Currently, the DOR has to take this position based on the recommendations from their legal counsel and financial advisors hired by the Alaska State Bond Committee. Number 0463 CHAIRMAN BUNDE referred to his previous question about whether or not there was enough money to create both the Education Facilities Financing Authority and the educational endowment. He assumed that Mr. Kinney would concur that there is not enough money in the CBRF to fund both of them. Number 0500 MR. KINNEY answered that there will be approximately $3 billion in the CBRF. The Education Facilities Financing Authority would take $1.2 billion and the endowment would need more than what would remain in the CBRF. Based on the asset allocation, agreed upon by the legislature, there will be an investment rate of return of 7.19 percent on the CBRF. The DOR divided that amount into three components; a short term reserve component to meet the cash flow needs of the current fiscal gap within the budget, a transition portion that will get the state to the point where the budget will be balanced shortly after 2002 or 2003, and a long term component. The first component, the short term, is comprised of $800 million. The intermediate term has $1.2 billion and the long term has $800 million. The DOR began to shift that amount from the long term to the intermediate. When that money is taken away, then there is not the ability to employ the same long term strategies. By reducing the CBRF by $1.2 million, the expected rate of return is reduced from 7.19 percent to 6.31 percent. Moving the principal and reducing the rate will result in $100 million less being generated on an annual basis. This money would otherwise be used to fund the fiscal gap according to the majority plan. Number 0583 CHAIRMAN BUNDE questioned that if this bill were to pass it would preclude the educational endowment from being funded by the CBRF. He assumed the educational endowment would face the same issues as being faced by HB 215 and HB 216. Number 0596 MR. KINNEY believed that the state needs to look at another mechanism for dealing with the fiscal gap if the legislature segregates portions of the CBRF and dedicates the earnings for other purposes. Number 0608 REPRESENTATIVE JOE GREEN referred to the state bond counsel's stating that the DOR would be restricted on the amount of earnings. This finding is in opposition to the findings of Mr. LeResche's bond counsel. He asked what caused this discrepancy in view. Number 0623 MR. KINNEY explained that there have been a number of cases dealing with arbitrage requirements. The Tax Reform Act of 1986 made substantial changes in the way governments can do business in respect to tax exempt financing. If arbitrage was not an issue, he would probably be counseling the legislature to issue $100 billion in bonds and stick it in the permanent fund. The problem is that the money supply is fixed. The state is fighting with the federal government from the standpoint that there are entities which pay taxes and entities which don't who are all competing for scarce resources. When the state goes out and issues bonds that are tax exempt, the bond holder does not pay income tax on the interest that they receive. The IRS and the United States Treasury Department would like to have as much income tax as possible. They don't want the state to compete for those scare resources because of the non-taxable status. The federal attitude, for the most part, is that the state of Alaska is sitting on a large sum of money and why should the state bond in a tax exempt capacity when the state has available cash and the interest income off of it to meet those needs. He explained that it is a tax situation, the IRS wants to make sure that they get their fair share and don't want to allow the state to take advantage of it. MR. KINNEY referred to the Alabama case, the Deereborne (Ph.) case, the Pyramid bonding case, and a number of other cases where the IRS has come in and made changes to statutes, regulations or laws after the fact. If the CBRF money is put into certain kinds of investments and certain locations, then the state doesn't want to be subjected to a unadvantageous tax review. MR. KINNEY said DOR would like to see Mr. LeResche's legal opinion, it would be passed on to the state bond attorney and other counsel would probably be asked to review it in order to try to achieve a consensus. Currently, the Administration is firmly entrenched in their position based on the opinions that they have received. Number 0794 MICHAEL A. MORGAN, Project Management Professional (PMP), Facilities Section, Educational Support Services, Department of Education, stated that HB 216 looks at a great need, providing a stable, long-term source of funding for educational facilities in the state. The bill addresses projects which have been approved under AS 14.11.015. Alaska Statute 14.11 is the process DOE uses to approve and rank projects, the result of SB 11 in 1993. MR. MORGAN said the mechanism used to implement those statutes has undergone a significant improvement in the last two years. Although the current prioritization process establishes a statewide need, the districts and the DOE feel that the competition for limited resources creates a situation where this process, or any other prioritization process, cannot succeed. This bill seeks to provide a funding mechanism, allowing for a systematic plan to address educational facility needs. MR. MORGAN expressed concerns regarding the bill. First, it does not equally address the statewide needs, it seems to give slight leverage to those communities which have the ability to bond. Those communities are shown in provisions (a) and (b), AS 44.27.140. Also, HB 216 does not show which types of university projects are funded or what that mechanism is. This would allow a broad range of projects and would not be limited to facilities needs. MR. MORGAN mentioned that there would still be a competition for limited resources, even under the provisions of HB 216. His final concern is that a specification of this bill is that projects must meet the criteria under 14.11.015. However, the last part of this bill lists a whole series of projects, some of which would be ineligible under the current statute. This bill already sets up a conflict between what this bill proposes and the existing statute. If these issues are resolved, it would allow an allocation of funds which would address needs on a priority basis and would allow school districts to plan, in a systematic way, the maintenance and facility needs for elementary and secondary education. MR. MORGAN referred to the bottom line of the fiscal note. He said it should read that the first year money is taken out of general fund monies, and that in succeeding years, the cost would be funded by this authority. Number 0964 BRAD PIERCE, Senior Policy Analyst, Office of Management and Budget, Office of the Governor, stated that the idea of endowing a source of funding for school construction is intriguing. The Administration has proposed a similar-sized bond package in the six-year capital plan, which would address different types of capital needs and not just school construction. The Governor has made it clear that he is committed to an educational endowment. He believes that if anything should be endowed, it should be the foundation formula. MR. PIERCE discussed the effects of HB 216 on the majority's long- range fiscal plan. This plan relies heavily on CBRF earnings as an annual revenue source. He noted that Mr. LeResche's spread sheet went out five years. Once you remove $1.2 billion and the state begins earning a lower rate of interest, the earnings drop off and the fiscal gap widens. Without any new taxes or without use of permanent fund earnings, the CBRF would be drained in about nine years, by 2005. The Administration is interested in putting together a bond package to fund capital needs. The state is not investing enough in our infrastructure, and we should look at the needs in a broader context, with the use of all available fiscal tools. Number 1074 CHAIRMAN BUNDE referred to the Commissioner Condon's concerns about tieing up the CBRF in negotiations regarding the sale of natural resources, specifically gas. There are foreign entities that look at the CBRF as the state's fall-back position in the event of economic hard times. He asked: If the CBRF was tied up in the Education Facilities Financing Authority or an endowment, would foreign entities be less inclined to enter into long-range contracts with the state? Number 1120 MR. KINNEY responded that the reserve policy, which the DOR presented in January, addressed that particular issue. The financial community, both domestic and international, look at the state of Alaska and its capabilities from a financing standpoint. The state has not hidden the fact that there is a fiscal gap and the state needs to put forth a long-range fiscal plan that fills this gap. Until the state does this, many people in the financial community consider such things as the CBRF because it is relatively easy to get to in comparison to the permanent fund or the excess earnings from the permanent fund. Reserves will be extremely important to the financial community until the state comes in with a plan that shows that the state can and will fill that fiscal gap. Even when this plan is in place, there will still need to be some measure of reserve maintained in the state of Alaska as the state is subject to the volatility of oil and gas prices on an annual basis. Part of this reserve policy and the CBRF is designed to meet that need should it arise. The state has been fortunate that in this last fiscal year we have had escalating oil prices. At some point, the state might have the need to draw from that reserve pool in order to meet the obligations which have been incurred through the budgetary process. This is the reason that people are very concerned about adequate reserves for the state of Alaska. Number 1186 MR. PIERCE indicated that the $800 million short-term fund is designed to take care of the average standard deviation of oil prices over a two-to-three-year period. Number 1209 KEVIN RITCHIE, Lobbyist, Alaska Municipal League and the Alaska Conference of Mayors, stated that fixing schools is at the top of the list of many municipalities. The concern of all the municipalities is the future costs of dealing with the deterioration of schools. Even though it is not a part of the municipal and state budgets, it is a growing liability. It will be paid in the future if it is not paid now. He referred to resolutions from the Alaska Municipal League and the Alaska Conference of Mayors which are located in the committee file. Number 1303 SANDY SHOULDERS testified next via teleconference from Mat-Su. She testified in support of HB 215 and HB 216. She referred to the current situation where municipalities and boroughs have had to fight for needed projects. She mentioned the technical problems with the bills that should be worked out, specifically the differences between the rural schools and the (indisc.) fund. "Whether they mention we're not quite frankly doesn't really matter to me right now." She wanted the state to fund those projects listed on the priority list as they comprise safety and health issues. Number 1414 MAUREEN SWED, Representative, Talkeetna Elementary Parent Teacher Association, had her statement read into the record by Ms. Shoulders. Ms. Swed believed that the problems of capital improvement funding could be solved this session with HB 215 and HB 216. These funds would allow communities to break ground in the spring of 1998, allowing students into new facilities in the fall of 1998. Design work has already been completed and they are ready to begin construction in Talkeetna. Number 1447 LARRY WIGET, Director, Government Relations, Anchorage School District, testified next via teleconference from Anchorage. The Anchorage School District supports the concept of establishing an Education Facilities Financing Authority and funding it. They feel that it is an exciting idea and a way in which statewide needs of school construction can be responsibly met now and in the future. He referred to legislative control over the allocation of the funds on an annual basis. The construction and maintenance needs of both rural and urban schools have to be addressed. The longer it takes, the most costly it will become. If this process is done in a systematic method, allocating funds in a reasonable manner and over an extended period of time, it will allow all communities around the state to plan for the building and maintenance of facilities in a way which does not overtax the existing construction ability of contractors within the state. This will enable us to put money into the local economies in a reasonable and prudent manner while meeting both the long-term and short-term needs of school construction within the state. Number 1533 CHAIRMAN BUNDE mentioned that testimony has been given that it is not possible to use the CBRF for both the Education Facilities Financing Authority and the educational endowment. He asked him to take the question to the Anchorage School District of what they would prefer. Number 1558 LINDA SHARP testified next via teleconference from Anchorage. She felt that a broad overview as well as equity was needed in terms of the health and safety of children. She was not as concerned about the university facilities. Number 1612 CHAIRMAN BUNDE mentioned the conflicting projections. He referred to the testimony from Mat-Su which felt that if these bills passed this session that construction could begin immediately and children could enter new schools within a year. He understood that this fund would have to generate some income before bonds could be issued. MR. DOZIER answered that the fund would not have to generate income immediately. Bonds could be issued to raise the money. CHAIRMAN BUNDE announced that this was the first time these bills, HB 215 and HB 216, were heard; they would be held for further consideration.
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