Legislature(2003 - 2004)
05/04/2004 01:21 PM House RLS
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HB 404-STUDENT LOANS /EDUC. FACILITIES BONDS CHAIR ROKEBERG announced that the final order of business would be HOUSE BILL NO. 404, "An Act relating to the Alaska Commission on Postsecondary Education; relating to the Alaska Student Loan Corporation; relating to bonds of the corporation; relating to loan and grant programs of the commission; relating to an exemption from the State Procurement Code regarding certain contracts of the commission or corporation; making conforming changes; and providing for an effective date." Number 0694 DIANE BARRANS, Executive Director, Alaska Commission on Postsecondary Education (ACPE), Department of Education and Early Development (EED); Executive Officer, Alaska Student Loan Corporation (ASLC), said that she could speak to some of the technical changes that the director of Legislative Legal and Research Services proposed due to some confusing language that she recommended be deleted. However, she stated that the changes didn't result in any substantive effect. Number 0764 REPRESENTATIVE COGHILL moved to adopt CSHB 404, Version 23- GH2003\S, Cook, 5/4/04, as the working document. There being no objection, Version S was before the committee. MS. BARRANS explained that the substantive portions of this legislation broaden ASLC's authority to allow, as part of the Return of Capital Initiative, the return of monies that ASLC no longer needs to operate its core programs. One of the tools that would be helpful would be the ability to issue bonds, the proceeds of which could be used by the state to pay for capital projects. Additionally, this legislation reconstitutes the state student grant program, focusing on Alaska workforce needs and shortage areas. Furthermore, this legislation would enhance the current outreach and early awareness initiatives. This legislation would allow the grant program to be funded by ASLC rather than having to request general funds for that. Ms. Barrans highlighted that the legislation expands ASLC's ability to offer consolidated loans. She explained that many borrowers are holding outstanding loans that were issued when the rates were considerably higher, and therefore ASLC would like to offer those borrowers reduced rates. This legislation clarifies ACPE's administrative process for issuing liens such that it's a clear and well-described due process for someone who wants to avoid issuance of a lien for a defaulted education loan. Lastly, this legislation exempts from state procurement code, certain services relating to the guaranteeing and electronic disbursement of the loans. Number 0935 MS. BARRANS turned to the other changes encompassed in Version S. Although ASLC didn't request a committee substitute (CS) specifying specific items to be funded through the capital project revenue bonds, ACPE appreciated the work the House Finance Committee did in ensuring that the way in which the projects were delineated didn't impair ACPE's ability to meet its core mission nor posed a risk to ASLC's ability to issue bonds. MS. BARRANS, in response to Representative McGuire, explained that those holding student loans have had the ability to consolidate loans for the last year. The loan consolidation rate was slightly under 6 percent. This legislation would allow borrowers who already have loans under the old Alaska student loan program and who are borrowing from the AlaskaAdvantage Loan, a new loan program, to consolidate across programs. REPRESENTATIVE McGUIRE assumed that the bonding aspect of the legislation doesn't outweigh the primary focus of [ACPE], serving its borrowers and to continue to offer reduced interest rates. MS. BARRANS explained that in developing the proposal to return capital, the types of benefits have been built into the cash flow. Therefore, only after considering the primary mission, which is to reduce the cost of education, can the amount of funds that could be used for other state purposes be identified. CHAIR ROKEBERG inquired as to the impact of the availability of the funds that may be available as a result of the passage of HB 404. Number 1208 SHEILA KING, Finance Officer, Alaska Commission on Postsecondary Education, Department of Education and Early Development; Alaska Student Loan Corporation, said she understood the question to be in regard to the timing of the funds. She informed the committee that what has been projected for the next payment would be between $80-$100 million. Subsequent to that there would be an approximately $80 million [payment]. The timing is related to the availability of assets. There are some bonds that have upcoming call provisions. As the debt can be reduced in a particular indenture, then there is more flexibility with the bonding in the indenture. Ms. King noted that one of the mechanisms that has been reviewed is residual interest bonds, which means that the cash flow at the end of the loans would be captured as the front cash flows of the loans are pledged to current bonds. However, those bonds mature before the loans are totally paid off. Therefore, the thought is to issue subordinate bonds in order to collateralize the later cash flows for these bonds, which would allow recognition of the cash early. MS. KING, in further response to Chair Rokeberg, explained that in the trust being reviewed if the last maturity occurs in 2013, the loans may not pay off until 2020. Therefore, there is seven years of cash flow that could be collateralized now so as "to pledge those seven years of cash flows ... that would remain beyond the current maturities of the bonds in that trust." CHAIR ROKEBERG asked if significant discounts would have to be made to do that. MS. KING answered that whether those are discounted bonds or not will depend on the market. The rates may be slightly higher than the senior series bonds, but the bonds would still be tax exempt. Therefore, the rates would be very good. Ms. King confirmed that there is a limitation on the available cash flow on an annualized basis for a period of years. She explained that the assets are pledged to bonds currently and the bond covenants don't necessarily allow cash to be taken out of the trust unless the trust exceeds a certain amount. "So, we've got the loans pledged to the trust, we've got capital reserve funds that are required under the bond indentures and thus we're looking at pledging future cash flows because that's really where our main capacity is," she specified. Number 1442 CHAIR ROKEBERG asked if the earlier referenced $80-$100 million would be available for fiscal year (FY) 2005. MS. KING informed the committee that ACPE anticipates issuing bonds in the spring of 2005, between February and March. That timeframe provides time to do the deal. Furthermore, there are some bonds that are being paid off this summer and [the aforementioned timeframe] will help with the collateralization availability for future bonds as well. CHAIR ROKEBERG recalled that over the next couple of years there is over $200 million of potential income stream available for legislative appropriation. He also recalled that it was the governor's intention to spread it over three years. MS. KING specified that the [division's] proposal is to return about $250-$260 million to the state. The aforementioned is the amount of loans that were contributed to start ASLC. In March a bond issue for $75 million of the [$250-$260 million] was closed and the money is sitting in the capital project fund waiting to be used. The three-year phase approach was used because it was determined that is what [ACPE] would most likely be able to meet given bond maturities, loan amortization schedules, cash flows, and maintaining ASLC's primary focus. Number 1609 PETE ECKLUND, Staff to Representative William Williams, Alaska State Legislature, offered to explain how the proposed list of projects in Version S was determined. He directed attention to the spreadsheet entitled "FY 2005 Education Bond Worksheet", dated 12:14 PM 5/4/2004. The last page of the spreadsheet shows that the list of projects in this legislation total $88,258,000. He explained that the major maintenance list from EED was reviewed and $23 million of the $26 million of projects on EED's major maintenance list were [included in this legislation]. He recalled that [the list includes] 27 of 31 projects. The last few projects weren't included because of the lack of good justification. Moreover, the top two projects of the school construction list were included [in this legislation] as were [most] of the projects on the University of Alaska's wish list. Mr. Ecklund pointed out that the bond total was kept between $85-$90 million. MR. ECKLUND acknowledged that there have been questions regarding why the list doesn't include any urban school projects. He explained that two years ago the legislature opened up the bonding authority for any community with bonding capacity to work with EED to place new school construction and deferred maintenance on the local ballot and receive 70:30 reimbursement. The aforementioned is available until the end of the 2004 calendar year. Mr. Ecklund recalled that about $500 million of debt has been incurred through voter approval in municipalities with bonding authority. Therefore, Version S attempts to balance the aforementioned by providing funding to those communities that don't have bonding capacity. Mr. Ecklund related that this was balanced between urban and rural areas in respect to other bonding legislation that includes transportation projects. Number 1835 REPRESENTATIVE BERKOWITZ related his observation that the list amounts to about one-third of the amount available through ASLC's bonding capacity. He acknowledged that the governor wanted this to be stretched out over three years. He inquired as to whether there is some consistency. MR. ECKLUND directed attention to page 4, Section 5, which limits the bonding capacity to $200 million between January 1, 2005, and December 31, 2008. The $200 million proposed by [Section 5] is attainable by ASLC to bond for over the next few years. The ASLC wouldn't necessarily have to bond for the full amount in the first issuance, rather bonding over multiple years could occur in order to reach the cash flow needs of the projects listed. Mr. Ecklund pointed out that when a concept like this is introduced [the bonds] tend to grow, and therefore the desire was to start at a moderate level. REPRESENTATIVE McGUIRE turned to the list of projects, and asked if the Integrated Science Facility is in Phase II. MR. ECKLUND answered that although he wasn't sure what phase the project is in, he understood that the funds would complete the project. REPRESENTATIVE McGUIRE noted that there are four phases to completion, and said she had heard that only part of the phases [would be completed with the funding specified]. MR. ECKLUND specified that the funding for the Integrated Science Facility was what the University of Alaska requested, and therefore he assumed that the university requested what was necessary. Number 1996 EDDY JEANS, Manager, School Finance and Facilities Section, Education Support Services, Department of Education and Early Development, reminded the committee that a couple years ago the legislature passed HB 2003, which authorized the debt reimbursement program to remain open for two years. That program allowed municipalities to qualify for debt reimbursement at 70 percent if the projects met EED's current eligibility requirements or at 60 percent for a project that didn't meet EED's eligibility requirements. For example, the Anchorage administrative building would only qualify for the 60 percent reimbursement as would be the case for the request for a centralized food facility for the entire Matanuska-Susitna Borough. The proposed high school in Juneau exceeds EED's standards, and therefore would only qualify for a 60 percent reimbursement. He noted that any major maintenance projects that qualify under EED's standards would be eligible at 70 percent. MR. JEANS turned to the department's document labeled "Debt Reimbursement Program Voter Approved under HB 2003" dated April 27, 2004. The first page of the document specifies the voter approved debt approved [since the passage of HB 2003]. The voters across the state have authorized about $539 million of debt. Of that, approximately $306 million has already entered into the department's system and is reflected in the debt reimbursement requirement of $81 million for next year. Therefore, about $233 million in voter approved debt would be left. Although the bonds may not have been sold yet or department approval may not have been obtained, Mr. Jeans anticipated that the funds will be received prior to December 31st. The bottom of the first page shows the state's annual share of the debt, which amounts to the following: about $19 million if the bonds were sold over a 10-year period; about $14 million if sold over a 15-year period, and about $11 million over a 20-year period. For the sake of discussion, Mr. Jeans took the example of the $14 million, and related that it would likely hit EED's system within the next two years. Therefore, he said one could anticipate the state debt reimbursement program to approach $95 million in a couple of years. MR. JEANS pointed out that the second page of this document takes the $233 million that hasn't been sold and breaks it out by district. Therefore, it shows that Anchorage voters have authorized approximately $124 million for which the debt hasn't been sold yet. As page 2 shows, there are other communities in a similar situation. Mr. Jeans moved on to page 3, which reflects projects that have been submitted and approved by EED, but still require voter approval at the local level. The bottom of page 3 specifies the annual debt costs if the projects were approved by local voters and entered EED's system. MR. JEANS explained that the next four pages summarize the projects by district, whether the department or voter approval has been obtained, the dollar amount, and the rate of reimbursement. The second to last page of the document specifies EED's current debt reimbursement request, which totals $81.8 million. The last page of the document includes the history of the debt reimbursement program, entitlements, and state-approved reimbursement rates. He clarified that the last page reflects the district's entitlement under the program and at the level the legislature has funded it. Therefore, the percent reimbursement depends upon when projects were approved. For example, in the 1980s the projects were approved at 90 percent. Number 2292 REPRESENTATIVE McGUIRE drew attention to the planning and design of Chugach Optional and Dimond demolition funding, which the document specifies has been approved by the voters but not EED. MR. JEANS addressed Chugach Optional. He explained that the original request for Chugach Optional was for $7 million, which didn't include any planning and design funding. Therefore, the department increased the request in order to cover the design phase of the project. With regard to Dimond demolition, Mr. Jeans explained that the new Dimond High School included demolition money for the existing Dimond school. Therefore, EED didn't approve the request for additional funds for demolition of the old school until the existing project is closed. CHAIR ROKEBERG asked if EED anticipates funding the demolition request at the time the existing project is closed. MR. JEANS clarified that EED wants to see where the project ends before additional money for the demolition is approved because demolition funds were included in the original project. Number 2375 MR. ECKLUND interjected that as the 70:30 debt reimbursement was allowed, there has been an imbalance with regard to the Kasayulie case. Therefore, it seemed necessary to do some rural construction projects in order to come into compliance with that case. MR. JEANS explained that voters authorized $154 million in general obligation (GO) bonds for rural projects over a two-year period. In that same time, voters in municipalities across the state have authorized [in total] over $540 million and there is six months more in which additional debt could be authorized. CHAIR ROKEBERG asked if the education bonding of $88 million was capped in order to allow ASLC's desire to have cash flow management. MR. ECKLUND answered that he did that at the direction of his boss. In further response to Chair Rokeberg, Mr. Ecklund said that he didn't leave out the urban areas at the direction of his boss. He pointed out that the last page of the spreadsheet entitled "FY 2005 Education Bond Worksheet" specifies that urban communities received 48 percent of this proposal while rural communities received 45 percent and 7 percent of the total was utilized statewide. CHAIR ROKEBERG surmised that the proposal includes university funding. MR. ECKLUND replied yes, adding that it also includes EED funding. CHAIR ROKEBERG recalled mention of $150 million of statewide school authorized bonding that went to mostly the Rural Education Attendance Areas (REAA). MR. JEANS explained that the actual GO bond was for $171 million, but the governor's office reduced it by $3 million. There was one Anchorage project for $14 million, he noted. Therefore, when one factors in the $3 million reduction and the $14 million project in Anchorage, it results in the $154 million that was available to the REAAs. He confirmed that was bonded two years ago. CHAIR ROKEBERG surmised that the belief is that since the GO bonds were bonded and the urban areas were allowed the 70:30 or 60:40 reimbursement, the urban areas don't deserve a "bite at this apple." He indicated that he wasn't sure he understood that. MR. ECKLUND pointed out that [70:30 and 60:40 reimbursement] is available to municipalities through the end of this year. Number 2558 REPRESENTATIVE McGUIRE commented that Chair Rokeberg brings out an interesting point, particularly in Anchorage where the voters have become increasingly unwilling to approve bonding packages. Particular areas seem to be discriminated against by not having projects approved. She mentioned that the educational process for bonding is difficult. MR. JEANS clarified that the passage of HB 2003 amended the current school construction grant program specifically to exclude municipal governments because the debt program was open without caps. The thought behind that was that a truly needy project should be able to garner the support of the community for state reimbursement up to 70 percent. He reiterated that the program is open for an additional six months. The schedules of the state clearly illustrate that the urban areas have taken advantage of this program. The schools listed in this proposal are REAAs, which don't have bonding capacity and rely on the state to provide construction funding. Mr. Jeans highlighted that this package provides $37 million for rural schools and as pointed out earlier it accomplishes 29 separate projects, which the department supports. CHAIR ROKEBERG said, "Well, ... we're just concerned about the equity issue ... as it relates to the entire package." Chair Rokeberg asked if Mr. Jeans was aware of Anchorage's $22 million deferred maintenance list. MR. JEANS opined that if those were truly needy projects, the projects would be brought before the voters to request debt authorization. CHAIR ROKEBERG said [those projects were brought before the voters] who voted the projects down. MR. JEANS related his belief that some of the maintenance was funded, although [the voters turned down] Eagle River Middle School and the district's administrative building. The committee took an at-ease from 2:02 p.m. to 2:03 p.m. CHAIR ROKEBERG announced that the House Rules Standing Committee was recessed to the call of the chair at 2:03 p.m. [A new tape was inserted.] TAPE 04-5, SIDE A CHAIR ROKEBERG reconvened the House Rules Standing Committee at 11:44 p.m. Representatives Rokeberg, Kott, Coghill, McGuire, Morgan, and Berkowitz were present upon reconvening. Representative Kerttula arrived as the meeting was in progress. Chair Rokeberg reminded the committee that before it was HB 404. Number 0069 REPRESENTATIVE BERKOWITZ moved to adopt CSHB 404, Version 23- GH2003\U, Cook, 5/4/04, as the working document. There being no objection, Version U was before the committee. MR. ECKLUND pointed out that Version U totals $141 million of mainly school deferred maintenance throughout the state, four construction projects, a couple of museums, a library, and some university projects. CHAIR ROKEBERG asked if Version U encompasses any changes to the ACPE/ASLC provisions of the legislation. MR. ECKLUND replied no. In further response to Chair Rokeberg, Mr. Ecklund confirmed that the match from the REAAs was modified such that all of the projects are grant funded under Version U. Number 0219 CHAIR ROKEBERG noted that one of the committee members made an inquiry with regard to the School of Fisheries and Ocean Science, a university appropriation. The legislation specifies a $5 million appropriation for the School of Fisheries and Ocean Science in Juneau. He asked if the appropriation was originally $7 million. MR. ECKLUND said that the appropriation was never at $7 million in any versions of the legislation, although a spreadsheet may have specified $7 million. Number 0297 REPRESENTATIVE WILLIAM WILLIAMS, Alaska State Legislature, Chair, House Finance Committee, informed the committee that the Juneau areawide [appropriation] was inadvertently changed from $7 million to $5 million when the budget was being reduced. In the interest of time, Representative Williams suggested that the amendment [bringing Juneau's areawide appropriation] up to $7 million be made on the floor. The committee took an at-ease from 11:46 p.m. to 11:48 p.m. REPRESENTATIVE KERTTULA directed attention to page 21, line 24, which specifies the $5 million appropriation for the School of Fisheries and Ocean Science. She explained that the facility can [begin construction] at $7 million but not with $5 million. The School of Fisheries and Ocean Science has been a top priority of the region for many years. Furthermore, it leverages federal dollars. CHAIR ROKEBERG recommended that matters be expedited for the floor and any corrections be made in committee. REPRESENTATIVE McGUIRE informed the committee that on the worksheet entitled "FY 2005 Education Bond Worksheet" dated 5/4/2004 8:37 PM, related to Version U, the Mears Middle School projects are in her district not Representative Samuels'. Number 0680 REPRESENTATIVE KOTT moved that the committee adopt the following amendment: Page 21, line 24; Delete "5,000,000" Insert "7,000,000" There being no objection, the amendment was adopted. Number 0721 REPRESENTATIVE KOTT moved to report CSHB 404, Version 23- GH2003\U, Cook, 5/4/04, as amended, out of committee with individual recommendations and the new fiscal note. There being no objection, CSHB 404(RLS) was reported from the House Rules Standing Committee.
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