Legislature(1995 - 1996)
03/30/1995 08:06 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 92 - AHFC SUBJECT TO EXEC. BUDGET ACT JOHN BITNEY, Legislative Assistant, Representative Terry Martin, Legislative Budget and Audit Committee, said SB 92 was sponsored by the Legislative Rules Committee at the request of the Legislative Budget and Audit Committee. He stated SB 92 was introduced at the unanimous request of LB&A. The concerns about the Alaska Housing and Finance Corporation were initially raised by Senator Steve Frank, who introduced the bill to the committee. He said Senator Frank did have a staff member present, who would like to read the sponsor statement. Thus, he would like to defer to him. He said he would be available to answer any questions of the committee. Number 548 TOM WILLIAMS, Legislative Assistant, Senator Frank, reiterated SB 92 was introduced by the Legislative Rules Committee at the unanimous request of LB&A. He said this bill would bring all of the activities of the Alaska Housing Finance Committee under the review procedures of the Executive Budget Act. Under this Act, an agencys budget programs and services are established through both the executive and legislative processes for the annual general appropriation act. He stated currently the AHFC statutes bring four listed areas under this act: 1) Operating budget of the corporation, 2) the assets of the corporation used for grants or grant programs, 3) interest rates, subsidies, and building subsidies as determined by the corporation, and 4) activities of the corporation related to the former Alaska State Housing Authority program. All other activities of the AHFC are exempt from the Executive Budget Act. He provided an example of the type of programs of AHFC exempted from the Executive Budget Act as the approximately 110 million in funds used for the recent 5 percent housing loan program. SB 92 would bring this operation under legislative review as part of the operating budget. The LB&A feels this and all housing subsidy programs of the AHFC are significant state fiscal policy matters that should fall under the review process of both the Legislative and Executive branches. CHAIR JAMES asked if there were any questions from the committee for Mr. Williams. She decided to hear the testimony from those people on teleconference. She called for Michael Chevalier to testify. Number 570 MICHAEL CHEVALIER, Housing Director for Anchorage Neighborhood Housing Services, wanted to inform the committee of his opposition to SB 92. He felt there was considerable demand in Alaska for affordable housing. He said that typically there are about eight different sources of finance for a housing project and the developer is forced to try to bring all of those pieces together. Thus, he thought the AHFC should be allowed to work within its existing parameters. He thought they had adequately met the needs of the various affordable housing developers. He stated his second point, was he did not feel the AHFC was a runaway renegade organization. He felt they understood the legislatures desire for stability in its operations, but thought stability was the result of continuity in leadership. He argued an environment should be created to enhance the corporations continuity and longevity of board members and executive directors. CYNTHIA PARKER, Executive Director of Anchorage Neighborhood Housing Services, stated her opposition to SB 92. She wanted to state for the record that Anchorage Neighborhood Housing Services had been involved in the housing industry for the last 12 years and had worked closely with the AHFC. She mentioned she was formerly the Chair of the Alaska Housing Market Council, which made a number of recommendations to the legislature regarding Alaskan housing. She said part of that recommendation was to bring the AHFC under the Executive Budget Act to make it responsive to the legislature. She thought one of the problems with SB 92, was that it did not get to the specific problems the legislature was concerned about. She stated she had heard mention earlier, about the recent 5 percent housing loan program, but felt this bill would not address this issue. She argued the AHFC needed to be flexible in its loan programs to be flexible in the marketplace. She stated the funds used in the 5 percent loan program were exempted under this bill, as they are really U. S. federal funds. She urged the legislature to support the Governors plan to request the AHFC to come up with a five year long range fiscal plan and also come up with some goals and objectives they would like to offer to the state, but not to require them to get approval from the legislature for each transaction. ROBIN HARRISON, Executive Director for the Tagiugmullu Nunamiullu Housing Authority, said last year they participated in the AHFCs loan and sponsor program and so were able to develop a mortgage loan product tailored to meet the needs of their low income families in the most remote areas of the North Slope. She argued these families were out of reach of more conventional loan programs, due to their low income level and their remote location. She pointed out several barriers to getting loans from other sources in these remote locations. Thus, the AHFC was about their only option for housing loans. The AHFCs programs allowed 7 communities and 53 families to find homes on the North Slope 2 days before Christmas. These families had zero hope of moving into a home or owning one without this program. She felt certain that should this bill have been in place last year, these families would still be looking for homes. They would have to wait for a decision from the legislature and then another 18 months for the loan programs to be put in place and the construction to take place. Since 1987, with an increase in how to use the AHFC loan program, rural communities in northern Alaska has managed to increase the loans granted to these communities from 2-5 loans per year to 15-20 loans per year. She argued SB 92 would mean for the AHFC to respond in an increase of 30-45 percent demand for housing, they would have to guess correctly at the activity level of their corporation that can change dramatically over 12 months. Should they guess wrong, a year is lost as they wait for the next legislative session. REPRESENTATIVE GREEN asked if Ms. Robinson had any idea of the success ratio for repayment of loans from the rural areas as compared to that of the urban areas. TAPE 95-39, SIDE A Number 000 MS. ROBINSON claimed rural residents tend to not skip, because they are rooted in their community. BOB MAXWELL urged the committee proceed with caution and investigate carefully before passing SB 92, to see if this action would negatively impact the bond rating of the corporation. He mentioned that AHFC has been able to provide $580 million to the general fund since 1992. Thus, he felt it was absolutely necessary to maintain the fiscal integrity of the AHFC so they can continue to generate income and contribute to the general fund. He encouraged the legislature to develop a process, whereby all programs reviewed under the Executive Budget Act be allowed a public hearing. Currently, those programs of AHFC under this Act were not allowed public hearings, he said. He felt it was difficult to do the publics business without public input. Number 059 CHAIR JAMES asked if there was anyone else on teleconference wishing to testify and noted the arrival of Representative Robinson. Hearing none, she called for Dan Fauske, present in the room, to testify. DAN FAUSKE, Corporate Executive Officer of AHFC, said the corporation was created in 1971 to provide Alaskans with low cost mortgage financing. In legislation enacted in June 1980, the legislature found the conventional sources of finance for residential dwellings were inadequate and mandated the AHFC provide financing without regard to income limits and interest rate subsidy program for home purchase. In 1992, the legislature merged AHFC, ASHA, and the Department of Community and Regional Affairs rural loan and energy programs, in order to create a comprehensive housing agency for the state. Through this legislation, AHFC was expanded to include a group of programs beyond its traditional role as a secondary market investor for home mortgages. This decision has benefitted thousands of Alaskans. This approach of combining all housing programs is considered innovative nationally and is being copied by other states. After reviewing SB 92, he interpreted that all activities of the AHFC would require budget submission that would include the current capital and operating budgets and expand to include all loan programs of the corporation. He stated there were currently 23 loan programs that fall under 5 major categories. He felt this would mean certain negatives for the program. Loan programs have historically not been a part of the AHFCs budget submission. This is because the majority of their loan programs that provide housing to the citizens throughout the state, are a result of legislative mandate and direction. They are funded through bond issues, both taxable and tax exempt. Allowing the AHFC to function without legislative oversight has protected the corporations ability to enter the marketplace at opportune times with respect to rising and falling interest rates. This allows the corporation to partner with entities such as HUD, to spearhead new programs, and protect the ability to expeditiously respond to changing economic situations that affect the housing market. He did not feel anyone wanted to interfere with AHFCs ability to enter the marketplace and develop housing programs. He felt this bill was a result of two specific situations, the 5 percent loan program and the new office building. The office building was a politically bad move by the corporation, he said. The loan program was successful in targeting a niche of the states citizens, that otherwise would be unable to attain home ownership. He admitted, though, the mechanics of delivering the program were flawed. He asked that if the majority of their programs were meeting the intent of the legislature and the needs of the states citizens, then why consider such broad oversight that could potentially impede the corporations ability to respond to market conditions. He wanted to assure the committee the corporation would be very sensitive to the ripple effect of loan program development, analyze the positive and negatives of loan programs, be confident they adhere to legislative mandates and makes economic sense before implementation, and better target the intended constituency with each program. He urged the committee to not restrict the corporations ability to respond to the volatility of the marketplace by forced legislative oversight. He wanted to comment he thought oversight was good and suggested forming a work group to better educate everyone of the functions of the corporation. Thus, he welcomed oversight and scrutiny from the legislature, but did not want to see the corporation restricted for seven months when the legislature was not in session. Number 187 REPRESENTATIVE PORTER asked Mr. Fauskes opinion of an oversight similar to the one the legislature has over the Alaska Industrial Development and Export Authority board. MR. FAUSKE thought this idea could work, but the $10 million cap was not high enough to be functional with the AHFC. He pointed out that in 1994, the AHFCs loan portfolio was $864 million. Thus, he thought the oversight was good, but again suggested a work group to see how this oversight should be accomplished. Capping the dollar amount before requiring oversight is conceivable, but the dollar amount would have to be high enough and have some guidelines of activities to not prevent the corporation from taking advantage of opportunities in the marketplace. Number 225 REPRESENTATIVE OGAN expressed his opposition to SB 92. Participating in construction the past twenty years, he said he had seen the stability the AHFC has brought to the market first hand. He thought this bill was overkill to some specific complaints, that could be resolved in a more rational manner. He refused to have his name on a bill that he felt could seriously hurt the construction industry. He urged the committee and legislature to consider holding this bill for investigation over the interim. REPRESENTATIVE IVAN stated he could understand the concerns of LB&A, but heard the testimony that said this corporation was a real benefit to rural families. He felt it might be better to allow the corporation to continue as is and thought the bill was too restrictive without being amended. CHAIR JAMES asked if it was possible for the committee to stay late to allow a chance for all of those who came testify to participate. Number 298 JAN SIEBERTS, Senior Vice President, National Bank of Alaska, expressed his concern over SB 92. He said NBA was a partner with with the AHFC in the development of housing projects in Alaska. He said the NBA was concerned SB 92 would create serious problems for the AHFC and at a minimum should be modified. In 1994, NBA participated with the AHFC in urban and remote loans throughout the state and developed housing for low income and the homeless in Anchorage and Juneau. They also participated in senior citizen housing in Fairbanks and Homer, as well as the housing project on Eielson Air Force Base. Because of the lengthy loan process for housing construction, the AHFC is a necessary and useful tool. He felt if the corporation had to come for approval by the legislature for every project, these projects could be delayed for up to a year. He thought costs would increase dramatically and opportunities would be missed. He requested a modification to the bill to allow AHFC to continue to function and meet the housing needs of Alaska. Number 373 SUE BENEDETTI, President, Alaska Mortgage Bankers Association and Vice President, First National Bank of Anchorage, expressed her serious concerns about placing the AHFC under the Executive Budget Act. She said such an action would prevent the corporation from responding to changing conditions in the economy. This could mean borrowers missing out on good mortgage rates and the corporations missing out on programs that would meet the publics needs. She stated the mortgage industry changes at a rapid rate and markets can be volatile. Thus, the corporation needs to be able to respond on a day to day basis to maximize its potential to meet Alaskas housing needs. The AHFC provides a stable source of funds for mortgage in good times, but more importantly in bad times when other investors pull out. They have an excellent working relationship with banks, mortgage companies, and government agencies to maximize their ability to provide housing for Alaskans. These relationships lead to new sources of funding and it is important the AHFC retain its ability to work on a year round basis. She said the corporation could pay a sizeable dividend to the state for years to come. The Alaska Mortgage Bankers Association believes the focus should be on developing a workable dividend program and not substantially changing the way the AHFC operates and thereby jeopardizing its ability to meet the housing needs of Alaska. JOHN EGAN, Volunteer President of Housing First, Inc., stated he was a customer of the AHFCs products. As a president of a small community based nonprofit corporation, he thought the work they were doing to meet the housing needs of Juneau would not be happening without the support of the AHFC. Multi-family housing projects in general would not be developed without the help of the AHFC. He claimed there was little private secondary mortgage investors for multi-family housing units. He said Housing First could not function without the support of Alaska Housing Finance Corporation. Because many of the AHFCs programs are tied to those of the federal government, there is already a significant delay in processing paperwork in getting a project approved. He felt if SB 92 passed, the AHFC would be cemented into a glacial pace of operation. Banks and nonprofits will not be able to hold projects for months, while waiting for legislative approval. He said the AHFC is now doing the kind of financing the state needs to stabilize the housing market in Alaska. They are a genuine community resource, he said, and nonprofit corporations do not have this resource anywhere else. These community based groups are unable to gather financing from several different investment sources without the support of the AHFC. He pleaded with the committee to not halt an already slow process with passage of SB 92. Number 442 TAMARA ROWCROFT, General Manager, Alaska Housing Development Corporation, said her group was formed over twenty years ago to address the housing needs of Juneau. They operate a 96 unit housing complex for low to moderate income families. About three years ago, they decided they needed to try to develop more affordable housing in Juneau. After seeing what resources were available, they finally got a financing package to Aid to Families with Dependent Children after two years effort. She said they were prompt and granted financing to their project. She said their organization was interested in continuing to provide housing in Juneau and were concerned this bill would make it more difficult and time consuming to get projects started. TOM WILLIAMS responded SB 92 was not intended to put a damper on loan programs. He said the intent was to have the legislature involved in the loan process to allow them some oversight of that process. Testimony from the Senate Finance indicated there was an interest in improving communications between the AHFC and the legislature. They felt this bill would accommodate this effort. He did not feel this bill would preclude the AHFC from participating in loan programs when the legislature was not in session, as the appropriate body to deal with interim activities was the Legislative Budget and Audit Committee. That is why this committee supported this bill. Thus, they did not feel there would be a significant impact on the corporation. He felt any agency would like to be free to do as they pleased and hoped the new administration of the AHFC would improve communication with the legislature. He felt this bill would help to insure this happened. He thought good planning and proper budgeting could provide a reasonable amount of flexibility, especially with the support of the LB&A. He reiterated his feelings that this legislation was necessary and provided a mechanism to insure things did not get out of hand. MR. FAUSKE wanted to point out the Executive Budget Act required the LB&A to finish their review in 45 days. He argued this was a life time in the world of mortgage financing and could mean many missed opportunities. He reiterated he welcomed oversight, but was concerned about the time line and missed opportunities. CHAIR JAMES said this bill would be rolled to next week for consideration by the committee. She stated her intentions of passing out HB 269, before the committee adjourned.