Legislature(1995 - 1996)
04/02/1996 03:36 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
SB 306 G.O. BONDS FOR CORRECTIONAL FACILITIES
Number 140
CHAIRMAN SHARP brought up SB 306 as the next order of business
before the Senate State Affairs Committee. He called the
commissioner of the Department of Corrections to testify.
MARGARET PUGH, Commissioner of the Department of Corrections,
stated that the back-drop of this bill is that the governor asked
the Criminal Justice Cabinet to develop a plan for protecting the
public. She informed the committee that the administration is
taking a three pronged approach to the problem of prisoner
overcrowding. SB 306 is just one of those prongs. The other two
prongs are to divert low-risk, non-violent offenders from
incarceration in the first place, and to increase the use of
alternatives to incarceration for those folks at the end of their
sentences.
COMMISSIONER PUGH stated that SB 306 has three major merits:
1) It builds the beds where we need them;
2) It is set in the context of the Long-Range Fiscal Plan;
3) It takes the issue of the expense of corrections to the
voters.
COMMISSIONER PUGH stated she has asked Ross Kinney from the
Department of Revenue, Jim Baldwin from the Department of Law, and
Nancy Slagle from OMB to be present to answer questions. She has
also asked Bob Cole, Director of Administrative Services for the
Department of Corrections to walk the committee through the
sectional analysis for SB 306.
Number 180
BOB COLE, Director, Division of Administrative Services, Department
of Corrections, reads the sectional analysis for SB 306, which was
submitted to the committee.
SECTIONAL ANALYSIS
SB 306
Section 1. Provides for the issuance of general obligation (GO)
bonds in the amount of $148,500,000.00 for the purpose of paying
the cost of issuance of the bonds and design and construction of
state correctional facilities across the state. The issuance is
subject to voter approval at the next general election in November,
1996.
Section 2. Establishes a "State Correctional Facility Construction
Fund" (SCFC) in DOT&PF to receive proceeds from bond issuances.
Section 3. Authorizes allocation of bond proceeds in the SCFC to
the projects listed.
Section 4. An amendment has been prepared to delete this section.
Section 5. Authorizes the Departments of Corrections and
Transportation/Public Facilities to withdraw funds from the "Public
Facilities Planning Fund" (PFPF) in OMB for the purpose of advance
planning for the improvements financed under this Act.
Section 6. Allows excess bond proceeds, should any be realized, to
be used by the bond committee to redeem these bonds or pay
arbitrage fees.
Section 7. Authorizes a ballot measure to be placed on the ballot
November, 1996 asking voters whether they support the issuance of
these bonds and associated operating costs.
Section 8. Establishes an immediate effective date for the Act
under AS 01.10.070(c).
MR. COLE stated an amendment, which Mr. Baldwin will discuss, would
use the constitutional budget reserve fund to cover the cost of the
initial bond preparation by the Department of Revenue and the State
Bond Committee. The appropriation would cover only expenses that
must be incurred before bonds are sold. Once the bonds are sold,
proceeds would be used to cover the rest of the cost of preparation
and to reimburse the constitutional budget reserve fund. The net
affect would be revenue neutral once the bonds are issued.
CHAIRMAN SHARP asked if there were any questions from committee
members. [There were none.]
JIM BALDWIN, Assistant Attorney General, Department of Law, stated
that one of the things that has changed since the state last had a
GO bond, probably because of the state's financial condition, is
the access to general funds for paying certain costs that have to
be incurred before bonds are sold. The amendments that are being
proposed would use the constitutional budget reserve fund as a
funding source for the pre-issuance expenditures. The funds would
be paid back when the bonds are sold, so it would be a net
transaction.
Number 280
SENATOR DUNCAN asked if they aren't mixing an appropriation bill
with an authorization bill. He thought that wasn't allowed.
MR. BALDWIN responded that the administration is proposing the
changes that pre-fund these expenditures be done in the budget bill
itself, HB 412.
SENATOR DUNCAN stated he misunderstood; he thought they were
proposing these changes be made to SB 306.
MR. BALDWIN stated they are presenting the amendments to the State
Affairs Committee as an informational item. The only amendment
they are proposing that would be made to SB 306 is the deletion of
Section 4. But we are telling you that these funding sources need
to be provided elsewhere in an appropriation bill.
CHAIRMAN SHARP asked if there are questions of Mr. Baldwin.
SENATOR RANDY PHILLIPS asked if the administration supports SB 306.
ROSS KINNEY, Deputy Commissioner, Department of Revenue, Treasury
Division, stated he would like to discuss the issuance or
utilization of GO bonds as a mechanism for financing these
particular facilities. There are four major advantages to using GO
bonds. First, the voters have an opportunity to approve or
disapprove the issuance of bonds for the construction of a project.
If the voters approve the issuing of debt for construction of
facilities for corrections, they have authorized to pledge the full
faith and credit for the retirement of the principle and interest
of those bonds. That means that the state will pledge all revenue
sources that are not restricted by the constitution for the
retirement of that debt. Because the mechanism is GO debt, the
interest rates are historically lower, based on the fact that we do
pledge full faith and credit of the state. There are advantages to
that, from the aspect of lower cost for the borrowing of funds.
Because the state is in the position to issue the GO debt, we have
the option, should the market conditions prevail, that would allow
us to refund debt at a better rate and take advantage of those
savings in the future. We've been working on a long-range fiscal
plan and a capital improvements program of six years, and we are
proposing that through the utilization of GO debt, we have a single
authorization for $148,500,000.00 in debt.
MR. KINNEY stated that the issuance of debt would be served in five
instances for several reasons. The representative from the
Department of Transportation & Public Facilities can probably
explain the construction schedules better than he can. There are
some issues relating to arbitrage requirements that require the
state to be careful in the debt we issue from a timing standpoint
and the kind of interest earnings that we're able to garner as a
result of having those excess funds available. We are competing
with the private sector for funds in this case, and because our
funds are in a tax-exempt status, we are limited as to what we can
invest the money in while we're holding it. There are certain
restrictions as far as how long we can have that money and how long
we can invest it. We don't want to go in and authorize so much
debt at a single time that we're unable to handle it internally, as
well putting a tremendous impact on the construction community by
over-utilization of [indsc.] as it currently exists. This is one
part of an over-all six year program for the state. There are
limitations on the amount of debt that we can issue, the kinds of
debt that we can issue. We need to be extremely careful about how
we interface the various pieces of these puzzles. We have not
authorized any GO debts since 1980, and have not issued any since
1983. A substantial number of laws have changed, so it will be a
new experience for the state.
Number 355
SENATOR RANDY PHILLIPS asked when the last time was that the state
had any GO bonds for jails.
MR. KINNEY is not sure he has that information with him.
SENATOR RANDY PHILLIPS stated there is a major difference between
then and now: he thinks it would be easier now for voters to vote
in favor of this proposition because they are no longer paying
income tax.
MR. KINNEY added that there were a number of GO bonds that carried
the title of "various". He doesn't know whether or not those
included jails. The most common method utilized in the recent past
has been using revenue-type debt or certificates of participation
for things like Springcreek, Wildwood, Homer Jail, and some of the
court houses. In those cases, it does not require a vote, and
requires a higher rate of interest because you are only pledging
the revenue derived from the income stream as a result of the lease
payments that have been pledged as collateral. That is subject to
legislative approval on an annual basis to determine whether or not
that debt is paid.
SENATOR RANDY PHILLIPS stated, but then we would be subjugated to
about $13,500,000.00 every year for repayment, right?
MR. KINNEY responded that because of the way the debt will be
phased, the first years payment runs from about $2,700,000.00.
SENATOR RANDY PHILLIPS stated it doesn't say that on the ballot
proposition.
MR. KINNEY replied they are trying to put enough disclosure in SB
306 so that people will really understand what they're doing. Over
a period of time, based on the fact we're dealing with oil
revenues, we're going to have to provide voters and investors with
assurance that we can meet the debt payment stream. This debt must
be retired no later that 2013, regardless of the issuance [indsc.].
As a result of the staggered issuance schedule, payments will range
from approximately $2,700,000.00 to $15,000,000.00. The average
will be around $13,000,000.00.
CHAIRMAN SHARP noted that there would be staggered maturity dates,
with the last one maturing in 2013.
MR. KINNEY clarified that all debt will mature in 2013. What they
are looking at is staggered issuance dates. There will be a single
authorization by the voters, and we will issue in five increments.
We have to look at what our projections are for unrestricted
revenues, and currently we are extremely dependant on oil revenues.
Until we come up with another stream of revenue, investors want us
to rely on 5-8% of unrestricted general fund revenues as a maximum
amount for debt issuance.
CHAIRMAN SHARP asked if there are further questions. Hearing none,
he asked for a motion on the amendment to delete Section 4.
Number 420
SENATOR DUNCAN made a motion to adopt the amendment which would
delete Section 4.
CHAIRMAN SHARP, hearing no objections, stated the amendment was
adopted. He asked if there was any other testimony on SB 306 at
this time. Hearing none, he asked the pleasure of the committee.
SENATOR DUNCAN made a motion to discharge SB 306 from the Senate
State Affairs Committee with individual recommendations.
Number 433
CHAIRMAN SHARP, hearing no objection, stated SB 306 was discharged
from the Senate State Affairs Committee.
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