Legislature(1995 - 1996)
04/02/1996 03:36 PM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.