Legislature(2013 - 2014)SENATE FINANCE 532
03/18/2014 09:00 AM FINANCE
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2d CS FOR HOUSE BILL NO. 23(RLS) "An Act creating the Knik Crossing Development Corporation as a subsidiary corporation of the Alaska Housing Finance Corporation and relating to bonds of the Knik Crossing Development Corporation." 10:25:32 AM REPRESENTATIVE MARK NEUMAN, outlined the basics of the legislation. He explained that House Bill 23 amends the Knik Arm Bridge and Toll Authority's enabling statute to provide for a successful procurement for the Knik Arm Crossing project and to generate the best value for the state. Passing this legislation this session is important to seeing the Knik Arm Crossing efficiently move toward a successful and low-cost procurement process and facilitate being open for traffic in 2015. The Knik Arm Crossing will be a significant addition to Alaska's infrastructure that will further facilitate the movement of goods and people in the state. This bill was written in consultation with the Knik Arm Bridge and Toll Authority (KABATA), which was established in 2003 by the Alaska Legislature. The bill accomplishes many items KABATA has deemed necessary to have a successful public-private partnership procurement. Those items are: Increase in KABATA's Bonding Authority from $500 million to $600 million · The $600 million number represents the same amount authorized under Private Activity Bond (PABs) allocation from FHWA · Lowers the cost of capital for the project and ultimately lowers the cost to end users · Private partner is the borrower of any PABs issued. Clarify that the bridge and associated facilities are exempt from state and local property taxes · Like any other transportation project in our State, the roads and bridges are not subject to property taxation. · Any private facilities developed outside the crossing will be taxable · Property tax exemption reduces the availability payment and reduces the toll Contractual Monetary Obligations · Identifies the *obligations of the State of Alaska* under a P3 process · The legislative language applies to "monetary liabilities" which may be incurred by KABATA under a P3 process · Any P3 agreement needs to be approved by the KABATA Board of Directors, State AG's office, and ADOT&PF · Serves to lower the cost of debt and equity to finance the project · Keeps the tolls affordable to the traveling public Project reserve · Creation of a reserve fund is to provide a backstop for toll revenue fluctuations. · Serves to enhance the credit worthiness of the project and reduce project costs · Will be repaid over the project life Vice-Chair Neuman stated that A the above language clarifications and additions serve to lower the cost of capital on this much needed infrastructure project and deliver the benefits in a timely and efficient manner. 10:33:06 AM Co-Chair Kelly MOVED to ADOPT the committee substitute for SCS 2d CS HB 23 (FIN), work draft 28-LS014\R (Martin, 2/13/14). There being NO OBJECTION, it was so ordered. SUZANNE ARMSTRONG, STAFF, SENATOR KEVIN MEYER, explained the changes in the CS. She referred the explanation of changes (copy on file): Section 1: Amends AS 19.75.021 Establishment of the Authority (KABATA) Amends existing law to prevent the dissolution of KABATA until bonds issued by the State are satisfied. Section 2: Amends AS 19.75.111 Powers and Duties of Authority (KABATA) Amends existing law to allow KABATA to enter into an agreement with the State to pledge residual toll revenues to pay debt service incurred by the State. Section 3: Amends AS 19.75.211 Bonds of the Authority (KABATA) Amends existing law to require the State Bond Committee to evaluate whether toll revenues are adequate for payment of the principal and interest on bonds issued by the State before KABATA may issue additional toll revenue bonds. Section 4: Amends AS 19.75.221 Trust Indentures and Trust Agreements; Funds and Reserves (KABATA) Amends existing law to require that if KABATA issues bonds in addition to the toll revenue bonds issued by the State, KABATA's trust agreement would require the authority to agree to keep tolls at a level sufficient to cover any prior toll revenue pledges made to support previously issued State toll revenue bonds. Section 5: Amends AS 19.75.231 Validity of Pledge Amends existing law to express the Legislature's intent that a toll revenue pledge made by KABATA to support bonds issued by the State is valid and shall give rise to a lien against toll revenues. Section 6: Establishes the Framework for Issuance of Toll Revenue Bonds for a Toll Bridge AS 37.15.225 - Bond Authorization Net proceeds of the sale of bonds remaining after payment of costs of issuance and after deposit to the Bond Reserve Fund, shall be transferred to the Knik Arm Bridge & Toll Authority. The net proceeds may be held by a trustee to be disbursed to pay the costs of a toll bridge, as set out in a trust agreement. Accrued interest paid on the bonds shall be deposited into the Bond Redemption Fund. Prior to the issuance of bonds, the State Bond Committee will notify the Legislature. AS 37.15.230 - Provides for a Toll Bridge Revenue Bond Limit The total unpaid principal amount of revenue bonds may not exceed $300,000,000. AS 37.15.235 Establishes a Toll Bridge Revenue Fund Revenue received by the State, by contract with the authority, from the ownership or operation of the toll bridge and facilities, shall be deposited in this fund. Contracts or other agreements with the authority may establish priorities for the payment of operations and maintenance costs and for the payment of other obligations (including debt obligations of the authority), prior to payments to be made by the authority to the State for deposit into this fund. Revenue in the fund may be used only for: 1. Pay or secure payment of the principal of and interest on bonds; 2. Redeem bonds before the fixed maturity date; and 3. Subject to appropriation by the Legislature, for any other purpose for which federal funds may be obligated by the State under 23 U.S.C. 129(a)(3). AS 37.15.240 Establishes the Toll Bridge Revenue Bond Redemption Fund A trust fund for paying and securing the payment of the principal and interest on the bonds authorized under AS 37.15.225 - 37.15.285 is created. There is no limitation on the source of funds that may be deposited into the fund, only that funds in this account are to be used to pay principal and interest on bonds issued under AS 37.15.225 - 37.15.285. AS 37.15.245 Establishes Bond Terms Provides discretion for the state bond committee to determine the manner, amount, timing, and maturity date for the issuance of bonds under AS 37.15.225 - 37.15.285. Interest rates may be fixed or variable. Requires the state bond committee to consider the best interests of the State when setting the terms of bond issuance and requires the final bond terms be expressed through a resolution of the bond committee. AS 37.15.250 Bond Resolution Provides that the bond committee shall authorize the issuance of the bonds by adopting a resolution. The resolution may fix the principal amount, denominations, date, maturities, manner of sale, place or places of payment, terms, form, conditions and covenants of the bonds. AS 37.15.255 Bond Reserve Fund The resolution authorizing the issuance of bonds, may provide for the establishment and maintenance of a special fund - The Toll Bridge Revenue Bond Reserve Fund. The fund will consist of: 1. All proceeds of the bonds required to be deposited into the fund by terms of the bond resolution or a trust agreement; 2. An amount equal to the required debt service reserve, as determined by the Commissioner of Revenue; and 3. Appropriations approved by the Legislature. Money in the fund will be applied solely to the payment of the interest and principal on bonds authorized and issued under AS 37.15.225 - 37.15.285. Money in the reserve fund, excess of what is required for the debt service reserve, may be withdrawn or may be transferred to the bond redemption fund. Bonds may not be issued under a trust agreement, indenture, or bond resolution unless the required debt service reserve for the bonds is in the reserve fund. If the funds in the fund fall below the required debt service reserve amount, as determined by bond committee, the Commissioner of Revenue will notify the Governor and the Legislature of the amount of funds necessary to restore the account to an amount sufficient to meet the required debt service. The Legislature then has the discretion of appropriating funds to replenish the fund to an amount equal to the required debt service reserve. AS 37.15.260 Enforcement by Bond Owner Provides that bondholders, or their trustees, may enforce their rights (transfer, set aside, payment of money, and the enforcement of all terms, conditions, and covenants) in superior court. AS 37.15.265 Amounts Required for Payments Starting with the year in which bonds are issued, the bond committee will certify to the Commissioners of Revenue and Administration, the amount, required for the next two fiscal years, to be paid from toll revenues or other state appropriations to: 1. The Bond Redemption Fund - to pay the principal and interest 2. The Bond Reserve Fund - to maintain the required debt service reserve AS 37.15.270 Refunding Provides the bond committee with the authority to refund parts or all of the bonds at or before the maturity or redemption date, if refunding is advantageous to or in the best interest of the State. All of the provisions that relate to the issuance of bonds under AS 37.15.225 - 37.15.285 are applicable to the refunding bonds. AS 37.15.275 Bonds as Legal Investments Provides that the bonds are legally enforceable securities that can be purchased by individual and institutional investors. AS 37.15.285 Definitions Section 7: Effective Date Clause Provides for a July 1, 2014 effective date. 10:41:52 AM Senator Hoffman looked at Section 3, and noticed that the bond committee was assigned to evaluate whether the total revenues were adequate to pay for the principal and interest on the bonds, and if not would issue additional toll revenues. He then looked at page 2 regarding the bond reserve fund, and there was a provision for appropriation by the legislature. He wondered why legislation appropriation was necessary, if in fact Section 3 addressed that issue with a toll adjustment. Ms. Armstrong replied that there were discussions regarding maintaining the authority's ability to issue bonds itself, especially if the legislature decided that it was the appropriating direction, so the obligations of the authority needed to address the operations, maintenance, and the state's issued debt that the bill proposed. She stressed that the legislature should seriously examine that provision. Senator Hoffman felt that it was the main concern, because the state would maintain the obligation. He felt that the toll would adequately fund the construction. He did not thing that there would be support, if the state had to cover the cost of construction. Senator Olson stressed that there were very substantial financial requirements and burdens that the state was currently addressing. He asked for an update regarding the Transportation Infrastructure Finance and Innovation Act (TIFIA) loans. Co-Chair Meyer replied that Ms. Armstrong was not capable of answering that question. Senator Olson agreed to receive a response at a later date. Co-Chair Meyer remarked that the funding of the project had three components: 1) one-third was TIVIA bonds; 2) one- third in revenue bonds; 3) and one-third federal highway receipts. The funding would have very little anticipated general fund money. Ms. Armstrong agreed with that summation. 2d CSHB 23(RLS) was HEARD and HELD in committee for further consideration.