03/10/2011 02:00 PM Senate LABOR & COMMERCE

2:04:23 PM                                                                                                                    
              SB  65-AIDEA: PROCUREMENT; PROJECTS                                                                           
                                                                                                                                
CHAIR EGAN announced SB 65 to be up for consideration.                                                                          
                                                                                                                                
MARK  DAVIS,  Economic  Development  Officer,  Alaska  Industrial                                                               
Development and Export Authority (AIDEA), introduced himself.                                                                   
                                                                                                                                
TED  LEONARD, Executive  Director, Alaska  Industrial Development                                                               
and Export Authority (AIDEA), introduced  himself and thanked the                                                               
committee for inviting  them to testify. He stated that  SB 65 is                                                               
in a series  of bills that continue to update  AIDEA's ability to                                                               
help the  Alaskan economy  grow and  to more  effectively promote                                                               
job growth.  Specifically, it  would do  three things:  amend the                                                               
Procurement Code so that AIDEA  could adopt regulations to govern                                                               
its own  procurement process. This  would be giving  AIDEA powers                                                               
similar  to what  Alaska Housing  Finance Corporation  (AHFC) and                                                               
other corporations have.  However, AIDEA would still  have to use                                                               
competitive  bidding  principles  that are  used  throughout  the                                                               
State Procurement  Code. It would  still have to  provide venders                                                               
reasonable  and equitable  opportunities  to  participate in  the                                                               
procurement process. This would allow  AIDEA to be more effective                                                               
with the private sector as  it developed projects, which is their                                                               
main process through their procurement code.                                                                                    
                                                                                                                                
MR.  LEONARD said  they believe  the State  Procurement Code  was                                                               
designed  for a  certain  purpose  and AIDEA  is  "a little  off-                                                               
center" of that based on the  fact that it works with the private                                                               
sector to develop projects.                                                                                                     
                                                                                                                                
2:06:24 PM                                                                                                                    
He said  the second thing this  measure would do is  enable AIDEA                                                               
to directly invest in a  Limited Liability Corporation (LLC) or a                                                               
corporation for  the purpose  of owning  or participating  in the                                                               
development and ownership of a project.  It could only be for the                                                               
project; it  couldn't be a  corporation that AIDEA could  do many                                                               
things with.  It would  be a specific  purpose entity  that could                                                               
only be used to own that project.                                                                                               
                                                                                                                                
Last year, he  explained, with the help of  this committee, AIDEA                                                               
passed legislation  under the project development  section of its                                                               
code that  allowed their ability  to participate in a  project by                                                               
owning just  a share or a  portion of a project.  As they started                                                               
going  through  that  process,  they  found  out  that  the  most                                                               
effective vehicle the private sector  likes to use is a specific-                                                               
purpose, Limited  Liability Corporation  or a  corporation. Since                                                               
that's not specifically  allowed in the statute,  AIDEA can't use                                                               
that vehicle to provide that type of ownership model.                                                                           
                                                                                                                                
2:07:43 PM                                                                                                                    
MR. LEONARD  said the  third change  is in  sections 3  through 5                                                               
that update  and expand the  types of development  projects AIDEA                                                               
can  participate  in.  Several  years ago  they  went  through  a                                                               
strategic  plan and  identified seven  or eight  economic sectors                                                               
that they believe AIDEA could  help through investing in economic                                                               
infrastructure. The  definitions and current code  target AIDEA's                                                               
projects  to tourism,  energy, natural  resources and  industrial                                                               
manufacturing only.  This measure would expand  those definitions                                                               
and  ensure they  could actually  help the  economic sector  with                                                               
things like  communications, health care, logistics  and ensuring                                                               
a  healthy  federal presence  in  Alaska  (an important  part  of                                                               
Alaska's economy).                                                                                                              
                                                                                                                                
SENATOR DAVIS joined the committee.                                                                                             
                                                                                                                                
MR. DAVIS commented  that the sectors they want to  add are based                                                               
on things  that had actually  been requested. For  example, AIDEA                                                               
was  approached  by   a  federal  agency  that   wanted  them  to                                                               
construct, finance, and then lease  back to the federal agency, a                                                               
facility  that  would  support  the bases  and  the  military  in                                                               
Alaska. Unfortunately, the Department of  Law (DOL) said AIDEA is                                                               
not authorized  to do that.  So, this bill attempts  to modernize                                                               
what they do  and current statute does not authorize  AIDEA to do                                                               
communication, health care or military projects.                                                                                
                                                                                                                                
2:10:30 PM                                                                                                                    
SENATOR MENARD  said whenever  the legislature  increases AIDEA's                                                               
ability to  deal with LLCs  and corporations, they  also increase                                                               
the risk, and  that is why the legislation was  written that way.                                                               
She asked what the increased risk  to AIDEA would be if this bill                                                               
goes forward.                                                                                                                   
                                                                                                                                
MR. LEONARD responded that one  of the reasons the private sector                                                               
uses LLCs and  corporations is to shield their  liability more to                                                               
the amount that  is invested in a program. But  when AIDEA owns a                                                               
project  or a  portion  of it,  they actually  put  up its  whole                                                               
balance  sheet to  back  it. So,  this  amendment will  modernize                                                               
AIDEA's ability to protect its  assets and actually decreases its                                                               
risk. He added that when  the project development legislation was                                                               
originally written, LLCs were not even part of Alaska law.                                                                      
                                                                                                                                
Regarding  the potential  risk of  exposure by  expanding AIDEA's                                                               
ability to develop more projects,  he explained that they believe                                                               
partnering with the private sector  in a project instead of being                                                               
the  sole  owner,  as  long  as they  go  through  the  full  due                                                               
diligence process, will  make the projects even  better, and will                                                               
actually give AIDEA more tools to help fulfill its mission.                                                                     
                                                                                                                                
SENATOR  MENARD asked  if  they could  amend  AS 44.88.900(c)  so                                                               
roads could be a component.                                                                                                     
                                                                                                                                
MR.  DAVIS answered  that there  is a  legal issue  about whether                                                               
AIDEA can  build a road  that does not  actually go to  a natural                                                               
resource project  or to  a project that  would be  expanded under                                                               
these  definitions.   So,  for  instance,  the   DeLong  Mountain                                                               
Transportation  Corridor  at  Red   Dog  that  AIDEA  owns,  goes                                                               
directly from the  mine to the port, and  is statutorily correct.                                                               
But if AIDEA  were going to build an industrial  road, say in the                                                               
Ambler mining district;  that would be a corridor;  so they would                                                               
partly fund  it. But the  actual roads to  the mines or  the rigs                                                               
would be built by somebody else.  He explained that the models of                                                               
developing  roads  have   changed,  and  a  lot   of  states  are                                                               
developing the  basic industrial  road up to  an area.  Then each                                                               
company is responsible  for getting the next couple  of miles out                                                               
to their own project, which is appropriate.                                                                                     
                                                                                                                                
The trouble  is AIDEA could  issue a  bond, and the  bond council                                                               
has to  be very sure  it can legally be  done. So, again  that is                                                               
why they are seeking clarification from the legislature.                                                                        
                                                                                                                                
2:15:07 PM                                                                                                                    
SENATOR MENARD stated that it says "may" not "shall".                                                                           
                                                                                                                                
MR.  DAVIS  said  that  is  correct.  He  added  that  they  were                                                               
approached  by the  federal  government to  build  a health  care                                                               
facility with  a Native  corporation in  rural Alaska,  a project                                                               
that can't be done with  conventional financing because it's in a                                                               
non-conforming area  and banks don't  want to lend out  there. If                                                               
it was  leased to  the federal government,  there is  very little                                                               
risk to  AIDEA and  it's a  good project.  Again, leasing  to the                                                               
military is  of limited  risk. Actually,  some of  their proposed                                                               
projects have good rates of return with limited risk.                                                                           
                                                                                                                                
SENATOR MENARD asked them to talk about the communication piece.                                                                
                                                                                                                                
MR.  LEONARD replied  that AIDEA  could be  involved in  bringing                                                               
broadband to  rural Alaska; the  federal government  and everyone                                                               
is looking at being able  to bring faster communications into the                                                               
rural areas.  If AIDEA had  this as  a sector, they  could invest                                                               
with  a utility  in  the big  towers that  would  be needed.  And                                                               
again, as long as you are  partnering with a utility, the risk is                                                               
fairly limited,  and with the  federal government  being involved                                                               
that makes it even more limited.                                                                                                
                                                                                                                                
He  said that  AIDEA would  have  to somehow  tie broadband  into                                                               
helping   with   one   of   their   projects,   like   a   mine's                                                               
communications.  Tying it  to one  of the  four definitions  is a                                                               
circular  activity and  they would  prefer that  it be  "straight                                                               
cut." He  stressed that the definition  has to truly show  that a                                                               
project is going  to provide an economic  development benefit for                                                               
AIDEA to be involved.                                                                                                           
                                                                                                                                
SENATOR MENARD mused that MatSu  is involved in fiber optic right                                                               
now for its schools, so that wouldn't be an economic issue.                                                                     
                                                                                                                                
MR.  LEONARD  responded if  the  utilities  were involved,  AIDEA                                                               
would have  to see the  projects themselves and decide  what kind                                                               
of economic development it was. This  bill would allow them to be                                                               
in that sector.                                                                                                                 
                                                                                                                                
MR. DAVIS said they were approached  Monday by one of the largest                                                               
telecommunications  companies in  the  state with  a proposal  to                                                               
take broadband to particular areas  of rural Alaska. But it can't                                                               
expand  beyond that  without "mezzanine  financing," which  AIDEA                                                               
could provide. Doing  a whole project at once cuts  the cost down                                                               
measurably, but until the statute  is changed, they can't discuss                                                               
it. If  this bill goes  through, AIDEA would  see if there  is an                                                               
economic model  that could provide  broadband to a large  part of                                                               
the state that  could be used with the company,  and then be paid                                                               
back over time.                                                                                                                 
                                                                                                                                
2:19:32 PM                                                                                                                    
DANIEL WHITE, Associate Vice  Chancellor for Research, University                                                               
of Alaska  Fairbanks (UAF),  supported SB 65.  He was  charged by                                                               
Chancellor  Brian  Rogers  to lead  the  Office  of  Intellectual                                                               
Property  and  Commercialization  for  the  University,  and  one                                                               
critical element  of economic development is  moving research and                                                               
development  and technology  into  the private  sector. When  UAF                                                               
licenses technology to the private  sector, those businesses gain                                                               
competitive advantage  in the  global market.  In order  for this                                                               
critical link  in economic development to  occur, businesses have                                                               
to  have  the capability  to  take  advantage of  these  emerging                                                               
opportunities.  This  often requires  capitalization,  facilities                                                               
and equipment.  SB 65 would  allow AIDEA to help  businesses take                                                               
advantage   of  these   opportunities,  to   contribute  to   the                                                               
University's mission of  putting R&D into the  private sector and                                                               
provide  long term  economic development  opportunities. It  will                                                               
benefit small  businesses that  lead to  job growth  and economic                                                               
diversification for the state.                                                                                                  
                                                                                                                                
CHAIR EGAN  said that completed  public testimony and that  SB 65                                                               
would be held in committee.