Legislature(2005 - 2006)SENATE FINANCE 532
03/08/2006 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB216 | |
| SB265 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 243 | TELECONFERENCED | |
| += | SB 216 | TELECONFERENCED | |
| + | SB 265 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 265
"An Act increasing the total amount of bonds and notes that
the Alaska Municipal Bond Bank Authority may have
outstanding; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Senator Stedman, the bill's sponsor, explained that the Alaska
Municipal Bond Bank Authority (MBBA) currently has Statutory
authority to issue $500,000,000 in bonds. Continuing, he noted
that the ability of communities in the State "to borrow in the
capital market is limited by their size and credit worthiness
and other factors." The benefit of pooling communities into a
central bond bank authority creates "synergy for the
communities, which reduces their fixed costs" and increases
"investor interest in the purchasing" of their municipal bonds.
It also assists in increasing a municipality's credit rating.
Senator Stedman continued that, with the exception of "very
small ones", communities of various sizes throughout the State
utilize the Authority. Of the total $500 million MBBA authority,
only $50 million is un-issued at this time. The current
expectation is that $80 million in community capital expansion
applications would be forthcoming during the next six months.
This would exceed the MBBA's current authority balance.
Senator Stedman stated therefore that the purpose of this bill
would be to increase the bond bank authority by $250 million;
therefore the total authority would increase from $500 million
to $750 million.
Senator Stedman noted the expenses reflected in the fiscal note
would not affect the State's general fund, but would instead be
addressed by the investment earnings of the Authority. In
summary, this bill would "expand" the authority of the MBB "to
facilitate the capital requirements of our communities."
Co-Chair Green concluded that this bill would increase the
current MBB authority from $500 million to $750 million.
9:21:26 AM
Senator Bunde asked whether the MBBA bonds were "guaranteed by
the full faith and credit of the State".
Senator Stedman responded in the negative; "it's a pooling
mechanism and financing mechanism to allow cost reduction and
make it easier for the communities to issue the bonds".
Senator Bunde acknowledged, but asked whether the State would be
responsible for the debt were a community to experience
financial difficulties.
Senator Stedman replied that the State would have "the authority
to interdict in case of a default". He asked that a
representative of the Department of Revenue explain the process
were a default to occur. He understood that to date, no
community default has occurred.
9:22:41 AM
JERRY BURNETT, Director, Administrative Services Division,
Department of Revenue, informed the Committee that Deven
Mitchell, Executive Director of the Alaska Municipal Bond Bank
Authority, Department of Revenue was unable to attend the
hearing due to previous commitment. Continuing, he noted that
while no community has defaulted on a loan to date, the State
must be prepared for such an event. "The general obligation debt
of the Municipal Bond Bank is moral obligation debt of the
State." Thus, were a community default experienced, the
Department of Revenue's Commissioner would be obligated to
request an appropriation from the Legislature. The Legislature,
however, would not be required to grant that appropriation.
There would be no other obligation on the part of the State.
Senator Bunde asked whether the $250, million increase might
affect the State's bond rating in consideration of this "moral
obligation".
Mr. Burnett stated that this increase would not impact the
State's credit rating.
Senator Bunde stated that even though no community default has
been experienced to date, the "potential" is there. To that
point, he pondered about the pressure that would be exerted on
Legislators in regards to the State's moral obligation to this
program considering the intense pressure the Legislature has
received in regards to Municipality Revenue Sharing. While this
Committee has discussed means through which to reduce the
State's debt, this program "encourages further debt". The hope
is that communities would participate in this program "with
their eyes very much wide open." Even though the program is "not
legally binding, any default would end up at the feet of the
Legislature eventually and would a responsibility of the General
Fund."
9:25:38 AM
Senator Stedman pointed out that there are "funding mechanisms"
such as covenants within the MBBA system that have been
established to assist in alleviating this concern. Were a
community in the State "to face general obligation default
issues," the State, "regardless of whether they were in this
program or not", would "step in" because otherwise the situation
would incur "implications around the State". The State would
receive "ample notice" were a community to be reaching the point
of default and "breaching their covenants". The State would
receive "ample warning that there is substantial financial
difficulty within one of our communities to step in". One must
remember that, "the State is the deep pockets that the
communities go to whenever they get into a predicament that they
cannot get themselves out of". One of the benefits of having an
"instrument like this is" that a community must meet the bond
covenants in order to qualify for the program. This requirement
should provide the State "a little more comfort in the
underwriting of these bonds". Another "mechanism" in the bond
bank program is that were a community experiencing cash flow
problems and potential default, "it would be red-flagged by the
Municipal Bond Bank" and the Legislature would be alerted to the
situation. This would provide sufficient time in which to
address the situation.
Senator Bunde stated that Senator Stedman's comments support
Senator Bunde's concerns. The State currently has communities
that "are not anxious to be financially responsible for
themselves." Rather than his position to be in opposition to
this legislation, his remarks are intended to be an alert about
"potential ultimate outcomes".
Mr. Burnett reminded the Committee that the Authority "has been
paying a dividend to the State for the past several years". The
MBBA's original capitalization was approximately $18 million,
and to date, it has contributed $26 million to the State. The
MBBA is both self-supporting and a positive benefit to the
State.
Co-Chair Green asked for confirmation that the initial
capitalization was $18 million.
In response to a question from Co-Chair Green, Mr. Burnett
stated that the initial capitalization was in 1977.
9:28:53 AM
Senator Hoffman understood that "the vast majority of bonding
authority has been used for school construction". To that point,
he asked whether that trend continued today.
9:29:09 AM
Mr. Burnett communicated that the more recent issuances have not
primarily been for school construction. Specifics in this regard
could be provided.
Senator Stedman stated that some of the FY 05 bond issuances
were in support of elementary, middle, and high school
renovations in the community of Petersburg, an ice rink in the
community of Palmer, a hospital expansion in Juneau, a
performing arts center in the Municipality of Anchorage, a new
high school and pool in Kodiak, a small boat harbor in Adak,
street improvements in North Pole, and the refinancing of
outstanding bonds for Haines, Palmer, and other communities.
Senator Stedman stated that the MBBA has served as a funding
mechanism "for more of the organized areas" of the State. The
bonds have been utilized more in communities from Southeast
Alaska northward to Anchorage and the North Slope area more than
they have been utilized in the Fairbanks area.
Co-Chair Green asked the location of the project information
referenced by Senator Stedman.
Senator Hoffman stated that the information is located on page 7
of the "Alaska Municipal Bond Bank Authority 2005 Annual Report"
[copy on file].
Co-Chair Green noted that a "wide variety" of projects have been
funded by this mechanism.
Senator Stedman stated that the pie chart on page 8 of the
report also provides pertinent project funding information.
Senator Stedman concluded his remarks by stating that the lower
interest rates that this pooling mechanism offers provide
further savings to the citizens of the communities.
Co-Chair Wilken moved to report the bill from Committee with
individual recommendations and accompanying fiscal note.
There being no objection, SB 265 was REPORTED from Committee
with previous $50,000 fiscal note #1 dated February 10, 2006
from the Department of Revenue.
| Document Name | Date/Time | Subjects |
|---|