Legislature(1995 - 1996)
04/06/1995 08:12 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 Number 116 CHAIR JAMES stated the next bill on the agenda was SB 92. She called for Representative Terry Martin, Chair of the sponsoring Legislative Budget and Audit committee, to testify on behalf of the bill. REPRESENTATIVE TERRY MARTIN, Chair, Legislative Budget and Audit Committee, stated his major problem with the Alaska Housing and Finance Committee began about a year ago. He thought it became apparent at that time, that the legislature may have created a monster that needed some oversight, especially considering they had been given so much authority over state funds. He pointed out that many things in this year's capital budget, that were formerly under the Department of Community and Regional Affairs, were now under the Alaska Housing and Finance Corporation. He stated there was a real constitutional concern as to what degree the legislature could delegate its authority to appropriate funds to a corporation and mentioned the legislature had given a tremendous amount of authority to the AHFC. He stated an example of this authority without oversight, is the recent report coming from the Institute of Social and Economic Research. This report indicated that the state was receiving a return of less than $0.14 out of every dollar spent on the weatherization program of the AHFC. He stated the program takes as much as 81 years to receive its investment from the savings in energy loss. He asked the committee what they thought the legislature would do if this knowledge became public information. He said it was going to become public at that point, because its just one example of why they need oversight. He stated the problem was that the legislature was blamed from the mistaken policies of the AHFC, when they had no means of oversight of the activities of the corporations spending. He argued there was no accountability for the policies of the AHFC under the current system. He also pointed out that the concern over tampering with the AHFCs bonding authority was not real, as the legislature oversees the activities of other public corporations with bonding authority as well. He cited the Alaska Industrial Development and Export Authority, the Permanent Fund corporation, and the Alaska Railroad as examples. He argued this oversight would not hurt the bonding authority of the AHFC, but rather may help to keep credibility for their bonding authority great, by them knowing that the legislature will protect and insure that the bonding authority is not misused. He thought this oversight was necessary to help insure that the funds and assets of the corporation were not misused. He reiterated that if the legislature was to be held accountable for the mistaken policies of the AHFC, then it was necessary that it have some means of oversight over the corporation. He stated that his aide, John Bitney, and Tom Williams, legislative aide to Senator Steve Frank, could answer questions from the committee, regarding the bills effect on the bonding authority of the AHFC. CHAIR JAMES stated she would like to take testimony from those on teleconference before hearing from Mr. Bitney or Mr. Williams. Number 241 MIKE DAVIS, Representative, Bristol Bay Housing Authority, stated their housing authority works in approximately 20 communities with about 400 homes in the Bristol Bay community. He said they worked extensively with the AHFC to provide homes in communities throughout bush Alaska. They receive about $1.6 million from the federal government and matching funds from the AHFC, which allows them to make improvements to approximately 76 homes in the region. He argued to put the projects together, in their short construction season, requires readily available financing. He stated they share the concerns already expressed, that by allowing the AHFC to fall under the Executive Budget Act will cause additional delays to projects. The result will be that less homes will be built. He thought that by allowing SB 92 to pass, the legislature will be in the business of micro-managing the corporation, causing additional bureaucracy and regulations, which he did not think was their intent. He shared the concerns that this bill will stifle the corporation from being able to respond to market conditions and create a situation that will delay projects across the state. He suggested the legislature craft the language of the bill to allow them oversight, while still maintaining the ability of the AHFC to respond to the market conditions of the state. Number 290 JAN SIEBERTS, Senior Vice President, National Bank of Alaska, stated there was a group of people who wished to testify, but had to leave for work. He stated they thought the AHFC was an important financial asset to this state, and felt they were overall doing a good job. He argued the housing industry was important to this state for the creation of jobs and said they estimated $150 million in new home construction last year. He stated that developing new housing for lower income families was getting more difficult, because of the increase in cost. He thought that if they had to go to the legislature for approval with each of their transactions with the AHFC, the situation would get too complex. He said they could not accomplish many of their projects without the assistance of the AHFC and would hate to see the AHFC micro-managed to the point that these projects would be delayed for two to three years. CHAIR JAMES asked if Mike Davis was still on teleconference from Dillingham and stated Representative Ivan had some questions for him. Number 346 REPRESENTATIVE IVAN stated he could understand Mr. Davis comments about the existing relationship he had with the AHFC. He asked if Mr. Davis had any recommendations if this bill was too restrictive. He asked if it would help if there were some type of ceiling on dollar amounts allowed before requiring legislative oversight. MR. DAVIS replied the dollar amounts they would need would not be the same as those of the larger communities. He thought what was needed was the ability for the corporation to have the flexibility to respond to market conditions. REPRESENTATIVE IVAN stated he was looking for some type of dollar amount ceiling that would exempt them from the effects of legislative oversight. MR. DAVIS said he could not give an answer to that question. Number 388 HEATHER ARNETT, Executive Coordinator, Association of Alaska Housing Authorities, commented this bill was unclear whether there would be a requirement of legislative approval on a project by project basis. If this was the case, she thought there could be some problems arise. She thought private investors might be more hesitant to invest in urban and rural Alaska if this legislative approval were required. WILLIAM HOWE, Deputy Commissioner, Division of Treasury, Department of Revenue, stated the department has spent the last week to see what amendments could be made to SB 92 to make it more functional. Their suggestions were: 1) To clarify that the AHFC has the ability to issue bonds and make mortgage loans; 2) the AHFC can continue to operate its loan programs where no state subsidy exists; and 3) multi-family loans and projects not to exceed $10 million individually, which may require grants, tax credits, or utilization of arbitrage earnings will be permitted. He stated the Department of Revenue felt with these amendments SB 92 is workable and will maintain the intent of the sponsors. Number 491 REPRESENTATIVE GREEN asked what percentage of the AHFCs loan portfolio does the suggested $10 million cap represent annually. MR. HOWE thought this cap would represent a small percentage of the overall portfolio which was in excess of $3 billion. He stated that last year, the corporation proceeded with about $40 million worth of multi-family housing projects. He emphasized that this was a small, but important percentage of the overall portfolio. CHAIR JAMES called for Tom Williams, Legislative Assistant, Senator Steve Frank, to give a quick wrap-up on behalf of the bill sponsor. She asked him to explain to the committee how they were planning to deal with the concerns raised in the front section of the budget. Number 507 TOM WILLIAMS, Legislative Assistant, Senator Steve Frank, reiterated that the bill sponsor had no desire to impede any of the AHFCs traditional programs, that they have operated well for many years. He stated their concern was to insure there was a mechanism to allow the legislature to exercise oversight, should they tend to divert from their traditional programs. He said it was the intent to address the corporations flexibility issue in the front section of the budget to grant the AHFC that general authority. He argued that by passing the bill without any exemptions, it would bring the entire operation of the AHFC under the Executive Budget Act, while providing for a provision in the budget allowing the AHFC to go forward with its traditional programs, as long as they do not deviate from their basic plan as presented. Should they divert from the stated plan, this bill provides for a mechanism for the legislature to review questionable programs. He stated with regard to Mr. Howes proposed amendments, he thought that if they could develop language to exclude certain programs, that certainly language could be crafted broad enough to allow the AHFC their needed flexibility. With regard to a specific dollar amount cap, he thought this cap may need to change annually, as the corporations needs and programs change. He thought this flexibility could be achieved better in the budget, as compared to being written in statute. CHAIR JAMES asked if the process for working with arbitrage funds would be interfered with under this bill. MR. WILLIAMS thought the intent was that they would present a general plan for how to spend its arbitrage earnings over the next year, and as long as they do not deviate, there should not be a problem. Should they deviate from their generally stated plan, they would then have to come back to the legislature to explain the need for their change of course. He reiterated that the Legislative Budget and Audit committee would allow for prompt legislative response, thus alleviating the concern of missed opportunities. Number 552 REPRESENTATIVE GREEN asked if the sponsor would have any problem with developing language to incorporate Mr. Howes proposed amendments to SB 92. MR. WILLIAMS stated the preferred approach would be to not exclude certain functions of the AHFC. He said they had asked the Executive Director of the AHFC to help craft the language he would need to have flexibility to respond to market conditions, so that it could be put into the budget. He stated he thought there was a fear the legislature would be trying to micro-manage the AHFC, which he argued did not make sense. REPRESENTATIVE GREEN said the goal of the House majority was to try and limit government interference in business and thought this bill was providing for government interference in the AHFC. He stated that without the proposed exclusions, he had some strong reservations about how this bill was written. CHAIR JAMES pointed out that the AHFC was a government corporation. REPRESENTATIVE GREEN agreed they were government, but thought that overall, they had done a decent job of running their own affairs. He thought any aggressive loan institution could document through their history examples of poor decisions. REPRESENTATIVE PORTER said he shared the concerns expressed by Representative Green. He stated he was as concerned as everyone else about the effect of the 5 percent housing loan and the proposed new office building for the AHFC, but argued this bill was potential overkill. He was concerned about the potential of members of the LB&A, during the interim, to allow personal considerations to interfere with the process. He suggested following a pattern similar to the oversight over the AIDEA board.