Legislature(2003 - 2004)
02/17/2004 09:08 AM Senate FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 277(HES)
"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."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that this legislation pertains to the
student loan program and is sponsored by the Senate Rules Committee
at the request of the Governor. He noted that the legislation
"would allow the Alaska Student Loan Corporation to issue bonds and
use the proceeds for purposes other than funding student loans and
creates a mechanism for the Corporation to return money to the
State through the financing of capital projects." He stated that
$260 million is anticipated to become available over a three year
period beginning in FY 04 as a result of this bond issuance. He
noted that a sectional analysis of CS FOR SENATE BILL NO. 277(HES)
is included in the Members packets.
SFC 04 # 12, Side A 10:44 AM
DIANE BARRANS, Executive Director, Postsecondary Education
Commission and Executive Officer, Alaska Student Loan Corporation,
read her testimony as follows.
Co-chair Wilken, Co-chair Green, committee members, my name is
Diane Barrans and I am the executive director of the Alaska
Commission on Postsecondary Education as well as the executive
officer of the Alaska Student loan Corporation. Thank you for
hearing the legislation before you today.
Appearing with me today are Sheila King, commission and
corporation finance officer and by teleconference, Ken Vassar,
Wolforth, Vassar, Johnson, and Brecht.
Over the past decade I have appeared before you several times
seeking your support for agency initiatives.
First, the Commission asked to be given the tools and
administrative latitude to modify our processes so that we
could operate as a self-sustaining enterprise agency of the
state. The next step was putting in place a mechanism for the
corporation to begin paying to the state some portion of its
annual net income, as a return on the state's original
investment in the corporation.
Most recently, in 2001, our organization requested your
approval to redefine its role-becoming Alaska's full service
financial aid assistance and postsecondary education planning
agency.
On each of these occasions, you and your fellow legislators
consistently exhibited strong, bipartisan support for the
mission of this agency, to promote postsecondary participation
and success by Alaskans, and you unanimously passed this
series of bills.
I am extremely pleased to sit before you today and commend for
your approval CSSB 277. The commission and corporation, having
successfully implemented the AlaskAdvantage suite of programs
and services for Alaskans, now seek your support for the next
step of our organizational growth.
The objectives of Senate Bill 277 which are five-fold:
1) To broaden the scope of the Corporation's bonding authority
to include the ability to bond for the general benefit of the
state. To contribute to statewide efforts to use state assets
as efficiently as possible, the corporation has developed a
plan to return a substantial portion of the capital the state
original gave the corporation. The change in corporation
statue is requested to insure that, as ASLC has capacity to
return contributed capital back to the state, it will have a
variety of means to do so and will be able to select the most
beneficial way of doing so;
2) To reconstitute the state student grant program to better
focus on Alaska's workforce needs and to enhance the
Commission's current outreach and early awareness initiatives;
our proposal redesigns the grant program to clearly have an
Alaska-centered focus.
3) To provide the Commission with greater flexibility in
offering loan consolidation options to borrowers. Current
statutes limit the way in which the Commission can offer
consolidation and certain customers, who have borrowed from
both the discontinued loan program and the AlaskAdvantage
loans, cannot currently be served through consolidation.
4) At the recommendation of the Department of Law, this bill
will clarify the Commission's ability to administratively
issue liens in the collection of defaulted education loans and
set out the due process for appealing such an action by the
Commission; and
5) Lastly, to provide an exemption from the State Procurement
Code for certain services related to guaranteeing and
disbursing education loans. Under the current business
structure for education loans, a lender must be prepared to
conduct business with the guarantors and disbursing agents
preferred by the schools participating in the loan programs.
In the Sectional analysis in your bill packet these
changes, as well as several minor or conforming changes are
identified. I would be happy to respond to specific questions
or provide a walk through of the bill, section by section.
Co-Chair Wilken asked Ms. Barrens to review the changes to the bill
that were made in the Senate Health, Education, and Social Services
(HES) Committee.
Ms. Barrans stated that one change, included in Section 5 of the
bill, specifies that an aggregate limit be placed on the amount of
bonds that the Corporation could issue.
Sec. 5. AS 14.4.220 is amended by adding a new subsection to
read:
(g) The corporation may not issue bonds to finance
projects under (a)(3) or this section in an aggregate amount
that exceeds $280,000,000.
Ms. Barrans stated that the HES Committee determined that while it
is anticipated that the program "could return a substantial amount
of the contributed capital to the State, that in the future the
Student Loan Corporation not be looked to, to bond itself in
perpetuity beyond what it could afford to do." Therefore, she
continued, this aggregate limit was designated to finance State
projects.
Ms. Barrans continued that the second change "is relevant to the
prioritization for the awarding of State grants" in that the
original version of the bill allowed individuals "enrolled in
programs of study leading to employment" in specific workforce
shortage areas. She shared that the Senate HES Committee determined
that these specification "were too narrow and did not provide for
the advent of emerging workforce needs," and therefore, she noted,
that language was eliminated.
Co-Chair Wilken pointed out that an additional change is located in
Section 23, subsection (2) on page 11, line 24, in which "ten
percent" was changed to 15 percent as follows.
(2) "severe shortage" means a current or recurring job
vacancy rate of 15 percent of greater, as determined by the
Department of Labor and Workforce Development or by another
workforce data source determined reliable by the commission.
Ms. Barrans affirmed. She noted that this change is the result of
the aforementioned broadening of the workforce area shortage needs.
Senator Hoffman asked why the bill's language limits the amount of
bonds that could be available to finance projects to $280 million
as opposed to Ms. Barrens' testimony specifying that $260 million
would be available for this purpose over a three-year period.
Ms. Barrans responded that the bill's language would deliberately
establish the amount at $280 million in order to allow the
associated costs of bond issuance to be paid for from the bond
proceeds. Furthermore, she noted that it would be beneficial to be
able to finance the minimal reserve fund from the bond proceeds
rather than requiring the Corporation to utilize other resources to
fund either the cost of issuance or the reserve fund.
Senator Hoffman surmised therefore that the bond issuance expense
and the reserve fund expenses would amount to approximately $20
million.
Ms. Barrans concurred. She shared that it is typical for a Bond
Reserve Fund to be approximately ten percent and the cost of
issuance to be approximately two percent of the bond amount.
Senator Bunde asked that further information be provided in regards
to the grant program, specifically the definition of financial
need. He additionally asked whether a student could be eligible for
both a grant and a student loan.
Ms. Barrans responded that the Commission would like to work with
"financial aid officers at Alaskan institutions to develop a
formula that would best serve this constituency." Typically, she
noted, the Commission "would rely on a needs analysis that is based
on a federal free form for student financial aid, which is a
standard calculation for financial need." However she noted that,
"one point of discussion…is whether we should use…a standard cost
of education in order to level the playing field " in a situation
where a student might elect to attend a more expensive institution
as opposed to a less expensive institution. She voiced the
understanding that, in order to efficiently utilize grant funds,
"the standard cost of education would be considered in that mix."
Senator Bunde understood that the grants would be limited to
students who chose to attend college in the State.
Ms. Barrans replied that this is true, however, she noted that
while the standard cost of education to attend the University of
Alaska might range between $8,000 and $12,000, the cost of
attending another institution such as Sheldon Jackson College or
Alaska Pacific University "might be considerably higher." She noted
that students could be recipients of both the grant and loan
program.
Senator Bunde opined that a student might require both funding
sources.
Ms. Barrans agreed.
Senator Olson stated whether some schools might not qualify for
some of the eligibility and priority specifications that are
identified in Section 23 of the bill beginning on page ten and
continuing through page eleven; specifically in subsection (2) (A)
that reads as follows.
(2) enrolled or about to be enrolled
(A) at an institution approved to participate in federal
financial aid programs under 20 U.S.C. 1070 - 1099c-2, as
amended, located in this state; and
Ms. Barrans responded yes, "some very small vocational schools" in
the State "are not regionally or nationally accredited."
Senator Olson asked whether the Kotzebue Technical Center in
Kotzebue or the Ilisagvik College in Barrow are accredited and
therefore would qualify for the grant money.
Ms. Barrans responded that the Ilisagvik College and the Alaska
Vocational Technical Center in Kotzebue are accredited; however,
she was unsure of the status of the Kotzebue Technical Center and
would supply that information to him.
Co-Chair Wilken asked for confirmation that the money that would be
available from the sale of bonds would be separate from the
Corporation's dividend program that has been contributing funds to
the State's general funds for the past four years.
Ms. Barrans affirmed that, "it is a separate initiative."
Co-Chair Wilken concluded, therefore, that the State would continue
to receive "the dividend in addition to the payback." He voiced the
understanding that proceeds from the bond dividend must be used for
capital projects.
Ms. Barrans clarified that the Internal Revenue Service specifies
that the proceeds from tax-exempt bonds are federally limited to
specific types of projects and that typically a capital project
would qualify. She noted that "principle payments on outstanding
debt service" is also an approved use of the funds.
Co-Chair Wilken noted that the Corporation has provided additional
information, titled "Alaska Student Loan Corporation Return of
Contributed Assets to State" [copy on file], that could supply
Committee members with further information.
Senator Bunde asked the current status of the Commission's student
loan default rate as compared to the rate a decade earlier.
Ms. Barrans responded that the most recent year's default rate is
approximately four percent and is approximately 13 percent lower
that the default rate of ten years prior.
Co-Chair Wilken shared that when he had served on the Commission in
the late 1990's, it was determined that the State could garnish an
individual's permanent fund dividend (PFD) check when their loan
was outstanding. He asked how much the Commission garnishes in this
manner each year.
Ms. Barrans responded that approximately $6.8 million was recently
collected in this manner.
Co-Chair Wilken recalled that during the first two years that the
garnishing of one's PFD was allowed, the State collected $13
million and $12 million, respectively.
Ms. Barrans agreed that being able to garnish PFD's is "an
effective tool."
Co-Chair Wilken noted that the State's Student Loan Corporation is
fairly unique in the nation.
Ms. Barrans agreed that while there are similar programs operating
in the country, the Corporation's programs and services are unique.
Senator Hoffman informed the Committee that he would be developing
an amendment to this legislation that would allocate ten percent of
the funds to support maintenance needs of the University of Alaska,
another ten percent to support major maintenance of schools, and
the remaining 80 percent would be retained by the State.
Co-Chair Wilken noted therefore, that the bill would be held
pending drafting of the amendment.
Senator Olson voiced concern regarding the fact that the intent of
this legislation is to fund State capital projects now, via the
student loan program's issuance of bonds that "might encumber
future generations of students." He questioned whether trying to
solve a problem by using these bonds is the best option, and
therefore, he asked whether "there are other loan type corporations
that are also contributing to the State's general fund."
Co-Chair Green opined that each of the programs that have been
funded with State general fund dollars "have the obligation, when
they can, to pay a dividend." Therefore, she stated that she
recognizes this proposal "to be a dividend back to the State."
Senator Olson responded that the Corporation is already paying a
dividend. Continuing, he restated that his concern is that it would
"encumber future generations."
The bill was HELD in Committee.
| Document Name | Date/Time | Subjects |
|---|