Legislature(1995 - 1996)

03/08/1996 09:15 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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.                                 
  The meeting was adjourned at approximately 10:50 A.M.                        

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