Legislature(2017 - 2018)SENATE FINANCE 532

04/04/2017 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 6 INDUSTRIAL HEMP PRODUCTION TELECONFERENCED
Heard & Held
+ HB 16 DRIV. LICENSE REQ;DISABILITY:ID &TRAINING TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled: TELECONFERENCED
+= SB 97 PENSION OBLIGATION BONDS TELECONFERENCED
Moved SB 97 Out of Committee
SENATE BILL NO. 97                                                                                                            
                                                                                                                                
     "An Act relating to pension obligation bonds."                                                                             
                                                                                                                                
9:06:35 AM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon noted that the bill had been heard                                                                           
previously. She CLOSED public testimony.                                                                                        
                                                                                                                                
Senator von Imhof MOVED to ADOPT Amendment 1, 30-LS0486\D.1                                                                     
(Wallace, 3/30/17) (copy on file):                                                                                              
                                                                                                                                
     Page 2, line 3, following "Committee":                                                                                     
     Insert "or obtaining legislative approval by law"                                                                          
     Page 2, lines 15 - 18:                                                                                                     
     Delete  "shall again  review the  proposal and,  if the                                                                    
     subsidiary corporation decides to  issue the bonds, the                                                                    
     subsidiary  corporation shall  provide the  Legislative                                                                    
     Budget  and Audit  Committee with  a  statement of  the                                                                    
     subsidiary  corporation's reasons  for doing  so before                                                                    
     issuance under this section"                                                                                               
     Insert  "may not  issue bonds  without first  obtaining                                                                    
     legislative approval by law"                                                                                               
                                                                                                                                
     Page 2, line 25, following "Committee":                                                                                    
     Insert "or obtaining legislative approval by law" 13                                                                       
                                                                                                                                
     Page 3, lines 8 - 11:                                                                                                      
     Delete  "shall again  review the  proposal and,  if the                                                                    
     committee  decides to  issue and  sell  the bonds,  the                                                                    
     committee  shall  provide  the Legislative  Budget  and                                                                    
     Audit  Committee with  a statement  of the  committee's                                                                    
     reasons  for  doing  so   before  issuance  under  this                                                                    
     section"                                                                                                                   
     Insert  "may not  issue bonds  without first  obtaining                                                                    
     legislative approval by law"                                                                                               
                                                                                                                                
     Page 3, line 24, following "Committee":                                                                                    
     Insert "or obtaining legislative approval by law"                                                                          
                                                                                                                                
     Page 4, lines 6 - 9:                                                                                                       
     Delete  "shall again  review the  proposal and,  if the                                                                    
     corporation decides  to issue  and sell the  bonds, the                                                                    
     corporation  shall provide  the Legislative  Budget and                                                                    
     Audit Committee  with a statement of  the corporation's                                                                    
     reasons  for  doing  so   before  issuance  under  this                                                                    
     section"                                                                                                                   
     Insert  "may not  issue bonds  without first  obtaining                                                                    
     legislative approval by law"                                                                                               
                                                                                                                                
     Page 5, line 7, following "Committee":                                                                                     
     Insert "or obtaining legislative approval by law"                                                                          
                                                                                                                                
     Page 5, line 23, following "Committee":                                                                                    
     Insert "or obtaining legislative approval by law"                                                                          
                                                                                                                                
     Page 6, lines 9 - 13:                                                                                                      
     Delete  "shall again  review the  proposal and,  if the                                                                    
     subsidiary corporation decides to  issue the bonds, the                                                                    
     subsidiary  corporation shall  provide the  Legislative                                                                    
     Budget  and Audit  Committee with  a  statement of  the                                                                    
     subsidiary  corporation's reasons  for doing  so before                                                                    
     issuance under this section"                                                                                               
     Insert  "may not  issue bonds  without first  obtaining                                                                    
     legislative approval by law"                                                                                               
                                                                                                                                
     Page 6, line 23, following "Committee":                                                                                    
     Insert "or obtaining legislative approval by law" 21                                                                       
                                                                                                                                
     Page 7, line 21, following "Committee":                                                                                    
     Insert "or obtaining legislative approval by law" 24                                                                       
                                                                                                                                
     Page 7, line 31, through page 8, line 3:                                                                                   
     Delete  "shall again  review the  proposal and,  if the                                                                    
     bond  bank authority  decides to  issue the  bonds, the                                                                    
     bond  bank  authority  shall  provide  the  Legislative                                                                    
     Budget  and Audit  Committee with  a  statement of  the                                                                    
     bond bank authority's reasons for doing so before                                                                          
     issuance under this section"                                                                                               
     Insert "may not issue bonds without first obtaining                                                                        
     legislative approval by law"                                                                                               
                                                                                                                                
Co-Chair MacKinnon OBJECTED for discussion.                                                                                     
                                                                                                                                
9:07:20 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:07:49 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Senator  von  Imhof  explained   that  the  purpose  of  the                                                                    
amendment was to provide oversight  by the legislature prior                                                                    
to the issuance of the  bonds. The amendment provided a last                                                                    
course of action  - a stop gap measure.  Generally, when the                                                                    
administration  brought forward  a  pension obligation  bond                                                                    
issuance,  it was  presented to  the Legislative  Budget and                                                                    
Audit Committee  (LB&A). If the  committee did  not approve,                                                                    
it could  request additional information  and could  write a                                                                    
letter,  which   was  public   record.  She   detailed  that                                                                    
typically, the  public document triggered a  market reaction                                                                    
causing rates to  rise to cover the  risk associated, making                                                                    
the  arbitrage ineffective.  Under  normal circumstances  it                                                                    
meant  the administration  would not  move forward  with the                                                                    
deal  and would  not issue  the bonds  because the  interest                                                                    
rate spread would close.                                                                                                        
                                                                                                                                
Senator  von Imhof  elaborated  that  if the  administration                                                                    
decided to  continue forward  against the  recommendation of                                                                    
LB&A  or if  the  market did  not  respond, the  legislature                                                                    
would have a  fallback option to meet as an  entire body and                                                                    
vote  on  the proposal.  She  continued  that if  the  issue                                                                    
occurred  during  the interim  it  would  trigger a  special                                                                    
session, which was costly and problematic.                                                                                      
                                                                                                                                
Senator  Micciche wanted  the committee  to understand  that                                                                    
existing law did  not require the governor to go  to LB&A to                                                                    
move forward with  a GO [general obligation]  bond. The bill                                                                    
would change that process. He  explained that the bill would                                                                    
reduce the $5 billion authority  in half to $2.5 billion. He                                                                    
stated that he would normally  support the amendment, but he                                                                    
was concerned there  was a good chance it  would prevent the                                                                    
legislation from moving forward.                                                                                                
                                                                                                                                
9:10:27 AM                                                                                                                    
                                                                                                                                
Senator Dunleavy was supportive  of the amendment. He stated                                                                    
that his  concerns were on  the record in  past discussions.                                                                    
He  continued that  GO bonds  had  to go  to a  vote of  the                                                                    
people. He remarked that it was  a large sum of money and he                                                                    
appreciated efforts to whittle it down  and box it in a bit.                                                                    
He  thought legislators  should all  be concerned  about the                                                                    
state's debt  load. He reasoned that  the amendment provided                                                                    
another  check and  left the  door open  if legislators  all                                                                    
agreed  they  needed  to  move   forward  on  something.  He                                                                    
believed the  amendment would require the  administration to                                                                    
have a conversation with the  legislature to determine where                                                                    
the representatives of the public were on a future bond.                                                                        
                                                                                                                                
Senator Olson asked if the  amendment allowed another avenue                                                                    
to get approval  for a bond to go through.  He surmised that                                                                    
if LB&A  was not there,  the legislature could have  its own                                                                    
hearings and approve the bonds.                                                                                                 
                                                                                                                                
Senator von  Imhof provided  a scenario  where LB&A  wrote a                                                                    
public letter [that disagreed with  a bond issuance proposal                                                                    
by  the administration]  and it  impacted  the markets.  The                                                                    
amendment would  enable the legislature  to meet as  a whole                                                                    
and draft a bill to stop the issuance of the bond.                                                                              
                                                                                                                                
Senator Olson asked if the  legislature could approve moving                                                                    
forward with the bond.                                                                                                          
                                                                                                                                
Senator von  Imhof replied in the  affirmative. However, she                                                                    
assumed that  if LB&A  approved the bond  there would  be no                                                                    
need  for  the entire  legislature  to  meet on  the  issue,                                                                    
unless the majority disagreed with LB&A.                                                                                        
                                                                                                                                
Senator  Olson  noted  it  had  happened  in  the  past.  He                                                                    
supported the amendment.                                                                                                        
                                                                                                                                
9:12:38 AM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  MAINTAINED her OBJECTION.  She explained                                                                    
that  all of  the  options provided  by  the amendment  were                                                                    
currently  open  to the  legislature.  The  amendment was  a                                                                    
compromise  between a  $5 billion  potential liability  that                                                                    
had already  been provided  to the  governor. The  issue was                                                                    
about power  distribution - she  believed supporters  of the                                                                    
amendment would  like the legislature to  regain that power.                                                                    
She  believed  there  was  a   greater  risk  and  that  the                                                                    
legislature  already  had  that  power.  She  reasoned  that                                                                    
committee  members  understood  that the  legislature  could                                                                    
call  itself  into  special  session any  time  to  take  up                                                                    
legislation  to  approve  or  disapprove  of  anything  that                                                                    
happened within state government.  The bill would reduce the                                                                    
administration's ability  to go  out for  a $5  billion bond                                                                    
issuance to $2.5 billion. The  amendment took away authority                                                                    
that the governor would have  to agree to. She believed half                                                                    
of   the  authority   was  reasonable.   She  recalled   the                                                                    
governor's proposal the previous  fall had been $2.1 billion                                                                    
to  $2.3 billion.  She  stated that  the  legislation was  a                                                                    
balance.  There were  members in  both bodies  that believed                                                                    
the option should be eliminated.                                                                                                
                                                                                                                                
Co-Chair  MacKinnon continued  that if  the bill  eliminated                                                                    
the funding  entirely the legislature  could send it  to the                                                                    
governor's desk.  She communicated that she  was not opposed                                                                    
to the discussion.  She pointed to the  risk associated with                                                                    
arbitrage.  She had  heard opposition  to the  proposal from                                                                    
constituents  during the  administration's  last cycle.  She                                                                    
reiterated that  the bill represented  a balance,  which she                                                                    
believed was a step in  the right direction. She requested a                                                                    
withdrawal of the amendment.                                                                                                    
                                                                                                                                
9:14:58 AM                                                                                                                    
                                                                                                                                
Senator  Micciche reiterated  his earlier  comments that  he                                                                    
would  strongly support  the amendment  if  he believed  the                                                                    
bill  would pass  with it  included. He  thought giving  the                                                                    
governor the  authority to move  forward with $5  billion in                                                                    
pension obligation  bonds had been  a mistake.  He recounted                                                                    
that the previous  summer the governor had  a team dispersed                                                                    
around the  world, actively setting  up for a bond  sale. In                                                                    
response, the Senate Finance Committee  had written a letter                                                                    
to the  governor and he appreciated  that the administration                                                                    
had  pulled back  and had  not  gone through  with the  bond                                                                    
sale.                                                                                                                           
                                                                                                                                
Senator  Micciche  explained that  the  bill  would cut  the                                                                    
governor's authority in half [to  $2.5 billion], which would                                                                    
protect the state by $2.5  billion in potential exposure for                                                                    
a  pension obligation  bond that  may  or may  not be  under                                                                    
water  in the  future. The  bill would  also require  a bond                                                                    
proposal to go  to LB&A, which had not been  the case in the                                                                    
past. He  believed the  bill was  a balance  and had  a high                                                                    
probability    of   passing,    whereas   eliminating    the                                                                    
[administration's]  authority had  a  higher probability  of                                                                    
being vetoed [by the governor].  He supported the concept of                                                                    
the amendment  but believed it  would reduce the  chance the                                                                    
bill   would  pass.   He  clarified   that  without   formal                                                                    
intervention the  committee had been  able to turn  back the                                                                    
bond issuance the past summer.                                                                                                  
                                                                                                                                
9:17:01 AM                                                                                                                    
                                                                                                                                
Co-Chair  MacKinnon   acknowledged  that  there   were  many                                                                    
members of the legislature  that had been uncomfortable with                                                                    
the administration  moving forward  [with a  bond issuance].                                                                    
She had a conversation with  the governor and the Department                                                                    
of Revenue  (DOR). She believed if  pension obligation bonds                                                                    
had  been passed  in  2007, according  to  some people,  the                                                                    
state could  potentially have had  billions more  dollars in                                                                    
the  system   to  help  buy  down   the  pension  obligation                                                                    
liability. It had been noted  in the current session that if                                                                    
the administration  would have  advanced forward  with bonds                                                                    
under  current market  conditions, for  the short  period of                                                                    
time, there  would have been  additional money to  help with                                                                    
the cash  flow of  the unfunded liability.  However, pension                                                                    
obligation bonds  were a debt  against the state  for longer                                                                    
periods of  time than experienced  thus far. She  noted they                                                                    
had seen a positive for ten years and one year.                                                                                 
                                                                                                                                
Co-Chair MacKinnon  detailed that Deven  Mitchell [Executive                                                                    
Director, Alaska  Municipal Bond Bank  Authority, Department                                                                    
of  Revenue] had  communicated that  the administration  had                                                                    
brought forward a much  more conservative pension obligation                                                                    
bond  than  other  cities   that  had  experienced  negative                                                                    
arbitrage over a  bond period. She explained  that under the                                                                    
administration's proposal  the state  would not  realize the                                                                    
benefits during  current financial  struggles, but  later on                                                                    
in the  life of the loan.  She continued that it  had been a                                                                    
much  more conservative  approach,  but  Alaskans had  still                                                                    
been  very  uncomfortable.   Therefore,  the  committee  had                                                                    
entered  into a  conversation with  the governor  and asking                                                                    
them  not to  proceed.  She  had been  asked  to reduce  the                                                                    
authority  to  zero. The  bill  was  a compromise.  She  had                                                                    
communicated  to  the  governor there  were  legislators  in                                                                    
opposition to  pension obligation  bonds and  the associated                                                                    
risk.  The  amendment  proposed  to  strike  a  balance  for                                                                    
Alaskans who  opposed pension obligation bonds.  She relayed                                                                    
the amendment  could be  offered as  a standalone  bill. She                                                                    
had proposed a  bill she believed would make  it through the                                                                    
current legislative process.                                                                                                    
                                                                                                                                
9:20:11 AM                                                                                                                    
                                                                                                                                
Senator von Imhof thanked the  committee for considering her                                                                    
amendment. She  stated that pension obligation  bonds were a                                                                    
risky venture  and hindsight was always  20/20. She detailed                                                                    
that  it  was possible  to  look  back and  identify  market                                                                    
trends that  may work;  however, over  the long-term  it was                                                                    
proven to be nonperforming. She  believed those who tried to                                                                    
time the  market ended up  getting burned. She  thought that                                                                    
Co-Chair MacKinnon had made a  good point that amendment was                                                                    
somewhat redundant  because the legislature already  had the                                                                    
ability to  convene a  special session at  any time  for any                                                                    
purpose. She agreed  with Senator Micciche on  the desire to                                                                    
see the legislation  pass the other body.  She supported the                                                                    
bill's  stopgap measure  requiring proposals  to go  to LB&A                                                                    
for review.                                                                                                                     
                                                                                                                                
Senator  von  Imhof WITHDREW  Amendment  1.  There being  NO                                                                    
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
Vice-Chair  Bishop   was  amenable   to  the   $2.5  billion                                                                    
compromise.  He remarked  that when  there was  cash in  the                                                                    
bank, he supported  taking the cash and  getting 100 percent                                                                    
value on  buying down the  debt instead of taking  the 50/50                                                                    
option. He supported the bill.                                                                                                  
                                                                                                                                
Vice-Chair Bishop  MOVED to  report SB  97 out  of Committee                                                                    
with individual recommendations  and the accompanying fiscal                                                                    
note. There being NO OBJECTION, it was so ordered.                                                                              
                                                                                                                                
SB  97  was REPORTED  out  of  committee  with a  "do  pass"                                                                    
recommendation and  with one new  zero fiscal note  from the                                                                    
Department of Revenue.                                                                                                          
                                                                                                                                
9:22:38 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:24:48 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                

Document Name Date/Time Subjects
SB97 Sectional Analysis.pdf SFIN 4/4/2017 9:00:00 AM
SB 97
SB97 Sponsor Statement.pdf SFIN 4/4/2017 9:00:00 AM
SB 97
HB 16 Sponsor Response to Concerns of Senate State Affairs Committee from Mtg on 3-23-17.pdf SFIN 4/4/2017 9:00:00 AM
HB 16
SCS HB 16- Legal Memo - Concerns from SSA Committee.pdf SFIN 4/4/2017 9:00:00 AM
HB 16
HB 57 Public Testimony Packet 040317.pdf SFIN 4/4/2017 9:00:00 AM
HB 57
SB 97 Von Imhof Amendment D.1.pdf SFIN 4/4/2017 9:00:00 AM
SB 97
SB 6 Carter Testimony.pdf SFIN 4/4/2017 9:00:00 AM
SB 6