Legislature(1995 - 1996)
03/08/1996 09:15 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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. ADJOURNMENT The meeting was adjourned at approximately 10:50 A.M.