Legislature(1995 - 1996)
02/29/1996 03:30 PM Senate STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SSTA - 2/29/96
SB 207 REVENUE BONDS: WATER & WASTE PROJECTS
Number 585
SENATOR SHARP brought up SB 207 as the next order of business
before the Senate State Affairs Committee and called the first
witness.
Number 570
KEITH KELTON, Director, Division of Facility Construction &
Operation, Department of Environmental Conservation, representing
the governor, prime sponsor of SB 207, stated the bill would
attempt to solve a financing problem facing Alaskan communities.
Mr. Kelton relayed information to the committee which is contained
in members' bill packets. This information was previously relayed
to the Senate Community and Regional Affairs Committee.
Number 550
MR. KELTON explains flow charts showing how the program would work.
Copies of those charts were given to the committee. DEC is
proposing that the 30 million corpus be leveraged into a larger
source of funding. SB 207, which was drafted with the help of the
Department of Revenue, the Department of Law, and outside bond
counsel, is patterned after similar legislation from 20 other
states and would expand available revenue to continue a current
clean-water program. Amendments made to SB 207 in the Senate
Community & Regional Affairs Committee limited the annual sale of
bonds to $15,000,000. After bond and sale costs, that leaves about
$13,300,000 available for loans. The federal/state match program
will have a contribution. But since the Clean Water Act is
currently under reauthorization, we don't know what that dollar
figure will be. So that will ultimately have the effect of
increasing the incoming cash. Mr. Kelton noted that the figures in
the chart are for illustrative purposes only, and that they can
fluctuate.
Number 495
MR. KELTON commented that DEC is very pleased with the amendments
made by the CRA committee.
Number 485
SENATOR LEMAN asked if 10% costs for bond sales are normal.
MR. KELTON responded those are normal costs, assuming the bonds are
AA rated. Costs would increase if the bond rating falls. There
are provisions in the legislation which would attempt to maintain
the rating at AA. One of those is the state-aid intercept, on page
5 of SB 207. That would specify that if there is a default, the
state agencies would have the opportunity to take any revenue
enhancements coming to a community from the state. They couldn't
take dedicated funds, but they could take undedicated funds to
apply to the debt. That particular provision, by itself, enhances
the bond rating from A to AA, and would save about $2,800,000 over
a twenty-year period on each $10,000,000 issuance. So the bond
costs are very high, and they can go much higher without the
language contained in the legislation.
Number 475
MR. KELTON stated another aspect is that bond proceeds could be
used for the 20% state match to federal contributions, if SB 207 is
passed. Currently that 20% comes out of the general fund, so that
would save the state some money.
Number 467
SENATOR LEMAN asked if there is a maximum limit for any single
project.
MR. KELTON replied one project could arguably use all the funds for
one year; it is not DEC's intent to do that though. There were
amendments discussed in Senate CRA Committee. One suggestion that
was made was that any one project would be limited to half of an
annual allocation. DEC conducts an annual intended use plan for
this fund, which ranks and coordinates funding for projects. It
would not be DEC's intent to allocate an entire year's allocation
to one project.
SENATOR LEMAN commented that this fund could be a source for the
Anchorage Water Project. Yet any one portion of that would
probably use at least half of the available money.
MR. KELTON responded that committee members have in their bill
packets a list of past projects and potential future projects.
However, this program does not fund water projects; it only funds
wastewater and solid waste projects. To get back to Senator
Leman's premise, this program has funded many large projects in
Anchorage, including a $10,000,000 addition to the Anchorage
Landfill. Senator Leman has raised a concern, especially of a lot
of the smaller communities who might visualize no money being
available if Anchorage were to suck it all up in one year. DEC
would hope to prevent that, with or without statutory language.
SENATOR LEMAN asked why water projects aren't funded from this
program. Is there another source for water projects?
MR. KELTON replied that this particular program is under the
Federal Clean Water Act, which only addresses wastewater projects.
There is a very strong likelihood that there will be a similar
program in place for drinking water within the next year, as soon
as congress reauthorizes the Safe-Drinking Water Act.
SENATOR LEMAN thought Alaska had two different programs, one for
wastewater, and one for water.
Number 430
MR. KELTON responded Senator Leman is correct: there are two
authorizations in the Alaska Clean-Water Fund. One addresses
wastewater, which is capitalized by the federal government. There
is also a corresponding state only section, which would allow this
type of program for drinking-water projects. However, that would
require capitalization by the state, and it's never been
capitalized. There is probably little advantage to using that
program, as long as there is a grants program in place.
SENATOR LEMAN remembers proposing capitalizing the drinking-water
program, but he thinks Senator Duncan blocked it.
CHAIRMAN SHARP asked what the current annual amount from the
federal government was.
MR. KELTON responded that for each federal dollar, the state
matches it 20%. The last federal appropriation was about
$7,500,000. The state's portion of that would be 20% of that for
another $1,500,000. That would mean an annual increase of
$9,000,000. Passage of SB 207 this year would allow us to have a
larger corpus, because as new loans are made, the corpus decreases.
So the sooner this passes, the larger the corpus will be.
CHAIRMAN SHARP asked where the original funding came from that
makes up the current corpus of $30,000,000.
MR. KELTON responded the corpus is made up of several years'
accumulation of state and federal appropriations. Over the last
two years, demand for the program has doubled, to the point where
in two years, at the current rate of demand, the fund will be
diminished.
CHAIRMAN SHARP asked if all the funds going out are in the form of
loans, and not grants.
Number 395
MR. KELTON responded that this program is entirely a loan program.
Over the six-year history of this program, there has never been a
single late payment.
SENATOR LEMAN asked for an explanation of "other qualified entity".
MR. KELTON responded that term was added primarily at the direction
of Senator Torgerson, who was concerned that service districts and
other entities that might lie outside an incorporated community's
boundary be allowed to work in conjunction with a community to
secure these funds, as long as the revenue stream was dedicated
back. So basically, we cannot make a loan to any entity unless an
incorporated community is part of the contractual agreement. But
it does clarify that it is intended to benefit service districts
and other entities outside incorporated boundaries.
Number 370
BERDA WILLSON, Assistant Manager - Nome Joint Utilities, also
speaking on behalf of the City of Nome, testifying from Nome,
supports SB 207. She stated that both NJU and the City of Nome
have taken advantage of this fund. With the decline in state
revenues, municipalities are hard pressed to find low-cost funding
such as this. She supported removing language giving state
agencies access to this fund: she does not think it would be fair
for municipalities to have to compete against the state for these
funds.
It was noted that Mr. Lee Sharp was on-line via teleconference to
answer questions regarding bond ratings.
Number 335
MARK EARNEST, Manager, City of Unalaska, testifying from Unalaska,
supports SB 207. Like communities throughout the state, Unalaska
is facing significant financial impacts resulting from unfunded
federal mandates. The largest of those for Unalaska is the
landfill. We also have an upgrade due for our wastewater treatment
plant with an estimated cost of $6,300,000. Unalaska is also
looking at possible costs of $16,000,000 for the water system, plus
$500,000 in operating costs. To put these costs in perspective,
the population of Unalaska is about 4,000. Mr. Earnest stated that
Unalaska has to proceed with these projects; they are not optional.
However, even with available grants and rate increases, they cannot
do it all themselves. They really need to be able to turn to a
low-interest loan program, such as the program that SB 207 would
establish. He encouraged support of SB 207.
Number 300
CHAIRMAN SHARP asked if the bonds will contain a reference to the
full faith and credit of the State of Alaska.
MR. KELTON does not think that is a condition on the revenue bonds.
ROSS KINNEY, Deputy Commissioner, Department of Revenue, stated Mr.
Kelton is correct: the bonds would not pledge full faith and credit
of the State of Alaska. The revenue stream pledged by the
communities would be the collateral.
Number 285
CHAIRMAN SHARP asked how the loan application would work.
MR. KELTON responded that one of the advantages of revenue bonds is
that they do not require voter approval. So a project can be
initiated more quickly with just assembly action authorizing an
application to the department for these funds. There has to be a
dedicated user-fee stream coming back that can be applied toward
repayment of the bond. This program would be available for
wastewater and solid waste projects. The tie to solid waste
projects is the threat for groundwater pollution potential. Point
or non-point source, or even an estuarian enhancement could be
funded, even though we've never had one of those.
Number 265
CHAIRMAN SHARP asked if this would be an avenue for local
governments to apply for funding for solid waste programs.
MR. KELTON responded it would, and Anchorage has already done so.
CHAIRMAN SHARP asked the pleasure of the committee.
Number 240
SENATOR LEMAN thinks SB 207 is a good source of funds for
wastewater and solid waste projects, and gets away from the concept
of grants. Senator Leman made a motion to discharge CSSB 207(CRA)
and accompanying zero fiscal notes [from DEC & DOR] from the Senate
State Affairs Committee with individual recommendations.
CHAIRMAN SHARP commented the state is duty-bound to give as much
access to funding as possible, and this pool-type arrangement
should result in a lower interest rate than municipalities could
get individually.
CHAIRMAN SHARP, hearing no objection, stated SB 207 was released
from committee.
SSTA - 2/29/96
SB 207 REVENUE BONDS: WATER & WASTE PROJECTS
Number 180
SENATOR LEMAN noted that he might have a conflict of interest on SB
207, as he is a consulting engineer.
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