Legislature(2021 - 2022)SENATE FINANCE 532
04/21/2022 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB19 | |
| HB127 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 127 | TELECONFERENCED | |
| + | HB 19 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 127
"An Act relating to the Alaska Municipal Bond Bank
Authority."
9:23:36 AM
Co-Chair Bishop relayed that it was the first hearing of HB
127.
9:24:03 AM
AT EASE
9:24:26 AM
RECONVENED
Co-Chair Bishop relayed that it was the committee's
intention to hear a bill introduction for HB 127 and take
invited and public testimony.
9:24:59 AM
REPRESENTATIVE BART LEBON, SPONSOR (via teleconference),
read from a Sponsor Statement:
This bill expands the authority of the Alaska
Municipal Bond Bank Authority regarding bonding
capacity to the University of Alaska and regional
health organizations.
Regarding the University of Alaska (UA), the bill
proposes two changes:
? Removes the project scope limiting Alaska
Municipal Bond Bank Authority participation to
only heating or energy projects
? Raises the UA project participation cap from
$87,500,000 to $500,000,000
Previously the University used Municipal Bond Bank
participation for funding of the combined heat and
power plant at the University of Alaska Fairbanks.
This change is intended to provide the University with
expanded tools for financing or refinancing, allowing
the University to leverage the bond ratings of the
Alaska Municipal Bond Bank Authority if advantageous.
This additional financing tool is not intended to be a
substitute for capital appropriations through the
legislature.
Regarding regional health organizations, the bill
proposes these changes:
? Removes the 49% Alaska Municipal Bond Bank
Authority single-project participation cap
? Raises the cap for all regional health
organization projects from $205,000,000 to
$500,000,000
This change is intended to expand opportunities for
regional health organizations to use the Alaska
Municipal Bond Bank Authority. In accordance with
existing statute AS 44.85.010, the Bond Bank provides
capital funds through loans to regional health
organizations "when the commissioner of health and
human services anticipates a state financial benefit
and an increase in regional quality of care." The
financial benefit is realized by the state by
capturing additional Federal Medicaid reimbursement,
assisting the State in reducing Medicaid expenditures.
I would appreciate your support in expanding
opportunities for the University of Alaska and
Alaska's regional health organizations to utilize the
Alaska Municipal Bond Bank Authority.
Senator Wilson thought Representative LeBon was referencing
the regional health corporations in Seward and Sitka being
able to benefit from the program.
9:28:45 AM
ANNE RITTGERS, STAFF FOR REPRESENTATIVE LEBON, answered in
the affirmative.
Co-Chair Stedman referenced federal loans asked if the
expansion of the Southeast Alaska Regional Health
Consortium (SEARHC) Hospital in Sitka was involved in the
bill or if SEARHC had requested expansion of the cap.
9:29:46 AM
DEVEN MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND
BANK AUTHORITY, DEPARTMENT OF REVENUE, explained that the
facility in Sitka had already been financed. There was a
bond secured by the revenues of SEARHC that were able to be
pledged. He had discussions with staff of SEARHC about the
protentional of the bond bank participating in the
financing. Some of the limitations that would be remedied
in the bill had held SEARHC back. He noted that currently
an entity must have two financings to fund an improvement
to utilize the bond bank. He discussed project limitations.
He recalled that SEARHC had found that it was
administratively easier to one transaction instead of
multiple transactions.
Mr. Mitchell continued that regional health authorities
were added to the list of allowed borrowers from the bond
bank, and it was not possible to obtain investment-grade
credit ratings form the market. There was a lack of
understanding in the public marketplace about the real
credit strength of the regional health corporations. He
mentioned special programs for specific improvements such
as the Sitka Hospital. Now SEARHC was able to get
investment grade ratings and obtain a relatively favorable
rate absent bond bank participation.
Co-Chair Stedman summarized that SEARHC was not involved in
the bill in regards to financing the hospital. He
understood that SEARHC was oversubscribed to their request
to issue bonds, with more investors than there was to
service a request.
9:32:53 AM
Senator Olson asked how much the Indian Health Service
health corporations participated in the program.
Mr. Mitchell explained that only regional health
corporations were currently authorized to participate in
the bond bank program.
Senator Olson understood that the health corporations in
Western Alaska were not eligible.
Mr. Mitchell answered in the affirmative. He explained that
regional corporations would be covered, and village
corporations would not.
Senator von Imhof asked for clarification about raising the
bond ceiling for the University. She asked if the bill
would allow the University to add new debt up to $500
million.
Mr. Mitchell explained that the University had its own
process for authorizing debt which required legislative
approval. He mentioned that the University was included in
the legislation because the University had suffered a
lowered credit rating because of its uncertain funding from
the state in recent years. The bond bank presented an
alternative to utilize when considering authorized
financing, and a lowered interest rate would be the sole
reason because it could otherwise sell bonds independently.
Senator von Imhof clarified that the University had the
capacity, but the bill would provide a different mechanism.
Mr. Mitchell affirmed that the sole purpose of the bond
bank was to facilitate market access on a lower cost basis
to entities that could not otherwise borrow money.
Senator von Imhof thought the bill signified that the bonds
would be the moral obligation of the state, which meant if
an organization defaulted, the bond bank would request
funds of the legislature/governor to pay its debt service.
She asked if the arrangement was the same as what was
currently in place.
Mr. Mitchell answered in the affirmative.
9:36:03 AM
Co-Chair Stedman referenced municipalities and shared a
concern that there seemed to be long term fixed assets that
were built and financed with bonds issued that stretched
out into the future and refinanced and stretched out to
amortization. He used the example of a hydro project, and
mentioned assets not being paid off and hampering future
projects. He mentioned major maintenance needs and Federal
Energy Regulatory Commission (FERC) inspections. He was
concerned with state involvement when municipalities were
not given the opportunity to continually extend the debt
service and never pay off assets.
Mr. Mitchell thought Co-Chair Stedman was discussing what
was called "pitch and chuck," through which debt service
was placed into the future, which was usually viewed as a
credit negative unless there were adjustments. He discussed
bond financing terms and the fact that there would have to
be special circumstances to extend the terms of an assets
financing.
9:39:38 AM
Co-Chair Stedman had experienced that the level of
sophistication varied by community. He thought some groups
had less experience with finance. He thought many
administrators were endeavoring to keep rates down for
utilities, which could lead to easy determination to
stretch out the amortization rather than staying with the
original payoff target. He thought that municipalities were
inadvertently getting into the position of not paying an
asset off. He was curious if the bond bank had a more
formal position in order to ensure that municipalities
fully understood the situations.
Mr. Mitchell knew the project that Co-Chair Stedman was
referencing, which was not a refinancing that led to
extension of terms, but rather original issue and project
scope creep. After the project had already started, there
was a variety of potential funding sources, some of which
had not materialized after the project had started. He
continued that there were multiple issues of bonds to fund
the facility, and the later issues had longer amortizations
that paid interest-only until the other debt was paid.
Mr. Mitchell continued that the bond bank did not offer
financial advice, but rather encouraged financial best
practices and offered alternatives. The bond bank made
every effort to ensure local officials were well-informed
and understood the obligations being entered into.
9:44:01 AM
Co-Chair Stedman thought there had been a second refinance
of the project that was being discussed. He mentioned
hydro-expansion, which had been problematic. He encouraged
the bond bank to be cognizant of the issue and considered
that many municipal elected officials did not have
financial backgrounds. He clarified that he had referenced
Blue Lake Dam in Sitka. He echoed Mr. Mitchell's comment
that there had been "mission creep." He did not fault
efforts to get projects going. He emphasized getting
projects paid off in the time that was planned before
expansions were needed.
Senator Hoffman thanked the committee for an initial re-
write of the bond bank that had allowed the Yukon-Kuskokwim
Health Corporation (YKHC) to triple the size of its
hospital. He noted that the bill had refinancing for the
University of Alaska Fairbanks (UAF). He asked if the bill
would allow refinancing for other entities through the bond
bank.
Mr. Mitchell answered in the affirmative. He recounted that
the $102.5 million that the bond bank issued for the YKHC
facility would be eligible for refinancing ten years after
the original issue. Additionally, the bond bank could
reissue a portion of all the U.S. Department of Agriculture
portion of the loan if it could beat the rate. Current law
allowed for refinance of no more than 49 percent of the
project.
Senator Hoffman recalled that when the committee originally
broached the topic in 2019, Mr. Mitchell had provided a
list of projects that the Municipal Bond Bank entered in
to. He asked if Mr. Mitchell could again provide a list of
projects and asked if the rate of default was still zero.
Mr. Mitchell affirmed that there had been no defaults in
the bond bank program.
9:48:29 AM
Senator Wielechowski asked if anyone had ever lent money
and defaulted and required the legislature to appropriate
funds to cover the default.
Mr. Mitchell answered that there had never been a community
that had not been able to make payments. The bond bank had
engaged in discussion with communities that had been under
duress because of financial impacts, but the communities
had always been able to cover the bond payments.
Senator Wielechowski asked if there had been any concern
expressed by bankers that the bill was encroaching into the
banks area of lending money.
Mr. Mitchell had not heard of such a concern. He noted that
typically commercial banks made mortgage-type or
commercial-type loans that would be secured by the facility
that was being built, whereas the bond bank utilized the
public bond market with a pledge of revenues from an
organization. The revenues would be deposited in a
custodial bank, whereas a commercial bank did not have the
underwriting necessary to loan with the same type of
pledge.
Senator Wielechowski asked how the state could be
responsible for the default of another entity if the state
was constitutionally not allowed to borrow except for
capital projects ratified by a vote, and public
corporations could borrow (as long as there was no recourse
to the state). He questioned whether the situation was a
backdoor around the constitutional prohibition.
Mr. Mitchell reiterated that the bond bank issued revenue
bonds that were secured by pledges of the underlying
borrowers. The pledges could be general obligation pledges
or revenue pledges, which was all authorized by a statutory
construct. He noted that the process had not been
challenged, and he did not know if the court would find it
was not permissible.
9:51:04 AM
Co-Chair Stedman appreciated that the state had the bond
bank for communities to use as a resource. He thought
communities lacked the sophistication to go forward with
projects without the bond bank, and it would be much more
expensive. He thought the bill was good and thought it
would provide more flexibility. He was not uncomfortable
with lifting the cap of 49 percent, which he thought was a
little low. He cautioned against letting communities over-
leverage themselves.
Mr. Mitchell cited that the previous year the bond bank
saved an estimated $51 million and avoided interest expense
for those that used the program.
Senator Wielechowski asked if the bill would potentially
impact the state's credit rating.
Mr. Mitchell informed that the bill would not impact the
states credit rating, as the program was self-sufficient
for all its obligations. He thought there could be some
incremental impact to the state's debt capacity if there
were to be some dislocation and a series of defaults by
underlying borrowers, because the state would have
obligations it would have to pay directly on an annualized
basis. At this point, the obligations were not integrated
into any of the states capacity analysis internally or
externally.
9:53:14 AM
MYRON DOSCH, CHIEF FINANCE OFFICER, UNIVERSITY OF ALASKA
(via teleconference), spoke in support of the bill. He
noted that the University supported the bill. He considered
that the bill provided an additional option when
considering issuing a financing obligation or a refinancing
obligation. He mentioned that the credit rating of the bond
bank was better than that of the University, and the
marginal difference would allow the bond bank to borrow at
more favorable rates than the University, which would
result in avoided interest costs on any debt obligation.
The bill did not create an obligation for the University to
enter engagements with the bond bank. He thought the bill
was straightforward.
9:54:40 AM
LUKE WELLES, CHAIRMAN, ALASKA MUNICIPAL BOND BANK (via
teleconference), stated that the Alaska Municipal Bond Bank
was strongly supportive of the bill. He had over 20 years'
experience with tribal health and thought the opportunity
to support the increased quality of care and infrastructure
in rural areas was a great step forward. He thought the
recent YKHC project demonstrated what the program could do
and how it could support other communities. He continued
that the bond bank had a unique structure which allowed
entities to aggregate projects and save local taxpayers
money.
Co-Chair Bishop OPENED public testimony.
Senator Hoffman asked about the name of the Alaska
Municipal Bond Bank.
Mr. Mitchell relayed that the bond bank program was much
more restrictive it was originally created and could not
lend for electric generation projects. It was determined
that the bond bank could play a role in certain instances
where there were municipally owned facilities, and it could
be more efficient in delivery of the financing package. He
mentioned incremental adjustments to the program and
projects outside municipalities. He noted that the bond
bank also had the ability to lend to Southeast Alaska power
agencies, as well as the Alaska Municipal League Joint
Insurance Association. He did not know if the word
"municipal" word applied as much as it once had.
Senator Hoffman suggested the name Alaska Bond Bank.
9:59:27 AM
Co-Chair Bishop CLOSED public testimony.
HB 127 was HEARD and HELD in committee for further
consideration.
9:59:35 AM
AT EASE
9:59:47 AM
RECONVENED
Co-Chair Bishop discussed the agenda for the afternoon
meeting.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 127 Sectional Analysis version A 01.18.2022.pdf |
SCRA 2/3/2022 3:30:00 PM SFIN 4/21/2022 9:00:00 AM |
HB 127 |
| HB 127 Sponsor Statement version A 01.18.2022.pdf |
SCRA 2/3/2022 3:30:00 PM SFIN 4/21/2022 9:00:00 AM |
HB 127 |
| HB 127 Support Letter University of Alaska 3.9.2021.pdf |
HFIN 4/21/2021 1:30:00 PM SFIN 4/21/2022 9:00:00 AM |
HB 127 |
| HB 127 Letter of Support Maniilaq 3.15.2021.pdf |
HCRA 4/15/2021 8:00:00 AM SCRA 1/27/2022 3:30:00 PM SCRA 2/3/2022 3:30:00 PM SFIN 4/21/2022 9:00:00 AM |
HB 127 |
| HB 19 Sponsor Statement.pdf |
SEDC 1/21/2022 9:00:00 AM SFIN 4/21/2022 9:00:00 AM |
HB 19 |
| HB 19 Explanation of Changes version B to I.pdf |
SFIN 4/21/2022 9:00:00 AM |
HB 19 |
| HB 19 Sectional Analysis ver I.pdf |
SFIN 4/21/2022 9:00:00 AM |
HB 19 |
| HB 19 Letters of Support.pdf |
SFIN 4/21/2022 9:00:00 AM |
HB 19 |
| HB 111 Supporting Document - FAQs 2.16.22.pdf |
SFIN 4/21/2022 9:00:00 AM SL&C 3/21/2022 1:30:00 PM |
HB 111 |
| HB 111 Letters of Support Received 4.14.21.pdf |
HFIN 5/11/2021 1:30:00 PM SFIN 4/21/2022 9:00:00 AM |
HB 111 |
| HB 111 Supporting Document - Oral Health and Well-being in the U.S..pdf |
HL&C 3/29/2021 3:15:00 PM SFIN 4/21/2022 9:00:00 AM |
HB 111 |
| HB 111 Supporting Document - DH Medicaid Reimbursement_At_A_Glance.pdf |
HFIN 5/11/2021 1:30:00 PM SFIN 4/21/2022 9:00:00 AM |
HB 111 |
| HB 111 Supporting Document - Medicaid Dashboard.pdf |
HFIN 5/11/2021 1:30:00 PM SFIN 4/21/2022 9:00:00 AM |
HB 111 |
| HB 111 Supporting Document - Ombudsman Press -Release, DOC Dental Report 2.2.21.pdf |
HFIN 5/11/2021 1:30:00 PM SFIN 4/21/2022 9:00:00 AM |
HB 111 |
| HB 111 DEN Bd - HB 111 Letter of Support - 3.16.22.pdf |
SFIN 4/21/2022 9:00:00 AM |
HB 111 |
| HB111 v. G Sectional Analysis 3.28.2022.pdf |
SFIN 4/21/2022 9:00:00 AM |
HB 111 |
| HB 111 v. G Summary of Changes 3.28.2022.pdf |
SFIN 4/21/2022 9:00:00 AM |
HB 111 |
| HB111 v. G Sponsor Statement 3.28.2022.pdf |
SFIN 4/21/2022 9:00:00 AM |
HB 111 |
| HB 168 Sectional Analysis Version O.pdf |
SFIN 4/21/2022 9:00:00 AM SFIN 5/11/2022 1:00:00 PM |
HB 168 |
| HB 168 Summary of Changes Version O.pdf |
SFIN 4/21/2022 9:00:00 AM SFIN 5/11/2022 1:00:00 PM |
HB 168 |
| HB 168 Sponsor Statement 4.12.2021.pdf |
SFIN 4/21/2022 9:00:00 AM |
HB 168 |
| HB 168 Testimony -- Recieved 4.19.2021.pdf |
SFIN 4/21/2022 9:00:00 AM |
HB 168 |
| HB168 DPA Response Follow up Questions--Recieved 1.28.2022.pdf |
SFIN 4/21/2022 9:00:00 AM |
HB 168 |
| HB168 DPA Follow up Medicaid-CHIP Renewal--Received 1.28.2022.pdf |
SFIN 4/21/2022 9:00:00 AM |
HB 168 |
| HB 19 4.21.2022 (S)FIN Hearing DEED Follow-Up.pdf |
SFIN 4/21/2022 9:00:00 AM |
HB 19 |
| HB 127 AMBBA - SFIN Follow-up on Projects Funded.pdf |
SFIN 4/21/2022 9:00:00 AM |
HB 127 |