Legislature(1995 - 1996)

03/30/1995 08:06 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                
 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                    
 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
 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.                           

Document Name Date/Time Subjects