Legislature(2013 - 2014)
04/02/2014 03:21 PM Senate FIN
| Audio | Topic |
|---|---|
| Start | |
| HB23 | |
| SB218 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 218
"An Act relating to the Alaska Municipal Bond Bank
Authority; and providing for an effective date."
5:02:58 PM
Ms. Armstrong presented an analysis of the legislation. The
bill would allow for continued operation of the Alaska
Municipal Bond Bank by increasing the borrowing limit of
the Bond Bank from $1 billion to $1.5 billion. The
legislation would provide an opportunity for the Bond Bank
to assist the University of Alaska with financing a heating
or energy capital project and would expand the list of Bond
Bank activity to include the university for an amount not
to exceed $150 million.
5:04:04 PM
Co-Chair Meyer understood that the program had popular and
had been in place for a while, which had prompted the
request that the ceiling be raised.
Mr. Mitchell said that the Bond Bank currently had bonds
outstanding of approximately $905 million. He shared that
the Bond Bank was a program that provided lower cost funds
to Alaskan municipalities and certain other entities within
the state. The program would result in Alaskan's paying
less interest expense to third party lenders. He explained
that the Bond Bank was an AA plus rated bank for bonds
primarily in the tax exempt markets. He relayed that the
Bond Bank had approximately $95 million left of capacity
and $80 million of applications for the program; without
additional authority from the legislature the Bond Bank
would not be able to continue work in cost reduction for
municipalities. He noted that the state was not paying the
debt service on the bonds directly and that the core of the
repayment of the funds came from the municipalities. He
highlighted that in the 40 year history of the program
there had not been a single case of payment default. He
continued to expound on the merits of the program.
5:08:16 PM
Co-Chair Meyer asked whether there was concern that
municipalities might not be able to pay back a loan.
Mr. Mitchell responded that the Bond Bank program had a
financial advisor and a board of directors. He said that
the advisor would independently analyze a loan application
submitted by a community to study trends in the community,
changes in revenue generation, change in population,
economic activity and assessed value. The advisor would
also consider the essentiality of the project. The board of
directors would review the advisors recommendation and
deliver a decision on the loan application. He said that in
an effort to direct communities to success strong
applications that were likely to be approved were typically
brought to the board.
5:11:07 PM
Co-Chair Meyer understood that the university had the
option of using a different program to acquire funding for
the power plant. He believed that the university would
receive a lower interest rate through the program rather
than bonding themselves.
Mr. Mitchell said yes. He added that there were other
allowances in statute for the Bond Bank to participate in
loans. He noted that it provided a financial option but was
not a requirement.
Vice-Chair Fairclough asked how much was paid off in loans
each year.
Mr. Mitchell responded that the state paid off
approximately $35 million each year. He added that the
state had a mature portfolio; each year the state had
declining debt service and not level debt service because
the bonds were all staggered into the past.
Vice-Chair Fairclough queried the expectation of the
additional $350 million in bonding authority.
Mr. Mitchell said that the program was going to be within
the next 12 to 18 months, in a position where the statutory
limit to borrow would be reached. He added that the
distribution of the $350 million would depend on future
projects being developed at the local level that made
fiscal sense and could be repaid.
5:14:43 PM
Vice-Chair Fairclough wondered how the Bond Bank's credit
rating interacted with the state's credit rating.
Mr. Mitchell replied that both were closely aligned. The
Bond Bank had a moral obligation structure established in
statute; additionally, the bank had an annual appropriation
in the operating budget that automatically replenished the
reserve fund in the event of borrower default.
5:16:35 PM
Vice-Chair Fairclough queried the division of loans in
urban and rural communities.
Mr. Mitchell responded that there were policies,
regulations and statutory reference to prioritization of
the type of projects that would be funded, but that there
was no regional differentiation. He said that smaller
municipalities were more difficult to lend to because they
tended to have a limited ability to repay the state.
5:18:29 PM
Vice-Chair Fairclough asked if the bank considered the
state's credit rating when issuing bonds.
Mr. Mitchell said that the concept of moral obligation debt
was part of the conversation around debt capacity and
credit ratings. The program's history as a credit
enhancement did not play a large role in the debt capacity
analysis. He discussed the bond program and how it could
relate to Public Employees' Retirement System (PERS)
liability.
5:21:31 PM
AT EASE
5:22:08 PM
RECONVENED
Co-Chair Meyer discussed housekeeping.
5:23:03 PM
Co-Chair Meyer CLOSED public testimony.
SB 218 was HEARD and HELD in committee for further
consideration.
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