Legislature(1999 - 2000)
03/30/2000 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 373 - STUDENT LOAN CORP PAYMENTS TO STATE Number 0031 CHAIRMAN DYSON announced the first order of business as House Bill No. 373, "An Act relating to return of contributed capital, or payment of a dividend, to the state by the Alaska Student Loan Corporation; and providing for an effective date." Number 0093 DIANE BARRANS, Executive Director, Alaska Commission on Postsecondary Education, Department of Education & Early Development, came forward to testify. She explained she had sent the committee members a letter dated March 6 which answered their previous questions and a memo dated March 20 which responded on the issue of garnishing Native corporation dividends for repaying student loans. The Attorney General's office believes that the Alaska Student Loan Corporation is unable to attach Native corporation dividends mainly because of the Doyon decision which prevented attachment of Native corporation dividends for child support. CHAIRMAN DYSON asked Ms. Barrans to review her responses in her letter of March 6 for the committee. Number 0224 MS. BARRANS referred to Representative Kemplen's question [in the last hearing] about the use of current year net income to offset the revenues expected from prior loans. She had indicated that the corporation could not reduce expected income on the existing loans by prior year income because of the bond indenture covenants. She indicated in her letter that in the corporation's official statement that could not be done without violating those bonds. MS. BARRANS indicated that the next issue was the ability to use the funds that are being proposed to return to the state to further reduce future interest. Due to the way in which interest rates are calculated, recycling the small amount of capital proposed for payment to the state would not measurably affect that rate. It is a small amount of money in terms of the way the interest rate is calculated. The interest rate is set based on the cost of money on all outstanding bonds and the administrative cost of the program. It is based on the recent history of what is paid for the program which includes losses due to bankruptcy, death and disability. Those costs are loaded into the formula to determine the interest rates on new loans. The amount of money in HB 373 would not materially affect that rate. CHAIRMAN DYSON noted that the corporation's mission statement is to continue reducing the interest rates to ensure affordable education to residents. Number 0393 MS. BARRANS responded that the corporation expects to continue to reduce those rates. The rates have been reduced by .3 percent for 2000-2001, and the corporation would expect to continue to pass on future reductions of the cost of running the program and reduce rates for borrowers. MS. BARRANS pointed out in the balance of the response in her letter, she gave a little bit of the context that the board's discussion was in terms of why it wanted to do what HB 373 proposes to do. The corporation's fiscal standing has effectively been stabilized, and its credit standing has been upgraded from A to AA; interest rates have been reduced for the past two years; the fund equity deficient has continued to be reduced. The bill is the fourth step in the board's priorities to begin to return some of the contributed capital to the state who was the original financing source. Number 0484 REPRESENTATIVE COGHILL asked Ms. Barrans to review what the total payout and the time for payout would be on the fund equity deficit. Number 0501 MS. BARRANS referred to two charts that project the fund equity deficit for five years into the future. Projections beyond that have not been done. The first chart reflects the accumulated deficit of fund equity. It starts with FY 1995 and shows the balance of the original $306 million contributed of each fiscal year. The fund equity dropped until FY 1997, leveled off and now has started to grow back as net incomes are achieved on an annual basis. In FY 1999, there was an appreciable net income of $6.4 million. The projected net income expects to show that the accumulated net deficit will be cut in half by FY 2004 from what it was in FY 1997. The second graph illustrates what the project income is expected to be over the next several years. MS. BARRANS reminded the committee these are projected numbers. They are based on historical loss provisions that are recalculated on an annual basis. These projections are quite conservative. The corporation expects to experience better numbers than these, but based on past experience, the corporation has to take a conservative approach to estimating those numbers. Number 0712 REPRESENTATIVE BRICE asked what the difference is between FY 1999 and FY 2000 and what is considered the purpose of the dramatic projected decrease between FY 1999 and FY 2001 and then a steady increase. Number 0743 SHEILA KING, Finance Officer, Division of Finance, Alaska Commission on Postsecondary Education, Department of Education & Early Development, came forward to reply. She explained the difference is in the interest income projections. The income projections used in this scenario are calculated by Smith Barney and use the latest cash flows. Smith Barney considers all the defaults to happen in the first three years of those projections so these numbers are much more conservative. In FY 1999 there was actually $33 million of interest income and in FY 2000, $30 million is being projected. More than that is expected, but the best estimate used for these projections were the Smith Barney cash flows. MS. BARRANS told Representative Brice that the $4.7 million is an estimate. REPRESENTATIVE BRICE wondered why there is the big spike in FY 1999 and then the leveling off and if there is an attributable purpose to that. MS. BARRANS replied the interest that is charged on the loans is also being reduced. The interest earnings on those loans will go down. REPRESENTATIVE KEMPLEN asked where the $600,000 that is referred to in the fiscal note is in the chart attached to Ms. Barrans letter dated March 6. MS. KING said the number used to calculate the impact on that income was the higher number, $2.2 million and not the $600,000. That money does not come out of net income; only the interest effect of sending that money out affects net income. REPRESENTATIVE KEMPLEN asked how big of a dividend could be coming out of the student loan corporation into the general fund. MS. KING replied that these projections are conservative, but she doesn't have a number for what the dividend is going to be. The parameters set by the legislation were set to allow the corporation to work towards all of the goals. REPRESENTATIVE KEMPLEN asked Ms. Barrans if the board discussed this dividend payment to the general fund and if the board examined the tradeoff between giving the general fund a dividend and putting in a loan program that would provide additional incentives or make it easier for Alaskans to get an education. Number 1233 MS. BARRANS noted that there was discussion about that; however, the discussion really focused on the existing programs. She explained that there are two boards that she reports to: the corporation board, that has the fiduciary responsibility, and the Alaska Commission on Postsecondary Education board. Those boards share two members in common. The corporation board was the one who voted to recommend that HB 373 come forward. The commission has been advised of it but has not taken a position on this bill. The corporation set the priorities that she outlined in page 2 of her March 6 letter. The discussion centered around the priorities that were set; there was no material discussion about using the net income of the corporation for other types of programs. There was general discussion about what the legislature and the administration might want to do with that general fund money once it was returned to the state, but that is really where the conversation ended. At the last meeting, the Governor said he would like to use the returned contributed capital to fund the Alaska Scholars program. The board felt that was a policy call that it was not interested in becoming engaged in. MS. BARRANS further explained that the commission has a somewhat different role; it authorizes schools to operate in the state and it oversees the staff who manage the program. The commission has not taken an official position on HB 373. Number 1453 REPRESENTATIVE BRICE made a motion to move HB 373 with individual recommendations and attached fiscal note. There being no objection, HB 373 moved from the House Health, Education and Social Services Standing Committee.
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