Legislature(1995 - 1996)
03/27/1996 09:15 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 163(FIN) "An Act approving the University of Alaska's plans to enter into long-term obligations with the Alaska Housing Finance Corporation to borrow money from the corporation for the construction of new student housing facilities, and authorizing the Alaska Housing Finance Corporation to issue its debt obligations and to make loans to the University of Alaska to finance construction of those student housing facilities; and providing for an effective date." Senator Rieger introduced SB 163. Senator Donley moved CSSB 163() work draft for discussion purposes and without objection it was adopted. Wendy Redmond said that the bill was changed at AHFC suggestion to give them some flexibility to issue bonds. The current language in the CS would not disallow them from looking at other options if they felt that was in the corporation's best interest. John Bitney, AHFC testified before the committee. He said the way the debt schedule as set up was to look at how much was annually required to pay off the bonds or raise the funds to construct the facility. The university's portion is predicated on what they expect to generate from the student fees there. AHFC would provide the subsidy on the remaining cost of those funds on an annual basis. This was more the criteria looked at than any type of interest rate. The way this is arranged presently no arbitrage funds would be used based upon the advice received from counsel. Senator Rieger asked if when bonds were issued the interest rate would be higher than 3%. Would the arbitrage provisions allow the 3% to be a blended return coming back to AHFC on this project with other higher yielding returns on the proceeds of a bond issue for another investment and if the overall aggregate came out within bounds would you be fine? Mr. Bitney said this was not correct. He noted a memorandum from legal counsel, Ken Vassar to Dan Fauske, dated 22 March 1996. The way it is arranged now is that the IRS code does not look at a loan or grant of arbitrage funds to the university as an obligation. Therefore the funds cannot be counted in terms of what is being blended to try and stay within the 1-1/2% target number that is being blended down to maintain the tax exempt status. Since the loan or arbitrage funds are being given to another entity within the State it does not incur that obligation. The subsidy from those funds annually used would be applied to our net profits on an annual basis that otherwise are used to pay for capital projects in the state transfer plan. Senator Sharp referred to page 2, line 2 annual debt service. Without knowing what the actual debt service is going to be how can exact figures be loaded into the bill? Does this annual debt service include interest? Wendy Redmond said that the university is required by statute to provide to the legislature on revenue bonded facilities the full cost of the facility including the debt service in a piece of legislation that must be passed separately. This meets our statutory requirement. It is exactly known what the amount will be that is being bonded for with AHFC. The rate is fixed through a 25-year period based on what the rental revenues are expected to be with annual increases that will be assessed for the fees. AHFC will subsidize the balance of that based on however the rates go up. Senator Sharp referred to lines 6 and 7 $30,000,000 will be financed throughout AHFC under a subsidized bond authorization and combined with lines 2 and 3 what interest rate was used to arrive at these figures of $2,767,000. Mr. Bitney advised it was 6%. The estimated annual subsidy would be $1 million and that is based on the difference between what is generated by the University from the facility. Senator Sharp asked if line 3 established the exact amount the university would pay for debt service at $1,751,515 no matter what the bond interest rate is? Is that a guaranteed amount to the university? Mr. Bitney concurred. Senator Rieger referred to line 3, page 2 and said the phrase should read including "...an amount not to exceed..." and that way the issue could be explored further for flexibility and not prevent the bill from moving forward. He moved this amendment and Wendy Redmond concurred. She stated that in addition to the $30 million that is being assigned specifically to the dormitory an additional $3 million was being collected from a community group doing private fund-raising for the dorm. If that money is collected ahead of time it will reduce the $1,751,515 each year. The basic dorm rental portion of this is $1.5 which is fixed in for 25 years. Senator Sharp has no objection to the amendment of Senator Rieger but is concerned the amount could go to zero and that would leave much room for negotiation. Ms. Redmond said she never considered that an option. Mr. Bitney said he assumed whatever loan agreement would be negotiated with the university would basically follow the structure of the subsidized loan as it is laid out here. Senator Sharp feels the exact amount should be written in. Wendy Redmond said the amount was in the loan documents themselves. Senator Rieger said they should find a better way to make use of arbitrage and give a break to the students for the rates at the dorm. This is leaving the door open for possible creative finance it if turns out there is any way it could be done. Co-chairman Halford concurred. Co-chairman Halford re-iterated Senator Rieger's amendment and with objections being duly noted it was adopted by a vote of 4 - 3. Senator Zharoff commented on the debt service. Mr. Bitney explained the AHFC subsidy. Wendy Redmond said it was not being done with any other projects around the state at this time. Senator Rieger moved CSSB 163 (FIN) and without objection the bill was reported out with individual recommendations and accompanying fiscal notes zero (previous) DOR(AHFC); and University at Anchorage zero.