Legislature(1995 - 1996)
03/08/1996 09:15 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SENATE BILL NO. 163
"An Act approving the University of Alaska's plans to
enter into long-term obligations to borrow money from
the Alaska Housing Finance Corporation for the
acquisition of student housing facilities; and providing
for an effective date."
Wendy Redmond, Vice-President for University Relations,
University of Alaska was invited to join the committee. She
said the sponsor had a CS for this bill.
Sherman Ernouf, aide to Senator Tim Kelly was invited to
join the committee. He said that University of Alaska at
Anchorage had a student population of 16,000 credit
students, which represents 64% of the total University of
Alaska system-wide enrollment. UAA only has 384 beds,
allowing them to provide housing to 2.6% of their students.
By way of contrast the Fairbanks campus provides housing for
38.9% of their students and the Juneau campus 16.6%. Every
fall, hundreds of Alaskans, both urban and rural are denied
campus accommodations at UAA due to insufficient space.
This gap is growing every year. This bill would allow the
University of Alaska to construct a new 600 bed dormitory on
the campus of UAA, using a long-term loan of $33 million
provided from AHFC. According to studies, resident students
do better in colleges and they achieve more academically. A
whole host of things develop better such as; social skills
and development of leadership opportunities. In a recent
survey conducted at UAA, 26% of the student body indicated
their desire to live on campus. Lack of housing for single
students, Alaska Natives, married students, athletes and
international students is inadvertently forcing Alaskans to
attend out of state institutions. This bill would provide a
mechanism for UAA to get the housing they desperately need.
Senator Frank referred to page 2 of the bill and noted the
annual debt services $2.7 million over 25 years which the
University of Alaska will pay $1.7 million and asked who
picked up the balance.
Wendy Redmond answered that this would be financed with
subsidized loans from AHFC. They will be paying
approximately $1 million per year on the interest rate
subsidy for the bonds. Senator Frank asked if they would be
able to use arbitrage funds or something that did not use
their equity.
Mr. Dan R. Fauske, CEO/Executive Director, Alaska Housing
Finance Corporation, Department of Revenue was invited to
join the committee. He indicated that under the current
scenario it would be monies out of next year's capital
budget to pay for that cash subsidy. He was waiting on a
response on bond counsel and tax counsel as to some
potential uses and at this time was unclear if it would
qualify under the arbitrage limits of IRS. Senator Frank
asked if it were legal under the IRS code would that be
their preference. Mr. Fauske said that at present they did
a straight bond sale calculation, factored in the subsidy
that was required to make the cash flow work for the
university and then utilized what was known as existing cash
in the succeeding years.
Co-chairman Halford said if it could go in to the arbitrage
use then it probably had more potential support than if it
competed with other non-arbitrage qualified capital budget
items. Senator Rieger agreed.
Mr. Fauske said that there is an assisted and an unassisted
portion of this debt. The unassisted portion is at 3% and
it is about $3.253 million they will pay full interest rate
on. Senator Rieger asked if the arbitrage funds could be
blended in with other totally different projects. Mr.
Fauske said there were two different arbitrage funds you
might need to use to get the total blended rate within the
excess cap that is established by the IRS. The excess must
be determined and the rate of the coupons determines what
interest rates would be charged on use of arbitrage funds.
Co-chairman Halford said that the arbitrage determination is
based on the project and could apply to the whole project.
If it is eligible for use of arbitrage earnings it may be to
our advantage to take the entire income stream out of the
arbitrage earnings and thereby release the other dollars
within or outside of the university system for unrestricted
capital use. Mr. Fauske asked if he meant to fund the
entire project out of arbitrage. Co-chairman Halford said
if the whole project is qualified for use of arbitrage then
it is qualified as a project next is to look at the whole
package of expenditure of arbitrage earnings. Senator
Rieger asked how the split was arrived at, the amount that
was to be arbitraged or assisted and the amount that goes to
the unassisted. Mr. Fauske said that it was based on cash
flow information the university supplied as to what they
felt they could afford on their projected future finances.
Senator Sharp said he didn't know what size capacity of
dormitory this amount of money would build. At a capacity
of 500 it would come out to $5,000 per year per occupant to
support that building counting debt service, maintenance and
operation. That would only pay for the university's
portion, not the portion being paid by AHFC subsidized.
Wendy Redmond indicated that this project was a 550 bed
facility and included a full food service facility. Senator
Sharp voiced concern of obligating AHFC for 25 years of
payments on the subsidized amount and would the economics of
$34 million plus furnishings and operating costs on the debt
service inflate an additional operating cost to the
university. The total university operating cost plus the
university's debt, less the amount of anticipated revenue
from student occupancy would appear to not cover the total
cost of the structure. The money would have to come from
someplace else. Wendy Redmond said the dorm receipts are
expected to be $1.5 million per year. That will be covering
the student occupancy during the year as well as use of the
facility during the summer for tours and groups and projects
they bring in, similar to what they do in Fairbanks. In
addition the campus is committed to generating an additional
$4 million of revenue. $3 million will be financed over a
twenty-five year period. Hopefully that can be bought out
sooner. There is also anticipation in selling a condominium
facility and putting the money into the project. Mr. Fauske
said that if you look at the numbers there is a gap between
construction costs. There is a capitalized interest period
of about three years during the construction phase. There
is no revenue coming in because it is being built. The debt
structure or bond sale would be designed with bonds to cover
that cost. During that time interest is paid on the bonds
and interest is earned on the money that was sold. Senator
Sharp asked what the projected operating and maintenance
cost would be on this structure. The total revenue
anticipated is $1.5 million and that does not cover the cost
of the debt service the university will pay at $1.751
million. Somewhere the university budget will have to go
up. Senator Frank asked if he meant heat, lights,
maintenance and janitorial service and Senator Sharp
concurred. Wendy Redmond said those costs were covered by
the rental receipts from the facility, the students and the
summer usage and those would cover the university's
obligation for the debt repayment under the AHFC subsidized
portion plus pay the costs to maintain and operate the
facility. The board of regents will no longer approve a
project that does not provide all those costs up front. She
said she would bring a complete break down for the
committee. Senator Sharp indicated that it would cost a
student in the dorm approximately $6,000 for a nine month
period. This would not cover a maintenance operating cost
of this building. Wendy Redmond said that the board's
intention is not to create two residential campuses in the
State. Fairbanks is the residential campus and we intend to
maintain 35% to 50% of the full time students with housing.
In Anchorage we are currently at 6%. This will bring us up
to 12%-13% of the total full time students and a little less
than 5% of their total student body. However, there are
students coming in from all over the State because we have
programs in the Health/Sciences, social work, and vocational
programs that are offered only in Anchorage. It is
particularly difficult for young college students to try and
find housing.
Co-chairman Halford HELD the bill in committee and would
like an answer on the arbitrage question.
Senator Frank asked that how much interest rate has to be
paid, and explanation of the $1 million in cash, what about
the other $3 million and why you have them separated, and
level payment term all be explained at the next meeting.
Wendy Redmond answered about the $3 million at this time and
the reason it was separate was because the Chancellor felt
he had commitments from the local communities and
corporations to raise $3 million to support housing in
Anchorage. Senator Frank said it appeared to be a debt
service. Wendy Redmond said that they would finance the $3
million from a separate stream of cash flow.
ADJOURNMENT
The meeting was adjourned at approximately 10:50 A.M.
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